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FORM 10-K

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------------------------------------

(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 19941995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBERNUMBER: 1-4174

THE WILLIAMS COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 73-0569878
(STATE OR OTHER JURISDICTION OF (IRS(I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)

Registrant's telephone number:Telephone Number:
(918) 588-2000

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------- -------------------------------------------- --------------------------------------------

Common Stock, $1.00 par value New York Stock Exchange and the
Preferred Stock Purchase Rights Pacific Stock Exchange
$2.21 Cumulative Preferred Stock, New York Stock Exchange
$1.00 par value

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

None

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 /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

The aggregate market value of the registrant's voting stock held by
nonaffiliates as of the close of business on February 28, 1995,March 22, 1996, was approximately
$2.6$5.1 billion.

The number of shares of the registrant's Common Stock outstanding at February 28, 1995,March
22, 1996, was 90,986,242,104,651,013, excluding 964,9882,280,246 shares held by the Company
and 13,383,977 shares owned by a subsidiary of the Company.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement prepared for the solicitation
of proxies in connection with the Annual Meeting of Stockholders of the Company
for 19951996 are incorporated by reference in Part III.

THE WILLIAMS COMPANIES, INC.

FORM 10-K

PART I

ITEM I.1. BUSINESS

(A) GENERAL DEVELOPMENT OF BUSINESS

The Williams Companies, Inc. (the "Company" or "Williams") was incorporated
under the laws of the State of Nevada in 1949 and was reincorporated under the
laws of the State of Delaware in 1987. The principal executive offices of the
Company are located at One Williams Center, Tulsa, Oklahoma 74172 (telephone
(918) 588-2000). Unless the context otherwise requires, references to the
"Company" and "Williams" herein include The Williams Companies, Inc. and its
subsidiaries.

On January 5, 1995, the Company sold the network services operations of
Williams Telecommunications Group, Inc., its telecommunications subsidiary, to
LDDS Communications, Inc. for $2.5 billion in cash, (the "WNS Sale"). The
Company retained Williams Telecommunications Systems, Inc., a telecommunications
equipment supplier and service company, and Vyvx, Inc., which operates a video
network specializing in broadcast television applications. The Company has
reported the network services operations as discontinued operations for
financial reporting purposes beginning with the third quarter of 1994 with prior
period operating results restated.purposes. See Note 23 of Notes to Consolidated Financial
Statements. The description of the Company's telecommunications business
contained elsewhere herein describes only those assets retained by the Company. The Company used the proceeds from the WNS Sale to pay off
short-term credit facilities, fund the acquisition of Transco Energy Company
("Transco")
discussed below, finance its ongoing capital program and for other uses.

On December 12, 1994, the Company announced that it had entered into a merger agreement with
Transco.Transco Energy Company. Under the agreement, the Company acquired 24.6
million shares (approximatelyapproximately
60 percent)percent of Transco'sTransco Energy Company's common stock through a cash tender offer
completed in January 1995. TheOn April 28, 1995, the Transco Energy Company
stockholders approved an agreement also provides for aand plan of merger (the "Transco Merger") in whichwhereby Transco will becomeEnergy
Company became a wholly owned subsidiary of the Company and each share of Transco's common stock not acquired
through the tender offer will be exchanged for 0.625 shareseffective May 1, 1995.
Total value of the Company's
Common Stock. It is anticipated that a meetingtransaction was more than $3 billion, including cash, stock
and the assumption of Transco's common stockholders
will be held in AprilTransco Energy Company debt. As of May 1, 1995, to vote on the merger. Given that the
Company owns
sufficient shares to approve thecaused Transco Merger without the affirmative vote of
any other stockholders, the Transco Merger will be approved and is expected to
be completed immediately thereafter. The acquisition will be accounted for as a
purchase. The purchase price is approximately $775 million, including fees
related to the transaction but excluding assumed debt and preferred stock.

Transco owns Transcontinental Gas Pipe Line Corporation, Texas Gas
Transmission Corporation and Transco Gas MarketingEnergy Company and has investments
in other energy assets. Transcontinental Gas Pipe Line, headquartered in
Houston, Texas, owns and operates 10,500 miles of pipeline extending from the
Gulf of Mexico through the South and along the Eastern Seaboard to New York
City. Its primary customers are natural gas and electric utility companies in
the East and Northeast. Texas Gas Transmission, headquartered in Owensboro,
Kentucky, owns and operates 6,050 miles of pipeline extending from the Louisiana
Gulf Coast up the Mississippi River Valley to Indiana and Ohio. In addition to
serving markets in this area, Texas Gas Transmission also serves the Northeast
through connections with other pipelines. Transco Gas Marketing buys, sells and
arranges transportation for natural gas primarily in the eastern and midwestern
United States and Gulf Coast region, processes natural gas and sells natural gas
liquids.

It is the Company's intention to cause Transco, as promptly as practicable
after the Transco Merger and subject to receipt of any necessary consents, to declare and pay as dividends to the
Company all of Transco'sTransco Energy Company's interest in Transcontinental Gas Pipe
Line Corporation and Texas Gas Transmission and Transco Gas
Marketing.Corporation. In addition, the
Company intends to continue Transco'scontinued Transco Energy Company's program of disposing of noncore
assets. The Company has also initiated a plan to
recapitalize Transco to, among other things, reduce consolidated interest and
preferred stock dividend requirements. See Note 162 of Notes to Consolidated Financial Statements.

Other than as set forth above,On January 16, 1996, the descriptionCompany acquired a 49.9 percent interest from its
partner in Kern River Gas Transmission Company giving the Company 99.9 percent
ownership of the Company's business
contained in this Item 1 does not include a descriptionnatural gas pipeline system. The purchase price was $205
million. See Note 5 of Transco's business.
For a description of such business, reference is madeNotes to filings by Transco with
the Securities and Exchange Commission.Consolidated Financial Statements.

(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

See Part II, Item 8 -- Financial Statements and Supplementary Data.

The Company, through subsidiaries, is engaged in the transportation and
sale of natural gas and related activities, natural gas gathering, processing
and processing
operations,production activities, the transportation of petroleum products, the telecommunications
businessnatural gas
trading, natural gas liquids marketing and provides a variety of other products
and services to the energy industry and financial institutions. The Company also
is engaged in the telecommunications business. In 1994,1995, the Company's
subsidiaries owned and operated: (i) twofour interstate natural gas pipeline
systems and had a 50 percent interest in a third;fifth; (ii) a common carrier crude
and petroleum products pipeline system; and (iii) natural gas gathering and
processing facilities and production properties. The Company also trades natural
gas and markets natural gas and natural gas liquids. In
1994, theThe Company's telecommunications
subsidiaries offeredoffer data, voice 3

and video-related products and services and customer premises equipment
nationwide. The Company also has investments in the equity of certain other
companies. See Note 35 of Notes to Consolidated Financial Statements.

Substantially all operations of Williams are conducted through
subsidiaries. Williams performs management, legal, financial, tax, consultative,
administrative and other services for its subsidiaries. Williams' principal
sources of cash are from dividends and advances from its subsidiaries,
investments, payments by subsidiaries for services rendered by its staff and
interest payments from subsidiaries on cash advances. The amount of dividends
available to Williams from subsidiaries largely depends upon each subsidiary's
earnings and operating capital requirements. CertainThe terms of certain subsidiaries'
debt
instruments with outside lendersborrowing arrangements limit the amounttransfer of dividend payments and
advancesfunds to Williams.the Company. See Note 1113
of Notes to Consolidated Financial Statements.

ENERGYTo achieve organizational and operating efficiencies, the Company's
interstate natural gas pipelines are grouped together and are referred to
internally as the interstate natural gas systems. All other operating companies
are owned directly by Williams Holdings of Delaware, Inc., a wholly-owned
subsidiary of the Company. Item 1 of this report is formatted to reflect this
structure.

WILLIAMS INTERSTATE NATURAL GAS PIPELINE GROUP

In 1994, theSYSTEMS

The Company's interstate natural gas pipeline group consistedowns and operates a
combined total of approximately 28,000 miles of pipelines with a total annual
throughput of approximately 3,500 TBtu* of natural gas and peak-day delivery
capacity of approximately 15 Bcf of natural gas. The interstate natural gas
pipeline group consists of Transcontinental Gas Pipe Line Corporation, Northwest
Pipeline Corporation, Texas Gas Transmission Corporation, Kern River Gas
Transmission Company and Williams Natural Gas Company, owners and operators of
interstate natural gas pipeline systemssystems. As previously noted, Transcontinental
Gas Pipe Line Corporation and Texas Gas Transmission Corporation were acquired
by the Company's 50Company in 1995. For the accounting treatment of the acquisition, see
Note 2 of Notes to Consolidated Financial Statements. Also as noted above, the
Company acquired an additional 49.9 percent interest in Kern River Gas
Transmission Company.

NORTHWEST PIPELINE CORPORATION (Northwest Pipeline)

Northwest Pipeline owns and operates anCompany in January 1996. The results of operations included herein
only reflect the Company's previously-owned 50 percent ownership interest in
Kern River.

The interstate natural gas pipeline system, including facilities for mainline transmission and gas storage.
Northwest Pipeline'sgroup's transmission and storage
activities are subject to regulation by the Federal Energy Regulatory Commission
("FERC") under the Natural Gas Act of 1938 ("Natural Gas Act") and under the
Natural Gas Policy Act of 1978 ("NGPA"), and, as such, itstheir rates and charges
for the transportation of natural gas in interstate commerce, the extension,
enlargement or abandonment of its jurisdictional facilities, and its accounting, among
other things, are subject to regulation. Each pipeline holds certificates of
public convenience and necessity issued by FERC authorizing ownership and
operation of all pipelines, facilities and properties considered jurisdictional
for which certificates are required under the Natural Gas Act. Each pipeline is
also subject to the Natural Gas Pipeline SystemSafety Act of 1968, as amended by Title
I of the Pipeline Safety Act of 1979, which regulates safety requirements in the
design, construction, operation and Customers

Northwest Pipelinemaintenance of interstate gas transmission
facilities.

There follows a business description of each company in the interstate
natural gas pipeline group. The discussion of certain items required to be
disclosed by Form 10-K are reported in generic form following the individual
company business descriptions.

TRANSCONTINENTAL GAS PIPE LINE CORPORATION (TRANSCO)

Transco is an interstate natural gas transmission company which owns and
operates a natural gas pipeline system forextending from Texas, Louisiana,
Mississippi and the mainline
transmissionoffshore Gulf of natural gas. The system extends fromMexico through the San Juan Basin in
northwesternstates of Alabama,
Georgia, South Carolina, North Carolina, Virginia, Maryland, Pennsylvania and
New Mexico and southwestern Colorado through Colorado, Utah,
Wyoming, Idaho, Oregon and WashingtonJersey to a point on the Canadian border near
Sumas, Washington. At December 31, 1994, Northwest Pipeline's system, having an
aggregate mainline deliverability

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of almost 2.5 Bcf* of gas per day, was composed of approximately 3,900 miles of
mainline and branch transmission pipelines, and 43 mainline compressor stations
with a combined capacity of approximately 291,000 horsepower.

Northwest Pipeline operates under an open-access transportation certificate
wherein gas is transported for third party shippers. In 1994, Northwest Pipeline
transported natural gas for a total of 101 customers. Northwest Pipeline
provides services for markets in California, New Mexico, Colorado, Utah, Nevada,
Wyoming, Idaho, Oregon and Washington, directly or indirectly through
interconnections with other pipelines. Transportation customers include
distribution companies, municipalities, interstate and intrastate pipelines, gas
marketers and direct industrial users. The three largest customers of Northwest
Pipeline in 1994 accounted for approximately 20.2 percent, 12.4 percent and 10.7
percent, respectively, of total operating revenues. No other customer accounted
for more than 10 percent of total operating revenues. Northwest Pipeline's firm
transportation agreements are generally long-term agreements with various
expiration dates and account for the major portion of Northwest Pipeline's
business. Additionally, Northwest Pipeline offers interruptible transportation
service under agreements that are generally short term. Northwest Pipeline's
transportation services represented 100 percent of its total throughput in 1994.

Northwest Pipeline has filed applications for FERC approval to build
additional mainline expansions totaling 164 MMcf of gas per day of increased
system capacity at an estimated cost of approximately $100 million to be in
service by the end of 1995.

As a part of its transportation services, Northwest Pipeline utilizes
underground storage facilities in Utah and Washington enabling it to balance
daily receipts and deliveries. Northwest Pipeline also owns and operates a
liquefied natural gas storage plant in Washington which provides a
needle-peaking service for the system. These storage facilities have an
aggregate delivery capacity of approximately 873 MMcf of gas per day.

Operating Statistics

The following table summarizes gas sales and transportation data for the
periods indicated:

YEAR ENDED DECEMBER 31,
--------------------
1994 1993 1992
---- ---- ----

Gas Volumes (TBtu):
Gas sales.................................................... -- 18 19
Transportation............................................... 679 606 591
---- ---- ----
Total throughput..................................... 679 624 610
=== === =====
Average Daily Transportation Volumes (TBtu).................... 1.9 1.7 1.6
Average Daily Firm Reserved Capacity (TBtu).................... 2.4 -- --

In 1992, FERC issued Order 636 which required interstate pipelines to
restructure their tariffs to eliminate traditional sales services and to
implement various changes in forms of service. On November 1, 1993, Northwest
Pipeline implemented its restructured tariff under Order 636. Under the
restructured tariff, Northwest Pipeline's sales service terminated effective
November 1, 1993.

Regulatory Matters

Northwest Pipeline's transportation of natural gas in interstate commerce
is subject to regulation by FERC under the Natural Gas Act or the NGPA.
Northwest Pipeline holds certificates of public convenience

- ---------------

* The term "Mcf" means thousand cubic feet, "MMcf" means million cubic feet
and "Bcf" means billion cubic feet. All volumes of natural gas are stated at a
pressure base of 14.73 pounds per square inch absolute at 60 degrees Fahrenheit.
The term "MMBtu" means one million British Thermal Units and "TBtu" means one
trillion British Thermal Units.

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4

New York City metropolitan area. The system serves customers in Texas and the
eleven southeast and Atlantic seaboard states mentioned above, including major
metropolitan areas in Georgia, North Carolina, New York, New Jersey and
Pennsylvania. Effective May 1, 1995, the operation of certain production area
facilities were transferred to Williams Field Services Group, Inc., an
affiliated company.

Pipeline System and Customers

At December 31, 1995, Transco's system had a mainline delivery capacity of
approximately 3.7 Bcf of gas per day from production areas to its primary
markets. Using its Leidy Line and market-area storage capacity, Transco can
deliver an additional 2.7 Bcf of gas per day for a system-wide delivery capacity
total of approximately 6.4 Bcf of gas per day. Excluding the production area
facilities operated by Williams Field Services Group, Inc., Transco's system is
composed of approximately 7,300 miles of mainline and branch transmission
pipelines, 37 compressor stations and six storage locations. Compression
facilities at a sea level rated capacity total approximately 1.2 million
horsepower.

Transco's major gas transportation customers are public utilities and
municipalities that provide residential service to approximately 35 million
people and serve numerous commercial and industrial users. Shippers on Transco's
pipeline system include public utilities, municipalities, intrastate pipelines,
direct industrial users, electrical generators, marketers and producers.
Transco's largest customer in 1995 accounted for approximately 14 percent of
Transco's total operating revenues. No other customer accounted for more than 10
percent of total operating revenues. Transco's firm transportation agreements
are generally long-term agreements with various expiration dates and account for
the major portion of Transco's business. Additionally, Transco offers
interruptible transportation services under agreements that are generally short
term.

Transco has natural gas storage capacity in five underground storage fields
located on or near its pipeline system and/or market areas and operates three of
these storage fields and a liquefied natural gas (LNG) storage facility. The
total storage capacity available to Transco and its customers from such storage
fields and LNG facility is approximately 219 Bcf of gas. Storage capacity
permits Transco's customers to inject gas into storage during the summer and
off-peak periods for delivery during peak winter demand periods.

Major Expansion Projects

In August 1995, Transco announced its SeaBoard 97 Expansion Project. The
project is expected to provide an additional 115 MMcf of gas per day of firm
transportation capacity from points of receipt on Transco's Leidy Line to
Transco's northeastern market area by the 1997-1998 winter heating season. To
render this service, Transco will construct compression and pipeline looping
facilities at an estimated cost of $115 million. Transco plans to file in
mid-1996 for FERC approval of the project.

In October 1995, Transco filed for FERC approval of the SunBelt Expansion
Project. The project will provide additional firm transportation capacity to
markets in Georgia, South Carolina and North Carolina. The SunBelt Expansion
Project will provide a total of 146 MMcf of gas per day of firm transportation
capacity to existing and new Transco customers by the 1997-1998 winter heating
season. Transco's FERC application estimates the cost of the expansion to be
approximately $85 million.

In November 1995, Transco announced the filing for FERC approval of the
Pine Needle LNG storage project. The facility is to be constructed and owned by
Transco and several of its major customers and will be located near Transco's
mainline system in Guilford, North Carolina. The project will have 4 Bcf of
storage capacity and 400 MMcf of gas per day of withdrawal capacity. Transco
will operate the facility and have a 35 percent ownership interest. The project
is expected to be in service by the second quarter of 1999. The FERC application
estimates the cost of the project to be $107 million.

In December 1995, Transco and several major customers announced the
Cardinal Pipeline System project. The project involves the acquisition of an
existing 37-mile pipeline in North Carolina and construction of a 65-mile
pipeline extension. Construction of the pipeline extension is expected to be
completed by the end of 1999. Transco will operate the expanded pipeline system
and have a 45 percent ownership interest. Total costs of the acquisition and
extension are expected to be $97 million.

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Transco's 1994 Southeast Expansion Project was completed and necessityplaced into
service in November 1994, and provides 35 MMcf of gas per day of additional firm
transportation capacity to Transco's customers in the southeast. Phase I of
Transco's 1995/1996 Southeast Expansion Project was completed and placed into
service in December 1995, and provides 115 MMcf of gas per day of additional
firm transportation capacity to Transco's customers in the Southeast. Phase II
of such expansion will add an additional 55 MMcf of gas per day for the
1996-1997 winter heating season. Transco invested $63 million in these projects
in 1995 and expects to invest approximately $21 million in these projects in
1996.

Operating Statistics

The following table summarizes transportation data for the periods
indicated, including periods during which the Company did not own Transco:

1995 1994 1993
------- ------- -------

System Deliveries (TBtu)
Market-area deliveries:
Long-haul transportation............................. 858.4 805.1 852.0
Market-area transportation........................... 467.3 453.6 387.4
------- ------- -------
Total market-area deliveries.................... 1,325.7 1,258.7 1,239.4
Production-area transportation.......................... 165.9 185.9 177.5
------- ------- -------
Total system deliveries................................. 1,491.6 1,444.6 1,416.9
======= ======= =======
Average Daily Transportation Volumes (TBtu)............... 4.1 4.0 3.9
Average Daily Firm Reserved Capacity (TBtu)............... 5.2 4.9 4.8

Transco has expressed concerns to FERC that inconsistent treatment of
Transco and its competitor pipelines with regard to rate design and cost
allocation issues in production areas may result in rates which could make
Transco less competitive, both in terms of production-area and long-haul
transportation. On July 19, 1995, an administrative law judge (ALJ) issued an
initial decision finding that Transco's proposed production area rate design,
and its existing use of a system-wide cost of service and allocation of firm
capacity in production areas are unjust and unreasonable. The ALJ recommended
that Transco divide its costs between its production area and market area and
permit its customers to renominate their firm entitlements. The ALJ's decision
is subject to review by FERC. Should FERC authorizing it to own and operate all pipelines,
facilities and properties considered jurisdictional for which certificates are
required underissue an order consistent with the
Natural Gas Act.ALJ's recommendations, such order would have prospective effect only.

NORTHWEST PIPELINE CORPORATION (NORTHWEST PIPELINE)

Northwest Pipeline is subject to the Natural Gas Pipeline Safety Act of
1968, as amended by Title I of the Pipeline Safety Act of 1979, which regulates
safety requirements in the design, construction, operation and maintenance of
interstate gas transmission facilities.

Current FERC policy associated with FERC Orders 436 and 500 requiresan interstate natural gas pipelinestransmission company which
owns and operates a pipeline system for the mainline transmission of natural gas
extending from the San Juan Basin in northwestern New Mexico and southwestern
Colorado through Colorado, Utah, Wyoming, Idaho, Oregon and Washington to absorb some ofa
point on the cost of reforming gas
supply contracts before allowing any recovery through direct bill or surcharges
to transportation as well as sales commodity rates. Under such policy,Canadian border near Sumas, Washington. Northwest Pipeline has filed to recover a portion of previously incurred take-or-payprovides
services for markets in California, New Mexico, Colorado, Utah, Nevada, Wyoming,
Idaho, Oregon and contract reformation costsWashington, directly or indirectly through direct bill and surcharge mechanisms. The
FERC initially approved a method for Northwest Pipeline to collect its direct
billed costs, but when challenged on appeal, sought a remand to reassess such
method. Subsequently, Northwest Pipeline received an order from FERC requiring a
different allocation of such costs. Although reallocation will require refunds
of certain amounts, Northwest Pipeline expects to be permitted to recover
substantially all of these costs from other customers.

On July 28, 1994, Northwest Pipeline received an initial decision from an
Administrative Law Judge on a rate case filed October 1, 1992. This decision
will be reviewed further by FERC prior to issuance of a final order. Northwest
Pipeline has raised certain exceptions to the decision and believes the outcome
of the final order is not likely to have a significant effect on Northwest
Pipeline's financial position.

On November 1, 1994, Northwest Pipeline began collecting new rates, subject
to refund, under the provisions of a rate case filed April 29, 1994. This new
filing seeks a revenue increase for a projected deficiency caused by increased
costs and loss of cost recovery assigned to a transportation contract terminated
subsequent to the rate case filed on October 1, 1992.

Competition

No other interstate natural gas pipeline company presently provides
significant service to Northwest Pipeline's primary gas consumer market area.
However, competitioninterconnections
with other interstate carriers exists for expansion
markets. Competition also exists with alternate fuels. Electricitypipelines.

Pipeline System and distillate fuel oil are the primary alternate energy sources in the residential
and commercial markets. In the industrial markets, high sulfur residual fuel oil
is the main alternate fuel source.

Ownership of PropertyCustomers

At December 31, 1995, Northwest Pipeline's system, is ownedhaving an aggregate
mainline deliverability of approximately 2.6 Bcf of gas per day was composed of
approximately 3,900 miles of mainline and branch transmission pipelines and 43
mainline compressor stations with a combined capacity of approximately 306,000
horsepower.

In 1995, Northwest Pipeline transported natural gas for a total of 127
customers. Transportation customers include distribution companies,
municipalities, interstate and intrastate pipelines, gas marketers and direct
industrial users. The three largest customers of Northwest Pipeline in fee. However, a substantial1995
accounted for approximately 18.5 percent, 12.2 percent and 10.2 percent,
respectively, of total operating revenues. No other customer

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accounted for more than 10 percent of total operating revenues. Northwest
Pipeline's firm transportation agreements are generally long-term agreements
with various expiration dates and account for the major portion of Northwest
Pipeline's business. Additionally, Northwest Pipeline offers interruptible
transportation service under agreements that are generally short term. Northwest
Pipeline's transportation services represented 100 percent of its total
throughput in 1995.

Northwest Pipeline completed mainline expansion projects that were placed
into service on December 1, 1995. These expansion projects increased system
capacity by an additional 144 MMcf of gas per day and added 14,820 horsepower of
new compression and 44 miles of pipeline loop line to Northwest Pipeline's
system.

Operating Statistics

The following table summarizes gas sales and transportation data for the
periods indicated:

1995 1994 1993
---- ---- ----

Gas Volumes (TBtu):
Gas sales..................................................... -- -- 18
Transportation................................................ 826 679 606
--- --- ---
Total throughput...................................... 826 679 624
=== === ===
Average Daily Transportation Volumes (TBtu)..................... 2.3 1.9 1.7
Average Daily Firm Reserved Capacity (TBtu)..................... 2.4 2.4 --

TEXAS GAS TRANSMISSION CORPORATION (TXG)

TXG is constructedan interstate natural gas transmission company which owns and
maintained pursuantoperates a natural gas pipeline system originating in the Louisiana Gulf Coast
area and in east Texas and running generally north and east through Louisiana,
Arkansas, Mississippi, Tennessee, Kentucky, Indiana and into Ohio, with smaller
diameter lines extending into Illinois. TXG's direct market area encompasses
eight states in the South and Midwest, and includes the Memphis, Tennessee,
Louisville, Kentucky, Cincinnati and Dayton, Ohio, and Indianapolis, Indiana,
metropolitan areas. TXG also has indirect market access to rights-of-way, easements, permits, licenses or consents onthe Northeast through
interconnections with unaffiliated pipelines.

Pipeline System and across properties
owned by others. TheCustomers

At December 31, 1995, TXG's system, having a mainline delivery capacity of
approximately 2.7 Bcf of gas per day, was composed of approximately 6,000 miles
of mainline and branch transmission pipelines and 32 compressor stations having
a sea level rated capacity totaling approximately 548,000 horsepower.

In 1995, TXG transported gas to customers in Louisiana, Arkansas,
Mississippi, Tennessee, Kentucky, Indiana, Illinois and Ohio and to customers in
the Northeast served indirectly by TXG. Gas was transported for 130 distribution
companies and municipalities for resale to residential, commercial and
industrial users. Transportation services were provided to approximately 200
industrial customers and processing plants located along the system. At December
31, 1995, TXG had transportation contracts with approximately 625 shippers.
Transportation shippers include distribution companies, municipalities,
intrastate pipelines, direct industrial users, electrical generators, marketers
and producers. The largest customer of Northwest Pipeline,TXG in 1995 accounted for approximately
11 percent of total operating revenues. No other customer accounted for more
than 10 percent of total operating revenues. TXG's firm transportation
agreements are generally long-term agreements with appurtenant
facilities, are located in whole or in part upon lands owned by Northwest
Pipelinevarious expiration dates and
upon sites held under leases or permits issued or approved by
public authorities. The LNG plant is located on lands owned in fee by Northwest
Pipeline. Northwest Pipeline's debt indentures restrictaccount for the sale or disposal of
a major portion of TXG's business. Additionally, TXG offers
interruptible transportation services under agreements that are generally
short-term.

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TXG owns and operates natural gas storage reservoirs in ten underground
storage fields located on or near its pipeline system.

Environmental Matters

Northwestsystem and/or market areas. The
storage capacity of TXG's certificated storage fields is approximately 177 Bcf
of gas. TXG's storage gas is used in part to meet operational balancing needs on
its system, and in part to meet the requirements of TXG's "no-notice"
transportation service, which allows TXG's customers to temporarily draw from
TXG's storage gas to be repaid in-kind during the following summer season. A
large portion of the gas delivered by TXG to its market area is used for space
heating, resulting in substantially higher daily requirements during winter
months.

Operating Statistics

The following table summarizes total system delivery data, which excludes
unbundled sales, for the periods indicated, including periods during which the
Company did not own TXG:

1995 1994 1993
----- ----- -----

System deliveries (TBtu):
Sales..................................................... -- -- 52.8
Long-haul transportation.................................. 635.7 618.8 534.0
----- ----- -----
Total mainline deliveries......................... 635.7 618.8 586.8
Short-haul transportation................................. 57.6 188.6 214.0
----- ----- -----
Total system deliveries................................... 693.3 807.4 800.8
===== ===== =====
Average Daily Transportation Volumes (TBtu)................. 1.9 2.2 2.0
Average Daily Firm Reserved Capacity (TBtu)................. 2.0 2.1 2.0

KERN RIVER GAS TRANSMISSION COMPANY (KERN RIVER)

Kern River is an interstate natural gas transmission company which owns and
operates a natural gas pipeline system extending from Wyoming through Utah and
Nevada to California. In 1995, Kern River was jointly owned and operated by
Williams Western Pipeline is subjectCompany, a subsidiary of the Company, and a subsidiary
of an unaffiliated company. As previously indicated, the Company acquired an
additional 49.9 percent interest in Kern River in January 1996. See Note 5 of
Notes to Consolidated Financial Statements. The transmission system, which
commenced operations in February 1992 following completion of construction,
delivers natural gas primarily to the National Environmental Policy Actenhanced oil recovery fields in southern
California. The system also transports natural gas for utilities, municipalities
and industries in California, Nevada and Utah.

Pipeline System and Customers

As of December 31, 1995, Kern River's pipeline system was composed of 707
miles of pipeline and three mainline compressor stations having an aggregate
mainline delivery capacity of 700 MMcf of gas per day. The pipeline system
interconnects with the pipeline facilities of another pipeline company at
Daggett, California. From the point of interconnection, Kern River and the other
pipeline company have a common 219-mile pipeline which is owned 63.6 percent by
Kern River and 36.4 percent by the other pipeline company, as tenants in common,
and is designed to accommodate the combined throughput of both systems. This
common facility has a capacity of 1.1 Bcf of gas per day.

Gas is transported for others under firm long-term transportation contracts
totaling 682 MMcf of gas per day. In 1995, Kern River transported natural gas
for customers in California, Nevada and Utah. Gas was transported for five
customers in Kern County, California, for reinjection as a part of enhanced oil
recovery operations and for 28 local distribution customers, electric utilities,
cogeneration projects and commercial and other Federalindustrial customers. The five
largest customers of Kern River in 1995 accounted for approximately 14 percent,
14 percent, 12 percent, 12 percent and state legislation regulating10 percent, respectively, of operating
revenues. Three of these customers serve the environmental aspectsenhanced oil recovery fields. No
other customer accounted for more than 10 percent of its
business. Management believes that Northwest Pipeline isoperating revenues in substantial
compliance with existing environmental requirements. Northwest Pipeline believes
that, with respect1995.

6
8

During 1995, a seasonal firm transportation contract was executed to
any capital expenditures requireddeliver natural gas into the Las Vegas, Nevada, market area during the winter
months. Deliveries of 10 MMcf of gas per day will be initiated in December 1997
and will escalate to meet applicable
environmental standards and regulations, FERC would grant the requisite rate
relief so that,40 MMcf of gas per day on a seasonal basis in 1999.

Operating Statistics

The following table summarizes transportation data for the most part, such expenditures and a return thereon would
be permitted to be recovered. Northwest Pipeline believes that compliance with
applicable environmental requirements is not likely to have a material effect
upon its earnings or competitive position.

4
6periods
indicated:

1995 1994 1993
---- ---- ----

Transportation Volumes (TBtu)................................... 286 278 272
Average Daily Transportation Volumes (TBtu)..................... .78 .76 .75
Average Daily Firm Reserved Capacity (TBtu)..................... .72 .74 .74

WILLIAMS NATURAL GAS COMPANY (Williams Natural Gas)(WILLIAMS NATURAL GAS)

Williams Natural Gas is an interstate natural gas transmission company
which owns and operates a natural gas pipeline system located in Colorado,
Kansas, Missouri, Nebraska, Oklahoma, Texas and Wyoming. The system serves
customers in seven states, including major metropolitan areas of Kansas and
Missouri, its chief market areas.

Williams Natural Gas is subject to regulation by FERC under the Natural Gas
Act and under the NGPA, and, as such, its rates and charges for transportation
of natural gas in interstate commerce, the extension, enlargement or abandonment
of facilities, and its accounting, among other things, are subject to
regulation.

Pipeline System and Customers

At December 31, 1994,1995, Williams Natural Gas' system, having a mainline
delivery capacity of approximately 2.2 Bcf of gas per day, was composed of
approximately 6,300 miles of mainline and branch transmission and storage
pipelines and 4841 compressor stations having a sea level rated capacity totaling
approximately 259,000240,000 horsepower.

In 1995, Williams Natural Gas transported gas to customers in Colorado,
Kansas, Missouri, Nebraska, Oklahoma, Texas and Wyoming. Gas was transported for
77 distribution companies and municipalities for resale to residential,
commercial and industrial users in approximately 530 cities and towns.
Transportation services were provided to approximately 350 industrial customers,
federal and state institutions and agricultural processing plants located
principally in Kansas, Missouri and Oklahoma. At December 31, 1995, Williams
Natural Gas had transportation contracts with approximately 203 shippers.
Transportation shippers included distribution companies, municipalities,
intrastate pipelines, direct industrial users, electrical generators, marketers
and producers.

In 1995, approximately 35 percent and 33 percent, respectively, of total
operating revenues were generated from gas transportation services to Williams
Natural Gas' two largest customers, Western Resources, Inc. and Missouri Gas
Energy Company. Western Resources sells or resells gas to residential,
commercial and industrial customers principally in certain major metropolitan
areas of Kansas. Missouri Gas Energy sells or resells gas to residential,
commercial and industrial customers principally in certain major metropolitan
areas of Missouri. No other customer accounted for more than 10 percent of
operating revenues during 1995.

A significant portion of the transportation services provided to Western
Resources is pursuant to a twenty-year transportation service agreement. After
the initial two-year period ending in November 1996, the contract allows Western
Resources, on twelve months prior notice, to reduce contracted capacity if
Williams Natural Gas does not meet the terms of a competing offer from another
natural gas pipeline to serve such capacity. Transportation services are
provided to Missouri Gas Energy under contracts primarily varying in terms from
two to five years. These contracts do not have "competitive out" provisions as
described in connection with the Western Resources' contract. During 1995, these
two customers entered into contracts with a competitor as part of a litigation
settlement. The Western Resources contracts are subject to state regulatory
approval and hearings before the Kansas Corporation Commission (KCC) which were
conducted in September 1995. A decision on whether to approve the contracts has
been stayed by the KCC in light of an October 1995 FERC ruling asserting federal
jurisdiction over the competitor. The competitor has appealed the FERC decision,
as well as the authority of the KCC to stay the contracts approval proceeding.
While the

7
9

Missouri Gas Energy contracts with this competitor are not subject to Missouri
Public Service Commission approval, the exercise of FERC jurisdiction over the
project could cause the cancellation of the proposed pipeline project that
supports the contracts. Up to 25 percent of the firm capacity now transported by
Williams Natural Gas into the Kansas City market could be at risk if the
pipeline contemplated by the contracts is built. If FERC's decision to exercise
jurisdiction over the competing pipeline is upheld, the competitor will be
required to formulate rate structures under the same rules as Williams Natural
Gas and other interstate competitors.

Williams Natural Gas operates nine underground storage fields with an
aggregate working gas storage capacity of approximately 43 Bcf and an aggregate
delivery capacity of approximately 1.2 Bcf of gas per day. Williams Natural Gas'
customers inject gas in these fields when demand is low and withdraw it to
supply their peak requirements. During periods of peak demand, approximately
two-thirds of the firm gas delivered to customers is supplied from these storage
fields. Storage capacity enables the system to operate more uniformly and
efficiently during the year.

In 1994, Williams Natural Gas transported gas to customers in Colorado,
Kansas, Missouri, Nebraska, Oklahoma, Texas and Wyoming. Gas was transported for
76 distribution companies and municipalities for resale to residential,
commercial and industrial users in approximately 530 cities and towns.
Transportation services were provided to approximately 350 industrial customers,
federal and state institutions and agricultural processing plants located
principally in Kansas, Missouri and Oklahoma. At December 31, 1994, Williams
Natural Gas had transportation contracts with approximately 206 shippers.
Transportation shippers included distribution companies, municipalities,
intrastate pipelines, direct industrial users, electrical generators, marketers
and producers.

In 1994, approximately 44 percent and 36 percent, respectively, of total
operating revenues were generated from gas transportation services to Williams
Natural Gas' two largest customers, Western Resources, Inc. and Missouri Gas
Energy Company. Western Resources sells or resells gas to residential,
commercial and industrial customers principally in certain major metropolitan
areas of Kansas. Missouri Gas Energy sells or resells gas to residential,
commercial and industrial customers principally in certain major metropolitan
areas of Missouri. No other customer accounted for more than 10 percent of
operating revenues during 1994.

Western Resources has entered into a twenty-year transportation service
agreement with Williams Natural Gas for a portion of its capacity needs. After
the initial two-year period, the contract contains a competitive out option.
Transportation services are provided to Missouri Gas Energy under contracts
primarily varying in terms from two to five years.

5
7Operating Statistics

The following table summarizes gas sales and transportation data for the
periods indicated:

1995 1994 1993
1992
--------- ---- ----

Volumes (TBtu):
Resale sales.................................................sales..................................................... -- -- 50 65
Direct and gas processing plant sales........................sales............................ -- -- 1
1
Transportation...............................................Transportation................................................... 334 346 344
320
----- ---- ------- --- ---
Total throughout.....................................throughput......................................... 334 346 395
386
===== ==== ======= === ===
Average Daily Transportation Volumes (TBtu)............................................ .9 .9 .9
Average Daily Firm Reserved Capacity (TBtu)............................................ 2.0 --2.0 --

In 1992, FERC promulgated Order 636 which required interstate pipelines to
restructure their tariffs to eliminate traditional on system sales services
(except to certain small customers) before the 1993-1994 heating season and to
implement various changes in forms of service, including unbundling of
gathering, transmission and storage services; terms and conditions of service;
rate design; gas supply realignment cost recovery and other major rate and
tariff revisions. Williams Natural Gas' restructuring tariff became effective on
October 1, 1993.

Williams Natural Gas' restructured firm services are offered on a
"contract-demand" basis with the fixed costs, including return and tax
allowance, recovered through levelized monthly demand charges in accordance with
FERC specified straight fixed-variable rate design methodology. This results in
a more consistent level of operating results throughout the year, rather than
the historical operating results which were most favorable during the winter
heating season. In addition, effective October 1, 1993, Williams Natural Gas was
granted blanket authority to sell gas at negotiated prices and terms. Such sales
must take place prior to the entry of that gas into Williams Natural Gas'
transmission system. Pursuant to Order 636, Williams Natural Gas filed for
recovery of $36 million of transition costs in June 1994. This amount was direct
billed to certain former sales customers in September 1994, subject to FERC's
final approval. Williams Natural Gas expects to recover these costs which were
associated with its previous gas sales functions.

As partCertain of Williams Natural Gas' restructuring, certain gathering and processing assetsactivities have
been or will be transferred to third parties, including subsidiaries of Williams
Field Services Group, Inc., an affiliated company, as discussed elsewhere
herein. Applications for orders permitting and approving abandonment of certain
natural gas facilities have been filed with FERC and final approval has been
granted by FERC on twothree of these filings. Preliminary approval on all other
systems has been granted by FERC.

REGULATORY MATTERS

In 1992, FERC issued Order 636 which required interstate pipelines to
restructure their tariffs to eliminate traditional on-system sales services. In
addition, the Order required implementation of various changes in forms of
service, including unbundling of gathering, transmission and storage services;
terms and conditions of service; rate design; gas supply realignment cost
recovery; and other major rate and tariff revisions. Williams Natural Gas
implemented its restructuring on October 1, 1993, and Transco, Northwest
Pipeline and TXG implemented their restructurings on November 1, 1993. Certain
aspects of each pipeline company's Order 636 restructuring are under appeal.

Each interstate natural gas pipeline has various regulatory proceedings
pending. Rates are established primarily through FERC's ratemaking process. Key
determinants in the ratemaking process are (1) costs of providing service,
including depreciation rates, (2) allowed rate of return, including the equity
component of the capital structure, and (3) volume throughput assumptions. The
allowed rate of return is determined by FERC in each rate case. Rate design and
the allocation of costs between the demand and commodity rates also impact
profitability. As a result of such proceedings, a portion of the revenues of
these pipelines may have been collected subject to refund. See Note 12 of Notes
to Consolidated Financial Statements for the amount of revenues reserved for
potential refund as of December 31, 1995.

Each interstate natural gas pipeline, with the exception of the Kansas-Hugoton area, was granted by FERC in
December 1994, with final approval conditioned on negotiated or default
contracts for each gathering customer and a tariff filing by Williams Natural
Gas requesting termination of the gathering service. As discussed below, the
abandonment of the Kansas-Hugoton area was filed in October 1994, as part of the
producer settlement agreement.

Williams Natural Gas' total estimated proved developed gas reserves under
contract as of December 31, 1994, were 195 Bcf. Except for new wells drilled on
previously dedicated acreage under existing gas purchase contracts, virtually no
new dedicated gas supplies have been connected since 1982.

Williams Natural Gas' total estimated contracted gas reserves, in Bcf, were
195, 1,805 and 2,088 at December 31, 1994, 1993 and 1992, respectively. In 1994,
approximately 1,375 Bcf of contracted gas reserves were terminated under the
terms of the producer settlement agreement discussed below.

At December 31, 1994, Williams Natural Gas' remaining contracted reserves
were primarily attributable to approximately 97 gas purchase contracts with
independent producers. The independent producers' supplies are located in
Colorado, Kansas, Oklahoma, the Texas Panhandle and Wyoming.

Regulatory Matters

The transportation of natural gas by Williams Natural Gas in interstate
commerce is subject to regulation by FERC under the Natural Gas Act or the NGPA.
Williams Natural Gas holds certificates of public

6
8

convenience and necessity issued by FERC authorizing it to own and operate all
pipelines, facilities and properties now in operation for which certificates are
required under the Natural Gas Act.

Williams Natural Gas is also subject to the Natural Gas Pipeline Safety Act
of 1968, as amended, which regulates safety requirements in the design,
construction, operation and maintenance of interstate gas transmission and
storage facilities.

Williams Natural GasKern River, has
been involved inundertaken the reformation of its gas
purchase contracts in order to obtain releases from future gas purchase
obligations and to provide market-responsive terms in its remainingrespective gas supply contracts. Through December 31, 1994, Williams Natural GasNone of the
pipelines has paid
approximately $96.2 millionany significant pending supplier take-or-pay,

8
10

ratable-take or minimum-take claims. For information on outstanding issues with
respect to producers for contract reformations and
take-or-pay settlements and has accrued on its balance sheet an additional $47.2
million for future settlement costs. Although Williams Natural Gas believes the
accrual to be adequate, the amounts ultimately paid will depend on the outcome
of various court proceedings, the provisions and enforceability of eachreformation, gas purchase contract, the success of settlement negotiationsdeficiencies and other factors. As
of December 31, 1994, Williams Natural Gas had an asset recorded on its balance
sheet for $40 million in recoverable contract reformation and take-or-pay costs.
This amount has not yet been paid nor has a filing for recovery of such costs
been made. Seerelated
regulatory issues, see Note 1517 of Notes to Consolidated Financial Statements.

On January 1, 1993, all federal price controlsCOMPETITION

Competition for natural gas transportation has intensified in recent years
due to customer access to other pipelines, rate competitiveness among pipelines,
customers' desire to have more than one supplier and regulatory developments.
FERC's stated purpose for implementing Order 636 was to improve the competitive
structure of the natural gas pipeline industry. Future utilization of pipeline
capacity will depend on wellhead salescompetition from other pipelines and alternative fuels,
the general level of natural gas were removed by the Natural Gas Wellhead Price Decontrol Act of 1989.
However, some contracts require Williams Natural Gas to continue to pay prices
based upon prior regulation. Other contracts revert to contractually specified
pricing mechanisms or to market-based pricing.

All remaining nonmarket responsive contracts will be reformed where
possibledemand and the associated costs included in a transmission cost recovery
mechanism filing. Williams Natural Gas has filed an uncontested stipulation and
agreement which has been approved by FERC. This settlement resolved two rate
cases and established the cost sharing responsibility up to $50 million between
Williams Natural Gas and its customers for contract reformation costs filed by
Williams Natural Gas and its former pipeline suppliers under Orders 500 and 528
as well as Order 636 gas supply realignment costs.

Under the terms of the settlement, Williams Natural Gas absorbed 25 percent
of costs incurred prior to July 31, 1992, and filed for under Orders 500 and
528. After such date, any additional gas supply realignment costs that may be
incurred by Williams Natural Gas will be absorbed on a sliding scale from 9.5
percent of total costs up to $20 million to 22 percent if total costs do not
exceed $50 million. Williams Natural Gas will not absorb any costs incurred by
its former pipeline suppliers. Williams Natural Gas cannot predict the outcome
of its contract realignment efforts. It is likely that the $50 million amount
will be exceeded. While the settlement does not preclude Williams Natural Gas
from recovery of costs in excess of $50 million, the agreed sliding scale
sharing arrangement would not apply. Williams Natural Gas' restructured tariff
also allows recovery of above-market gas costs incurred under contracts not
reformed, subject to the same allocations and some additional restrictions.

Pursuant to the foregoing, Williams Natural Gas has made two filings to
direct bill take-or-pay and gas supply realignment costs recoverable under
Orders 436, 500 and 528. The first provided for the offset of certain amounts
collected subject to refund against previous take-or-pay direct billed amounts
and, in addition, covered $24 million in new costs. This filing was approved,
and the final direct billed amount, taking into consideration the offset, was
$15 million. The second filing covered $18 million in additional costs and
provided for an offset of $3 million. One party has challenged the prudency of
Williams Natural Gas' settlements and has requested FERC to schedule a prudency
hearing. Williams Natural Gas will make additional filings in the future under
the stipulation and agreement to recover such further contract reformation costs
as may be incurred.

In October 1994, Williams Natural Gas and a producer executed a number of
definitive agreements to resolve outstanding issues between the two companies
and restructure their relationship. The agreements terminate Williams Natural
Gas' largest gas purchase contract and resolve a number of disputes, including
claims by the producer for take-or-pay deficiencies and a gas pricing dispute.
With respect to the gas pricing dispute, Williams Natural Gas paid the producer
$35 million in cash and is committed to pay an additional $40 million under
certain circumstances, all but a small portion of which Williams Natural Gas
believes it will

7
9

be permitted to recover from certain of its former sales customers. As part of
the settlement agreements, Williams Natural Gas filed for the abandonment of the
Kansas-Hugoton gathering assets. Upon abandonment approval, the gathering assets
will be owned by an affiliate of Williams Natural Gas and will be operated by
the producer. The only portions of the settlement subject to regulatory
approvals are the settlement payment for the gas pricing dispute and the
regulatory abandonment of the Kansas-Hugoton gathering facilities on terms
acceptable to Williams Natural Gas. See Note 15 of Notes to Consolidated
Financial Statements.

Competition

Williams Natural Gas competes with both interstate and intrastate pipelines
and, to a more limited extent, marketers of natural gas, customers who reassign
firm transportation capacity and alternate energy forms in all significant
markets.weather conditions. Electricity and
distillate fuel oil are the primary competitive forms of energy for residential and
commercial markets. Coal and residual fuel oil compete for industrial and
electric-generatingelectric generation markets. Some nuclearNuclear power and power purchased from "grid"grid
arrangements among electric utilities also compete with gas-fired power
generation in the markets served by Williams Natural Gas.
Effective October 1, 1993,certain markets.

As mentioned, when Williams Natural Gas' restructured tarifftariffs became effective under Order 636,
all suppliers of natural gas were able to compete for any gas markets capable of
being served by Williams Natural Gas' system,the pipelines using nondiscriminatory transportation services
provided by Williams Natural Gas.
Effective October 1, 1993, Williams Natural Gas also received blanket sales
authority, enabling itthe pipelines. As the Order 636 regulated environment has matured,
many pipelines have faced reduced levels of subscribed capacity as contractual
terms expire and customers opt to sell gas priorreduce firm capacity under contract in favor
of alternative sources of transmission and related services. This issue, known
as "capacity turnback" in the industry, is forcing the pipelines to evaluate the
consequences of major demand reductions on system utilization and cost structure
to remaining customers.

The Company is aware that several state jurisdictions have been involved in
implementing changes similar to the entry ofchanges that gas into its
transmission systemhave occurred at individually negotiated prices and termsthe federal
level under Order 636. Such activity, frequently referred to as "LDC
unbundling," has been most pronounced in the same
manner as otherstates of New York, New Jersey and
Pennsylvania. In New York and New Jersey, regulations regarding "LDC unbundling"
were enacted during the past year, and Pennsylvania is expected to act on an
"LDC unbundling" program in 1996. It is expected that these regulations will
encourage greater competition in the natural gas merchants.

Many areas served by Williams Natural Gasmarketplace.

OWNERSHIP OF PROPERTY

The facilities of each interstate natural gas pipeline are served or can be served by
other pipelines providing transportation services. In this regard, the City of
Springfield, Missouri, notified Williams Natural Gas in 1993 of its intention to
construct and operate its own pipeline to connect a portion of its existing load
to a competitor. Negotiations continued during 1994 to retain their entire load
on Williams Natural Gas' system.

Ownership of Property

Williams Natural Gas' pipeline system isgenerally owned
in fee. However, a substantial portion of Williams Natural Gas' systemeach pipeline's facilities is
constructed and maintained pursuant to rights-of-way, easements, permits,
licenses or consents on and across properties owned by others. The compressorCompressor
stations, of Williams
Natural Gas, with appurtenant facilities, are located in whole or in part either on
lands owned by Williams Natural Gas or on sites held under leases or permits issued or approved by
public authorities. The storage facilities are either owned or contracted for under
long-term leases.

Environmental Matters

Williams Natural Gasleases or easements.

ENVIRONMENTAL MATTERS

Each interstate natural gas pipeline is subject to variousthe National
Environmental Policy Act and federal, state and local laws and regulations
relating to environmental quality control. Management believes that, Williams Natural Gas' operations are in substantial compliance with
existing environmental legal requirements.

Williams Natural Gas believes that, with
respect to any capital expenditures and operation and maintenance expenses
required to meet applicable environmental standards and regulations, FERC would
grant the requisite rate relief so that, for the most part, such expenditures
would be recoverable in rates. Williams Natural GasFor this reason, management believes that
compliance with applicable environmental requirements by the interstate
pipelines is not likely to have a material effect upon itsthe Company's earnings or
competitive position.

Williams Natural Gas has identified polychlorinated biphenyl ("PCB")
contamination in air compressor systems, disposal pits and various other areas
at certain compressor station sites. Williams Natural Gas has been involved in
negotiations withFor a discussion of specific environmental issues involving the Environmental Protection Agency ("EPA") to develop
additional screening, detailed sampling andinterstate
pipelines, including estimated cleanup programs. In addition,
negotiations concerning investigative and remedial actions relative to potential
mercury contamination at certain gas metering sites have commencedcosts associated with certain environmental authorities. Aspipeline
activities, see "Environmental" under Management's Discussion and Analysis of
December 31, 1994, Williams Natural Gas has a
liability recordedFinancial Condition and Results of approximately $28 million representing the current
estimate of future environmental cleanup costs to be incurred over the next six
to ten years. Although the accrual is believed to be adequate, the actual costs

8
10

incurred will depend on the actual number of contaminated sites identified, the
actual amountOperations and extent of contamination discovered, the final cleanup
standards mandated by EPA and other governmental authorities and other factors.
Williams Natural Gas will seek recovery of these costs through future rates and
other means. See Note 1517 of Notes to
Consolidated Financial Statements.

KERN RIVER GAS TRANSMISSION COMPANY (Kern River)

Kern River is an9
11

WILLIAMS HOLDINGS OF DELAWARE, INC. (WILLIAMS HOLDINGS)

In 1994, the Company established Williams Holdings to be a holding company
for its assets other than its interstate natural gas transmission company whichpipelines and related
assets. Virtually all of Williams Holdings' assets have been transferred to it
by the Company since January 1, 1995, and were previously operated by
subsidiaries of the Company.

Williams Holdings owns all of the capital stock of four entities in the
energy industry and operates atwo entities in the telecommunications industry. Williams
Holdings' energy subsidiaries are engaged in natural gas pipeline system extending from Wyoming through Utahgathering, processing
and Nevadaproduction, the transportation of crude oil and petroleum products, natural
gas trading activities, natural gas liquids marketing and provide a variety of
other products and services to California. Kern River is jointly ownedthe energy industry. Williams Holdings'
telecommunications subsidiaries offer data, voice and operated byvideo-related products and
services and customer premise equipment nationwide. Williams Western Pipeline Company, a subsidiary of Williams, and a subsidiary of an
unaffiliated company.Holdings also has
certain other equity investments. See Note 35 of Notes to Consolidated Financial
Statements.
The transmission system, which commenced operations in February 1992 following
completion of construction, delivers natural gas primarily to the enhanced
oil-recovery fields in southern California. The system also transports natural
gas for utilities, municipalities and industries in California, Nevada and Utah.

Kern River is subject to regulation by FERC under the Natural Gas Act and
under NGPA, and, as such, its rates and charges for the transportation of
natural gas in interstate commerce, the extension, enlargement or abandonment of
facilities and its accounting, among other things, are subject to regulation.

Pipeline System and Customers

As of December 31, 1994, Kern River's pipeline system was composed of 667
miles of pipeline and three mainline compressor stations having an aggregate
mainline delivery capacity of 700 MMcf of gas per day. The pipeline system
interconnects with the pipeline facilities of another pipeline company at
Daggett, California. From the point of interconnection, Kern River and the other
pipeline company have a single 337-mile pipeline which is owned 63.6 percent by
Kern River and 36.4 percent by the other pipeline company, as tenants in common,
and is designed to accommodate the combined throughput of both systems. This
common facility has a capacity of 1.1 Bcf of gas per day.

Kern River operates under an open-access transportation certificate wherein
gas is transported for others under firm long-term transportation contracts
totaling 675 MMcf of gas per day. During 1994, one shipper exercised adjustment
rights under its contract which had the affect of reducing firm transportation
commitments by 25 MMcf of gas per day. Another shipper exercised its adjustment
rights and increased its firm transportation commitment by 5 MMcf of gas per
day.

In 1994, Kern River transported 262 Bcf of natural gas for customers in
California, Nevada and Utah. Gas was transported for five customers in Kern
County, California, for reinjection as a part of enhanced oil recovery
operations and for 19 local distribution customers, electric utilities,
cogeneration projects and commercial and other industrial customers. The five
largest customers of Kern River in 1994 accounted for approximately 14 percent,
14 percent, 12 percent, 12 percent and 12 percent, respectively, of operating
revenues. Three of these customers serve the enhanced oil recovery fields. No
other customer accounted for more than 10 percent of operating revenues in 1994.

Regulatory Matters

The transportation of natural gas by Kern River in interstate commerce is
subject to regulation by FERC under the Natural Gas Act or the NGPA. Kern River
owns certificates of public convenience and necessity issued by FERC authorizing
it to own and operate all pipelines, facilities and properties now in operation
for which certificates are required under the Natural Gas Act. Kern River is
also subject to regulation under the Natural Gas Pipeline Safety Act of 1968, as
amended, which regulates safety requirements in the design, construction,
operation and maintenance of interstate gas transmission facilities.

On March 1, 1993, Kern River began collecting new rates, subject to refund,
under the provisions of a rate case filed August 31, 1992. Kern River is seeking
an increase in rates to cover increased operating costs, recovery of capital for
construction of the initial system and a fair rate of return. A settlement has
been entered into by and between Kern River, FERC staff and Kern River
customers. The settlement was submitted to

9
11
FERC for approval on October 18, 1994 and a FERC Order approving the settlement
without modification was received on January 25, 1995. Subsequently, Kern River
filed for a clarification of certain elements of the FERC Order.

Kern River has filed an application with FERC for authorization to expand
capacity to bring an additional 452 MMcf of gas per day of Canadian natural gas
into California and Nevada. On August 18, 1994, Kern River submitted a letter to
FERC requesting postponement in the issuance of a certificate, pending a re-
evaluation of market conditions.

Competition

One other natural gas pipeline presently provides significant service to
the enhanced oil recovery fields in Kern County. Pipeline competition also
exists for Kern River's other customers as well as for expansion markets.
Competition for the customer base is also provided from alternate fuels.
Electricity and distillate fuel oil are the primary alternate energy sources
competing with gas in the commercial market. In the industrial and cogeneration
markets, high sulfur residual fuel oil is the main alternate fuel source
providing competition.

Ownership of Property

The Kern River pipeline system is owned in fee. However, a substantial
portion of the system is constructed and maintained on rights-of-way, easements,
permits, licenses or consents on and across properties owned by others. The
compressor stations, with appurtenant facilities, are located in whole or in
part on lands owned by Kern River or on sites held under leases or permits
issued or approved by public authorities.

Environmental Matters

Kern River is subject to the National Environmental Policy Act and other
federal, state and local laws and regulations relating to the environmental
aspects of the pipeline operations. Management believes that Kern River is in
substantial compliance with existing environmental legal requirements for its
business.

Kern River believes that, with respect to any capital expenditures required
to meet applicable environmental standards and regulations, FERC would grant
requisite rate relief so that, for the most part, such expenditures and a return
thereon would be permitted to be recovered. Kern River believes that compliance
with applicable environmental requirements pertaining to its business is not
likely to have a material effect upon earnings or its competitive position.

WILLIAMS FIELD SERVICES GROUP, INC. (WILLIAMS FIELD SERVICES)

Williams Field Services, through subsidiaries, owns and/or operates both
regulated and nonregulated natural gas gathering and processing facilities markets natural gas and
owns and operates natural gas leasehold properties. Williams Field Services was established as a separate business unit in 1993In 1995 and all of the Company's natural gas gathering and processing, marketing and
production activities have been, or will be, consolidated under Williams Field
Services' control and management. As part of Williams Natural Gas' restructuring
as previously discussed, certain gathering and processing assets will be
transferred to Williams Field Services upon FERC approval.

In 1994, and 1993, gathering
and processing activities represented 8798 percent and 89 percent, respectively,
of Williams Field Services' operating profit. Production and naturalNatural gas marketingproduction represented
the balance.

In 1994,1995, Williams Field Services increased the capacitycompleted an expansion of theits Manzanares
coal seam gas gathering systems in northwestern New Mexico to 750 MMcf of gas
per day. Further expansions will be completed in early 1995 which will increase
theincreasing capacity
of the Manzanares systemsystems to over 1 Bcf of gas per day. A 120plant expansion in the Wamsutter
field of south-central Wyoming completed in the fourth quarter of 1995 increased
capacity of this field to 240 MMcf of gas per day. Also in 1995, Williams Field
Services completed the construction of a 75 MMcf of gas per day processing plant
in the Wamsutter field of south-central Wyoming
began operations in early 1994 and plans are underwayOklahoma Panhandle.

Effective May 1, 1995, the Company transferred to double the capacity in
1995. Williams Field Services
completed the constructionoperation of certain production area transmission assets and acquisitioncertain
gathering and processing assets which the Company had acquired as of such date
from Transco Energy Company. The production area transmission assets consist of
approximately 3,500 miles of pipeline located in gas producing areas offshore
and onshore in Texas and Louisiana which are currently owned by Transco and
classified by FERC as interstate transmission lines. The gathering assets
consist of nonjurisdictional and intrastate gas gathering lines located offshore
and onshore in Texas. Such facilities consist of approximately 28 miles of
gathering pipelines. The processing assets consist of two natural gas processing
facilities. The first is a 7450 percent joint ownership interest in a processing
facility with a 500 MMcf of gas per day processing complexcapacity located in southwestern Louisiana and
the Texas Panhandle which was the
first grassroots construction project outside Williams Field Services'
traditional western market area.

10
12second is a 50 percent partnership interest in a 60 MMcf per day cryogenic
extraction facility located in south Texas.

In February 1994,June 1995, Williams Field Services reached agreement withacquired the natural gas gathering
and processing assets of Public Service Company of New Mexico to acquire its natural gas gathering and
processing assetslocated in the San
Juan and Permian basins of New Mexico for $155$154 million. Subsequently, Williams Field Services
entered into an agreement to sellimmediately thereafter sold the southeastern New Mexico portion of the acquired
assets for $14.2 million. The assets retained consist of approximately 1,5001,400
miles of gathering pipelines and three gas processing plants which have an
aggregate daily inlet capacity of 300 MMcf of gas.

Williams Field Services' first nonregulated merchant power plant is
scheduled to begin operation in New Mexico in 1996. The acquisition is subject to approval from federal and state
regulatory agencies and is not expected to close until mid-year 1995.$53 million 62-megawatt
facility, powered by coal-seam gas, will produce electricity, which will be sold
under a long-term contract. Other areas on Williams Field Services' system hold
the potential for similar cogeneration investments.

Gathering and Processing

Williams Field Services, through subsidiaries, owns and operates natural
gas gathering and processing facilities located in the San Juan Basin in
northwestern New Mexico and southwestern Colorado, southwest Wyoming, and the Rocky
Mountains of Utah and Colorado.Colorado, northwest Oklahoma, Louisiana and also in areas
offshore and onshore in Texas. Williams Field Services, through subsidiaries,
also operates natural gas gathering and processing facilities located in the
Texas Panhandle and the Hugoton Basin in northwest

10
12

Oklahoma and southwest Kansas, which are owned by Williams Natural Gas, butan
affiliated company, and operates natural gas gathering and processing facilities
located both onshore and offshore in Texas and Louisiana, which are owned by
Transco, an affiliated company. The facilities operated for affiliates are the
subject of applications for orders permitting abandonment discussed
elsewhere herein.so the facilities can
be transferred to Williams Field Services. Gathering services provided include
the gathering of gas and the treating of coal seam gas.

The operating information below includes
operations attributed to the facilities when they wereCustomers and Operations. Facilities owned and operated by affiliated entities and operations for facilities currently owned by Williams
Natural Gas but operated by Williams Field
Services.

Customers and Operations. Williams Field Services' facilities, including
those currently owned by Williams Natural Gas,Services consist of approximately 6,90012,000 miles of gathering pipelines, three11 gas
treating plants and ten14 gas processing plants (one(five of which is 20 percent owned and one of which is 66 percentare partially owned)
which have an aggregate daily inlet capacity of 2.36.7 Bcf of gas. Gathering and
processing customers have direct access to interstate pipelines, including
Northwest Pipeline, Williams Natural Gas and Kern River,affiliated pipelines, which provide access to multiple markets.

During 1994,1995, Williams Field Services gathered natural gas for 157286
customers. The two largest gathering customerscustomer accounted for approximately 3318 percent and 10 percent, respectively,
of total gathered volumes. During 1994,1995, natural gas was processed for a total of
108 customers. The three largest customers accounted for approximately 2226
percent, 1412 percent and 1211 percent, respectively, of total processed volumes. No
other customer accounted for more than 10 percent of gathered or processed
volumes. Williams Field Services' gathering and processing agreements with large
customers are generally long-term agreements with various expiration dates.
These long-term agreements account for the majority of the gas gathered and
processed by Williams Field Services.

Liquids extracted at the processing plants are ethane, propane, butane and
natural gasoline. Liquid products retained by Williams Field Services' are
marketed by an affiliate for a fee. During 1994,1995, liquid products were sold to a total of 2052
customers under short-term contracts. The threefour largest customers accounted for
approximately 3332 percent, 1318 percent, 16 percent and 1015 percent, respectively,
of total liquid products volumes sold. No other customer accounted for more than
10 percent of volumes sold.

Operating Statistics. The following table summarizes gathering, processing
and natural gas liquid volumes for the periods indicated:indicated. The information
includes operations attributed to facilities owned by affiliated entities but
operated by Williams Field Services:

1995 1994 1993
1992
--------- ---- ----

Gas volumes (TBtu, except where noted):
Gathering.....................................................Gathering.................................................... 1,806 895 789
672
Processing....................................................Processing................................................... 406 392 323 * 283 *
Natural gas liquid sales (millions of gallons)............................... 298 281 295 278

- ---------------
* Restated to exclude treating volumes.

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13

Natural Gas Marketing and Supply

Williams Gas Marketing, a subsidiary of Williams Field Services, markets
natural gas primarily west of the Mississippi River and in certain eastern and
southeastern states. Williams Gas Marketing also markets gas in the Midcontinent
and Western regions of the U.S. off both interstate and intrastate pipelines,
including Williams Natural Gas, Northwest Pipeline and Kern River.

During 1994, no single customer accounted for 10 percent or more of volumes
sold. Typically, natural gas sales are made under short-term contracts. Renewal
of these contracts is dependent upon, among other things, the ability to provide
competitively priced gas.

Williams Gas Marketing supplies its sales commitments through short-term
and spot gas purchases as well as purchases under long-term contracts. The
suppliers' ability to meet their delivery commitments and Williams Gas
Marketing's ability to service its customers may be adversely affected by
factors beyond their respective control, such as occasions of force majeure.
Certain of these gas purchase contracts obligate Williams Gas Marketing to
purchase minimum percentages of the total deliverability of the wells covered by
the contracts. During 1994, Williams Gas Marketing incurred no purchase
deficiencies under these contracts.

Production

Williams Field Services, through a subsidiary, owns and operates producing
gas leasehold properties in the San Juan Basin.Colorado, Louisiana, New Mexico, Utah and Wyoming.

Gas Reserves. As of December 31, 1995, 1994 1993 and 1992,1993, Williams Field
Services had proved developed natural gas reserves of 292 Bcf, 269 Bcf 229 Bcf and 352229
Bcf, respectively, and proved undeveloped reserves of 222 Bcf, 220 Bcf and 319
Bcf, respectively. Of Williams Field Services' total proved reserves, 96 percent
are located in the San Juan Basin of Colorado and 287
Bcf, respectively.New Mexico. As discussed
below, Williams Field Services conveyed gas reserves to the Williams Coal Seam
Gas Royalty Trust in 1993. No major discovery or other favorable or adverse
event has caused a significant change in estimated gas reserves since year end.

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13

Customers and Operations. As of December 31, 1994,1995, the gross and net
developed leasehold acres owned by Williams Field Services totaled 228,863261,973 and
98,716,107,046, respectively, and the gross and net undeveloped acres owned were
29,369152,977 and 13,669,44,296, respectively. As of such date, Williams Field Services owned
interests in 2,6822,795 gross producing wells (369(496 net) on its leasehold lands. The
following table summarizes drilling activity for the periods indicated:

DEVELOPMENT
---------------
COMPLETED GROSS NET
DURING WELLS WELLS
- -------------------- ----- -----

1994..................................................................1995................................................................. 61 22
1994................................................................. 66 19
1993..................................................................1993................................................................. 39 5
1992.................................................................. 95 11

The majority of Williams Field Services' gas production is currently being
sold in the spot market at market prices. Total net production sold during 1995,
1994 and 1993 and 1992 was 25.9 TBtu, 22.6 TBtu 16.3 TBtu and 23.416.3 TBtu, respectively. The average
production costs per MMBtu of gas produced were $.14, $.17$.14 and $.17 in 1995,
1994 1993 and 1992,1993, respectively. The average sales price per MMBtu was $.88, $1.21
$1.44
and $1.14,$1.44, respectively, for the same periods.

In 1993, Williams Field Services conveyed a net profits interest in certain
of its properties to the Williams Coal Seam Gas Royalty Trust. Trust Units were
subsequently sold to the public by Williams in an underwritten public offering.
Williams continues to holdThe Company holds 3,568,791 Trust Units representing 36.8 percent of outstanding
Units. Substantially all of the production attributable to the properties
conveyed to the Trust was from the Fruitland coal formation and constituted coal
seam gas. Proved developed coal seam gas reserves at December 31, 1994,1995,
attributed to the properties conveyed were 162163 Bcf. Production information
reported herein includes Williams Field Services' interest in such Units. See Note 4 to Notes to Consolidated Financial Statements.

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14

Regulatory Matters

Historically, an issue has existed as to whether FERC has authority under
the Natural Gas Act to regulate gathering and processing prices and services.
During 1994, after reviewing its legal authority in a Public Comment Proceeding,
FERC determined that while it retains some regulatory jurisdiction over
gathering and processing performed by interstate pipelines, pipeline affiliated
gathering and processing companies are outside its authority under the Natural
Gas Act. Orders issued in 1994 which implement FERC's conclusion that it lacks
jurisdiction have been appealed to the United States Court of Appeals for the
District of Columbia Circuit. Williams Field Services believes thatcannot predict the
ultimate outcome of these FERC decisions
will be upheld on appeal.proceedings.

As a result of these FERC action,decisions, several of the individual states in
which Williams Field Services operates may consider whether to impose regulatory
requirements on gathering companies. No state in whichcurrently regulates Williams Field
Services operates
currently regulatesServices' gathering or processing rates or services.

Competition

Williams Field Services competes for gathering and processing business with
interstate and intrastate pipelines, producers and independent gatherers and
processors. Numerous factors impact any given customer's choice of a gathering
or processing services provider, including rate, term, timeliness of well
connections, pressure obligations and the willingness of the provider to process
for either a fee or for liquids taken in-kind.

Ownership of Property

Williams Field Services' gathering and processing facilities are owned in
fee. Gathering systems are constructed and maintained pursuant to rights-of-way,
easements, permits, licenses and consents on and across properties owned by
others. The compressor stations and gas processing and treating facilities are
located in whole or in part on lands owned by Williams Field Services or on
sites held under leases or permits issued or approved by public authorities.

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14

Environmental Matters

Williams Field Services is subject to various federal, state and local laws
and regulations relating to environmental quality control. Management believes
that Williams Field Services' operations are in substantial compliance with
existing environmental legal requirements. Management expects that compliance
with such existing environmental legal requirements will not have a material
adverse effect on the capital expenditures, earnings and competitive position of
Williams Field Services.

WILLIAMS ENERGY SERVICES COMPANY (WESCO)

WESCO, through subsidiaries, offers a full range of products and services
to energy markets throughout North America. WESCO's core business includes
natural gas and energy commodity trading activities, energy-related price-risk
management products and services and computer-based information products. WESCO
was incorporated in 1993. See Note 15 of Notes to Consolidated Financial
Statements.

Trading Activities and Services

In addition to its own natural gas trading operations, WESCO conducts
certain natural gas trading operations formerly conducted by a subsidiary of
Transco Energy Company as well as third party trading activities managed by an
affiliate. WESCO trades natural gas throughout North America, primarily serving
local distribution company markets in the eastern and midwestern United States.
The Operating Statistics presented below, for periods prior to 1995, represent
previously existing financial trading services conducted by Williams
subsidiaries, coupled with third-party trading services provided by an affiliate
and do not include operations previously conducted by the Transco Energy Company
subsidiary.

WESCO serves a customer base of approximately 700 companies across its
natural gas trading operations, with net revenues primarily derived from sales
to local distribution companies, other gas marketers and certain end-users.
WESCO's gas trading activities are conducted on both interstate and intrastate
pipelines, with most sales activity coordinated with transportation along
pipeline systems owned by Williams.

WESCO offers financial instruments and derivatives to producers and
consumers of energy as well as to financial entities participating in energy
price-risk management. WESCO also enters into energy-related financial
instruments to manage market price fluctuations. The customer base for these
activities is comprised of other gas marketing and trading companies,
energy-based entities and brokers trading in energy commodities. See Note 15 of
Notes to Consolidated Financial Statements.

Information Products

In 1995, WESCO marketed various computer-based trading and trader-match
services including Chalkboard, an electronic trader-match system for buyers and
sellers of liquid fuels, crude oil and refined products; Streamline, a physical
cash forward gas trading system located at seven U.S. hubs; and Capacity
Central, a natural gas pipeline capacity information system. These products are
utilized primarily by a customer base of approximately 200 energy-based
companies under short-term service commitments. The information products'
architecture was developed in 1993 and introduced to the marketplace in 1994.
These activities have not been profitable to date as costs of establishing
marketing liquidity and product usage still outpace the returns from this
developing market.

Effective January 1, 1996, Streamline and Capacity Central were contributed
to a limited liability company along with the energy-related information
services of a PanEnergy Corp. subsidiary. The new entity (Altra Energy
Technologies, L.L.C.) is owned equally by WESCO and PanEnergy.

Operating Statistics (dollars in millions, volumes in TBtu)

1995 1994 1993
----- ----- -----

Operating profit............................................ $30.0 $ .5 $ 7.9
Natural gas physical trading................................ 754 148 152

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15

Regulatory Matters

Management believes that WESCO's natural gas trading activities are
conducted in substantial compliance with the marketing affiliate rules of FERC
Order 497. Order 497 imposes certain nondiscrimination, disclosure and
separation requirements upon interstate natural gas pipelines with respect to
their natural gas trading affiliates. WESCO has taken steps to ensure it does
not share employees with affiliated interstate natural gas pipelines and does
not receive information from such affiliates that is not also available to
unaffiliated natural gas trading companies.

Competition

WESCO's gas trading operations are in direct competition with large
independent gas marketers, marketing affiliates of regulated pipelines and
natural gas producers. The financial trading business competes with other
energy-based companies offering similar services as well as certain brokerage
houses. This level of competition contributes to a business environment of
constant pricing and margin pressure.

Ownership of Property

The primary assets of WESCO are its term contracts, employees and related
technological support. Costs to develop the information products and certain
trading systems have been capitalized.

Environmental Matters

WESCO is subject to federal, state and local laws and regulations relating
to the environmental aspects of its business. Management believes that WESCO is
in substantial compliance with existing environmental legal requirements for its
business. Management expects that compliance with such existing environmental
legal requirements will not have a material adverse effect on the capital
expenditures, earnings and competitive position of WESCO.

WILLIAMS PIPE LINE COMPANY (WILLIAMS PIPE LINE)

Williams Pipe Line a wholly owned subsidiary of Williams, operates a crude oil and petroleum products pipeline
system which covers an eleven-state11-state area extending from Oklahoma in the south to
North Dakota and Minnesota in the north and Illinois in the east. The system is
operated as a common carrier offering transportation and terminalling services
on a nondiscriminatory basis under published tariffs. The system transports
cruderefined products, LP-gases, lube extracted fuel oil and products, including
gasolines, distillates, aviation fuels and LP-gases.

On September 30, 1994, Williams Pipe Line acquired 114 miles of pipeline in
Kansas, Missouri and Illinois from ARCO Pipe Line Company. In a related
transaction, Williams Pipe Line added a new offline delivery connection to serve
markets in northern Missouri and southern Iowa.crude oil.

Shippers and Pipeline System

At December 31, 1994,1995, the system traversed approximately 7,000 miles of
right-of-way and included over 9,200 miles of pipeline in various sizes up to 16
inches.inches in diameter. The system includes 8182 pumping stations, 23 million barrels
of storage capacity and 47 delivery terminals. The terminals are equipped to
deliver refined products into tank trucks and tank cars. The maximum number of
barrels which the system can transport per day depends upon the operating
balance achieved at a given time between various segments of the system. Since
the balance is dependent upon the mix of products to be shipped and the demand
levels at the various delivery points, the exact capacity of the system cannot
be stated.

1314
1516

The operating statistics set forth below relate to the system's operations
for the periods indicated:

1995 1994 1993
1992
-------- -------- --------------- ------- -------

Shipments (thousands of barrels):
Refined products:
Gasolines..........................................Gasolines........................................ 125,060 120,682 109,841
92,643
Distillates........................................Distillates...................................... 61,238 61,129 51,508
45,920
Aviation fuels.....................................fuels................................... 12,535 9,523 11,123
11,180
LP-Gases..............................................LP-Gases............................................ 12,839 10,849 9,778
11,362Lube extracted fuel oil............................. 4,462 0 0
Crude oil.............................................oil........................................... 860 1,062 3,388
4,481
-------- -------- --------------- ------- -------
Total shipments...............................shipments............................. 216,994 203,245 185,638 165,586
======= ======= =======
Daily average (thousands of barrels).................................. 595 557 509
454
Average haul (miles).................................................................. 269 284 279
295
Barrel miles (millions)............................................................ 58,326 57,631 51,821
48,825
Revenues (millions):
Transportation........................................Transportation...................................... $177.0 $168.0 $153.0
$137.7
Nontransportation.....................................Nontransportation................................... 65.7 41.7 26.3
10.8
-------- -------- --------
Total revenues................................------- ------- -------
$242.7 $209.7 $179.3 $148.5
======= ======= =======
Average transportation revenue per barrel.............barrel........... $.82 $.83 $.82 $.83

On December 1, 1993,

Williams Pipe Line acquiredbegan moving a 300-mile pipeline, two
loading terminals and related storagenew lube extracted fuel oil product in
1995 from Sun Pipe Line Company. The pipeline
connectsan Oklahoma refinery to Williams Pipe Line's systems in Oklahoma and adds Arkansas to its
market. Volumes originating on this system accounted for approximately 10
percent of the shipments and transportation revenues in 1994.Toledo, Ohio, through a joint movement with
other carriers. Volume movements approximate 28 thousand barrels per day.

In 1994, 751995, 73 shippers transported volumes through the system. The seven
largest shippers accounted for 5554 percent of transportation revenues. These same
shippers have accounted for approximately the same percentage of transportation
revenues over the past three years. Due to Williams Pipe Line's geographic
location within existing supply and demand patterns, including connections to
pipelines and refineries within the region, Williams Pipe Line expects to remain
the competitive choice in these relationships. The
highest transportation revenue-producing shipper accounted for approximately 11
percent of transportation revenues in 1994.1995. Nontransportation activities
accounted for 2027 percent of total revenues in 1994.1995. The increase in
nontransportation revenues is primarily due to expanded gas liquids and fractionator operations.

At December 31, 1994,1995, the system was directly connected to, and received
products from, 11 operating refineries reported to have an aggregate crude oil
refining capacity of approximately 888,000over 900,000 barrels per day. Eight of these refineries are
located in Kansas and Oklahoma, two in Minnesota and one in Wisconsin. The
system also received products through connecting pipelines from other refineries
located in Illinois, Indiana, Kansas, Louisiana, Montana, North Dakota, Oklahoma
and Texas. Crude oil is received through connections in Kansas and Oklahoma. The
refineries, which are connected directly or indirectly to the system, have
access to a broad range of crude oil producing areas, including foreign sources.
LP-gases are transported from gas producing and storage areas in central Kansas
through connecting pipelines in Iowa, Kansas, Missouri, Illinois, Nebraska and
Illinois.South Dakota. In addition to making deliveries to company-owned terminals, the
system delivers products to third-party terminals and connecting pipelines.

The refining industry continues to be affected by environmental regulations
and changing crude supply patterns. The industry's response to environmental
regulations and changing supply patterns will directly affect volumes and
products shipped on the Williams Pipe Line system. EPA regulations, driven by
the Clean Air Act, require refiners to change the composition of fuel
manufactured. A pipeline's ability to respond to the effects of regulation and
changing supply patterns will determine its ability to maintain and capture new
market shares. Williams Pipe Line has successfully responded to changes in
diesel fuel composition and product supply and has adapted to new gasoline
additive requirements. Reformulated gasoline regulations have not yet
significantly affected Williams Pipe Line. Williams Pipe Line will continue to
position itself to 14
16

respond to changing regulations and supply patterns, but it
is not possible to predict how future changes in the marketplace will affect
Williams Pipe Line's market areas.

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17

Regulatory Matters

General. Williams Pipe Line, as an interstate common carrier pipeline, is
subject to the provisions and regulations of the Interstate Commerce Act. Under
this Act, Williams Pipe Line is required, among other things, to establish just,
reasonable and nondiscriminatory rates, to file its tariffs with FERC, to keep
its records and accounts pursuant to the Uniform System of Accounts for Oil
Pipeline Companies, to make annual reports to FERC and to submit to examination
of its records by the audit staff of FERC. Authority to regulate rates, shipping
rules and other practices and to prescribe depreciation rates for common carrier
pipelines is exercised by FERC. The Department of Transportation, as authorized
by the 1992 Pipeline Safety Reauthorization Act, is the oversight authority for
interstate liquids pipelines. Williams Pipe Line is also subject to the
provisions of various state laws which are applicable to intrastate pipelines.

Rate Proceeding. On December 31, 1989, a rate cap, which resulted from a
settlement with several shippers, effectively freezing Williams Pipe Line's
rates for the previous five years, expired. Williams Pipe Line filed a revised
tariff on January 16, 1990, with FERC and the state commissions. The tariff set
an average increase in rates of 11 percent and established volume incentives and
proportional rate discounts. Certain shippers on the Williams Pipe Line system
and a competing pipeline carrier filed protests with FERC alleging that the
revised rates are not just and reasonable and are unlawfully discriminatory.
As
a result of these protests, FERC suspended the effective date of the tariff for
seven months (until September 16, 1990), at which time it became effective,
subject to refund. The revised intrastate tariffs filed with state commissions
were voluntarily withdrawn and refiled to be effective at the same time as the
interstate tariff.

Williams Pipe Line elected to bifurcate this proceeding in accordance with the
then-current FERC policy. Phase I of the FERC's bifurcated proceeding provides a
carrier the opportunity to justify its rates and rate structure by demonstrating
that its markets are workably competitive. Any issues unresolved in Phase I
will require cost justification in Phase II.

FERC hearings inThe FERC's Phase I were held before an administrative law judge in the summer of 1991. The Judge'sorder, as modified by a rehearing decision, issued January 24, 1992, ruled solely on market power issues and
certain discrimination claims. This Initial Decision concludedhas found
that Williams Pipe Line had sustained its burden of proof in demonstrating that it "lackslacks significant market power"power and is "workably competitive" in 22 of 32 of its
markets and that the alleged discrimination was justified by competitive
conditions. On July 27, 1994, FERC issued a Phase I decision, Order 391. The
Commission, while citing considerable agreement with the theoretical concepts
employed by the administrative law judge, reversed his initial decision
regarding the competitive nature of nine specific markets, thus finding that
Williams Pipe Line had sustained its burden of proof in showing that it is workably
competitive in 1320 of the 32 markets under investigation. In responseA shipper has appealed
this decision to this order, Williams Pipe Line filed a motion to staythe United States Court of Appeals for the District of Columbia
Circuit which has stayed the appeal proceedings until Phase II along with a
request for reconsideration of nine markets on August 29, 1994. On September 28,
1994, FERC issued a tolling order granting Williams Pipe Line's request for
rehearing but denying its motion to stay the Phase II proceedings.has been
completed. Williams Pipe Line filed its direct evidence in Phase II on January
23, 1995. In this filing, Williams Pipe Line departed from the more traditional
cost allocation methodology in lieu of an overall total system revenue
requirement and stand-alone cost ceiling in conjunction with incremental and
short-run marginal cost floors. The hearings began December 4, 1995, with hearings to
begin around September 1995.and
concluded January 19, 1996. The current procedural schedule forecasts an initial
decision in Phase II in the beginning ofmid-year 1996. While Williams Pipe Line cannot predict
the final outcome of these proceedings, it believes its revised tariffs will
ultimately be found lawful. In June 1993, FERC ruled that Williams Pipe Line must file tariffs and cost
justification for transaction charges that are collected for certain bookkeeping
services, Product Transfer Orders and Product Authorizations. Williams Pipe Line
had previously considered these charges as nonjurisdictional. In orderSee Note 17 of Notes to comply
with the ruling, Williams Pipe Line immediately filed tariffs establishing these
charges in its tariff. The FERC order to provide cost justification is currently
stayed pending rehearing of the case.

On October 22, 1993, FERC issued a new rule making and two companion
Notices of Inquiry intended to establish "simplified and generally applicable
rate making" as well as procedural streamlining as mandated by the Energy Policy
Act of 1992. On July 27, 1994, FERC issued a final rule establishing a
"simplified and generally applicable rate making" methodology as mandated by the
Energy Policy Act of 1992. FERC has

15
17

attempted to streamline the rate making process via generic rules and a rate cap
mechanism, or index, based on the annual Producer Price Index for Finished Goods
less one percentage point ("PPI-1"). The final rule, which became effective
January 1, 1995, requires pipelines to use indexing as their primary rate making
methodology in markets not determined to be workably competitive. The
Association of Oil Pipelines has filed an appeal of this order in the Court of
Appeals for the District of Columbia Circuit citing, among other things, the
inadequacy of the PPI-1 index. Williams Pipe Line has intervened in this
proceeding.

On October 28, 1994, FERC released two additional rule makings. The first
established procedures for seeking "market-based" rates. The second sets forth
procedures for cost justifying rate increases which exceed the PPI-1 index and
establishes several changes in existing accounting and reporting requirements.Consolidated Financial
Statements.

Competition

Williams Pipe Line operates without the protection of a federal certificate
of public convenience and necessity that might preclude other entrants from
providing like service in its area of operations. Further, Williams Pipe Line
must plan, operate and compete without the operating stability inherent in a
broad base of contractually obligated or owner-controlled usage. Since Williams
Pipe Line is a common carrier, its shippers need only meet the requirements set
forth in its published tariffs in order to avail themselves of the
transportation services offered by Williams Pipe Line.

Competition exists from other pipelines, refineries, barge traffic,
railroads and tank trucks. Competition is affected by trades of products or
crude oil between refineries which have access to the system and by trades among
brokers, traders and others who control products. Such trades can result in the
diversion from the Williams Pipe Line system of volume which might otherwise be
transported on the system. Shorter, lower revenue hauls may also result from
such trades. Williams Pipe Line also is exposed to interfuel competition whereby
an energy form shipped by a liquids pipeline, such as heating fuel, is replaced
by a form not transported by a liquids pipeline, such as electricity or natural
gas. While Williams Pipe Line faces competition from a variety of sources
throughout its marketing areas, the principal competition is other pipelines. A
number of pipeline systems, competing on a broad range of price and service
levels, provide transportation service to various areas served by the system.
The possible construction of additional competing products or crude oil
pipelines, conversions of crude oil or natural gas pipelines to products
transportation, changes in refining capacity, refinery closings, changes in the
availability of crude oil to refineries located in its

16
18

marketing area, or conservation and conversion efforts by fuel consumers may
adversely affect the volumes available for transportation by Williams Pipe Line.

Ownership of Property

Williams Pipe Line's system is owned in fee. However, a substantial portion
of the system is operated, constructed and maintained pursuant to rights-of-way,
easements, permits, licenses or consents on and across properties owned by
others. The terminals, pump stations and all other facilities of the system are
located on lands owned in fee or on lands held under long-term leases, permits
or contracts. Management believes that the system is in such a condition and
maintained in such a manner that it is adequate and sufficient for the conduct
of business.

Environmental Matters

Williams Pipe Line's operations are subject to various federal, state and
local laws and regulations relating to environmental quality control. Management
believes that Williams Pipe Line's operations are in substantial compliance with
existing environmental legal requirements. Management expects that compliance
with such existing environmental legal requirements will not have a material
adverse effect on the capital expenditures, earnings and competitive position of
Williams Pipe Line has initiated a
broad scope of projects related to environmental controls. Under Williams Pipe
Line's philosophy of proactive environmental management, $5.7 million was
expended in 1994 for environmental-related capital projects.Line.

Williams Pipe Line has been named by the EPA as a potentially responsible
party as defined in Section 107(a) of the Comprehensive Environmental Response,
Compensation, and Liability Act, for a site in Sioux Falls, South Dakota. This
site was placed on the National Priorities List in July 1990. In April 1991,
Williams Pipe Line and the EPA executed an administrative consent order under
which Williams Pipe Line 16
18
agreed to conduct a remedial investigation and
feasibility study for this site. The EPA issued its "No Action" Record of
Decision in 1994 concluding that there were no significant hazards associated
with the site subject to two additional years of monitoring for arsenic in
certain existing monitoring wells. Monitoring should be complete in the first
quarter of 1997.

WILLIAMS ENERGY VENTURES, INC. (WILLIAMS ENERGY VENTURES)

Another subsidiary of Williams Holdings, Williams Energy Ventures, a wholly owned subsidiary ofis
combined for financial reporting purposes with Williams provides
price risk management products and services, natural gas liquid marketing
services, electronic information services and business development capabilities
through three major business groups: Commodities, Information Services and New
Ventures.

Commodities Group

In addition to providing commodity price risk management products and
services for otherPipe Line, although
Williams subsidiaries,Energy Ventures' activities are not included in the Williams Pipe Line
operating statistics on page 15 herein. Williams Energy Ventures through a
subsidiary, offers financial instrumentsis engaged in
the manufacturing and derivatives to producersmarketing of petroleum products and consumers of energy as well as to financial entities participating in energy
price-risk management. Williams Energy Ventures enters into energy-related
financial instruments to hedge against market price fluctuations of certain
refined products inventories and natural gas sales and purchase commitments.
Williams Energy Ventures expanded these services during the year as transactions
increased over 100 percent from 1993 levels, while also being selected to supply
a cogeneration facility with a ten-year supply of natural gas beginning in 1997.
See Note 13 of Notes to Consolidated Financial Statements.oxygenates. Williams
Energy Ventures also markets the gas liquids produced by Williams
Field Services and by unaffiliated companies. Natural gas liquids are sold in
the Gulf Coast petrochemical markets under short-term contracts. Propane is
marketed primarily in the Rocky Mountain area via truck and railcar loading
terminals owned by Williams Field Services.

Information Services Group

Through its information services group, Williams Energy Ventures offers
various trading and brokering services in the energy field. Chalkboard,owns an electronic trading and brokering system for purchases and sales of liquid fuels
and crude oil, continues to establish market acceptance following its
introduction in 1993. During 1994, Williams Energy Ventures implemented
Streamline (a computer-based gas trading and clearing system) at five locations
in the United States and at two gas trading hubs in Canada through a joint
development partner. Also introduced during the year was Capacity Central, a
computer-based gas pipeline capacity sales system.

Williams Energy Ventures also provides computer-based operator training
primarily to the energy industry. Williams Energy Ventures has licensing
agreements with over 150 customers in the oil and gas pipeline, terminal and
trucking industries.

New Ventures Group

Williams Energy Ventures' new ventures group consists primarily of
nonjurisdictional businesses based in petroleum-related and technology-based
processes. During 1994, this group initiated the construction of an underground
coal gasification facility in Wyoming, with initial operations to determine the
commercial feasibility of the process scheduled for early 1995. In support of
this and future similar projects, Williams Energy Ventures completed the
acquisition of Energy International, a company with technological rights and
expertise in conversion of coal into market quality gas. In addition, Williams
Energy Ventures entered into a 71approximate 70 percent majority interest in a joint venture
to construct a 2530 million
gallon per year ethanol plant in Nebraska with
completion scheduledthat began operations in November
1995. Williams Energy Ventures operates the facility and markets the fuel
ethanol output. In addition, on August 1, 1995, Williams Energy Ventures
purchased Pekin Energy Company in Pekin, Illinois, for the fourth quarter$167 million. The Pekin
Energy facility produces 100 million gallons annually of 1995. Development
responsibilities also extend to those energy-based projects which employ newly
developed technologiesfuel-grade and
information systems.

17
19

TELECOMMUNICATIONSindustrial ethanol and various coproducts.

WILLIAMS TELECOMMUNICATIONS SYSTEMS, INC. (WILTEL)

WilTel provides data, voice and video communications products and services
to a wide variety of customers nationally. WilTel is strategically positioned in
the marketplace with more than 100 sales and service locations throughout the
United States, over 2,5002,800 employees and over 1,3001,200 stocked service vehicles.
WilTel believes it is one of only two national providers of customer premise
telecommunications equipment.

WilTel employs more than 1,2001,300 technicians and more than 400 sales
representatives and sales support personnel to serve an estimated 30,00040,000
commercial, governmental and institutional customers. WilTel's customer base
ranges from Fortune 500 corporations and the Federal Government to small
privately-owned entities.

WilTel offers its customers a full array of data, voice and video network
interconnect products including digital key systems (generally designed for
voice applications with fewer than 100 lines), private branch exchange (PBX)
systems (generally designed for voice applications with greater than 100 lines),
voice processing systems, interactive voice response systems, automatic call
distribution applications, call accounting systems, network monitoring and
management systems, desktop video, routers, channel banks, intelligent

17
19

hubs and cabling for all voice and
data applications.cabling. WilTel's services also include the design, configuration and
installation of voice and data networks and the management of customers'
telecommunications operations and facilities. In addition, WilTel possesses
multicustomer service capabilities, including three specialized functions that
provideWilTel's National Technical
Resource Center provides customers with on-line order entry and trouble
reporting services, advanced technical assistance and training. Other service
capabilities include Local Area Network and PBX remote monitoring and toll fraud
detection.

In March 1994, WilTel derived approximately 67 percent of its revenues from its
existing customer base and approximately 33 percent from the sale of new
telecommunications systems. The distribution of revenues for the periods
indicated are shown in the following table:

REVENUES 1994 1993 1992
--------------------------------------------------------------- ---- ---- ----

New System Sales............................................... 33% 39% 41%
System Modifications........................................... 36% 30% 28%
Maintenance.................................................... 24% 23% 25%
Other.......................................................... 7% 8% 6%

The 1994 decrease in the percentage of revenue derived from the sale of new
telecommunications systems was attributed to the March 1994, acquisition ofacquired BellSouth's customer premise equipment sales
and service operations in the 29 states outside of BellSouth's local operating
region in the nine southeastern-most states, and thein October 1994, acquisition ofacquired
Jackson Voice Data, a New York City-based customer premise equipment company. TheIn
1996, WilTel acquired companies generated the vast majority of their
revenue from their existingComlink, Incorporated, a Massachusetts-based data and
customer bases.premise equipment company. The acquisition of these businesses has
allowed WilTel to capitalize on its existing infrastructure, strengthen its
national market presence and geographic customer density and has provided more
diversity in product offerings.

AlthoughOperating Statistics

The following table summarizes the percentageresults of revenue attributable to new system sales
continues to decline relative to total revenue, year end revenue backlog
continues to increase. Estimated year end revenue backlog balances, comprised of
new system salesoperations for the periods
indicated (dollars and major system upgrades, were as follows: $92 millionports in 1994, $52 million in 1993 and $39 million in 1992.

The total number of ports maintained and served by WilTel at the end of
1994 increased to 4.1 million. The bulk of the increase from prior years is
attributable to the acquisitions of the BellSouth and Jackson Voice Data
customer bases. The two acquisitions contributed in excess of 1.0 million ports
to the total WilTel count.millions):

1995 1994 1993
------- ------- -------

Revenues................................................. $ 494.9 $ 396.6 $ 302.8
Percentage of revenues by type of service:
New system sales.................................... 34% 33% 39%
System modifications................................ 39% 36% 30%
Maintenance......................................... 25% 24% 23%
Other............................................... 2% 7% 8%
Operating profit......................................... $ 28.3 $ 18.9 $ 9.5
Backlog.................................................. $ 85.0 $ 92.4 $ 52.0
Total ports.............................................. 4.7 4.1 2.7

A port is defined as an electronic address physically resident in a customer's PBX or
key system that supports the operation of a
peripheral device such as a station, trunk or data port.

The year end port
counts were as follows: 4.1 million in 1994, 2.7 million in 1993 and 2.6 million
in 1992.

18
20In 1995, WilTel Data Network Services, an affiliated company, was merged into WilTel
December 31, 1994. WilTel Data Network Services provides customer premise data
equipment and services for wide and local area networks. The merger allows
WilTel to expandderived approximately 66 percent of its activities into the faster growing data communications
marketplace. Expansion into the data market has allowed WilTel to differentiate
itselfrevenues from its
traditional competitors, mostexisting customer base and approximately 34 percent from the sale of whom remain principally
involved only in the distribution of PBX and keynew
telecommunications systems. WilTel's three largest suppliers accounted for 9189
percent of equipment sold in 1994.1995. A single manufacturer supplied 8076 percent of
all equipment sold. In this case, WilTel is the largest distributor of certain
of this company's products. About 7064 percent of WilTel's active customer base
consists of this manufacturer's products. The distribution agreement with this
supplier is scheduled to expire inat the end of 1997. This agreement is expected
to be renewed upon expiration. ThereManagement believes there is minimal risk as to
the availability of product from suppliers.

Competition

WilTel has many competitors ranging from AT&T and the Regional Bell
Operating Companies to small individually ownedindividually-owned companies which sell and service
customer premise equipment. Competitors include companies that sell equipment
that is comparable or identical to that sold by WilTel. (See discussion of
telecommunications reform legislation below).

Regulatory Matters

The equipment sold by WilTel is subject tomust meet the requirements of Part 68 of the
Federal Communications Commission ("FCC") rules governing the equipment
registration, labelling and connection of equipment to telephone networks.
WilTel relies on the equipment manufacturers' compliance with these requirements
for its own compliance regarding the equipment it distributes. A subsidiary of
WilTel, which provides intrastate

18
20

microwave communications services for a Federal agency, is subject to FCC
regulations as a common carrier and as a microwave licensee. These regulations have
minimal impact on WilTel's operations.

THE WILTECH GROUP, INC. (WILTECH)

WilTech, through subsidiaries, seeks to develop growth opportunities in the
telecommunications and technology industries. WilTech currently conducts its
business through two principal operating subsidiaries, Vyvx, Inc. and Williams
Learning Network, Inc. In October 1995, WilTech acquired a 22 percent interest
in ITCmediaConferencing Company. The investment is expected to expand WilTech's
offerings in the videoconferencing, teleconferencing and enhanced fax services
markets. The total cost of the ITC investment, together with the ICG Wireless
Services' assets and NUS Training Corporation acquisitions discussed below, is
approximately $51 million.

VYVX, INC. (VYVX)(Vyvx)

Vyvx offers switched fiber-optic television transmission services nationwide. It
provides switched,these broadcast-quality fiber-optic television
transmission services as an alternative to satellite and
microwave television transmissions. Vyvx primarily provides backhaul or
point-to-point transmission of news and other programming between two or more
customer locations. For example, the Vyvx network is used for the broadcast
coverage of major professional sporting events. Vyvx's customers include all of
the major broadcast and cable networks. Vyvx also provides videoconferencing/videoconferencing
business television services.

In 1995, Vyvx announced the acquisition of four teleports (including
satellite earth station facilities) from ICG Wireless Services. The teleports
are located in Atlanta, Denver, Los Angeles and New York (Carteret, N.J.). The
acquisition will enable Vyvx to provide both fiber-optic backhaul and satellite
distribution services. The acquisition, which is subject to certain conditions,
including the receipt of regulatory approvals, is expected to close in the first
half of 1996.

Regulatory Matters. Vyvx is subject to FCC regulations as a common carrier
with regard to certain of its existing and future transmission services and is
subject to the laws of certain states governing public utilities. Operation of
to-be-acquired satellite earth stations and certain other related transmission
facilities are also subject to FCC licensing and other regulations. These
regulations do not have a significant impact on Vyvx's operations.

Competition. Competition for Vyvx's fiber-optic television transmission
operations is derived primarily from companies offering video transmission
services by means of satellite facilities and to a lesser degree from companies
offering transmission services via microwave facilities or fiber-optic cable.

Federal telecommunications reform legislation enacted in February 1996, is
designed to increase competition in the long distance market by significantly
liberalizing current restrictions on market entry. In particular, Regional Bell
Operating Companies are permitted to provide long distance services, including
but not limited to, video transmission services, subject to certain restrictions
and conditions precedent. Moreover, public utilities are permitted to provide
telecommunications services, including long distance services, through separate
subsidiaries. The legislation also calls for tariff forbearance and relaxation
of regulation over common carriers. Any impact such legislation may have on Vyvx
cannot be predicted at this time.

WILLIAMS LEARNING NETWORK, INC. (Williams Learning Network)

Williams Learning Network, formerly Williams Knowledge Systems, provides
computer-based operator training primarily to the energy industry. Williams
Learning Network has licensing agreements with over 150 customers in the oil and
gas pipeline, terminal and trucking industries.

In October 1995, Williams Learning Network acquired NUS Training
Corporation. This acquisition gives Williams Learning Network a large library of
video-based and multimedia training products for the chemical, refining and
utility industries plus an expanded customer base and sales force.

19
21

OTHER INFORMATION

Williams believes that it has adequate sources and availability of raw
materials to assure the continued supply of its services and completed products for
existing and anticipated business needs. Williams' pipeline systems are all
regulated in various ways resulting in the financial return on the investments
made in the systems being limited to standards permitted by the regulatory
bodies. Each of the pipeline systems havehas ongoing capital requirements for
efficiency and mandatory improvements, with expansion opportunities also
necessitating periodic capital outlays.

A fertilizer plant site atin Pensacola, Florida, that was previously operated for three
years by a
former subsidiary of Williams, has been placed on the National Priorities List.
Williams has been notified by the EPA that it is a potentially
responsible party for the site, an assertion which Williams is contesting. This former subsidiary has also been identified as a potentially responsible
party along with numerous other parties with respect to the Forest Waste Disposal Site
located in Michigan. This site is nowat a National Priorities List cleanup site.site in Michigan. A third active site,
located in Lakeland, Florida, which was formerly owned and operated by this
subsidiary, is under investigation by the Florida Department of Environmental
Protection and cleanup is anticipated. Williams does not believe that the
ultimate resolution of the foregoing matters, taken as a whole and after
consideration of insurance coverage, contribution or other indemnification
arrangements, will have a material adverse financial effect on the Company. See
Note 1517 of Notes to Consolidated Financial Statements.

On January 25, 1995, Texasgulf Inc. filed a registration statement with the
Securities and Exchange Commission providing for the sale of the Company's 15
percent interest in Texasgulf as a registered public offering. The Company
anticipates that a sale of its interest in Texasgulf, either through this public
offering or in a privately negotiated transaction, will occur in 1995. See Note
3 of Notes to Consolidated Financial Statements.

19
21
At December 31, 1994,1995, the Company had approximately 8,20010,000 full-time
employees, of whom approximately 6361,350 were represented by unions and covered by
collective bargaining agreements. In connection with the WNS Sale in January
1995, as previously discussed, the work force was reduced by approximately 2,070
employees, none of whom were covered by a collective bargaining agreement. In
connection with the acquisition of Transco Energy Company in 1995, as previously
discussed, the Company expects to add approximately 4,500 employees. The Company considers its relations with its
employees to be generally good.

FORWARD-LOOKING INFORMATION

Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although the Company believes such
forward-looking statements are based on reasonable assumptions, no assurance can
be given that every objective will be reached. Such statements are made in
reliance on the "safe harbor" protections provided under the Private Securities
Litigation Reform Act of 1995.

As required by such Act, the Company hereby identifies the following
important factors that could cause actual results to differ materially from any
results projected, forecasted, estimated or budgeted by the Company in
forward-looking statements: (i) risks and uncertainties impacting the Company as
a whole primarily relate to changes in general economic conditions in the United
States, changes in laws and regulations to which the Company is subject,
including tax, environmental and employment laws and regulations, the cost and
effects of legal and administrative claims and proceedings against the Company
or its subsidiaries or which may be brought against the Company or its
subsidiaries and conditions of the capital markets utilized by the Company to
access capital to finance operations; (ii) for the Company's regulated
businesses, risks and uncertainties primarily relate to the impact of future
federal and state regulation of business activities, including allowed rates of
return; and (iii) risks and uncertainties associated with the Company's
nonregulated businesses primarily relate to the ability of such entities to
develop expanded markets and product offerings as well as maintaining existing
markets. In addition, future utilization of pipeline capacity will depend on
energy prices, competition from other pipelines and alternate fuels, the general
level of natural gas and petroleum product demand and weather conditions, among
other things. Further, gas prices which directly impact transportation and
gathering and processing throughput and operating profits may fluctuate in
unpredictable ways. It is also not possible to predict which of many possible
future products and service offerings will be important to maintaining a
competitive position in the telecommunications business or what expenditures
will be required to develop and provide such products and services.

(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

Williams has no significant foreign operations.

ITEM 2. PROPERTIES

See Item 1(c) for description of properties.

20
22

ITEM 3. LEGAL PROCEEDINGS

Other than as described under Item 1 -- Business and in Note 1517 of Notes to
Consolidated Financial Statements, there are no material pending legal
proceedings. Williams is subject to ordinary routine litigation incidental to
its businesses.

With respect to the Dakota litigation described in Note 17, certain parties
have subsequently filed a motion with FERC requesting that FERC establish an
additional proceeding to consider claims for additional refunds. The claimed
additional refunds pertain to amounts paid Dakota from November 1, 1988, through
April 30, 1993. Net to Transco's interest, the claimed additional refunds
approximate $90 million. Transco has filed documents with FERC opposing the
motion for additional refunds. The administrative law judge's initial decision
in this case pertained only to periods after April 30, 1993, and, if sustained,
would require Transco to refund to ratepayers approximately $75 million.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

EXECUTIVE OFFICERS OF WILLIAMS

The names, ages, positions and earliest election dates of the executive
officers of Williams are:

HELD
OFFICE
NAME AGE POSITIONS AND OFFICES HELD SINCE
- ------------------------------ --- ----------------------------------------------- --------

Keith E. Bailey............... 5253 Chairman of the Board, President, Chief 05-19-94
Executive Officer and Director (Principal
Executive Officer)
John C. Bumgarner, Jr......... 52Jr. ....... 53 Senior Vice President -- Corporate Development 01-01-79
and Planning
James R. Herbster............. 5354 Senior Vice President -- Administration 01-01-92
J. Furman Lewis............... 6061 Senior Vice President and General Counsel 07-15-86
Jack D. McCarthy.............. 5253 Senior Vice President -- Finance (Principal 01-01-92
Financial Officer)
Gary R. Belitz................ 4546 Controller (Chief(Principal Accounting Officer) 01-01-92
Stephen L. Cropper............ 4546 President -- Williams Pipe Line, Williams 01-22-86
Energy Services and Williams 01-22-86 Energy Ventures
Lloyd A. Hightower............ 6061 President -- Williams Field Services 05-11-93
Henry C. Hirsch............... 5253 President -- Williams Telecommunications 08-21-92
Systems
Howard E. Janzen.............. 40 Chairman of the Board41 President -- VyvxThe WilTech Group, Inc. 12-01-94
Brian E. O'Neill.............. 5960 President -- Transco, Northwest Pipeline, Kern 01-01-88
River, TXG and Williams 01-01-88 Natural Gas

All of the above officers have been employed by Williams or its
subsidiaries as officers or otherwise for more than the past five years and have had no
other employment during such period.

2021
2223

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

Williams' Common Stock is listed on the New York and Pacific Stock
Exchanges under the symbol "WMB." At the close of business on December 31, 1994,1995,
Williams had 7,40011,933 holders of record of its Common Stock. The daily closing
price ranges (composite transactions) and dividends declared by quarter for each
of the past two years are as follows:

1995 1994
1993
-------------------------- ------------------------------------------------------------- -----------------------------
QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND
--------------------------- ---- ----- -------- ------- ------- -------- ------- ------- --------

1st........................ $27 1/1st................................ $30-7/8 $24-7/8 $.27 $27-1/4 $22 3/$22-3/4 $.21
$24 1/2nd................................ $35-3/8 $18 1/$30-1/4 $.27 $30-1/8 $.19
2nd........................ $30 1/8 $22 1/$22-1/8 $.21
$27 3/3rd................................ $39-1/8 $23 11/16 $.19
3rd........................ $32 7/$34-5/8 $28 3/$.27 $32-7/8 $28-3/8 $.21
$31 9/16 $26 5/16 $.19
4th........................ $30 1/4th................................ $44-1/2 $37-5/8 $.27 $30-1/4 $24 1/8 $.21 $31 9/16 $24 3/$24-1/8 $.21

In January 1995,1996, the Board of Directors of the Company approved a 28.525.9
percent increase in the Common Stock dividend. The dividend approved for the
first quarter of 19951996 was $.27$.34 per share.

Terms of certain subsidiaries' borrowing arrangements limit transfer of
funds to Williams. Terms of other borrowing arrangements limit the payment of
dividends on Williams' Common Stock. These restrictionsterms have not impeded, nor are they expected to in the
future, Williams' ability to meet its cash obligations. See Note 1113 of Notes to
Consolidated Financial Statements.

2122
2324

ITEM 6. SELECTED FINANCIAL DATA

The following financial data are an integral part of, and should be read in
conjunction with, the consolidated financial statements and notes thereto.
Information concerning significant trends in the financial condition and results
of operations is contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages F-1 through F-8F-9 of this report.

1995 1994 1993* 1992* 1991* 1990*
------- ------- ------- ------- -------1993 1992 1991
--------- -------- -------- -------- --------
(MILLIONS, EXCEPT PER-SHARE AMOUNTS)

Revenues**.............................................................. $ 2,855.7 $1,751.1 $1,793.4 $1,983.5 $1,704.5
$1,445.9
Income from continuing operations**............ 299.4 164.9 185.4 103.1 69.7
36.0
Income from discontinued
operations........operations**........................ 1,018.8 94.0 46.4 25.2 40.3 41.0
Fully diluted earnings per share:
Income from continuing operations........operations... 2.76 1.52 1.71 .97 .69
.29
Income from discontinued
operations......operations....................... 9.72 .92 .45 .28 .48
.50
Cash dividends per common share............share....... 1.08 .84 .78 .76 .70 .70
Total assets at December 31................31........... 10,494.8 5,226.1 5,020.4 4,982.3 4,247.4
4,034.4
Long-term obligations at December
31.......31.................................. 2,874.0 1,307.8 1,604.8 1,683.2 1,541.9
1,374.5
Stockholders' equity at December 31........31... 3,187.1 1,505.5 1,724.0 1,518.3 1,220.0 1,166.5

- ---------------

* Certain amounts have been restated as described in Note 2 ofSee Notes to
Consolidated Financial Statements.

** See Note 45 and 6 of Notes to Consolidated Financial Statements for
discussion of significant asset dispositions.sales and write-off of project costs.

** See Note 3 of Notes to Consolidated Financial Statements for discussion of
the gain on the sale of discontinued operations.

ITEM 7. MANAGEMENT'S7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTRESULTS OF OPERATIONS

1995 vs. 1994

Northwest Pipeline's revenues increased $16.7 million, or 7 percent, due
primarily to the $16 million reversal of a portion of certain rate refund
accruals and increased transportation rates put into effect in November 1994,
partially offset by the completion in 1994 of billing contract-reformation
surcharges. Mainline throughput increased 22 percent; however, revenues were not
significantly affected due to the effects of the straight-fixed-variable rate
design prescribed by the Federal Energy Regulatory Commission (FERC). Operating
profit increased $11.6 million, or 11 percent, due primarily to higher
transportation rates and the approximate $11 million net effect of two reserve
accrual adjustments, partially offset by $5 million, or 13 percent, higher
operations and maintenance expenses. The reserve accrual adjustments involved a
$16 million adjustment to rate refund accruals because of favorable rate case
developments, partially offset by a loss accrual (included in other
income -- net) in connection with a lawsuit involving a former transportation
customer.

Williams Natural Gas' revenues decreased $57 million, or 25 percent, and
costs and operating expenses decreased $62 million, or 40 percent, due primarily
to $36 million lower direct billing of purchased gas adjustments and lower
contract-reformation recovery of $21 million. Operating profit decreased $3.8
million, or 8 percent, due primarily to the absence of the 1994 reversal of
excess contract-reformation accruals of $7.4 million and $3.2 million from lower
1995 average firm reserved capacity, partially offset by $4.6 million resulting
from higher average firm reserved capacity rates, effective August 1, 1995, and
higher storage revenues of $3.7 million.

Transcontinental Gas Pipe Line's revenues were $725.3 million in 1995,
while costs and expenses were $560 million and operating profit was $165
million. Throughput was 1,410.9 TBtu in 1995 (for the period subsequent to the
acquisition date). Transcontinental Gas Pipe Line placed new, higher rates into
effect September 1, 1995, subject to refund. Market-area deliveries in 1995 and
1994 were approximately the same.

F-1
25

Texas Gas Transmission's revenues were $276.3 million in 1995, while costs
and expenses were $212 million and operating profit was $64 million. Throughput
was 653.4 TBtu in 1995 (for the period subsequent to the acquisition date).
Texas Gas placed new, higher rates into effect April 1, 1995, subject to refund.

Williams Field Services Group's revenues increased $216.1 million, or 58
percent, due primarily to $172 million higher gathering revenues in addition to
higher natural gas sales. Gathering revenues increased due primarily to a 102
percent increase in gathering volumes, including $131 million attributable to
Transco Energy's Gulf Coast gathering operations, combined with an increase in
average gathering prices, excluding Gulf Coast operations. Natural gas sales
increased due to higher volumes, partially offset by lower average prices.
Liquids and processing volumes increased 6 percent and 4 percent, respectively.
Costs and operating expenses increased $171 million, or 79 percent, and selling,
general and administrative expenses increased $28 million, or 89 percent, with
Transco Energy's activities contributing $102 million and $13 million,
respectively. In addition, costs and operating expenses increased from higher
natural gas purchase volumes and expanded facilities. Other income -- net
includes $12 million in operating profit from the net effect of two unrelated
items. One was $20 million of income from the favorable resolution of
contingency issues involving previously regulated gathering and processing
assets. This was partially offset by an $8 million accrual for a future minimum
price natural gas commitment. Operating profit increased $28.3 million, or 22
percent, primarily resulting from the $12 million in other income and a doubling
of gathering volumes, primarily a result of Transco Energy's gathering
activities. Partially offsetting these increases was the effect of lower natural
gas prices. Operating profit in 1994 included approximately $12 million in
favorable settlements and adjustments of certain prior period accruals,
including income of $4 million from an adjustment to operating taxes.

Williams Energy Services' revenues and costs and operating expenses
decreased $177.9 million and $238 million, respectively. The addition of Transco
Energy's gas trading activities was more than offset by the reporting of 1995
natural gas marketing activities on a net-margin basis (see Note 15). Natural
gas physical trading volumes increased to 753.8 TBtu in 1995 compared to 147.8
TBtu in 1994, primarily from the effect of the Transco Energy acquisition.
Operating profit increased $29.5 million from $500,000 in 1994. Trading
activities' operating profit increased $34 million, attributable primarily to
income recognition from long-term natural gas supply obligations and no-notice
service provided to local distribution companies. Included in trading activities
is a price-risk management adjustment of $4 million from the valuation of
certain natural gas supply and sales contracts previously excluded from trading
activities. These increases were partially offset by $6 million of loss
provisions, primarily accruals for contract disputes, and increased costs of
supporting its information services business. As a result of Williams Energy
Services' price-risk management and trading activities, it is subject to risk
from changes in energy commodity market prices, the portfolio position of its
financial instruments and credit risk. Williams Energy Services manages its
portfolio position by making commitments which manage risk by maintaining its
portfolio within established trading policy guidelines.

Williams Pipe Line's revenues (including Williams Energy Ventures)
increased $39.5 million, or 13 percent, due to an increase in transportation and
non-transportation revenues of $9 million and $30.5 million, respectively.
Shipments, while 7 percent higher than 1994, were reduced by the November 1994
fire at our truck-loading rack and unfavorable weather conditions in the first
half of 1995. The average transportation rate per barrel and average length of
haul were slightly below 1994 due primarily to shorter haul movements. The
increase in non-transportation revenues reflects $84 million from the
acquisition of Pekin Energy in August 1995 and increased gas liquids operations
of $16 million, largely offset by $62 million related to lower petroleum-product
services due to adverse market conditions and a $15 million decrease in refined-
product sales due to the unavailability of certain refined-product supplies.
Costs and expenses increased $22 million, or 8 percent, due primarily to
increased operating expenses associated with transportation and
non-transportation activities. Operating profit (including Williams Energy
Ventures) increased $17.8 million, or 34 percent, due primarily to higher
transportation revenues of $9 million and non-transportation activities of $8.8
million. Non-transportation includes $3 million related to the acquisition of
Pekin Energy and the absence of $5 million of costs in 1994 for evaluating and
determining whether to build an oil refinery near

F-2
26

Phoenix. Williams Energy Ventures' results improved in 1995 with a $400,000
operating loss compared to an $8.1 million operating loss in 1994.

WilTel's revenues increased $98.3 million, or 25 percent, due primarily to
$30 million from new systems, $28 million from existing system enhancements and
$37 million from contract maintenance, moves, adds and changes. These amounts
include the effect of the acquisitions of BellSouth Communications Systems in
March 1994 and Jackson Voice Data, completed in October 1994. The number of
ports in service at December 31, 1995, has increased 14 percent as compared to
December 31, 1994. Costs and operating expenses increased $79 million, or 26
percent, due primarily to the increase in volume of sales and services. While
the $11 million, or 15 percent, increase in selling, general and administrative
expenses is due primarily to higher revenues, the selling, general and
administrative expense to revenue percent declined from 19.2 percent to 17.7
percent, reflecting better leveraging of the company's existing infrastructure.
Operating profit increased $9.4 million, or 50 percent, due primarily to
increased activity in new system sales, enhancements to existing systems,
maintenance and the full-year 1995 impact of two 1994 acquisitions and cost
control efforts.

WilTech Group's revenues increased $24 million, or 120 percent, due
primarily to $15 million in higher occasional and dedicated digital television
services revenues and the effect of an acquisition during 1995. Billable minutes
from occasional service increased 110 percent and dedicated service voice grade
equivalent miles at December 31, 1995, increased 50 percent as compared with
December 31, 1994. The $6 million, or 22 percent, increase in cost of sales and
the $10 million increase in selling, general and administrative expenses
reflects the overall increase in sales activity and higher expenses for
developing additional products and services. Operating loss decreased $8
million, or 71 percent, due to higher demand for WilTech Group's digital
television services, which produced volumes sufficient to result in operating
profit for the fourth quarter.

General corporate expenses increased $9.7 million, due primarily to a $6.4
million increase in charitable contributions, including $5 million to The
Williams Companies Foundation. Interest accrued increased $132.1 million, due
primarily to the $2 billion outstanding debt assumed as a result of the Transco
Energy acquisition. Interest capitalized increased $8.5 million, due primarily
to increased expenditures for gathering and processing facilities and Northwest
Pipeline's expansion projects. Investing income increased $44.3 million, due
primarily to interest earned on the invested portion of the cash proceeds from
the sale of Williams' network services operations in addition to an $11 million
increase in the dividend from Texasgulf Inc. The 1995 loss on sales of assets
results from the sale of the 15 percent interest in Texasgulf Inc. (see Note 5).
The 1994 gain on sales of assets results from the sale of 3,461,500 limited
partner common units in Northern Border Partners, L.P. The 1995 write-off of
project costs results from the cancellation of an underground coal gasification
project in Wyoming (see Note 6). Other income (expense) -- net in 1995 includes
approximately $10 million of minority interest expense associated with the
Transco Energy merger, $4 million of dividends on subsidiary preferred stock and
$4 million of losses on sales of receivables, partially offset by $11 million of
equity allowance for funds used during construction (AFUDC). Other income
(expense) -- net in 1994 includes a credit for $4.8 million from the reversal of
previously accrued liabilities associated with certain Royalty Trust
contingencies that expired. Also included is approximately $4 million of expense
related to Statement of Financial Accounting Standards (FAS) No. 112,
"Employers' Accounting for Postemployment Benefits," which relates to
postemployment benefits being paid to employees of companies previously sold.

The $20.3 million increase in the provision for income taxes on continuing
operations is primarily a result of higher pre-tax income, partially offset by a
lower effective income tax rate resulting from $29.8 million of previously
unrecognized tax benefits realized as a result of the sale of Texasgulf Inc.
(see Note 5) and an $8 million income tax benefit resulting from settlements
with taxing authorities. The effective income tax rate in 1995 is significantly
less than the federal statutory rate, due primarily to the previously
unrecognized tax benefits realized as a result of the sale of the investment in
Texasgulf Inc., income tax credits from coal-seam gas production and recognition
of an $8 million income tax benefit resulting from settlements with taxing
authorities, partially offset by the effects of state income taxes and minority
interest. The effective income tax rate in 1994 is lower than the statutory rate
primarily because of income tax credits from coal-seam gas production, partially
offset by state income taxes (see Note 7).

F-3
27

On January 5, 1995, Williams sold its network services operations to LDDS
Communications, Inc. for $2.5 billion in cash. The sale yielded an after-tax
gain of approximately $1 billion, which is reported as income from discontinued
operations. Prior period operating results for the network services operations
are reported as discontinued operations (see Note 3).

The 1994 extraordinary loss results from the early extinguishment of debt
(see Note 8). Preferred stock dividends increased $6.5 million as a result of
the May 1995 issuance of 2.5 million shares of Williams $3.50 cumulative
convertible preferred stock in exchange for Transco Energy's $3.50 cumulative
convertible preferred stock (see Note 14) in addition to the $3.5 million
premium on exchange of $2.21 cumulative preferred stock for debentures.

1994 vs. 1993

Northwest Pipeline's revenues decreased $38 million, or 14 percent, as
expanded firm transportation service was more than offset by the absence of
natural gas sales following the fourth-quarter 1993 implementation of Federal Energy Regulatory
Commission (FERC)FERC Order
636 and $10 million resulting from the 1994 completion of contract-reformation
surcharges. Total mainline throughput increased 9 percent. Firm transportation
service increased due to a mainline expansion, supported by 15-year firm
transportation contracts, being placed into service on April 1, 1993. Northwest
Pipeline placed new, increased transportation rates into effect on November 1,
1994, and April 1, 1993, subject to refund. The April 1, 1993, rates reflected
the new mainline expansion and straight-fixed-variable rate design that
moderates seasonal swings in operating revenues. Costs and operating expenses
decreased $43 million, or 32 percent, due primarily to the absence of natural
gas purchase volumes of $41 million and the completion of contract-reformation
amortization, slightly offset by increased operating expenses primarily related
to the full-year effect on 1994 of the mainline expansion. Operating profit
increased $5.3 million, or 5 percent, due primarily to expanded firm
transportation service related to the company's mainline system expansion.

Williams Natural Gas' revenues decreased $62.8 million, or 21 percent,
primarily as a result of the absence of natural gas sales resulting from
implementation of FERC Order 636 on October 1, 1993. The decrease in revenues
was partially offset by the implementation of new rates required by the Order,
direct billing of net purchased gas cost adjustment amounts of approximately $40
million and higher direct billing of recoverable contract-reformation costs of
approximately $17 million. Costs and operating expenses decreased $67 million,
or 30 percent, primarily as a result of approximately $120 million lower gas
purchase costs resulting from the implementation of FERC Order 636, partially
offset by the costs that were direct billed as discussed above. Operating profit
increased $7.8 million, or 19 percent, primarily as a result of the full-year
effect of new rates, implementation of Order 636 and the reversal of excess
contract-reformation accruals recorded in other income -- net ($7.4 million in
1994 and $2.5 million in 1993), partially offset by the absence of the
regulatory accounting effect of an income tax rate increase in 1993 (which was
offset in income tax expense). FERC Order 636 utilizes a straight-fixed-variable
rate design that is applied to each customer's annual firm contract demand for
transportation.

F-1
24

Williams Field Services Group's revenues decreased 17$56.5 million, or 13
percent, due primarily to 22 percent$71 million in lower natural gas sales volumesrevenues as a
result of the March 1993 sale of Williams' intrastate natural gas pipeline
system and related marketing operations in Louisiana. Liquids volumesLouisiana, $9 million in lower
liquids revenues and prices,lower average natural
gas sales prices and averageprocessing prices. Partially offsetting were
higher gathering and processing prices also decreased, but
were somewhat offset byrevenues of $22 million and $8 million,
respectively, from increased gathering and processing volumes of 13 percent and 21 percent, respectively.
Increased other revenues in 1994 were offset by a 1993 favorable settlement
involving processing revenues from prior periods. Costs and operating expenses
decreased $59 million, or 21 percent, due primarily to lower natural gas
purchase volumes and per-unit costspurchases of $66 million and the effects of a favorable adjustment of an accrual
related to operating taxes, partially offset by higher operations, maintenance
and depreciation expenses at expanded gathering facilities. Operating profit
increased 5$2.6 million, or 2 percent, due primarily to higher gathering and
processing volumes and a $4 million favorable operating taxes adjustment,
and other revenues, partially offset by $5 million of lower per-unit liquids margins, lower average
gathering and processing prices and higher operations, maintenance and maintenancedepreciation expenses
associated with expanded facilities.

F-4
28

Williams Energy Services' revenues decreased $97.1 million, or 27 percent,
due primarily to lower natural gas sales volumes and prices of $45 million,
lower refined-product trading margins and the $45 million effect of reporting
these trading activities on a "net margin" basis, effective July 1, 1993. Costs
and operating expenses decreased 29 percent, due to lower natural gas purchase
volumes and prices of $46 million and the $43 million effect of reporting
refined-product trading activities on a "net margin" basis, partially offset by
the cost of developing long-term energy industry businesses. General and
administrative expenses increased 44 percent, reflecting the costs of
establishing appropriate administrative and project support groups to serve
growing business activities. Operating profit was $500,000 in 1994 compared to
$7.9 million in 1993. Price-risk management services' results continued to be
profitable but were lower by $6 million in 1994 than 1993 included a favorable settlement involving processing revenuesbecause of reduced
gasoline and distillate margins and the effect of location pricing differentials
in refined-products trading activities, partially offset by an improvement in
natural gas trading margins reflecting increased volumes. Costs to develop
long-term energy industry opportunities also adversely affected operating
profit. Results from prior
periods.natural gas marketing activities increased by $2 million in
1994 compared to 1993.

Williams Pipe Line's shipments increased 9 percent, due primarily to new
volumes resulting from the December 1993 acquisition of a pipeline system in
southern Oklahoma. Revenues (including Williams Energy Ventures) increased
17$130.2 million, or 72 percent, due primarily to higher shipments, and increased gas
liquids and fractionator operations.operations of $30 million and petroleum services
activities of $106 million. The slightly higher average transportation rate
resulted primarily from longer hauls into the northern region and overall
increases in tariff rates, effective December 1, 1994, and June 1, 1993,
partially offset by lower rates on shorter haul movements from new business.
Costs and operating expenses increased $125 million, or 94 percent, due
primarily to gas liquids and fractionator operations, and additional operating
expenses.expenses, petroleum services activities of $104 million and the cost of
developing long-term energy industry businesses. Operating profit (including
Williams Energy Ventures) increased 25$4.8 million, or 10 percent, due primarily toreflecting $15
million from increased shipments and a favorable insurance settlement, partially
offset by higher operating and maintenance expenses. Williams Energy Ventures' revenues increased 72 percent, due primarily to
newly established petroleum services activities, partially offset by lower
refined product trading margins and the effectOperating profit also
includes $9 million of reporting these trading
activities on a "net margin" basis effective July 1, 1993. Costs and operating
expenses increased as a result of the newly established petroleum services
activities and the cost of developing long-term energy industry businesses,
partially offset by the effect of reporting refined product trading activities
on a "net margin" basis. General and administrative expenses increased,
reflecting the costs of establishing appropriate administrative and project
support groups to serve growing business activities. An operating loss of $10.8
million in 1994 compares to operating profit of $7.8 million in 1993, reflecting
costs offrom developing long-term energy industry
investment opportunities and lower
results from price-risk management services, partially offset by improved
petroleum services activities.opportunities. Included in 1994's other income -- net is
approximately $5 million of costs for evaluating and determining whether to
build an oil refinery near Phoenix.

Price-risk management services' results
continued to be profitable but were lower in 1994 than 1993 because of reduced
gasoline and distillate margins and the effect of location pricing differentials
in refined products trading activities, partially offset by an improvement in
natural gas trading margins reflectingWilTel's revenues increased volumes.

Williams Telecommunications Systems' revenues increased$93.8 million, or 31 percent, due in large part
to the March 31, 1994, acquisition of BellSouth's customer equipment sales and
service operations in 29 states, as evidenced by a 52 percent increase in the
number of ports. Costs and operating expenses and selling, general and
administrative expenses increased 31 percent and 20 percent, respectively, due
to the increase in volume of equipment sales and services. Operating profit
nearly doubledincreased to $18.9 million in 1994 from $9.5 million in 1993, primarily
resulting from higher sales volumes, partially offset by an increase in selling,
general and administrative expenses. Margins were level between 1994 and 1993,
while selling, general and administrative expenses as a percent of revenue
decreased in 1994 compared to 1993.

WilTech Group's revenues and operating losses for 1994 and 1993 are
primarily from Vyvx, Inc.'s switched fiber-optic television transmission
services. Results of Vyvx's operations improved significantly in 1994; however,
the operations in both periods were not profitable as sufficient volumes had not
been achieved to support the infrastructure in place. Revenues increased $6.5
million, or 48 percent, in 1994 reflecting higher occasional and dedicated
digital television services, which helped reduce operating losses 34 percent
from $17 million in 1993 to $11.3 million in 1994.

General corporate expenses decreased $10.4 million, reflecting lower
supplemental retirement benefits (see Note 7)9) and incentive compensation
accruals. Interest accrued decreased $5.4 million, primarily because of lower
effective interest rates, partially offset by higher average borrowing levels.
Interest capitalized decreased $4.4 million, reflecting the completion of
Northwest Pipeline's mainline expansion, which was placed in service April 1,
1993. Investing income decreased $15.6 million, due primarily to lower
investment levels and lower equity earnings for Apco Argentina Inc., in addition
to the sale of a portion of Williams' interest in Northern Border Partners, L.P.
The 1994 gain on sales of assets results from the sale of 3,461,500 limited
partner common units in Northern Border Partners, L.P. The gain on sales of
assets in 1993 results from the sale of 6.1 million units in the Williams Coal
Seam F-2
25

Gas Royalty Trust and the sale of the intrastate natural gas pipeline
system and other related assets in Louisiana (see Note 4)6). Other income
(expense)-- net

F-5
29

in 1994 includes a credit for $4.8 million from the reversal of previously
accrued liabilities associated with certain Royalty Trust contingencies that
expired. Also included is approximately $4 million of expense related to Statement of
Financial Accounting Standards (SFAS)FAS No.
112, "Employers' Accounting for Postemployment Benefits," which relates to
postemployment benefits being paid to employees of companies previously sold.
Other income (expense)-- net in 1993 includes $6 million of expense accruals for
certain costs associated with businesses previously sold, offset withby $6 million
of equity allowance for funds
used during construction (AFUDC)AFUDC related to the Northwest Pipeline mainline expansion.

The $30.9 million decrease in the provision for income taxes on continuing
operations is primarily a result of lower pre-tax income and the $15.8 million
cumulative effect in 1993 of the 1 percent increase in the federal income tax
rate. The effective income tax rate in 1994 is lower than the statutory rate,
primarily because of income tax credits from coal-seam gas production, partially
offset by state income taxes. The effective income tax rate in 1993 is higher
than the statutory rate, primarily because of the effect of the federal income
tax rate increase and state income taxes, partially offset by income tax credits
from coal-seam gas production (see Note 5)7).

The network services operations of WilTelWilliams have been presented in the
Consolidated Financial Statements as discontinued operations with prior period
operating results restated (see Note 2)3).
Income from discontinued operations more than doubled to $94 million. The
increase reflects a 93 percent increase in switched services minutes and a 24
percent increase in private line billable circuits. These increases more than
offset a major carrier's long-expected removal of traffic from WilTel'sWilliams' system
to the carrier's expanded network. Income was also impacted by a decrease in
interest accrued due to the early extinguishment of network services' long-term
debt. The effective income tax rate for both 1994 and 1993 is greater than the
federal statutory rate, due to the effect of state income taxes.

The extraordinary credit (loss)loss results from early extinguishment of debt (see Note
6)8). Preferred stock dividends decreased, reflecting the redemption of 3,000,000
shares of outstanding $3.875 convertible exchangeable preferred stock during the
second quarter of 1993 (see Note 12).

1993 vs. 1992

Northwest Pipeline's revenues increased 10 percent, reflecting increased
firm transportation service and higher average transportation rates, partially
offset by lower average gas sales prices. Total mainline throughput increased 2
percent. Firm transportation service increased due to a mainline expansion,
supported by 15-year firm transportation contracts, being placed into service on
April 1, 1993. Northwest Pipeline also placed new, increased transportation
rates (subject to refund) into effect on April 1, 1993, that reflected the new
mainline expansion and straight-fixed-variable rate design that moderates
seasonal swings in operating revenues. Costs and operating expenses decreased 10
percent, due primarily to lower gas purchase volumes and per-unit costs and
decreased operation and maintenance expenses, partially offset by increased
depreciation. General and administrative expenses increased, due primarily to
higher supplemental retirement expenses and increased outside technical and
professional fees. Operating profit increased 49 percent, due primarily to
increased firm transportation service, higher average transportation rates and
lower operation and maintenance expenses, partially offset by higher
depreciation and general and administrative expenses and lower gas sales
margins.

Williams Natural Gas' revenues decreased 7 percent, primarily as a result
of lower natural gas sales volumes reflecting implementation of FERC Order 636
on October 1, 1993, partially offset by higher average transportation rates and
volumes and revenues generated from the sale of working gas in storage. Total
throughput increased 2 percent, due primarily to cooler weather in the first
quarter of 1993 and increased on-system industrial demand, partially offset by
lower off-system activity. Costs and operating expenses decreased 9 percent,
primarily as a result of decreased gas supply volumes, partially offset by
increased operating and maintenance expenses, increased amortization of
recoverable contract-reformation costs and higher per-unit gas supply costs.
Operating profit increased 4 percent, primarily due to higher average
transportation rates and volumes, reversal of excess contract-reformation costs
that had been previously accrued and the regulatory

F-3
26

accounting for an income tax rate increase. Largely offsetting operating profit
increases were lower natural gas sales volumes and higher operating and
maintenance expenses. The impact of the regulatory accounting adjustment was
offset by additional deferred income tax expense.

Williams Field Services Group's revenues decreased 24 percent, due
primarily to lower natural gas sales volumes, partially offset by increased
gathering, liquids products and processing volumes, and higher average
gathering, processing and natural gas sales prices. Gathering volumes increased
18 percent, natural gas liquids volumes increased 11 percent and processing
volumes increased 14 percent when compared with volumes from the prior year. The
lower natural gas sales volumes were due to the March 1993 sale of Williams'
intrastate natural gas pipeline system and related marketing operations in
Louisiana. Costs and operating expenses decreased, due primarily to lower
natural gas purchase volumes, partially offset by higher gas costs associated
with the liquids extraction process and increased operating and maintenance
expenses at expanded gathering and processing facilities. Operating profit
increased 9 percent, due primarily to increased volumes at expanded facilities
and a favorable settlement involving processing revenues from prior periods,
partially offset by decreased gas sales volumes, lower liquids margins and
increased operating costs from expanded facilities. Other income -- net and
operating profit in 1992 also included a gain on the sale of a gathering
facility and the reversal of a loss accrual made in prior years.

Williams Pipe Line's revenues increased 21 percent, due primarily to 12
percent higher shipments, increased other revenues primarily related to gas
liquids and fractionator operations, partially offset by a slightly lower
transportation rate per barrel. The lower average transportation rate per barrel
reflects a 5 percent decrease in the length of the average haul, partially
offset by increased tariff rates for portions of both 1992 and 1993. Costs and
operating expenses increased, due primarily to gas liquids and fractionator
operations. Operating profit increased primarily as a result of higher shipments
and lower general and administrative expenses. During the fourth quarter,
Williams Pipe Line completed the acquisition of a 300-mile pipeline that
connects with the southern portion of its system in Oklahoma. The additional
pipeline will provide more direct access to key refining areas and open new
markets.

Williams Energy Ventures' revenues and operating costs decreased
approximately 27 percent, due primarily to reporting refined product trading
activities on a "net margin" basis effective July 1, 1993. Selling, general and
administrative expenses increased significantly from costs associated with
establishing this company's operations, pursuing new business development and
equipping the company to pursue a growing range of financial and
information-based opportunities in the energy industry. Operating profit
decreased as improved results from price-risk management activities were more
than offset by the expense associated with the development and marketing of new
information-based products and exploring other growth opportunities in the
energy industry. Improved results in price-risk management activities relate to
increases in marketing of commodities and derivatives products, in addition to
increased refined product trading volumes.

Williams Telecommunications Systems' revenues increased 12 percent, due
primarily to higher equipment sales and services. Costs and operating expenses
increased 9 percent, due primarily to the increased volume of equipment sales
and services. Selling, general and administrative expenses decreased 9 percent
as 1992 was negatively impacted by the costs associated with restructuring this
business. Operating profit increased to $9.5 million in 1993, compared with an
operating loss of $9.8 million in 1992 due to increased margins and volumes and
a decrease in selling, general and administrative expenses.

General corporate expenses increased, reflecting higher supplemental
retirement benefits (see Note 7) and incentive compensation accruals, in
addition to a contribution to The Williams Companies Foundation. Interest
accrued increased, primarily because of higher average borrowing levels,
partially offset by a lower effective interest rate including the effects of
interest-rate swap agreements (see Note 11). Investing income increased,
reflecting higher equity earnings from the Kern River Gas Transmission Company
pipeline, which became operational February 1992, and higher levels of
short-term investments. The gain on sales of assets in 1993 results from the
sale of 6.1 million units in the Williams Coal Seam Gas Royalty Trust and the
sale of the intrastate natural gas pipeline system and other related assets in
Louisiana. The 1992 gain on sales of assets results from the sale of a tract of
land in Florida that had been retained from the assets of Agrico Chemical
Company, which was sold in 1987. Other income (expense) -- net is unfavorable to
1992, primarily

F-4
27

because of decreased equity AFUDC related to Northwest Pipeline's mainline
expansion and expense accruals for certain costs associated with businesses
previously sold.

The increase in the provision for income taxes is primarily a result of
higher pre-tax income and the $15.8 million cumulative effect of the 1 percent
increase in the federal income tax rate. The effective income tax rate in 1993
is higher than the statutory rate, primarily because of the effect of the
federal income tax rate increase and state income taxes, partially offset by
income tax credits from coal-seam gas production. The effective income tax rate
in 1992 is lower than the statutory rate, primarily because of income tax
credits from coal-seam gas production, partially offset by state income taxes
(see Note 5).

Income from discontinued operations related to WilTel's network services
operations increased 84 percent to $46.4 million in 1993 (see Note 2). The
increase is due primarily to a 122 percent increase in switched services
minutes, a 32 percent increase in private line billable circuits and lower
provisions for bad debt expense, partially offset by a decrease in the weighted
average price per circuit. The effective income tax rate for both 1993 and 1992
is greater than the federal statutory rate due to the effect of state income
taxes.

Preferred stock dividends decreased, reflecting the redemption of 3,000,000
shares of outstanding $3.875 convertible exchangeable preferred stock during the
second quarter of 1993 (see Note 12)14).

FINANCIAL CONDITION AND LIQUIDITY

Liquidity

Williams considers its liquidity to come from two sources: internal
liquidity, consisting of available cash investments, and external liquidity,
consisting of borrowing capacity from available bank-credit facilities, which
can be utilized without limitation under existing loan covenants. At December
31, 1994,1995, Williams had access to $495$726 million of liquidity representing the
available portion of its $600$800 million bank-credit facility (see Note 11).plus cash-equivalent
investments. This compares with liquidity of $495 million at December 31, 1994,
and $639 million at December 31, 1993,1993. The increase in 1995 is due primarily to
a $200 million increase in the capacity of the bank-credit facility (see Note
13). In January 1996, Williams Holdings of Delaware, Inc., a wholly owned
subsidiary of Williams, filed a $400 million shelf registration statement with
the Securities and $780Exchange Commission and subsequently issued $250 million at December 31, 1992, including $178 million from Northwest Pipeline.of
debt securities. During 1993, Williams filed a $300 million shelf registration
statement with the Securities and Exchange Commission, increasing the total
amount available to $400 million. The registration statement may be used to
issue Williams common or preferred stock, preferred stock purchase rights, debt
securities, warrants to purchase Williams common stock or warrants to purchase
debt securities. In
addition, Northwest Pipeline has $50 million remaining on a registration
statement filed with the Securities and Exchange Commission in 1992. Williams does not anticipate the need for additional financing
arrangements; however, Williams believes itsuch arrangements could be obtained on
reasonable terms if required.

Williams had a net working-capital deficit of $706 million at December 31,
1995, compared with $17 million at December 31, 1994, including net assets of discontinued operations of $744 million, compared
with $106 million at December 31, 1993. Subsequent to December 31, 1994, $398
million of notes payable and $350 million of revolving credit loans (see Note
11) were repaid from proceeds of the sale of WilTel's network services
operations.1994. Williams manages its
borrowings to keep cash and cash equivalents at a minimum and has relied on
bank-credit facilities to provide flexibility for its cash needs. As a result,
it historically has reported negative working capital. The increase in the
working-capital deficit at December 31, 1995, as compared to the prior year-end
is primarily a result of higher 1995 levels of accounts payable and accrued
liabilities (see Note 12) and the effect of the 1994 net assets of discontinued
operations (see Note 3).

F-6
30

Terms of certain borrowing agreements limit transfer of funds to Williams
from its subsidiaries. The restrictions have not impeded, nor are they expected
to impede, Williams' ability to meet its cash requirements in the future.

Subsequent to December 31, 1994,1995, Williams completedentered into a $205 million
short-term borrowing agreement to finance the salepurchase of WilTel's
network services operations,the remaining interest
in Kern River Gas Transmission (see Notes 5 and also acquired 60 percent of Transco Energy
Company (Transco)13). See Notes 2 and 16 and the subsequent events section of
Management's Discussion and Analysis for additional information regarding the
impact these transactions will have on Williams' financial condition and
liquidity. During 1995,1996, Williams
expects to finance capital expenditures, the
Transco acquisition, investments and working-capital
requirements through cash generated from operations and the use of its $600$800
million bank-credit facility or public debt/equity offerings and
the proceeds from the sale of WilTel's network services operations.

F-5
28offerings.

Operating Activities

Cash provided by continuing operating activities was: 1995 -- $829 million;
1994 -- $189$180 million; and 1993 -- $187 million;million. Accrued liabilities increased,
due primarily to the income tax and 1992 -- $141 million. Accounts receivable increased
because of expanded activities of Williams Energy Ventures and acquisitions made
by Williams Telecommunications Systems, partially offset byother liabilities associated with the reclassification
of WilTel's network services receivables to net assets of discontinued
operations (see Note 2). Accounts payable and accrued liabilities also declined
as a resultsale
of the network services reclassification.operations in addition to the acquisition of Transco
Energy. The increases in receivables, inventory, other current assets, property,
plant and equipment, other noncurrent assets and deferred charges, payables,
long-term debt, deferred income taxes, and other liabilities primarily reflect
the acquisition of Transco Energy. In addition, the increase in receivables was
partially offset by a $56 million increase in the level of receivables sold.
Cash provided by discontinued operations was: 1994 -- $179$169 million; and
1993 -- $162 million; 1992 -- $113 million. The increases during the periods
primarily reflect improved operating results.

Financing Activities

Net cash provided (used) by financing activities was: 1995 -- ($1.4)
billion; 1994 -- $31$50 million; and 1993 -- ($220) million; 1992 -- $421 million. Notes payable
decreased, reflecting the repayment of these notes with the proceeds from the
sale of the network services operations. Long-term debt principal payments net
of debt proceeds were $610 million during 1995. Long-term debt proceeds, net of
principal payments and early extinguishmentsextinguishment of debt were $24 million during
1994. Long-term debt principal payments totaled $192 million during 1993.

Long-
termOn January 18, 1995, Williams acquired 60 percent of Transco Energy's
outstanding common stock in a cash tender offer for $430.5 million. Williams
acquired the remaining 40 percent of Transco Energy's outstanding common stock
on May 1, 1995, through a merger by exchanging the remaining Transco Energy
common stock for approximately 10.4 million shares of Williams common stock
valued at $334 million. Additionally, $2.3 billion in preferred stock and debt
obligations of Transco Energy was assumed by Williams. Williams made payments to
retire and/or terminate approximately $700 million of Transco Energy's
borrowings, preferred stock, interest-rate swaps and sale of receivable
facilities. As part of the merger, Williams exchanged Transco Energy's $3.50
cumulative convertible preferred stock for Williams' $3.50 cumulative
convertible preferred stock (see Note 2). The cash portion of the acquisition
and the payments to retire and/or terminate various Transco Energy facilities
were financed with the proceeds netfrom the sale of principal payments, during 1992 were $264 million.Williams' network services
operations (see Note 3).

The increase1995 proceeds from issuance of common stock includes $46.2 million from
the sale of 1.2 million shares of Williams common stock, held by a subsidiary of
Williams and previously classified as treasury stock in net new borrowings during 1992 was primarilythe Consolidated Balance
Sheet, in addition to fund capital
expenditurescertain Williams benefit plan stock purchases and investmentsexercise
of stock options under Williams' stock plans. The majority of the proceeds from
issuance of common stock in 1994 and advances to affiliates.1993 resulted from certain Williams benefit
plan stock purchases and exercise of stock options under Williams' stock plan
(see Note 14).

During 1994, Williams and one of its subsidiaries purchased 13.8 million
shares of Williams common stock on the open market for $407 million.
Substantially all of the purchases were financed with a $400 million bank-credit
agreement. Subsequent to December 31, 1994,In 1995, the outstanding amounts under the credit agreement were
repaid from the proceeds of the sale of WilTel'sWilliams' network services operations,
and the credit agreement was terminated.

F-7
31

Williams also repurchased 258,800 shares of its $2.21 cumulative preferred stock
on the open market for $6 million.

The majority of the proceeds from issuance of common stockmillion in 1994 and 1993
resulted from certain Williams benefit plan stock purchases and exercise of
stock options under Williams' stock plan (see Note 12). During 1992, Williams
received net proceeds of $96 million from the sale of 4,000,000 shares of $2.21
cumulative preferred stock and $119 million from the sale of 7,100,000 shares of
common stock.1994.

During 1993, Williams called for redemption of its 3,000,000 shares of
outstanding $3.875 convertible exchangeable preferred stock. Substantially all
of the preferred shares were converted into 7,600,000 shares of Williams common
stock.

Long-term debt at December 31, 1994,1995, was $2.9 billion, compared with $1.3
billion compared withat December 31, 1994, and $1.6 billion at December 31, 1993, and $1.71993. The
increase in long-term debt is due primarily to the $2 billion at December 31, 1992.outstanding debt
assumed as a result of the Transco Energy acquisition. The long-term debt to
debt-plus-equity ratio was 46.547.4 percent at year-end, compared with 48.246.5 percent
and 52.648.2 percent at December 31, 19931994 and 1992, respectively.
If short-term notes payable and long-term debt due within one year are included
in the calculations, these ratios would be 59.3 percent, 49 percent and 54.9
percent,1993, respectively. Included in
long-term debt due within one year isat December 31, 1994, was $350 million
outstanding under Williams' revolving credit loan (see Note 11).loan.

See Note 68 for information regarding early extinguishment of debt by
Williams and one of its subsidiaries during 1994 and 1992.1994.

Investing Activities

Net cash usedprovided (used) by investing activities was: 1995 -- $585 million;
1994 -- $427($427) million; and 1993 -- $277 million; 1992 -- $511($277) million. Capital expenditures of
pipeline subsidiaries, including gathering and processing facilities, primarily
to expand and modernize systems, were $734 million in 1995; $272 million in
1994; and $405 million in 1993. Capital expenditures for discontinued operations
were $143 million in 1994;and $101 million in 1993;1994 and $59
million in 1992,1993, respectively, primarily to
expand and enhance WilTel'sWilliams' network services operations network. Capital
expendituresExpenditures
in 1995 include Transcontinental Gas Pipe Line and Northwest Pipeline's
expansions as well as expansion of pipeline subsidiaries, primarily to expandgathering and modernize
systems, were $272 million in 1994; $405 million in 1993; and $500 million in
1992.processing facilities.
Expenditures in 1994 include Northwest Pipeline's additional mainline expansion
and the expansion of various gathering and processing facilities. Expenditures
in 1993 include the completion of Northwest Pipeline's first mainline expansion
and the expansion of various gathering and processing facilities. Approximately two-thirds of the 1992 expenditures relate to
Northwest Pipeline's mainline expansion. Budgeted
capital expenditures and acquisitions for 19951996 are approximately $1.3 billion,
primarily to expand pipeline systems F-6
29

and gathering and processing facilities,
develop an underground coal
gasification projectexpand the telecommunications network and acquire certain gathering and processing assetsthe remaining interest in New
Mexico.Kern
River Gas Transmission.

During 1995, Williams received proceeds of $124 million from the sale of
its 15 percent interest in Texasgulf Inc. (see Note 5). During 1994, Williams
received net proceeds of $80 million from the sale of limited partner units in
Northern Border Partners, L.P. During 1993, Williams received net proceeds of
$113 million from the sale of 6.1 million units in the Williams Coal Seam Gas
Royalty Trust. In addition, Williams sold its intrastate natural gas pipeline
system and other related assets in Louisiana for $170 million (see Note 4)6).

SubsequentDuring 1995, in addition to December 31, 1994, Williams announced that Texasgulf Inc. (in
which Williams owns 15 percent) had filed registration statements with the Securities and Exchange Commission covering the initial public offering for all
of Texasgulf's common stock and certain senior subordinated notesTransco Energy acquisition (see Note 3).2),
Williams acquired the Gas Company of New Mexico's natural gas gathering and
processing assets in the San Juan and Permian basins for $154 million (including
approximately 10 percent of which was immediately sold to a third party) and
Pekin Energy Co., the nation's second largest ethanol producer, for $167 million
in cash.

EFFECTS OF INFLATION

Williams has experienced increased costs in recent years due to the effects
of inflation. However, approximately 9055 percent of Williams' property, plant and
equipment has beenwas acquired or constructed during 1995, while the remainder was
purchased or constructed since 1982, a period of relatively low inflation. A
substantial portion of Williams' property, plant and equipment is subject to
regulation, which limits recovery to historical cost. While Williams believes it
will be allowed the opportunity to earn a return based on the actual cost
incurred to replace existing assets, competition or other market factors may
limit the ability to recover such increased costs.

OTHER

In 1992, the FERC issued Order 636, Order 636-A and Order 636-B. These
orders, which have been challenged in various respects by various parties in
proceedings pending in the U.S. Court of Appeals for the D.C. Circuit, require
interstate gas pipeline companies to change the manner in which they provide
services. Williams Natural Gas implemented its restructuring on October 1, 1993,
and Northwest Pipeline implemented its restructuring on November 1, 1993.
Certain aspects of each pipeline company's restructuring are under appeal (see
Note 15).F-8
32

ENVIRONMENTAL

Williams is a participant in certain environmental activities in various
stages involving assessment studies, cleanup operations and/or remedial
processes. The sites, some of which are not currently owned by Williams (see
Note 15)17), are being monitored by Williams, other potentially responsible
parties, U.S. Environmental Protection Agency (EPA), or other governmental
authorities in a coordinated effort. In addition, Williams maintains an active
monitoring program for its continued remediation and cleanup of certain sites
connected with its refined products pipeline activities. Williams has both joint
and several liability in some of these activities and sole responsibility in
others. Current estimates of the most likely costs of such cleanup activities,
after payments by other parties, are approximately $40$86 million, all of which is
accrued at December 31, 1994.1995. Williams expects to seek recovery of approximately
$28$72 million of thesethe accrued costs through future rates. Williams will fund these
costs from operations and/or available bank-credit facilities. The actual costs
incurred will depend on the final amount, type and extent of contamination
discovered at these sites, the final cleanup standards mandated by the EPA or
other governmental authorities, and other factors.

See Note 7 for the effects of a new accounting standard on postemployment
benefits; Note 13 for fair value and off-balance-sheet risk of financial
instruments; and Note 15 for contingencies.

SUBSEQUENT EVENTS

In January 1995,1996, the Williams Board of Directors increased the quarterly
cash dividend on Williams common stock to $.27$.34 per share, a 28.525.9 percent
increase over the previous amount.

Subsequent to December 31, 1994, Williams completed its previously
announced sale of WilTel's network services operations for $2.5 billion in cash.
The estimated after-tax gain of approximately $1 billion will be recorded in the
first quarter of 1995 (see Note 2). Net proceeds from the sale have been or will
be used to reduce Williams bank debt, finance the cash tender offer for shares
of Transco's common stock, retire certain Transco borrowings and preferred
stock, and finance Williams' 1995 capital expenditures program.

F-7F-9
30

Subsequent to December 31, 1994, Williams acquired 60 percent of Transco in
a cash tender offer for $430.5 million. Williams will acquire the remaining 40
percent of Transco's outstanding common stock through a merger, which will
result in the issuance of approximately 10.2 million shares of Williams common
stock (see Note 16). In connection with the acquisition, Williams plans to
redeem for cash $150 million in Transco's $4.75 preferred stock, issue $125
million in Williams preferred stock in exchange for Transco's $3.50 preferred
stock and retire approximately $550 million of Transco's borrowings and
subsidiary preferred stock, interest-rate swaps and sale of receivables
facilities. Williams may also provide funds for Transco working capital and
other needs.

F-8
3133

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PAGE
----

Report of Independent Auditors...................................................... F-10Auditors........................................................ F-11
Consolidated Statement of Income.................................................... F-11Income...................................................... F-12
Consolidated Balance Sheet.......................................................... F-13Sheet............................................................ F-14
Consolidated Statement of Stockholders' Equity...................................... F-14Equity........................................ F-15
Consolidated Statement of Cash Flows................................................ F-15Flows.................................................. F-16
Notes to Consolidated Financial Statements.......................................... F-16Statements............................................ F-17
Quarterly Financial Data (Unaudited)................................................ F-39.................................................. F-43

F-9F-10
3234

REPORT OF INDEPENDENT AUDITORS

To The Stockholders of
The Williams Companies, Inc.

We have audited the accompanying consolidated balance sheet of The Williams
Companies, Inc. as of December 31, 19941995 and 1993,1994, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994.1995. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Williams Companies, Inc. at December 31, 19941995 and 1993,1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1994,1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

ERNST & YOUNG LLP

Tulsa, Oklahoma
February 10, 1995

F-109, 1996

F-11
3335

THE WILLIAMS COMPANIES, INC.

CONSOLIDATED STATEMENT OF INCOME

YEARS ENDED DECEMBER 31,
-------------------------------
1994--------------------------------
1995 1994* 1993*
1992*
------- ------- -------
(MILLIONS)-------- -------- --------
(MILLIONS, EXCEPT PER-SHARE AMOUNTS)

Revenues:
Williams Interstate Natural Gas Pipelines:
Northwest Pipeline......................................Systems (Note 4)............. $1,431.1 $ 238.5469.8 $ 276.5 $ 251.4
Williams Natural Gas.................................... 231.3 294.1 314.7570.6
Williams Field Services Group.............................. 589.0 707.0 925.3
Liquids Pipeline/Group................................ 591.8 375.7 432.2
Williams Energy Ventures:Services (Note 15)........................... 85.8 263.7 360.8
Williams Pipe Line...................................... 209.7 179.3 148.5
Williams Energy Ventures................................ 137.6 80.0 109.8
Williams Telecommunications Systems........................Line........................................... 350.2 310.7 180.5
WilTel....................................................... 494.9 396.6 302.8
271.1
Other...................................................... 18.2 10.4 8.6WilTech Group................................................ 44.0 20.0 13.5
Other........................................................ 17.4 -- --
Intercompany eliminations (Note 14)........................ (69.8) (56.7) (45.9)
------- ------- -------16).......................... (159.5) (85.4) (67.0)
-------- -------- --------
Total revenues.....................................revenues....................................... 2,855.7 1,751.1 1,793.4
1,983.5
------- ------- --------------- -------- --------
Profit-center costs and expenses:
Costs and operating expenses...............................expenses................................. 1,700.7 1,187.7 1,283.9 1,560.3
Selling, general and administrative expenses...............expenses................. 488.8 229.2 203.2 194.5
Other income -- net........................................net.......................................... (4.5) (8.1) (7.8)
(7.6)
------- ------- --------------- -------- --------
Total profit-center costs and expenses.............expenses............... 2,185.0 1,408.8 1,479.3
1,747.2
------- ------- --------------- -------- --------
Operating profit (loss):
Williams Interstate Natural Gas Pipelines:
Northwest Pipeline...................................... 104.1 98.8 66.4
Williams Natural Gas.................................... 48.8 41.0 39.4Systems (Note 4)............. 389.7 152.9 139.8
Williams Field Services Group.............................. 131.4 125.5 114.9
Liquids Pipeline/Group................................ 157.6 129.3 126.7
Williams Energy Ventures:Services..................................... 30.0 .5 7.9
Williams Pipe Line...................................... 60.1 48.2 33.0
Williams Energy Ventures................................ (10.8) 7.8 10.1
Williams Telecommunications Systems........................Line........................................... 69.8 52.0 47.2
WilTel....................................................... 28.3 18.9 9.5
(9.8)
Other...................................................... (10.2) (16.7) (17.7)
------- ------- -------WilTech Group................................................ (3.3) (11.3) (17.0)
Other........................................................ (1.4) -- --
-------- -------- --------
Total operating profit.............................profit............................... 670.7 342.3 314.1
236.3
General corporate expenses...................................expenses..................................... (37.7) (28.0) (38.4)
(27.2)
Interest accrued.............................................accrued............................................... (277.9) (145.8) (151.2)
(145.4)
Interest capitalized.........................................capitalized........................................... 14.5 6.0 10.4 8.9
Investing income (Note 3)....................................5)...................................... 93.9 49.6 65.2
50.5
Gain (loss) on sales of assets (Note 4).............................(Notes 5 and 6)................. (12.6) 22.7 97.5
14.6Write-off of project costs (Note 6)............................ (41.4) -- --
Other income (expense) -- net................................net.................................. (8.1) (.2) .4
7.8
------- ------- --------------- -------- --------
Income from continuing operations before income taxes........taxes.......... 401.4 246.6 298.0 145.5
Provision for income taxes (Note 5)..........................7)............................ 102.0 81.7 112.6
42.4
------- ------- --------------- -------- --------
Income from continuing operations............................operations.............................. 299.4 164.9 185.4 103.1
Income from discontinued operations (Note 2).................3)................... 1,018.8 94.0 46.4
25.2
------- ------- --------------- -------- --------
Income before extraordinary credit (loss)....................loss............................... 1,318.2 258.9 231.8
128.3
Extraordinary credit (loss)loss (Note 6).........................8).................................... -- (12.2) --
9.9
------- ------- --------------- -------- --------
Net income...................................................income..................................................... 1,318.2 246.7 231.8
138.2
Preferred stock dividends....................................dividends (Note 14)............................ 15.3 8.8 11.8
14.5
------- ------- --------------- -------- --------
Income applicable to common stock............................stock.............................. $1,302.9 $ 237.9 $ 220.0
$ 123.7
======= ======= =============== ======== ========

- ---------------

* RestatedReclassified as described in Note 2.1.

See accompanying notes.

F-11F-12
3436

THE WILLIAMS COMPANIES, INC.

CONSOLIDATED STATEMENT OF INCOME -- (CONCLUDED)

YEARS ENDED DECEMBER 31,
-------------------------------------------------
1995 1994 1993* 1992*
-----1993
------- ----- -----

Primary earnings per common and common-equivalent share
(Notes 1, 23 and 6)8):
Income from continuing operations.................................operations.................................. $ 2.78 $1.52 $1.74 $ .97
Income from discontinued operations...............................operations................................ 9.99 .92 .46
.28
------------ ----- -----
Income before extraordinary credit (loss).........................loss................................... 12.77 2.44 2.20
1.25
Extraordinary credit (loss).......................................loss................................................. -- (.12) --
.11
------------ ----- -----
Net income........................................................income......................................................... $ 12.77 $2.32 $2.20
$1.36
============ ===== =====
Fully diluted earnings per common and common-equivalent share
(Notes 1, 23 and 6)8):
Income from continuing operations.................................operations.................................. $ 2.76 $1.52 $1.71 $ .97
Income from discontinued operations...............................operations................................ 9.72 .92 .45
.28
------------ ----- -----
Income before extraordinary credit (loss).........................loss................................... 12.48 2.44 2.16
1.25
Extraordinary credit (loss).......................................loss................................................. -- (.12) --
.11
------------ ----- -----
Net income........................................................income......................................................... $ 12.48 $2.32 $2.16
$1.36
============ ===== =====

- ---------------
* Restated as described in Note 2.

See accompanying notes.

F-12F-13
3537

THE WILLIAMS COMPANIES, INC.

CONSOLIDATED BALANCE SHEET

ASSETS

DECEMBER 31,
---------------------------------------------
1995 1994
1993
------- -------
(MILLIONS)--------- --------
(DOLLARS IN MILLIONS,
EXCEPT PER-SHARE AMOUNTS)

ASSETS
Current assets:
Cash and cash equivalents.........................................equivalents............................................ $ 36.190.4 $ 64.336.1
Receivables less allowance of $7.9 million$11.3 ($10.2 million7.9 in 1993).......................................................... 452.3 360.11994)................... 525.0 443.1
Transportation and exchange gas receivable........................... 152.3 9.2
Inventories (Note 8)..............................................10)................................................ 189.0 112.3 108.2
Net assets of discontinued operations (Note 2)....................3)....................... -- 743.6 --
Deferred income taxes (Note 5)....................................7)....................................... 213.9 57.1
40.3
Other.............................................................Other................................................................ 173.2 55.4
53.6
----------------- --------
Total current assets......................................assets......................................... 1,343.8 1,456.8 626.5
Investments (Note 3)................................................5)................................................... 307.6 379.1 437.1
Property, plant and equipment -- net (Note 9).......................11)......................... 8,014.7 3,124.0 3,678.6
Other assets and deferred charges...................................charges...................................... 828.7 266.2
278.2
----------------- --------
Total assets..............................................assets................................................. $10,494.8 $5,226.1
$5,020.4
================= ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable (Note 11)...........................................13).............................................. $ 507.0-- $ --507.0
Accounts payable (Note 10)........................................ 222.5 298.412)........................................... 472.0 205.8
Transportation and exchange gas payable.............................. 127.8 16.7
Accrued liabilities (Note 10).....................................12)........................................ 1,130.2 361.4 380.3
Long-term debt due within one year (Note 11)......................13)......................... 319.9 383.0
54.0
----------------- --------
Total current liabilities.................................liabilities.................................... 2,049.9 1,473.9 732.7
Long-term debt (Note 11)............................................13)............................................... 2,874.0 1,307.8 1,604.8
Deferred income taxes (Note 5)......................................7)......................................... 1,568.2 662.9
625.2
Deferred income and other liabilities...............................Other liabilities...................................................... 815.6 276.0 333.7
Contingent liabilities and commitments (Note 15)17)
Stockholders' equity (Note 12)14):
Preferred stock, $1 par value, 30,000,000 shares authorized,
3,739,452 shares issued in 1995 and 4,000,000 shares issued........................................ 100.0issued in
1994.............................................................. 173.5 100.0
Common stock, $1 par value, 240,000,000 shares authorized,
105,337,948 shares issued in 1995 and 104,401,819 shares issued in
1994 and 103,078,505 shares issued
and outstanding in 1993........................................1994.............................................................. 105.3 104.4 103.1
Capital in excess of par value....................................value....................................... 1,051.1 991.0 959.1
Retained earnings (Note 11).......................................13).......................................... 1,915.6 716.5 563.7
Unamortized deferred compensation.................................compensation.................................... (2.3) (1.3)
(1.9)--------- --------
--------3,243.2 1,910.6 1,724.0
Less treasury stock (at cost), 1,573,203 shares of common stock in
1995 and 13,516,994 shares of common stock in 1994, 401,600 shares
of preferred stock in 1995 and 258,800 shares of preferred stock
at cost.............................in 1994........................................................... (56.1) (405.1)
--
----------------- --------
Total stockholders' equity................................equity................................... 3,187.1 1,505.5
1,724.0
----------------- --------
Total liabilities and stockholders' equity................equity................... $10,494.8 $5,226.1
$5,020.4
================= ========

See accompanying notes.

F-13F-14
3638

THE WILLIAMS COMPANIES, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

CAPITAL
IN UNAMORTIZED
PREFERRED COMMON EXCESS OF RETAINED DEFERRED TREASURY
STOCK STOCK PAR VALUE EARNINGS COMPENSATION STOCK TOTAL
--------- ------ ---------- --------- -------- ------------ -------- -------
(MILLIONS)

Balance, December 31, 1991............ $150.0 $83.5 $621.1 $365.8 $(.4) $-- $1,220.01992........... $ 250.0 $ 92.3 $ 755.4 $ 421.3 $ (.7) $ -- $1,518.3
Net income -- 1992.................... -- -- -- 138.2 -- -- 138.2
Cash dividends --
Common stock ($.76 per share)....... -- -- -- (68.2) -- -- (68.2)
Preferred stock (Note 12)........... -- -- -- (14.5) -- -- (14.5)
Issuance of shares --
8,780,080 common.................... -- 8.8 138.0 -- (.7) -- 146.1
4,000,000 preferred................. 100.0 -- (3.8) -- -- -- 96.2
Amortization of deferred
compensation........................ -- -- -- -- .4 -- .4
Other................................. -- -- .1 -- -- -- .1
-------- ------ ------- ------- ------ -------- --------
Balance, December 31, 1992............ 250.0 92.3 755.4 421.3 (.7) -- 1,518.3
Net income -- 1993....................1993................... -- -- -- 231.8 -- -- 231.8
Cash dividends --
Common stock ($.78 per share)............. -- -- -- (77.6) -- -- (77.6)
Preferred stock (Note 12)...........14).......... -- -- -- (11.8) -- -- (11.8)
Issuance of shares -- 3,174,439
common..............................common............................. -- 3.2 55.2 -- (1.7) -- 56.7
Conversion of preferred stock (Note
12).................................14)................................ (150.0) 7.6 141.8 -- -- -- (.6)
Tax benefit of non-qualified stock
option exercises....................exercises................... -- -- 6.7 -- -- -- 6.7
Amortization of deferred
compensation........................compensation....................... -- -- -- -- .5 -- .5
-------- ------ ------- ---------------- -------- ------ -------- --------
Balance, December 31, 1993............1993........... 100.0 103.1 959.1 563.7 (1.9) -- 1,724.0
Net income -- 1994....................1994................... -- -- -- 246.7 -- -- 246.7
Cash dividends --
Common stock ($.84 per share)............. -- -- -- (85.1) -- -- (85.1)
Preferred stock (Note 12)...........14).......... -- -- -- (8.8) -- -- (8.8)
Issuance of shares -- 1,596,409
common..............................common............................. -- 1.3 30.1 -- (1.3) 8.1 38.2
Purchase of treasury stock --
Common 13,790,089...................13,790,089.................. -- -- -- -- -- (406.8) (406.8)
Preferred 258,800...................258,800.................. -- -- -- -- -- (6.4) (6.4)
Tax benefit of non-qualified stock
option exercises....................exercises................... -- -- 1.8 -- -- -- 1.8
Amortization of deferred
compensation........................compensation....................... -- -- -- -- 1.9 -- 1.9
-------- ------ ------- ---------------- -------- ------ -------- --------
Balance, December 31, 1994............ $100.0 $104.4 $991.0 $716.5 $(1.3) $(405.1) $1,505.51994........... 100.0 104.4 991.0 716.5 (1.3) (405.1) 1,505.5
Net income -- 1995................... -- -- -- 1,318.2 -- -- 1,318.2
Cash dividends --
Common stock ($1.08 per share)..... -- -- -- (107.2) -- -- (107.2)
Preferred stock (Note 14).......... -- -- -- (11.9) -- -- (11.9)
Issuance of shares --
12,879,920 common.................. -- .9 58.8 -- (1.7) 352.7 410.7
2,500,000 preferred................ 142.5 -- -- -- -- -- 142.5
Exchange of shares for debentures --
2,760,548 preferred (Note 14)...... (69.0) -- (3.5) -- -- -- (72.5)
Purchase of treasury stock --
142,800 preferred.................. -- -- -- -- -- (3.7) (3.7)
Tax benefit of non-qualified stock
option exercises................... -- -- 4.8 -- -- -- 4.8
Amortization of deferred
compensation....................... -- -- -- -- .7 -- .7
-------- ------ --------- -------- ------ -------- --------
Balance, December 31, 1995........... $ 173.5 $105.3 $ 1,051.1 $1,915.6 $ (2.3) $ (56.1) $3,187.1
======== ====== ======= ================ ======== ====== ======== ========

See accompanying notes.

F-14F-15
3739

THE WILLIAMS COMPANIES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1995 1994 1993* 1992*
-------1993
--------- ------- -------
(MILLIONS)

Operating Activities:
Net income....................................................income................................................... $ 1,318.2 $ 246.7 $ 231.8 $ 138.2
Adjustments to reconcile to cash provided from operations:
Discontinued operations....................................operations................................... (1,018.8) (94.0) (46.4)
(25.2)
Extraordinary (credit) loss................................loss........................................ -- 12.2 --
(9.9)
Depreciation and depletion.................................depletion................................ 369.4 150.3 137.8
122.2
Provision (credit) for deferred income taxes...............taxes....................... 125.4 25.8 8.1
(8.6)Write-off of project costs................................ 41.4 -- --
(Gain) loss on sales of property, plant and equipment......equipment..... (2.1) .9 (102.0)
(18.9)
Gain(Gain) loss on sale of investment.................................investments........................ 12.6 (22.7) -- --
Changes in receivables sold................................sold............................... 55.9 -- (94.7)
(32.4)
Changes in receivables.....................................receivables.................................... 33.2 (175.0) 99.9
(105.7)
Changes in inventories.....................................inventories.................................... 11.9 10.2 (.8) 9.9
Changes in other current assets............................assets........................... (10.2) (2.8) (16.9) 25.3
Changes in accounts payable................................payable............................... (6.5) 20.7 (37.6) 29.9
Changes in accrued liabilities.............................liabilities............................ (3.3) 8.1 (43.2)
42.7Net change in non-current unrealized trading assets and
liabilities............................................. (72.9) (2.4) --
Other, including changes in non-current assets and
liabilities.............................................. 8.0liabilities............................................. (25.5) 1.6* 50.9
(26.2)
---------------- ------- -------
Net cash provided by continuing operations............ 188.4operations........... 828.7 179.6 186.9 141.3
Net cash provided by discontinued operations.......... 179.2operations......... -- 169.4* 162.6
112.7
---------------- ------- -------
Net cash provided by operating activities............. 367.6activities............ 828.7 349.0 349.5
254.0
---------------- ------- -------
Financing Activities:
Changes inProceeds from notes payable......................................payable.................................. 116.8 507.0 --
Payments of notes payable.................................... (623.8) -- --
Proceeds from long-term debt..................................debt................................. 399.0 480.0 -- 476.3
Payments of long-term debt:
Continuing operations...................................... (328.5) (169.6) (167.4)
Discontinued operations.................................... (128.0) (22.6) (45.1)
Premium on early extinguishment of debt....................... (18.6) -- --
Proceeds from issuance of preferred stock..................... -- -- 96.2debt................................... (1,009.4) (456.5) (192.2)
Proceeds from issuance of common stock........................stock....................... 78.1 26.4 63.4 146.1
Purchases of treasury stock...................................stock.................................. (3.7) (413.2) --
--
Dividends paid................................................paid............................................... (119.1) (93.9) (89.4)
(82.7)
Other--net....................................................Subsidiary preferred stock redemptions....................... (193.7) -- (2.1) (2.0)
-------(1.9)
Other -- net................................................. (3.5) -- (.2)
--------- ------- -------
Net cash provided (used) by financing activities...... 31.2activities..... (1,359.3) 49.8* (220.3)
421.4
---------------- ------- -------
Investing Activities:
Property, plant and equipment:
Capital expenditures:
Continuing operations....................................operations................................... (827.5) (325.5) (428.3)
(526.7)
Discontinued operations..................................operations................................. -- (142.8) (100.8)
(59.6)
Proceeds from sales........................................sales....................................... 28.2 1.6 295.4 29.5
Changes in accounts payable and accrued liabilities........liabilities....... (5.2) 19.1 (48.4)
65.2
Acquisition of businesses.....................................businesses, net of cash acquired.............. (858.9) (56.5) -- --
Proceeds from salesales of investments.............................businesses............................ 2,588.3 -- --
Income tax and other payments related to discontinued
operations................................................ (350.4) (1.5) (1.9)
Proceeds from sales of investments........................... 125.1 80.6 8.8
Purchase of investments...................................... (49.7) (3.3) --
Purchase of note receivable.................................. (75.1) -- --
Other -- net.................................................. (3.5) (3.9) (19.7)
-------net................................................. 10.1 1.3 (2.0)
--------- ------- -------
Net cash usedprovided (used) by investing activities.................activities..... 584.9 (427.0) (277.2)
(511.3)
---------------- ------- -------
Increase (decrease) in cash and cash equivalents......equivalents..... 54.3 (28.2) (148.0) 164.1
Cash and cash equivalents at beginning of year..................year................. 36.1 64.3 212.3
48.2
---------------- ------- -------
Cash and cash equivalents at end of year........................year....................... $ 90.4 $ 36.1 $ 64.3
$ 212.3
================ ======= =======

- ---------------

* Restated as described in Note 2.Reclassified to conform to current classification.

See accompanying notes.

F-15F-16
3840

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of operations

The Williams Companies, Inc. (Williams) operations are located in the
United States and consist primarily of the following: five interstate natural
gas pipelines located in the eastern, midsouth, Gulf Coast, midwest and
northwest regions; natural gas gathering and processing facilities in the rocky
mountain, midwest and Gulf Coast regions; energy trading throughout the United
States; petroleum products pipeline in the midwest region; and national data,
voice and video communication products and services. Additional information
about these businesses is contained throughout the following notes.

Basis of presentation

Revenues and operating profit amounts include the operating results of
Transco Energy Company (Transco Energy) since its January 18, 1995, acquisition
by Williams (see Note 2). The transportation operations from Transco Energy's
two interstate natural gas pipelines are reported separately within Williams
Interstate Natural Gas Systems (see Note 4). Transco Energy's gas gathering
operations are included as part of Williams Field Services Group, and Transco
Energy's gas marketing operations are included in Williams Energy Services.

Revenues and operating profit amounts for 1994 and 1993 have been
reclassified to conform to current year classifications. Commodity price-risk
management and trading operations and energy-related information services
operations are included in Williams Energy Services. Liquid fuels operations are
reported as part of Williams Pipe Line and continue with the Williams Energy
Ventures name. In addition, certain natural gas marketing operations formerly
reported as part of Williams Field Services Group are included in Williams
Energy Services. The WilTech Group, which owns a national fiber-optic network,
was previously reported in other revenues and operating profit.

Principles of consolidation

The consolidated financial statements include the accounts of The Williams Companies, Inc. and
its majority-owned subsidiaries (Williams).subsidiaries. Companies in which Williams and its
subsidiaries own 20 percent to 50 percent of the voting common stock, or
otherwise exercise sufficient influence over operating and financial policies of
the company, are accounted for under the equity method.

Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles 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.

Cash and cash equivalents

Cash and cash equivalents include demand and time deposits, certificates of
deposit and other marketable securities with maturities of three months or less
when acquired.

Transportation and exchange gas imbalances

In the course of providing transportation services to customers, the
natural gas pipelines may receive different quantities of gas from shippers than
the quantities delivered on behalf of those shippers. Additionally, the
pipelines and other Williams subsidiaries transport gas on various pipeline
systems which may deliver different quantities of gas on their behalf than the
quantities of gas received. These transactions result in gas transportation and
exchange imbalance receivables and payables which are recovered or repaid in
cash or

F-17
41

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

through the receipt or delivery of gas in the future. Settlement of imbalances
requires agreement between the pipelines and shippers as to allocations of
volumes to specific transportation contracts and timing of delivery of gas based
on operational conditions. Transcontinental Gas Pipe Line's imbalances predating
August 1, 1991, are being recovered or repaid in cash or through the receipt or
delivery of gas upon agreements of allocation.

Inventory valuation

Inventories are stated at cost, which is not in excess of market, except
for those held by Williams Energy Ventures (see Commodity price-risk management
activities accounting policy).Services which are stated at market.
Inventories of natural gas are determined using the last-in, first-out (LIFO)
method by Transcontinental Gas Pipe Line and the average-cost method.method by other
subsidiaries. Except for Williams Pipe Line'sEnergy Services, inventories of petroleum
products are also principally determined using average cost. The cost of materials and supplies
inventories is determined principally using the first-in, first-out method (FIFO) by Williams Telecommunications SystemsWilTel
and principally using the average-cost method by other subsidiaries.

Property, plant and equipment

Property, plant and equipment is recorded at cost. Depreciation is provided
primarily on the straight-line method over estimated useful lives. Gains or
losses from the ordinary sale or retirement of property, plant and equipment for
regulated pipeline subsidiaries are credited or charged to accumulated
depreciation; other gains or losses are recorded in net income.

Treasury stock

Treasury stock purchases are accounted for under the cost method whereby
the entire cost of the acquired stock is recorded as treasury stock. Gains and
losses on the subsequent reissuance of shares are credited or charged to capital
in excess of par value using the average-cost method.

Revenue recognition

Revenues generally are recorded when services have been performed or
products have been delivered. Natural gas transportation revenues are recognized
based upon contractual terms and the related transported volume through
month-end. Williams Pipe Line bills customers when products
are shipped and defers the estimated revenues for shipments in transit. Williams
interstate natural gas pipelines recognize revenues based upon contractual terms
and the related transportation volumes through month-end. These pipelines are
subject to Federal Energy Regulatory Commission (FERC) regulations and,
accordingly, certain revenues are subject to possible refunds pending final FERC
orders. Williams records rate refund accruals based on management's estimate of
the expected outcome of these proceedings.

Commodity price-risk management activities

Williams Energy VenturesServices enters into energy-related financial instruments
(primarily futures contracts, options contracts and swap agreements) to hedge
against market price fluctuations of certain refined products inventories and
natural gas sales and purchase commitments. Gains and losses on these hedge
contracts are recognized in income when the related hedged item is recognized.

Williams Energy Ventures also uses energy-related financial instruments
(forward contracts, futures contracts, optionsoption contracts and swap agreements)
and physical inventory to
provide price-risk management services to its third-party customers. TheseThis
subsidiary also enters into short- and long-term energy-related purchase and
sale commitments as part of its trading business. All of these investments and
commitments are valued at market and are primarily recorded in other current assets, other
assets and deferred charges, accrued liabilities and other accrued liabilities in the
Consolidated Balance Sheet. The resulting change in unrealized

F-16
39

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) market gains and
losses is recognized in income currently and is recorded as revenues in the
Consolidated Statement of Income. Such market values are subject to change in
the near term and reflect management's best estimate of market prices
considering various factors including closing exchange and over-the-counter
quotations, the terms of the contract, credit considerations, time value and
volatility factors underlying the positions.

Williams Energy Services reports sales of natural gas, refined products and
crude oil net of the related costs to purchase such items, consistent with
mark-to-market accounting for such trading activities.

F-18
42

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other Williams operations enter into energy-related financial instruments
(primarily futures contracts, option contracts and swap agreements) to hedge
against market price fluctuations of certain commodity inventories and sales and
purchase commitments. Unrealized and realized gains and losses on these hedge
contracts are deferred and recognized in income when the related hedged item is
recognized. These contracts are evaluated to determine that there is a high
correlation between changes in the market value of the hedge contract and fair
value of the hedged item.

Capitalization of interest

Williams capitalizes interest on major projects during construction.
Interest is capitalized on borrowed funds and, where regulation by the Federal
Energy Regulatory Commission (FERC)FERC
exists, on internally generated funds. The rates used by regulated companies are
calculated in accordance with FERC rules. Rates used by unregulated companies
approximate the average interest rate on related debt. Interest capitalized on
internally generated funds is included in other income (expense) -- net.

Income taxes

Williams includes the operations of its subsidiaries in its consolidated
federal income tax return. Deferred income taxes are computed using the
liability method and are provided on all temporary differences between the
financial basis and the tax basis of Williams' assets and liabilities.

Earnings per share

Primary earnings per share are based on the sum of the average number of
common shares outstanding and common-share equivalents resulting from stock
options and deferred shares. Fully diluted earnings per share for 19931995 assumes
conversion of the $3.50 convertible exchangeable preferred stock (CEPS) into common stock effective
JanuaryMay 1, 1993. The CEPS were not dilutive in 1992.1995. Shares used in determination of primary earnings per share are as
follows (in thousands): 1995 -- 102,046; 1994 -- 102,470; and 1993 -- 99,911; and 1992 -- 90,816.99,911.
Shares used in determination of fully diluted earnings per share are as follows
(in thousands): 1995 -- 104,853; 1994 -- 102,502; and 1993 -- 103,171; and 1992 -- 90,816.103,171.

NOTE 2 -- TRANSCO ENERGY ACQUISITION

On January 18, 1995, Williams acquired 60 percent of Transco Energy's
outstanding common stock in a cash tender offer for $430.5 million. Williams
acquired the remaining 40 percent of Transco Energy's outstanding common stock
on May 1, 1995, through a merger by exchanging the remaining Transco Energy
common stock for approximately 10.4 million shares of Williams common stock
valued at $334 million. The acquisition is accounted for as a purchase with 60
percent of Transco Energy's results of operations included in Williams'
Consolidated Statement of Income for the period January 18, 1995, through April
30, 1995, and 100 percent included beginning May 1, 1995. The purchase price,
including transaction fees and other related costs, is approximately $800
million, excluding $2.3 billion in preferred stock and debt obligations of
Transco Energy. The acquired assets and liabilities have been recorded based on
an allocation of the purchase price with substantially all of the cost in excess
of Transco Energy's historical carrying amounts allocated to property, plant and
equipment of the two interstate natural gas pipeline systems. The cash portion
of the acquisition was financed with the proceeds from the sale of Williams'
network services operations (see Note 3).

Transco Energy was engaged primarily in the natural gas pipeline and
natural gas marketing businesses. Williams has sold substantially all of Transco
Energy's coal operations, coalbed methane properties and certain pipeline and
gathering operations. Results of operations and changes in the carrying amount
of these businesses during the holding period and from the ultimate dispositions
are reflected in the purchase price and are not material.

F-19
43

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In connection with the acquisition, Williams made payments to retire and/or
terminate approximately $700 million of Transco Energy borrowings, preferred
stock, interest-rate swaps and sale of receivable facilities. As a part of the
merger, Williams exchanged Transco Energy's $3.50 preferred stock for Williams'
$3.50 preferred stock.

The following unaudited pro forma information combines the results of
operations of Williams and Transco Energy as if the purchase of 100 percent of
Transco Energy occurred January 1, 1994.

UNAUDITED
--------------------
1995 1994
-------- --------
(MILLIONS, EXCEPT
PER-SHARE AMOUNTS)

Revenues........................................................ $2,916.4 $2,660.3
Income from continuing operations............................... 314.4 191.0
Income before extraordinary loss................................ 1,333.2 285.0
Net income...................................................... 1,333.2 272.8
Primary earnings per share:
Income from continuing operations............................. 2.93 1.77
Income before extraordinary loss.............................. 12.92 2.69
Net income.................................................... 12.92 2.57
Fully diluted earnings per share:
Income from continuing operations............................. 2.90 1.77
Income before extraordinary loss.............................. 12.62 2.69
Net income.................................................... 12.62 2.57

Pro forma financial information is not necessarily indicative of results of
operations that would have occurred if the acquisition had occurred on January
1, 1994, or of future results of operations of the combined companies.

NOTE 3 -- DISCONTINUED OPERATIONS

In August 1994,On January 5, 1995, Williams signed a definitive agreement to sell WilTel'ssold its network services operations to LDDS
Communications, Inc. (LDDS) for $2.5 billion in cash. The sale closed January 5, 1995, yielding an after-taxyielded a gain of
approximately $1 billion (net of income taxes of approximately $732 million) which will be recorded inis reported
as income from discontinued operations. Prior period operating results for the
first quarter of 1995.network services operations are reported as discontinued operations. Under the
terms of the agreement, Williams retained WilTel Communications
Systems, Inc. (which has been renamed Williams Telecommunications Systems,
Inc.) (WilTel), a national telecommunications equipment supplier and service
company, and Vyvx, Inc. (included in WilTech Group), which operates a national
video network specializing in broadcast television applications. The Consolidated Financial Statements have been
prepared to present operating results of network services as discontinued
operations, with prior period operating results restated.

Summarized operating results of discontinued operations are as follows:

1994 1993
1992
------ ------ ------
(MILLIONS)

Revenues.....................................................Revenues............................................................ $921.8 $663.8
$494.2
Operating profit.............................................profit.................................................... 163.1 97.0 58.6
Provision for income taxes...................................taxes.......................................... 60.9 32.2 16.2
Income from discontinued operations..........................operations................................. 94.0 46.4 25.2

The assets and liabilities that were transferred to LDDS in the sale of the
network services operations are presented in the Consolidated Balance Sheet on a
net basis at December 31, 1994. Net assets consist of current assets ($86.5
million), net property, plant and equipment ($797.8 million), other assets and
deferred F-17charges ($144.3 million), less current liabilities ($218.3 million) and
other liabilities ($66.7 million).

F-20
4044

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

charges ($144.3 million), less current liabilities ($218.3 million) and deferred
income and other liabilities ($66.7 million).

NOTE 34 -- WILLIAMS INTERSTATE NATURAL GAS SYSTEMS

REVENUES OPERATING PROFIT
---------------------------- --------------------------
1995 1994 1993 1995 1994 1993
-------- ------ ------ ------ ------ ------
(MILLIONS)

Northwest Pipeline................ $ 255.2 $238.5 $276.5 $115.7 $104.1 $ 98.8
Williams Natural Gas.............. 174.3 231.3 294.1 45.0 48.8 41.0
Transcontinental Gas Pipe Line.... 725.3 -- -- 165.0 -- --
Texas Gas Transmission............ 276.3 -- -- 64.0 -- --
-------- ------ ------ ------ ------ ------
$1,431.1 $469.8 $570.6 $389.7 $152.9 $139.8
======== ====== ====== ====== ====== ======

NOTE 5 -- INVESTING ACTIVITIES

1995 1994 1993
------ ------
(MILLIONS)

Investments:
Kern River Gas Transmission Company, at equity (50%)*....................................... $178.6 $179.4 $179.3
Northern Border Pipeline partnerships (3.2% in 1994 and 12.25% in
1993)* (Note 4)................................................. 20.0 78.6
Texasgulf Inc. (15%)............................................................................................. -- 150.0
150.0
Other*............................................................. 29.7 29.2Other, at equity (varying ownerships from 3.2% to 50%)............ 84.2 49.7
Other, at cost.................................................... 44.8 --
------ ------
$307.6 $379.1 $437.1
====== ======

- ---------------

* Accounted for on the equity method.

Williams' investment in Texasgulf Inc. is subject to certain rights under a
shareholder agreement. Williams has the right to sell the shares to the majority
owner under various specified terms and to require Texasgulf to register the
shares for public offering. Most of the rights under the shareholder agreement,
including the right to sell to the majority owner, are not transferable in the
event Williams sells the shares or there is a change in control of Williams.

Subsequent to December 31, 1994, Williams and the majority owner of
Texasgulf filed registration statements with the Securities and Exchange
Commission covering an initial public offering of all Texasgulf's common stock
and certain senior subordinated notes. If the common stock offering is completed
as filed, Williams will sell all of its interests in Texasgulf except for
certain nonproducing phosphate reserves. After giving consideration to the
expected effect of these transactions, the estimated net realizable value of
certain properties which are expected to be retained, dividends already received
from Texasgulf in 1995 and previously unrecognized income tax benefits, Williams
does not expect to incur an after-tax loss on the disposition. If the above
public offerings do not occur or are significantly altered, Williams believes it
will ultimately realize its after-tax investment in Texasgulf through other
rights or alternatives.

At December 31, 1994, other1995, certain equity investments, carried at $30with a carrying value of
$30.8 million, have a market value of $73$81.5 million.

In 1995, Williams sold its 15 percent interest in Texasgulf Inc. for
approximately $124 million in cash, which resulted in an after-tax gain of
approximately $16 million because of previously unrecognized tax benefits
included in the provision for income taxes.

Subsequent to December 31, 1995, Williams acquired the remaining interest
in Kern River Gas Transmission Company for $205 million in cash. The acquisition
will be accounted for as a purchase in 1996, and the excess purchase price will
be allocated to property, plant and equipment.

Summarized financial position and results of operations for Kern River Gas
Transmission Company are presented below.

1995 1994 1993
------- -------- --------
(MILLIONS)

Current assets......................................... $ 55.4 $ 98.3 $ 80.1
Non-current assets, principally natural gas
transmission plant................................... 994.5 1,026.3 1,028.7
Current liabilities.................................... (47.3) (86.9) (62.1)
Long-term debt......................................... (620.5) (643.2) (662.9)
Other non-current liabilities.......................... (124.1) (109.5) (66.9)
------- -------- --------
Partners' equity....................................... $ 258.0 $ 285.0 $ 316.9
======= ======== ========
Revenues............................................... $ 187.0 $ 179.0 $ 176.8
Costs and expenses..................................... 65.7 54.9 48.7
Net income............................................. 38.0 38.1 42.1

F-21
45

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Investing income from continuing operations:

1995 1994 1993 1992
----- ----- -----
(MILLIONS)

Interest....................................................Interest...................................................... $37.2 $ 5.5 $10.0
$ 4.7
Dividends...................................................Dividends..................................................... 16.1 4.5 5.6
5.2
Equity earnings.............................................earnings............................................... 40.6 39.6 49.6 40.6
----- ----- -----
$93.9 $49.6 $65.2 $50.5
===== ===== =====

Dividends and distributions received from companies carried on an equity
basis were $44 million in 1995; $43 million in 1994; and $39 million in 1993;1993.

NOTE 6 -- ASSET SALES AND WRITE-OFF OF PROJECT COSTS

In the fourth quarter of 1995, the development of a commercial coal
gasification venture in south-central Wyoming was canceled, resulting in a $41.4
million pre-tax charge. This amount includes what management believes to be a
reasonable estimate of future costs of $4 million to reclaim the site, of which
it is expected that 60 percent to 70 percent will be incurred during 1996 and
$10 millionthe remainder over a five-year period. Williams will perform the reclamation of
the site in 1992.

F-18
41

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summarized financial positioncoordination with various governmental agencies and resultsexpects to
receive necessary environmental releases and approvals upon completion of operations for Kern River Gas
Transmission Company are presented below. Kern River operations began in
February 1992.

1994 1993 1992
------- ------- -------
(MILLIONS)

Current assets....................................... $ 114.1 $ 78.7 $ 46.6
Non-current assets, principally natural gas
transmission plant................................. 1,026.3 1,026.8 1,003.5
Current liabilities.................................. (86.4) (60.2) (34.2)
Long-term debt....................................... (643.2) (662.9) (675.9)
Other non-current liabilities........................ (109.5) (65.5) (16.3)
------- ------- -------
Partners' equity..................................... $ 301.3 $ 316.9 $ 323.7
======= ======= =======
Revenues............................................. $ 179.0 $ 178.7 $ 127.5
Costs and expenses................................... 54.9 50.6 31.7
Net income........................................... 38.1 42.1 34.1

NOTE 4 -- SALES OF ASSETSthe
reclamation.

In 1994, Williams sold 3,461,500 limited partner common units in Northern
Border Partners, L.P. Net proceeds from the sale were approximately $80 million
and the sale resulted in a pre-tax gain of $22.7 million. As a result of the
sale, Williams' original 12.25 percent interest in Northern Border partnerships
has been reduced to 3.2 percent.

In a 1993 public offering, Williams sold 6.1 million units in the Williams
Coal Seam Gas Royalty Trust (Trust), which resulted in net proceeds of $113
million and a pre-tax gain of $51.6 million. The Trust owns defined net profits
interests in the developed coal-seam properties in the San Juan Basin of New
Mexico and Colorado, which were conveyed to the Trust by Williams Production
Company. Ownership of an additional 3.6 million units remains with Williams.

In March 1993, Williams sold its intrastate natural gas pipeline system and
other related assets in Louisiana for $170 million in cash, resulting in a
pre-tax gain of $45.9 million.

The 1992 gain of $14.6 million resulted from the sale of a tract of land in
Florida that had been retained from the assets of Agrico Chemical Company, which
was sold several years ago.

NOTE 57 -- PROVISION FOR INCOME TAXES

The provision (credit) for income taxes from continuing operations
includes:

1995 1994 1993
1992------ ----- ------ -----
(MILLIONS)

Current:
Federal..................................................Federal................................................. $(26.5) $45.8 $ 84.1
$40.5
State....................................................State................................................... 3.1 10.1 20.4
10.5------ ----- ------
-----(23.4) 55.9 104.5
51.0------ ----- ------
-----
Deferred:
Federal..................................................Federal................................................. 114.2 23.7 15.8
(6.3)
State....................................................State................................................... 11.2 2.1 (7.7)
(2.3)------ ----- ------
-----125.4 25.8 8.1
(8.6)------ ----- ------
-----
Total provision............................................provision........................................... $102.0 $81.7 $112.6
$42.4====== ===== ====== =====

F-19F-22
4246

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The 1993 provision for income taxes includes the effect of a 1 percent
increase in the federal income tax rate, which was made retroactive to January
1, 1993. Effective January 1, 1993, Williams adopted Statement of Financial
Accounting Standards (FAS) No. 109, "Accounting for Income Taxes." Adoption of
the standard had a cumulative favorable effect of approximately $2 million on
net income. The effect is recorded in income tax expense because of
immateriality. Prior to 1993, Williams accounted for deferred income taxes under
FAS No. 96. As permitted under the new rules, prior years' financial statements
have not been restated.

Reconciliations from the provision for income taxes attributable to
continuing operations at the statutory rate to the provision for income taxes
are as follows:

1995 1994 1993
1992
------ ------ -----------
(MILLIONS)

Provision at statutory rate...............................rate................................ $140.5 $ 86.3 $104.3 $49.5
Increases (reductions) in taxes resulting from:
Increase in statutory tax rate on beginning of year
deferred tax balances................................balances................................. -- -- 15.8
--
State income taxes......................................taxes....................................... 13.5 8.0 8.2
5.3
IncomeCoal-seam tax credits......................................credits.................................... (18.7) (14.9) (12.8)
(9.5)Decrease in valuation allowance for deferred tax
assets................................................ (29.8) -- --
Reversal of prior tax accruals........................... (8.0) -- --
Other -- net............................................net............................................. 4.5 2.3 (2.9) (2.9)
------ ------ -----------
Provision for income taxes................................taxes................................. $102.0 $ 81.7 $112.6
$42.4
====== ====== ===========

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial purposes
and the amounts used for income tax purposes.

Significant components of deferred tax liabilities and assets as of
December 31 are as follows:

1994 1993
------ ------1995 1994*
-------- -------
(MILLIONS)

Deferred tax liabilities:
Property, plant and equipment.................................... $732.1 $703.4
Investments...................................................... 85.1 114.8
Other............................................................ 82.5 101.7
------ ------equipment.................................. $1,669.2 $ 704.6
Investments.................................................... 96.9 81.9
Other.......................................................... 248.1 74.7
-------- -------
Total deferred tax liabilities........................... 899.7 919.9liabilities......................... 2,014.2 861.2
Deferred tax assets:
Deferred revenues................................................ 42.1 49.3
Investments...................................................... 59.0 88.9revenues.............................................. 23.5 40.0
Investments.................................................... 31.3 55.9
Rate refunds..................................................... 33.7 17.5
Regulatory liabilities........................................... 14.4 16.1refunds................................................... 70.7 32.0
Accrued liabilities.............................................. 67.7 54.9
State deferred taxes............................................. 24.9 22.7liabilities............................................ 226.4 64.2
Minimum tax credits..............................................credits............................................ 93.9 --
8.5
Other............................................................ 84.1 110.8
------ ------Other.......................................................... 220.5 93.1
-------- -------
Total deferred tax assets................................ 325.9 368.7assets.............................. 666.3 285.2
Valuation allowance for deferred tax assets.............. 32.0 33.7
------ ------assets............ 6.4 29.8
-------- -------
Net deferred tax assets.................................. 293.9 335.0
------ ------assets................................ 659.9 255.4
-------- -------
Net deferred tax liabilities....................................... $605.8 $584.9
====== ======liabilities..................................... $1,354.3 $ 605.8
======== =======

- ---------------

* Reclassified to conform to current classification.

The valuation allowance for deferred tax assets decreased $23.4 million and
$1.7 million during 1995 and $3.41994, respectively.

Cash payments for income taxes are as follows: 1995 -- $348 million, duringbefore
refunds of $9 million; 1994 -- $113 million, before refunds of $6 million; and
1993 respectively.

F-20-- $129 million.

F-23
4347

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash payments for income taxes are as follows: 1994 -- $113 million, before
refunds of $6 million; 1993 -- $129 million; and 1992 -- $50 million.

NOTE 68 -- EXTRAORDINARY CREDIT (LOSS)LOSS

The extraordinary itemsloss in 1994 and 1992 resultresulted from early extinguishment of debt. During 1994,
Williams and one of its subsidiaries paid $316.7 million to redeem higher
interest rate debt for a $12.2 million net loss (net of a $7.7 million benefit
for income taxes).

In 1992, two of Williams' subsidiaries paid a
total of $55.7 million to redeem debt resulting in a $9.9 million net gain
(including a $.7 million benefit for income taxes).

NOTE 79 -- EMPLOYEE BENEFIT PLANS

Pensions

Williams maintains non-contributory defined-benefit pension plans covering
the majority of employees. Benefits are based on years of service and average
final compensation. Pension costs are funded to satisfy minimum requirements
prescribed by the Employee Retirement Income Security Act of 1974.

Net pension expense consists of the following:

1995 1994 1993
1992
------------- ------ ------
(MILLIONS)

Service cost for benefits earned during the year...........year.......... $ 19.5 $ 13.9 $ 10.9 $ 10.5
Interest cost on projected benefit obligation..............obligation............. 40.1 21.8 21.1 18.9
Actual return on plan assets...............................assets.............................. (120.3) 3.1 (28.3)
(17.9)
Amortization and deferrals.................................deferrals................................ 82.0 (24.2) 8.2
(.7)
Settlement loss............................................loss........................................... -- -- 5.7
--
------------- ------ ------
Net pension expense........................................expense....................................... $ 21.3 $ 14.6 $ 17.6
$ 10.8
============= ====== ======
Net pension expense:
Continuing operations....................................operations................................... $ 21.3 $ 10.0 $ 14.9
$ 8.5
Discontinued operations..................................operations................................. -- 4.6 2.7
2.3------- ------ ------
------$ 21.3 $ 14.6 $ 17.6
$ 10.8
============= ====== ======

Included in net pension expense at December 31, 1995, is approximately $8.9
million for the Transco Energy plans' participants.

During 1993, certain supplemental retirement plan participants elected to
receive lump-sum benefits, which resulted in a settlement loss of $5.7 million.

F-21
44

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents the funded status of the plans:

1995 1994 1993
---- ----
(MILLIONS)

Actuarial present value of benefit obligations:
Vested benefits..................................................... $422 $191 $229
Non-vested benefits................................................. 21 10 14
---- ----
Accumulated benefit obligations..................................... 443 201 243
Effect of projected salary increases................................ 137 58 75
---- ----
Projected benefit obligations....................................... 580 259 318
Assets at market value................................................ 550 251 275
---- ----
Assets less than projected benefit obligations........................ 30 8 43
Unrecognized net loss................................................. -- (12) (38)
Unrecognized prior-service cost....................................... (11) (10) (9)
Unrecognized transition asset......................................... 4 5 6
---- ----
Pension liability (asset) liability.......................................................................................... $ 23 $ (9)
$ 2
==== ====

F-24
48

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1995, assets of two pension plans exceeded the projected
benefit obligations with assets at market value of $103 million and projected
benefit obligations of $57 million. At December 31, 1994, assets of two other
pension plans exceeded the projected benefit obligations with assets at market
value of $238 million and projected benefit obligations of $233 million.

Included in the net pension liability at December 31, 1995, is
approximately $32 million for the participants of the Transco Energy plans.

Williams has retained all liabilities and obligations of WilTel'sits network
services operations' plan participants up to the date of sale (see Note 2)3).

At December 31, 1994, assets of two of Williams' pension plans exceeded the
projected benefit obligations by $5 million. However, the preceding table
includes pension plans that had projected benefit obligations of $26 million and
assets of $13 million at December 31, 1994.

The discount rate used to measure the present value of benefit obligations
is 87 1/4 percent (8 1/2 percent (7 1/4 percent in 1993)1994); the assumed rate of increase in future
compensation levels is 5 percent; and the expected long-term rate of return on
assets is 10 percent. Plan assets consist primarily of commingled funds and
assets held in a master trust. The master trust is comprised primarily of
domestic and foreign common and preferred stocks, corporate bonds, United States
government securities and commercial paper.

Postretirement benefits other than pensions

Williams sponsors a health care planplans that providesprovide postretirement medical
benefits to retired Williams' employees who were employed full time, hired prior
to January 1, 1992 (January 1, 1996 for Transco Energy employees), have worked
five years, attained age 55 while in service with
Williams and are a participant in the
Williamscompany pension plans. In addition, two Transco Energy plans provide certain
health care and life insurance benefits to retired employees of Transcontinental
Gas Pipe Line, Texas Gas and other subsidiaries of Transco Energy.

The plan providesplans provide for retiree contributions and containscontain other cost-sharing
features such as deductibles and coinsurance. The accounting for the planplans
anticipates future cost-sharing changes to the written planplans that are consistent
with Williams' expressed intent to increase the retiree contribution rate
annually, generally in line with health care cost increases, except for the
expected general inflation rate for that year.certain
retirees whose premiums are fixed. A portion of the cost has been funded in
trusts by Williams' FERC-regulated natural gas pipeline subsidiaries to the
extent recovery from customers can be achieved. Plan assets consist of assets
held in atwo master trust (previously described)trusts and money market funds. Effective January 1, 1993, Williams prospectively adopted FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
ApplicationOne of the standard reduced 1993 net income bymaster trusts was
previously described and the other consists primarily of domestic and foreign
common stocks, commercial paper and government bonds.

Net postretirement benefit expense consists of the following:

1995 1994 1993
------ ----- -----
(MILLIONS)

Service cost for benefits earned during the year............. $ 7.4 $ 3.9 $ 3.7
Interest cost on accumulated postretirement benefit
obligation................................................. 23.9 7.8 8.2
Actual return on plan assets................................. (17.9) (.6) (.7)
Amortization of unrecognized transition obligation........... 5.0 5.1 5.2
Amortization and deferrals................................... 23.1 .1 (3.5)
------ ----- -----
Net postretirement benefit expense........................... $ 41.5 $16.3 $12.9
====== ===== =====
Net postretirement benefit expense:
Continuing operations...................................... $ 41.5 $14.7 $11.4
Discontinued operations.................................... -- 1.6 1.5
------ ----- -----
$ 41.5 $16.3 $12.9
====== ===== =====

Net postretirement benefit expense at December 31, 1995, includes
approximately $2 million.

F-22$26 million for the Transco Energy plans' participants.

F-25
4549

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net postretirement benefit expense consists of the following:

1994 1993
----- -----
(MILLIONS)

Service cost for benefits earned during the year..................... $ 3.9 $ 3.7
Interest cost on accumulated postretirement benefit obligation....... 7.8 8.2
Actual return on plan assets......................................... (.6) (.7)
Amortization of unrecognized transition obligation................... 5.1 5.2
Amortization and deferrals........................................... .1 (3.5)
----- -----
Net postretirement benefit expense................................... $16.3 $12.9
===== =====
Net postretirement benefit expense:
Continuing operations.............................................. $14.7 $11.4
Discontinued operations............................................ 1.6 1.5
----- -----
$16.3 $12.9
===== =====

The estimated expense of providing these benefits to retirees was $8
million in 1992 ($1 million for discontinued operations) and included accruals
of $4 million for future benefits payable to eligible active employees.

The following table presents the funded status of the plan:plans:

1995 1994 1993
---- ----
(MILLIONS)

Actuarial present value of postretirement benefit obligation:
Retirees............................................................ $227 $ 55 $ 65
Fully eligible active plan participants............................. 1124 11
Other active plan participants...................................... 85 34 41
---- ----
Accumulated postretirement benefit obligation....................... 336 100 117
Assets at market value................................................ 124 16 10
---- ----
Assets less than accumulated postretirement benefit obligation........ 212 84 107
Unrecognized net gain (loss)..........................................gain................................................. 25 19
(4)Unrecognized prior-service cost....................................... (6) --
Unrecognized transition obligation.................................... (71) (78) (83)
---- ----
Postretirement benefit liability...................................... $160 $ 25 $ 20
==== ====

TheIncluded in the postretirement benefit liability at December 31, 1994, includes1995, is
approximately $5$139 million for WilTel's network services operations' plan
participants. Williams has no obligationthe Transco Energy plans' participants,
substantially all of which is classified as non-current. The amount of
postretirement benefit costs deferred as a regulatory asset at December 31,
1995, is $133 million and is expected to pay postretirement medical benefits
for these participants afterbe recovered through rates over the
date of sale (see Note 2).next 17 years.

The discount rate used to measure the present value of benefit obligations
is 87 1/4 percent (8 1/2 percent (7 1/4 percent in 1993)1994). The expected long-term rate of return
on plan assets is 10 percent.percent (6 percent after taxes). The annual assumed rate of
increase in the health care cost trend rate for 19951996 is 10 to 1413 percent,
systematically decreasing to 65 percent by 2003.2006. The health care cost trend rate
assumption has a significant effect on the amounts reported. Increasing the
assumed health care cost trend rate by 1 percent in each year would increase the
aggregate of the service and interest cost components of postretirement benefit
expense for the year ended December 31, 1994,1995, by $2$5 million and the accumulated
postretirement benefit obligation as of December 31, 1994,1995, by $14$50 million.

F-23
46

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other

Williams maintains various defined-contribution plans covering
substantially all employees. Company contributions are based on employees'
compensation and, in part, match employee contributions. Company contributions
are invested primarily in Williams common stock. Williams' contributions to
these plans were $19 million in 1995, $14 million in 1994 and $13 million in
1993 and $11 million in
1992.1993. Contributions to these plans made by discontinued operations were $3
million in both 1994 and 1993, and $2 million in 1992.1993.

Effective January 1, 1994, Williams adopted Statement of Financial
Accounting Standards (FAS) No. 112, "Employers' Accounting for Postemployment
Benefits," which requires the accrual of benefits provided to former or inactive
employees after employment but before retirement. Adoption of the standard
reduced 1994 net income by approximately $2 million and is not reported as a
change in accounting principle due to immateriality.

F-26
50

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 810 -- INVENTORIES

1995 1994 1993
------ ------
(MILLIONS)

Natural gas in underground storage.................................storage:
Transcontinental Gas Pipe Line (LIFO)............................ $ 9.921.4 $ 12.1--
Williams Energy Services......................................... 6.0 8.7
Other............................................................ 2.2 9.9
Petroleum products:
Williams Pipe Line............................................... 12.1 11.6
Williams Energy Ventures......................................... 25.6 22.8Services......................................... 12.8 13.5
Other............................................................ 3.7 3.827.4 19.2
Materials and supplies:
Williams Telecommunications Systems..............................WilTel........................................................... 28.2 28.6
22.6
Other............................................................ 87.8 32.4
35.3Other.............................................................. 3.2 --
------ ------
$189.0 $112.3 $108.2
====== ======

Inventories valued on the LIFO method at December 31, 1995, approximate
current average cost.

NOTE 911 -- PROPERTY, PLANT AND EQUIPMENT

1995 1994
1993
-------- ----------------- ---------
(MILLIONS)

Cost:
Northwest Pipeline.......................................... $1,275.4 $1,221.6Pipeline........................................... $ 1,403.5 $ 1,275.4
Williams Natural Gas........................................Gas......................................... 761.6 745.0
721.6Transcontinental Gas Pipe Line............................... 2,756.7 --
Texas Gas Transmission....................................... 917.3 --
Williams Field Services Group............................... 1,274.4 1,117.6Group................................ 2,324.9 1,273.2
Williams Pipe Line.......................................... 781.9 750.0
Williams Energy Ventures.................................... 31.4 6.3
Williams Telecommunications Systems.........................Line........................................... 1,023.3 809.6
WilTel....................................................... 55.2 32.1
25.3
Discontinued operations (Note 2)............................ -- 1,052.8
Other....................................................... 170.9 137.9
-------- --------WilTech Group................................................ 90.7 69.5
Other........................................................ 145.5 106.3
--------- ---------
9,478.7 4,311.1
5,033.1
Accumulated depreciation......................................depreciation....................................... (1,464.0) (1,187.1)
(1,354.5)
-------- --------
$3,124.0 $3,678.6
======== ========--------- ---------
$ 8,014.7 $ 3,124.0
========= =========

Commitments for construction and acquisition of property, plant and
equipment are approximately $70$256 million at December 31, 1994.

F-241995.

The Financial Accounting Standards Board has issued a new accounting
standard, FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," effective for fiscal years beginning
after December 15, 1995. The standard, which will be adopted in the first
quarter of 1996, is not expected to have a material effect on Williams'
financial position or results of operations.

F-27
4751

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1012 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Under Williams' cash-management system, certain subsidiaries' cash accounts
reflect credit balances to the extent checks written have not been presented for
payment. The amounts of these credit balances included in accounts payable are
$136 million at December 31, 1995, and $41 million at December 31, 1994, and $53 million at December 31, 1993.1994.

1995 1994
1993
-------------- ------
(MILLIONS)

Accrued liabilities:
Rate refunds...................................................... $ 83.8 $ 42.7
Employee costs.................................................... 51.7 62.3
Interest.......................................................... 39.9 42.9
Deferred revenue.................................................. 24.5 54.8
Income taxes payable..............................................payable............................................ $ 371.6 $ 38.0
22.2Rate refunds.................................................... 180.6 83.8
Employee costs.................................................. 135.9 51.7
Interest........................................................ 72.9 39.9
Taxes other than income taxes.....................................taxes................................... 51.2 41.8
38.5
Other............................................................. 81.7 116.9Other........................................................... 318.0 106.2
-------- ------
------$1,130.2 $361.4
$380.3
============== ======

NOTE 1113 -- LONG-TERM DEBT, LEASES AND BANKING ARRANGEMENTS

Notes payable

During 1994, a subsidiary of Williams entered into a $400 million
short-term credit agreement to finance the acquisition of Williams common stock.
Notes payable totaling $398 million were outstanding under this agreement at
December 31, 1994. These notes were repaid in January 1995. The weighted average
interest rate on the $507 million outstanding short-term borrowings at December 31, 1994, was
6.75 percent.

There were no
short-term borrowings outstanding at December 31, 1993.

F-25F-28
4852

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-term debtDebt

WEIGHTED
AVERAGE
(MILLIONS)
INTEREST ------------------
RATE* 1995 1994
1993-------------- -------- ------- ---------------
(MILLIONS)

The Williams Companies, Inc.
Revolving credit loans............................... 6.6%loans................................ 6.2% $ 350.050.0 $ --350.0
Debentures, 8.875% -- 10.25%, payable 2012, 2020, 2021
and 2021.......................................... 9.52025........................................... 9.6 587.7 379.7 400.0
Notes, 7.5% -- 13%9.625%, payable through 2001............. 8.32001........... 8.8 842.4 363.8 524.8
Capital lease obligations, 11.1%, payable through
2014.............................................. 11.1...................... -- -- 31.0 31.4
Northwest Pipeline
Debentures, 9%7.125% -- 10.65%, payable through 2022....... 9.62025.... 9.0 369.2 293.0 304.3
Adjustable rate notes, payable through 2002..........2002........... 9.0 11.7 13.3 15.0
Williams Natural Gas
Variable rate notes, payable 1999....................1999..................... 6.3 130.0 130.0
Transcontinental Gas Pipe Line
Debentures, 9.125%, payable 1998 through 2017......... 9.1 153.0 --
Notes, 8.125% -- 9%, payable 1996, 1997 and 2002...... 8.7 381.1 --
Adjustable rate notes, payable 2000 (subject to
remarketing in 1996)............................... 6.2 130.0125.1 --
Debentures at 10.25%.................................Texas Gas Transmission
Notes, 9.625% and 8.625%, payable 1997 and 2004....... 9.0 255.9 --
-- 120.0
Williams Field Services Group
Other, payable through 1999.......................... 8.0 5.7Holdings of Delaware
Revolving credit loans................................ 6.3 150.0 --
Williams Pipe Line
Notes, 8.95% and 9.78%, payable through 2001.........2001.......... 9.3 110.0 120.0
130.0
Williams Telecommunications Systems
Other................................................ 7.9 4.3 5.8
Discontinued operations (Note 2)
Notes at 9.61% and 9.81%.............................Energy Ventures
Adjustable rate notes, payable 1996 through 2002...... 8.3 21.0 --
-- 127.5Other, payable through 1999............................. 8.0 6.8 10.0
-------- --------
3,193.9 1,690.8 1,658.8
Current portion of long-term debt......................debt....................... (319.9) (383.0) (54.0)
-------- --------
$2,874.0 $1,307.8 $1,604.8
======== ========

- ---------------

* At December 31, 1994.

Under Williams'1995.

During 1995, Williams replaced its $600 million credit agreement, which was
scheduled to terminate in December 1995, with a new $800 million agreement.
Under the new credit agreement, Northwest Pipeline, Williams
NaturalTranscontinental Gas andPipe
Line, Texas Gas Transmission, Williams Pipe Line and Williams Holdings of
Delaware, Inc. have access to various amounts of the facility while Williams
(parent) has access to all unborrowed amounts. Interest rates vary with current
market conditions. Certain amounts outstanding at December 31, 1994,1995, under this
facility do not reduce amounts available to Williams in the future. The
available amount at December 31, 1994,1995, is $495$670 million.

TheIn January 1996, Williams Holdings of Delaware, Inc., a subsidiary of
Williams, issued $250 million of 6.25 percent debentures due 2006.

In January 1996, Williams entered into a $205 million short-term borrowing
agreement terminatesto finance the purchase of the remaining 50 percent interest in December 1995 and Williams expects to
replace it with a similar agreement.Kern
River Gas Transmission Company (see Note 5).

F-29
53

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In conjunction with the issuance of $130 million of variable rate debt by
Williams Natural Gas in November 1994, Williams entered into an interest-rate
swap agreement under which Williams pays a 7.78 percent fixed rate in exchange
for a variable rate (5.81(5.88 percent at December 31, 1994)1995). The difference between
the fixed and variable rate is included in interest expense.

During 1993, Williams sold to financial institutions options to enter into
future interest-rate swap agreements on $220 million of fixed-rate debt. Net
proceeds of $22 million from the sale of these options were deferred and
amortized as a reduction of interest expense over the remaining term of the
original debt agreements. In 1994, the original debt was prepaid, the options
were terminated and the remaining deferred proceeds from the sale of the options
have been included in the extraordinary loss on the debt extinguishments (see
Note 6).

F-26
49

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 1992, Williams entered into interest-rate swap agreements to
effectively convert $450 million of fixed-rate debt to variable-rate debt.
Subsequently, Williams entered into a forward termination of the agreements,
effective March 1993, which resulted in Williams receiving $29 million in net
proceeds. This amount has been deferred and is being amortized as a reduction of
interest expense over the remaining term of the original agreements.

Terms of borrowings require maintenance of certain financial ratios, limit
the sale or encumbrance of assets and limit the amount of additional borrowings.
In addition, certain debt agreements include a restriction on the payment of
dividends on common stock and the amount that can be expended to acquire
Williams common stock. At December 31, 1994, Williams had $565 million available
under this covenant.

Terms of certain subsidiaries' borrowing arrangements with institutional
lenders limit the transfer of funds to Williams. NetAt December 31, 1995,
approximately $933 million of net assets of consolidated subsidiaries at December 31, 1994, are $2.7 billion, of which
approximately $432 million iswas
restricted. Undistributed earnings of companies and partnerships accounted for
under the equity method of $64$62 million are included in Williams' consolidated
retained earnings at December 31, 1994.1995.

Aggregate minimum maturities and sinking-fund requirements, excluding lease
payments, for each of the next five years are as follows:

(MILLIONS)
----------

1995.............................................................. $381
1996.............................................................. 44$319
1997.............................................................. 21222
1998.............................................................. 131341
1999.............................................................. 302313
2000.............................................................. 405

Cash payments for interest (net of amounts capitalized) related to
continuing operations are as follows: 1995 -- $266 million; 1994 -- $143
million; and 1993 -- $144
million; and 1992 -- $119 million. Cash payments for interest (net of amounts
capitalized) related to discontinued operations are as follows: 1994 -- $6
million;million and 1993 -- $16 million; and 1992--$18 million.

Leases

Future minimum annual rentals under non-cancelable operating leases related
to continuing operations are as follows:

CAPITAL OPERATING
LEASES LEASES
------- ---------
(MILLIONS)

1995.............................................................. $ 5 $21
1996.............................................................. 5 19
1997.............................................................. 4 17
1998.............................................................. 4 14
1999.............................................................. 4 12
Thereafter........................................................ 57 83
----- -------
Total minimum annual rentals...................................... 79 $166
=======
Imputed interest at 11%........................................... 46
-----
Present value of net minimum annual rentals....................... $33
=====
$52 million in 1996, $47 million in 1997, $42
million in 1998, $39 million in 1999, $37 million in 2000 and $186 million
thereafter.

Total rent expense from continuing operations was $78 million in 1995, $26
million in 1994 and $22 million in 1993, and $23 million in 1992.1993. Total rent expense from discontinued
operations was $70 million in 1994 and $59 million in 1993, and $48 million in
1992.

F-27
50

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)1993.

NOTE 1214 -- STOCKHOLDERS' EQUITY

TheIn connection with the May 1, 1995, merger with Transco Energy, Williams
exchanged all of Transco Energy's outstanding $3.50 cumulative convertible
preferred stock for 2.5 million shares of Williams' $3.50 cumulative convertible
preferred stock. These shares are redeemable by Williams beginning in November
1999, at an initial price of $51.40 per share. Each share of $3.50 preferred
stock is convertible at the option of the holder into 1.5625 shares of Williams
common stock. Dividends per share of $2.33 were recorded during 1995.

During 1995, Williams exchanged 2.8 million shares of its $2.21 cumulative
preferred stock with a carrying value of $69 million for 9.6 percent debentures
with a fair value of $72.5 million. The difference in the fair value of the new
securities and the carrying value of the preferred stock exchanged is recorded
as a decrease in capital in excess of par value. This amount did not impact net
income, but is included in preferred stock dividends on the income statement and
in the computation of earnings per share. The 837,852 outstanding shares of
$2.21 cumulative preferred stock are redeemable by Williams at a price of $25
beginning in September 1997. Dividends per share of $2.21 $2.21 and $.72 were recorded each
year during 1995, 1994 1993 and 1992, respectively.1993.

F-30
54

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Each1993.

Subsequent to December 31, 1995, the board of directors adopted a
Stockholder Rights Plan (the "Rights Plan") to replace its existing rights plan
which expired on February 6, 1996. Under the Rights Plan, each outstanding share
of common stock has one-half of aone preferred stock purchase right attached. Under certain
conditions, each right may be exercised to purchase, at an exercise price of
$75$140 (subject to adjustment), one two-hundredth of a share of a new series of junior
participating preferred stock. The rights may be exercised only if an Acquiring
Person acquires (or obtains the right to acquire) 2015 percent or more of Williams
common stock; or commences an offer for 3015 percent or more of Williams common
stock; or the board of directors determines an Adverse Person has become the
owner of 10 percent or more of Williams common stock. The rights, which do not
have voting rights, expire in 19962006 and may be redeemed at a price of $.05$.01 per
right prior to their expiration, or within a specified period of time after the
occurrence of certain events. In the event a person becomes the owner of more
than 2015 percent of Williams common stock or the board of directors determines
that a person is an Adverse Person, each holder of a right (except an Acquiring
Person or an Adverse Person) shall have the right to receive, upon exercise,
common stock having a value equal to two times the exercise price of the right.
In the event Williams is acquiredengaged in a merger, or other business combination or 50 percent
or more of Williams assets, cash flow or earnings power is sold or transferred,
each holder of a right (except an Acquiring Person or an Adverse Person) shall
have the right to receive, upon exercise, common stock of the acquiring company
having a value equal to two times the exercise price of the right.

During 1995, the board of directors approved the Stock Plan for Non-officer
Employees (the 1995 Plan). The 1995 Plan along with the 1990 Stock Plan (the
1990 Plan) permits granting of various types of awards including, but not
limited to, stock options, stock-appreciation rights, restricted stock and
deferred stock. The 1995 Plan provides for granting of awards to key employees, includingnon-officer
employees. The 1990 Plan is used for granting of awards to executive officers and directors who are employees.of
Williams. Such awards may be granted for no consideration other than prior and
future services. The purchase price per share for stock options and
stock-appreciation rights may not be less than the fair-market value of the
stock on the date of grant. Another stock option plan provides for the granting
of non-qualified options to non-employee directors. Options under the 1990 Plan
generally become exercisable in three annual installments beginning within one
year after grant, and theygrant. Options under the 1995 Plan generally become exercisable after
five years, subject to accelerated vesting if certain stock prices are achieved.
The options expire 10 years after grant.

The following summary reflects option transactions during 1994.1995.

OPTION PRICE
---------------------------------------------
SHARES PER SHARE TOTAL
----------------- --------- ----------
(MILLIONS)

Shares under option:
December 31, 1993................................... 2,455,785 $11-27 $48
Granted............................................. 824,679 25-30 241994..................................... 2,884,008 $ 11- 30 $ 65
Granted............................................... 2,261,058 30- 40 80
Canceled or surrendered............................. (27,310) 14-30 (1)
Exercised........................................... (369,146) 11-27 (6)
----------surrendered............................... (81,892) 14- 40 (2)
Exchanged options from Transco Energy
acquisition -- net................................. 1,024,250 21-172 35
Exercised............................................. (841,491) 11- 40 (25)
--------- ----
December 31, 1994................................... 2,884,008 $11-30 $65
===========1995..................................... 5,245,933 $ 11-172 $153
========= ====
Shares exercisable December 31, 1994.................. 1,305,971
===========1995.................... 4,421,447
=========

Under the Plan,plans, Williams granted 65,445, 127,706 97,504 and 108,92097,504 deferred
shares in 1995, 1994 1993 and 1992,1993, respectively, to key employees. Deferred shares
are valued at the date of award and are generally charged to

expense in the year of
award. Williams issued 45,298, 191,007 and 70,958 of previously deferred shares
in

F-28F-31
5155

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expense in the year of award. Williams issued 70,122, 45,298 and 191,007 of
previously deferred shares in 1995, 1994 1993 and 1992,1993, respectively. Williams also
issued 55,300, 44,800 62,000 and 40,00062,000 shares of restricted stock in 1995, 1994 1993 and
1992,1993, respectively. Restricted stock is valued on the issuance date, and the
related expense is amortized over varying periods of three to ten10 years.

During November 1994, Williams entered into a deferred share agreement (the
Agreement) in connection with the sale of WilTel'sits network services operations. Under
the terms of the Agreement, Williams will distribute up to approximately 2.6
million shares of Williams common stock to key employees of the network services
operations over various periods through 1998. During 1994, the initial stock distribution of1998, less amounts necessary to meet
minimum tax withholding requirements. Williams distributed 314,405 and 273,095
shares was made.during 1995 and 1994, respectively.

At December 31, 1994, 7,131,2091995, 9,849,891 shares of common stock were reserved for
issuance pursuant to existing and future stock awards, of which 1,835,0142,698,799 were
available for future grants (3,200,354(1,835,014 at December 31, 1993)1994).

The Financial Accounting Standards Board has issued a new accounting
standard, FAS No. 123, "Accounting for Stock-Based Compensation," effective for
fiscal years beginning after December 15, 1995. As provided for in the standard,
Williams will not adopt the recognition provisions and will provide the pro
forma net income and earnings-per-share disclosures required by the standard in
its 1996 annual financial statements.

Williams currently follows Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees." Under this standard, because the
exercise price of Williams' fixed plan common stock options equals the market
price of the underlying stock on the date of the grant, no compensation expense
is recognized.

NOTE 1315 -- FINANCIAL INSTRUMENTS

Fair valueFair-value methods

The following methods and assumptions were used by Williams in estimating
its fair-value disclosures for financial instruments:

Cash and cash equivalents and notes payable: The carrying amounts
reported in the balance sheet approximate fair value due to the short-term
maturity of these instruments.

Notes and other non-current receivables: For those notes with interest
rates approximating market or maturities of less than three years, fair
value is estimated to approximate historically recorded amounts. For those
notes with maturities beyond three years and fixed interest rates, fair
value is calculated using discounted cash flow analysis based on current
market rates.

Long-term debt: The fair value of Williams' long-term debt is valued
using indicative year-end traded bond market prices for publicly traded
issues, while private debt is valued based on the prices of similar
securities with similar terms and credit ratings. At December 31, 1995 and
1994, and
1993, 5985 percent and 7659 percent, respectively, of Williams' long-term debt
was publicly traded. Williams used the expertise of an outside investment
banking firm to estimate the fair value of long-term debt.

Call options sold on interest-rateInterest-rate swaps: Fair value is determined by
discounting estimated future cash flows using forward interest rates
implied by the year-end yield curve and standard option pricing techniques.
Fair value was calculated by the two financial institutions holding the
options.

Interest-rate swap: Fair value is determined by discounting estimated
future cash flows using forward interest rates implied by the year-end
yield curve. Fair value was calculated by the financial institution whothat is
the counterparty to the swap.

Energy-related trading and hedging: Includes forwards, futures,
options, swaps and options:purchase and sales commitments. Fair value reflects
management's best estimate of market prices considering various

F-32
56

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

factors including closing exchange and over-the-counter quotations, the
terms of the contract, credit considerations, time value and volatility
factors underlying the positions.

F-29
52

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Carrying amounts and fair values of Williams' financial instruments

Asset (liability)

1995 1994
1993
------------------- ----------------------------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- ----------------- --------- --------- ---------
(MILLIONS)

Cash and cash equivalents...................equivalents................ $ 90.4 $ 90.4 $ 36.1 $ 36.1
$ 64.3 $ 64.3
Notes and other non-current
receivables.....receivables............................ 25.7 25.8 63.1 62.3 31.7 31.3
Investment in Texasgulf Inc. (see Note 3)... 150.0 150.0Inc.............. -- -- 150.0 150.0
Notes payable...............................payable............................ -- -- (507.0) (507.0) -- --
Long-term debt, including current
portion...portion................................ (3,193.1) (3,476.7) (1,657.6) (1,679.9)
(1,624.1) (1,807.0)
Call options sold on interest-rate swaps.... -- -- (18.4) (25.4)
Interest-rate swap..........................swaps...................... (.4) (10.4) (.3) 1.4
-- --
Energy-related trading:
Futures................................... (2.0) (2.0) 2.0 2.0
Swaps and options:
Assets................................. 102.5 102.5 22.7 22.7
7.0 7.0
Liabilities............................ (13.8) (13.8) (6.3) (6.3)(283.1) (283.1) (15.8) (15.8)
Energy-related hedging:
Futures................................... (3.3) (3.3) (.9) (.9)
Swaps and options:
Assets................................. 2.9 4.5 .3 .3
-- --
Liabilities............................ (5.2) (5.2) -- --(.6) (3.2) (8.5) (8.5)

The above asset and liability amounts for energy-related hedging represent
unrealized gains or losses and do not include the related deferred amounts.

The 1995 average fair value of the energy-related trading assets and
liabilities is $57.3 million and $144.6 million, respectively. The 1994 average
fair value of the energy-related trading futures contracts
is a liability of $1.5 million. The 1994 average fair value of the trading swaps
and options assets and liabilities areis $9.2 million
and $7$8.5 million, respectively.

Williams has recorded liabilities of $27$24 million and $37$27 million at
December 31, 19941995 and 1993,1994, respectively, for certain guarantees that qualify as
financial instruments. It is not practicable to estimate the fair value of these
guarantees because of their unusual nature and unique characteristics.

Off-balance-sheet credit and market risk

Williams is a participant in numerousthe following transactions and arrangements
that involve financial instruments that have off-balance-sheet risk of
accounting loss. It is not practicable to estimate the fair value of these off-
balance-sheet financial instruments because of their unusual nature and unique
characteristics.

Williams sold, with limited recourse, certain receivables. The aggregate
limit under these receivables facilities was $190 million at December 31, 1995,
and $80 million at December 31, 1994 (all(1994 balance all related to discontinued
operations) and $180 million at December 31, 1993.. Williams received $45$196 million of additional net proceeds in 1995, $110 million in
1994 and none in 1993
and $171 million in 1992.1993. At December 31, 1995 and 1994, $166 million and 1993, $80
million and $35
million (all(1994 balance all related to discontinued operations) of such
receivables had been sold, respectively. Under a different arrangement, oneBased on amounts outstanding at
December 31, 1995, the maximum contractual credit loss under these arrangements
is approximately $28 million, but the likelihood of Williams' subsidiaries
sold $18 million of receivables with limited recourse in 1992.loss is remote. Williams hashad
no risk of credit loss for the amount sold at December 31, 1994, because amounts
outstanding relaterelated to discontinued operations (see Note 2)3).

In connection with certain assets disposed in 1987, Williams has been
providing, for the benefit of the mortgage lender, a guarantee of the
sufficiency of certain lease rentals to meet a portion of the debt service
associated with the assets. At December 31, 1994 and 1993, the maximum possible
loss under this

F-30
53

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

arrangement was approximately $16 million and $15 million, respectively, before
consideration of future contractual and estimated sublease income, which is
expected to be substantial. In January 1995, Williams acquired from the lender
the underlying debt and mortgage and believes that under the arrangement the
guarantee terminated by its terms. The debtor and owner of the assets has
disputed Williams' interpretation of the guarantee.

In connection with the sale of units in the Williams Coal Seam Gas Royalty
Trust (Trust), Williams indemnified the Trust against losses from certain
litigation (see Note 15), guaranteed certain minimum ownership interests based
on natural gas reserve volumes through 1993 only17) and guaranteed minimum gas prices through 1997. At
December 31, 19941995 and 1993,1994, Williams has a recorded liability of $10 million and $15 million, respectively, for
these

F-33
57

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

items, representing the maximum amountsamount for the first two guaranteesguarantee and an estimate
of the gas price exposure based on historical operating trends and an assessment
of market conditions. While Williams' maximum exposure from this guarantee
exceeds amounts accrued, it is not practicable to determine such amount because
of the unique aspects of the guarantee.

In connection with the sale of WilTel'sWilliams' network services operations,
Williams has been indemnified by LDDS against any losses related to retained
guarantees of $200$180 million at December 31, 1995, for lease rental obligations.
LDDS has advised that it is negotiating with the guaranteed parties to remove
Williams as guarantor.

Williams has issued other guarantees and letters of credit with
off-balance-sheet risk that total approximately $9$8 million and $20$9 million at
December 31, 19941995 and 1993,1994, respectively. Williams believes it will not have to
perform under these agreements because the likelihood of default by the primary
party is remote and/or because of certain indemnifications received from other
third parties.

In accordance with historical industry practice, Williams' natural gas
subsidiaries have gas purchase contracts with commitments to buy minimum
quantities of natural gas, primarily at market prices, for varying periods
estimated to extend through at least 2014. The subsidiaries currently have or
will enter into gas sales contracts for these volumes, or the subsidiaries will
negotiate the termination of contracts that are not required to meet gas sales
demand (see Note 15).

Commodity price-risk management services

Williams Energy VenturesServices provides price-risk management services associated
with the energy industry to its customers. These services are provided through a
variety of financial instruments, including forward contracts, futures
contracts, optionsoption contracts, swap agreements and swap agreements.purchase and sale commitments.
See Note 1 for a description of the accounting for these trading activities.

The net gain for 1994 from all
trading activities was $14.2 million and is reported as revenues in the
Consolidated Statement of Income.

Williams Energy Ventures manages risk from financial instruments by making
various logisticalServices enters into forward contracts and purchase and
sale commitments which manage profit margins through offsetting
financial instruments. As a result, price movements can result in losses on
certain contracts offset by gains on others.

Williams Energy Ventures takesinvolve physical delivery of an active role in managing and controlling
market and counterparty risks and has established formal control procedures
which are reviewed on an ongoing basis. Williams Energy Ventures attempts to
minimize credit-risk exposure to trading counterparties and brokers through
formal credit policies and monitoring procedures. In the normal course of
business, collateral is not required for financial instruments with credit risk.

F-31
54

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The notional quantities and average prices for natural gas related swap
agreements, options contracts and futures contracts at December 31, 1994, are as
follows:

PAYOR RECEIVER
----- --------

Trading:
Fixed-price swaps:
Quantities (TBtu).............................................. 86.0 100.9
Average price (per MMBtu)...................................... $2.01 $1.86
Location differential swaps:
Quantities (TBtu).............................................. 85.0 136.3
Average price (per MMBtu)...................................... $1.42 $1.43
Options:
Quantities (TBtu).............................................. 15.1 17.9
Average strike price (per MMBtu)............................... $1.91 $2.19
Futures:
Quantities (TBtu).............................................. 80.3 60.7
Average price (per MMBtu)...................................... $1.91 $1.92
Hedging:
Fixed-price swaps:
Quantities (TBtu).............................................. 28.4 4.1
Average price (per MMBtu)...................................... $2.21 $2.16
Options:
Quantities (TBtu).............................................. 5.5 3.7
Average strike price (per MMBtu)............................... $2.07 $2.05
Futures:
Quantities (TBtu).............................................. 21.3 3.1
Average price (per MMBtu)...................................... $1.90 $1.91

At December 31, 1993, Williams Energy Ventures was the payor and receiver
under natural gas fixed-price swap agreements having notional quantities of 44.1
TBtu and 43.9 TBtu, respectively. Average prices are $2.24 and $2.18,
respectively. In addition, Williams Energy Ventures was the payor and receiver
under location differential variable-priced swap agreements having notional
quantities of 26.3 TBtu and 38.8 TBtu, respectively, at December 31, 1993. The
average priceenergy commodity. Prices
under these agreements was $1.77.

The swapcontracts are both fixed and variable. Swap agreements call for
Williams Energy VenturesServices to make payments to (or receive payments from)
counterparties based upon the differential between a fixed and variable price or
variable prices for different locations. The variable prices are generally based
on either industry pricing publications or exchange quotations. Williams Energy
VenturesServices buys and sells optionsoption contracts which give the buyer the right to
exercise the options and receive the difference between a predetermined strike
price and a market price at the date of exercise. The market prices used for
natural-gas-related contracts are generally exchange quotations. Williams Energy
VenturesServices also enters into futures contracts which are commitments to either
purchase or sell a commodity at a future date for a specified price and are
generally settled in cash, but may be settled through delivery of the underlying
commodity. The market prices for futures contracts are based on exchange
quotations.

The swap agreements extend
for various periods through 2000; options contracts and futures contracts extend
for various periods through 1996. Average prices are based on weighted averages
for contracts outstanding at December 31, 1994 and 1993. Average prices for
location differential swaps incorporate forward prices based on the appropriate
index.

Williams Energy Ventures enters into energy-relatedServices manages risk from financial instruments by making
various logistical commitments which manage profit margins through offsetting
financial instruments. As a result, price movements can result in losses on
certain contracts offset by gains on others.

Williams Energy Services takes an active role in managing and controlling
market and counterparty risks and has established formal control procedures
which are reviewed on an ongoing basis. Williams Energy Services attempts to
hedge against market price fluctuationsminimize credit-risk exposure to trading counterparties and brokers through
formal credit policies and monitoring procedures. In the normal course of
certain refined products
inventories and natural gas sales and purchase commitments. Net

F-32business, collateral is not required for financial instruments with credit risk.

F-34
5558

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

deferred lossesThe notional quantities for all trading financial instruments at December
31, 1995, and December 31, 1994, on anticipated sales and purchase
commitments were $9are as follows:

1995 1994
------------------- ------------------
PAYOR RECEIVER PAYOR RECEIVER
------ -------- ----- --------

Fixed price:
Natural gas (TBtu)............................ 873.2 847.3 181.4 179.5
Refined products and crude (MMBbls)........... 15.9 14.9 11.2 12.5
Variable price:
Natural gas (TBtu)............................ 1,841.2 1,517.2 85.0 136.3
Refined products and crude (MMBbls)........... 2.8 2.5 2.5 2.5

The net cash flow requirement related to these contracts at December 31,
1995, was $215 million. It is expected that substantially all of these
deferred amounts will be recognized in income during 1995. See Note 1 for a
descriptionAt December 31, 1995, the average remaining life of the
accountingtrading fixed-price portfolio is approximately two years and four years for these hedging activities.the
trading variable-price portfolio.

In 1995, certain gas marketing operations of Williams Energy Services,
along with gas marketing operations from Transco Energy, were combined with the
commodity price-risk management and trading activities of Williams Energy
Services. Such combination in 1995 involves managing the price and other
business risks and opportunities of such physical gas trading activities and any
related financial instruments previously accounted for as hedges in common-risk
portfolios with Williams Energy Services' other financial instruments. These
former marketing activities, consisting of buying and selling natural gas,
through 1994 were reported on a "gross" basis in the Consolidated Statement of
Income as revenues and profit-center costs. Concurrent with completing the
combination of such activities with the commodity price-risk management
operations in the third quarter of 1995, the related contract rights and
obligations along with any related financial instruments previously accounted
for as hedges, were recorded in the Consolidated Balance Sheet on a
current-market-value basis and the related income statement presentation was
changed to a net basis. Such revenues reported on a gross basis through the
first two quarters of 1995 were reclassified to a net basis concurrent with this
change in the third quarter of 1995. Following is a summary of Williams Energy
Services' revenues:

1995 1994
------- ------

Financial instrument and physical trading market gains -- net.... $ 65.8 $ 14.2
Gross marketing revenues......................................... 617.7* 249.2
Gross marketing costs............................................ (599.2)* --
Other............................................................ 1.5 .3
------- ------
$ 85.8 $263.7
======= ======

- ---------------

* Through June 30, 1995.

Concentration of credit risk

Williams' cash equivalents consist of high quality securities placed with
various major financial institutions with high credit ratings. Williams'
investment policy limits the company'sits credit exposure to any one financial institution.

At December 31, 1995 and 1994, and 1993, approximately 4062 percent and 4840 percent,
respectively, of receivables are for the sale or transportation of natural gas
and related products or services. Approximately 3027 percent and 4330 percent of
receivables at December 31, 19941995 and 1993,1994, respectively, are for
telecommunications and related services. Natural gas customers include
pipelines, distribution companies, producers, gas marketers and industrial users
primarily located in the eastern, northwestern and centralmidwestern United States.
TelecommunicationsTelecommunica-

F-35
59

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

tions customers include numerous corporations. As a general policy, collateral
is not required for receivables, but customers' financial conditionscondition and credit
worthiness are evaluated regularly.

NOTE 1416 -- OTHER FINANCIAL INFORMATION

Intercompany revenues (at prices that generally apply to sales to
unaffiliated parties) are as follows:

1994 1993 1992
-----1995 1994* 1993*
------ ----- -----
(MILLIONS)

Northwest Pipeline............................................ $ 1.8 $ 3.4 $ 3.6
$ 8.6
Williams Natural Gas.......................................... 9.5 14.2 5.4
5.4Transcontinental Gas Pipe Line................................ 34.2 -- --
Texas Gas Transmission........................................ 37.7 -- --
Williams Field Services Group................................. 7.8 37.8 20.69.2 30.5 14.5
Williams Energy Services...................................... 34.0 20.2 42.1
Williams Pipe Line............................................ 28.6 6.832.8 16.7 1.4
Other......................................................... .3 .4 --
Williams Energy Ventures...................................... 15.5 3.1 11.3
Williams Telecommunications Systems........................... .3 -- -------- ----- -----
-----
$69.8 $56.7 $45.9
=====$159.5 $85.4 $67.0
====== ===== =====

- ---------------

* Reclassified as described in Note 1.

Williams Natural Gas had sales to a natural gas distributor that accounted
for 15 percent in 1993 and 11 percent in 1992 of Williams' revenues.

F-33F-36
5660

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information for business segments is as follows:

19941995 1994* 1993*
1992*
------- ------- ---------------- -------- --------
(MILLIONS)

Identifiable assets at December 31:
Northwest Pipeline.................................Pipeline.................................. $ 1,147.5 $1,028.0 $1,032.6
$1,064.2
Williams Natural Gas...............................Gas................................ 709.2 719.8 697.0
704.8Transcontinental Gas Pipe Line...................... 3,159.5 -- --
Texas Gas Transmission.............................. 1,151.8 -- --
Williams Field Services Group...................... 1,097.5 996.5 1,081.2Group....................... 2,116.5 1,093.6 967.8
Williams Energy Services............................ 351.9 96.5 84.6
Williams Pipe Line................................. 599.5 587.8 535.8
Williams Energy Ventures........................... 172.7 57.8 13.3
Williams Telecommunications Systems................Line.................................. 870.5 680.4 588.3
WilTel.............................................. 263.0 255.5 169.1
157.0
Investments........................................WilTech Group....................................... 138.0 60.2 26.6
Investments......................................... 307.6 379.1 437.1 434.9
General corporate and other........................ 230.4 147.3 141.3other......................... 279.3 169.4 122.1
Discontinued operations............................operations............................. -- 743.6 895.2
849.8
------- ------- -------
Consolidated...............................--------- -------- --------
Consolidated................................ $10,494.8 $5,226.1 $5,020.4
$4,982.3
======= ======= ================ ======== ========
Additions to property, plant and equipment:
Northwest Pipeline.................................Pipeline.................................. $ 130.5 $ 62.6 $ 175.7
$ 297.6
Williams Natural Gas...............................Gas................................ 43.5 32.9 54.9
47.8Transcontinental Gas Pipe Line...................... 238.7 -- --
Texas Gas Transmission.............................. 32.1 -- --
Williams Field Services Group...................... 153.8 117.3 142.7Group....................... 247.7 163.5 116.7
Williams Pipe Line................................. 35.5 61.4 26.9
Williams Energy Ventures........................... 24.6 3.0 --
Williams Telecommunications Systems................Line.................................. 87.9 46.6 62.9
WilTel.............................................. 24.1 4.9 1.9
5.0WilTech Group....................................... 8.3 8.0 6.9
General corporate and other........................ 11.2 14.1 6.7
------- ------- -------
Consolidated...............................other......................... 14.7 7.0 9.3
--------- -------- --------
Consolidated................................ $ 827.5 $ 325.5 $ 428.3
$ 526.7
======= ======= ================ ======== ========
Depreciation and depletion:
Northwest Pipeline.................................Pipeline.................................. $ 34.9 $ 33.9 $ 30.7
$ 24.2
Williams Natural Gas...............................Gas................................ 27.3 27.2 27.3
26.0Transcontinental Gas Pipe Line...................... 109.1 -- --
Texas Gas Transmission.............................. 38.9 -- --
Williams Field Services Group...................... 47.2 44.0 38.9Group....................... 110.2 46.7 43.5
Williams Pipe Line................................. 22.3Line.................................. 26.4 22.4 21.4
21.2
Williams Energy Ventures........................... .3 .1 --
Williams Telecommunications Systems................WilTel.............................................. 5.9 5.3 4.7
3.7WilTech Group....................................... 8.3 7.4 4.0
General corporate and other........................ 14.1 9.6 8.2
------- ------- -------
Consolidated...............................other......................... 8.4 7.4 6.2
--------- -------- --------
Consolidated................................ $ 369.4 $ 150.3 $ 137.8
$ 122.2
======= ======= ================ ======== ========

- ---------------

* RestatedReclassified as described in Note 2.1.

F-37
61

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1517 -- CONTINGENT LIABILITIES AND COMMITMENTS

Rate and regulatory matters and related litigation

In June 1990, a producer brought suit against Williams Natural Gas alleging
antitrust and interference with contract claims regarding the transportation of
gas and seeking actual, treble and punitive damages and injunctive relief.
Williams Natural Gas has denied any liability. In April 1991, Williams Natural
Gas was granted summary judgment on the antitrust claim and at the close of the
plaintiff's case, a directed verdict was granted in favor of Williams Natural
Gas on the remaining claims. The plaintiff filed an appeal on November 18, 1992,
and on January 12, 1995, the lower court's judgment was affirmed.

Williams' interstate pipeline subsidiaries, including Williams Pipe Line,
have various regulatory proceedings pending. As a result of rulings in certain
of these proceedings, a portion of the revenues of these subsidiaries has been
collected subject to refund. As to Williams Pipe Line, revenues collected
subject to F-34
57

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

refund were $111$179 million at December 31, 1994;1995; it is not expected
that the amount of any refunds ordered would be significant. Accordingly, no
portion of these revenues has been reserved for refund. As to the other
pipelines, see Note 1012 for the amount of revenues reserved for potential refund
as of December 31, 1994.1995.

In 1992, the FERC issued Order 636, Order 636-A and Order 636-B. These
orders, which have been challenged in various respects by various parties in
proceedings pending in the U.S. Court of Appeals for the D.C. Circuit, require
interstate gas pipeline companies to change the manner in which they provide
services. Williams Natural Gas implemented its restructuring on October 1, 1993,
and Northwest Pipeline, Texas Gas and Transcontinental Gas Pipe Line implemented
its restructuringtheir restructurings on November 1, 1993. Certain aspects of each pipeline
company's restructuring are under appeal.

Contract reformations and gas purchase deficiencies

Williams Natural GasEach of the natural gas pipeline subsidiaries has undertaken the
reformation of its respective gas supply contracts to settle gas purchase deficiencies, avoid future gas purchase
deficiencies, reduce prices to market levels or make other appropriate
modifications. Ascontracts. None of December 31, 1994, Williams Natural Gas' totalthe pipelines has
any significant pending supplier take-or-pay, ratable take andor minimum take
claims were not significant.claims.

In 1994, Williams Natural Gas and a producer have executed a number of
definitive
agreements to resolve outstanding issues between the two companies and
restructure their relationship. Among other things, the agreements terminate
Williams Natural Gas' largest gas purchase contract and resolve a number of
disputes and litigation, including a $203 million claim by the producer for
take-or-pay deficiencies and a gas pricing dispute. With respect to the latter
dispute, Williams Natural Gas paid the producer $35 million in cash and is
committed to pay an additional $40 million under certain circumstances, all but
a small portion of which payments Williams Natural Gas believes it will be
permitted to recover from certain of its former sales customers.issues. Portions of the settlement arewere
subject to regulatory approvals, including the regulatory abandonment of a
certain Williams Natural Gas gathering system on terms acceptable to Williams
Natural Gas. Williams Natural Gas alsoOn May 2, 1995, the FERC issued orders granting the requisite
approvals; however, one party has commitments under gas supply contracts
reflecting prices in excess of market-based prices. The estimated commitment
amounts at December 31, 1994, attributable to these contracts were:

POST
1995 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- ----
(MILLIONS)

Commitments........................... $10 $10 $12 $12 $13 $133

Williams has an accounting policy of determining accruals taking into
consideration both historical and future gas quantities and appropriate prices
to determine an estimated total exposure. This exposure is discounted and
risk-weighted to determine the appropriate accrual. The estimated portion
recoverable from sales and transportation customers is deferred based on
Williams' estimate of its expected recoveryrequested rehearing of the amounts allowed by FERC
policy. As of December 31, 1994, Williams Natural Gas had a remaining accrual of
$47 million for take-or-pay settlements and reformationdecision regarding
abandonment of the non-market
responsive contracts. Although Williams believes these accruals are adequate,
the actual amount paid for take-or-pay settlements and contract reformation will
depend on the outcome of various court proceedings; the provisions and
enforceability of each gas purchase contract; the success of settlement
negotiations; and other factors.gathering system.

Current FERC policy associated with Orders 436 and 500 requires interstate
gas pipelines to absorb some of the cost of reforming gas supply contracts
before allowing any recovery through direct bill or surcharges to transportation
as well as sales commodity rates. Pursuant to FERC Order 500, Williams Natural
Gas has filed to recover a portion of previously incurred take-or-pay and
contract-reformation costs. As of December 31, 1994, this subsidiary had $40
million included in recoverable contract-reformation and take-or-pay settlement
costs which had not yet been paid and filed for recovery with the FERC. Under Orders 636, 636-A and 636-B,

F-35
58

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) costs
incurred to comply with these rules are permitted to be recovered in full,
although 10 percent of such costs must be allocated to interruptible
transportation service.

The FERC initially approved a method for Northwest Pipeline to direct bill
its contract-reformation costs, but when challenged on appeal, sought a remand
to reassess such method. Northwest Pipeline has received an order from the FERC
that requires a different allocation of such costs which is now being challenged
byand has rebilled its
customers accordingly. While certain customers.customers continue to challenge the FERC
methodology, Northwest Pipeline does not expect anythe reallocation or the
challenge to result in a significant financial impact upon the company.

Pursuant to a stipulation and agreement approved by the FERC, Williams
Natural Gas has made twothree filings to direct bill take-or-pay and gas supply
realignment costs recoverable under Orders 436, 500 and 528.costs. The first provided for the offset of certain amounts
collected subject to refund against previous take-or-pay direct-billed amounts
and, in addition, covered $24 million in new costs. This filing was approved,
and the final direct-billed amount, taking into consideration the offset, was
$15 million. The second filing covered $18 million in additional costs, and
provided for an offset of $3 million. The third filing covered additional costs
of $8 million which are similar in nature to the costs in the second filing. An
intervenor has filed a protest seeking to have the Commission review the
prudence of certain of the costs covered by the second filing.and third filings.
Williams Natural Gas believes that the filingsecond and third filings will most likely
be approvedapproved. As of December 31, 1995, this subsidiary had an accrual of $87
million for its then estimated remaining contract-reformation and gas supply

F-38
62

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

realignment costs. This accrual was increased in December 1995 as a result of a
ruling by the U.S. Court of Appeals for the Tenth Circuit regarding the terms of
certain contracts with producers. Williams Natural Gas will make additional
filings in the
future under the stipulation and agreementapplicable FERC orders to recover such further contract-reformation costs as may be
incurred.

Other legal mattersincurred in the future. Williams Natural Gas has recorded a regulatory asset of
approximately $84 million for estimated future recovery of the foregoing costs.

On September 18, 1995, Texas Gas received FERC approval of a settlement
regarding Texas Gas' recovery of gas supply realignment costs. The settlement
provides that Texas Gas will recover 100 percent of such costs up to $50
million, will share in costs incurred between $50 million and $80 million, and
will absorb any such costs above $80 million. The settlement also extends Texas
Gas' pricing differential mechanism to November 1, 1996, and beyond that date
for contracts in litigation as of that date. Through December 31, 1995, Texas
Gas has paid approximately $53 million for gas supply realignment costs,
primarily as a result of contract terminations, and has accrued a liability of
approximately $27 million for its estimated remaining gas supply realignment
costs. Texas Gas has recovered approximately $44 million in gas supply
realignment costs, and in accordance with the terms of its settlement has
recorded a regulatory asset of approximately $23 million for the estimated
future recovery of such costs, which will be collected from customers over the
next two years. Ninety percent of the cost recovery is collected through demand
surcharges on Texas Gas' firm transportation rates; the remaining 10 percent is
recoverable from interruptible transportation service.

In 1983, the FERC issued Order 94-A, which permitted producers to collect
certain production related costs from pipelines on a retroactive basis. Pursuant
to FERC orders, Texas Gas and Transcontinental Gas Pipe Line direct billed their
customers for such costs paid to producers. In 1990, the U.S. Court of Appeals
for the D.C. Circuit overturned the FERC's orders authorizing direct billing for
such costs. In December 1995, Texas Gas entered into a settlement by which it
resolved its final refund obligations as to these costs. Transcontinental Gas
Pipe Line has resolved its refund obligations except for an amount of
approximately $7 million. Transcontinental Gas Pipe Line has refunded that
amount, reserving the right to recover the amount paid if the ruling is reversed
on appeal.

The foregoing accruals are in accordance with Williams' accounting policies
regarding the establishment of such accruals which take into consideration
estimated total exposure, as discounted and risk-weighted, as well as costs and
other risks associated with the difference between the time costs are incurred
and the time such costs are recovered from customers. The estimated portion of
such costs recoverable from customers is deferred or recorded as a regulatory
asset based on an estimate of expected recovery of the amounts allowed by FERC
policy. While Williams believes that these accruals are adequate and the
associated regulatory assets are appropriate, costs actually incurred and
amounts actually recovered from customers will depend upon the outcome of
various court and FERC proceedings, the success of settlement negotiations and
various other factors, not all of which are presently foreseeable.

Environmental matters

Since 1989, Texas Gas and Transcontinental Gas Pipe Line have had studies
underway to test certain of their facilities for the presence of toxic and
hazardous substances to determine to what extent, if any, remediation may be
necessary. Transcontinental Gas Pipe Line has responded to data requests
regarding such potential contamination of certain of its sites. The costs of any
such remediation will depend upon the scope of the remediation. At December 31,
1995, these subsidiaries had reserves totaling approximately $45 million for
these costs.

Certain Williams subsidiaries, including Texas Gas and Transcontinental Gas
Pipe Line, have been identified as potentially responsible parties (PRP) at
various Superfund and state waste disposal sites. Although no assurances can be
given, Williams does not believe that the PRP status of these subsidiaries will
have a material adverse effect on its financial position, results of operations
or net cash flows.

F-39
63

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In February 1995, Transcontinental Gas Pipe Line was served as a defendant
in a lawsuit filed in U.S. District Court in Virginia by three individuals for
alleged violations of several provisions of both federal and state laws. Since
1991, Transcontinental Gas Pipe Line has worked with the appropriate Virginia
authorities to resolve certain emissions issues also raised by the individuals.
On October 13, 1995, the court dismissed the lawsuit but provided that the
plaintiffs could amend and refile their complaint to allege a state law nuisance
claim and they have done so. Transcontinental Gas Pipe Line believes the amended
complaint is without merit and is prepared to vigorously defend the suit.

Transcontinental Gas Pipe Line, Texas Gas and Williams Natural Gas have
identified polychlorinated biphenyl (PCB) contamination in air compressor
systems, disposal pitssoils and related properties at certain compressor station sitessites.
Transcontinental Gas Pipe Line, Texas Gas and hasWilliams Natural Gas have also
been involved in negotiations with the U.S. Environmental Protection Agency
(EPA) and state agencies to develop additional screening,
detailed sampling and cleanup programs. In
addition, negotiations concerning investigative and remedial actions relative to
potential mercury contamination at certain gas metering sites have commenced
with certain environmental authorities.authorities by Williams Natural Gas and
Transcontinental Gas Pipe Line. As of December 31, 1994,1995, Williams Natural Gas
had recorded a liability for approximately $28$26 million, representing the current
estimate of future environmental cleanup costs to be incurred over the next six
to ten years. Texas Gas and Transcontinental Gas Pipe Line likewise had recorded
liabilities for these costs which are included in the $45 million reserve
mentioned above. Actual costs incurred will depend on the actual number of
contaminated sites identified, the actual amount and extent of contamination
discovered, the final cleanup standards mandated by the EPA and other
governmental authorities and other factors. Texas Gas, Transcontinental Gas Pipe
Line and Williams Natural Gas have deferred these costs pending recovery as
incurred through future rates and other means.

In connection with the 1987 sale of the assets of Agrico Chemical Company,
Williams agreed to indemnify the purchaser for environmental cleanup costs
resulting from certain conditions at specified locations, to the extent such
costs exceed a specified amount. It appears probable that such costs will exceed
this amount. At December 31, 1994,1995, Williams had approximately $6$7 million accrued
for such excess costs. The actual costs incurred will depend on the actual
amount and extent of contamination discovered, the final cleanup standards
mandated by the EPA or other governmental authorities, and other factors.

A lawsuit was filed on May 14, 1993, in a state court in Colorado in which
certain claims have been made against various defendants, including Northwest
Pipeline, contending that gas exploration and development activities in portions
of the San Juan Basin have caused air, water and other contamination. The
plaintiffs in the case sought certification of a plaintiff class. On June 28,
1994, the lawsuit was dismissed for failure to join an indispensable party over
which the state court had no jurisdiction. This decision is being appealed by
the plaintiffs. Since June 28, 1994, foureight individual lawsuits have been filed
against Northwest Pipeline in U.S. district courtDistrict Court in Colorado, making
essentially the same claims. Northwest Pipeline is vigorously defending these
lawsuits.

Other legal matters

On December 31, 1991, the Southern Ute Indian Tribe (the Tribe) filed a
lawsuit against Williams Production Company, a wholly owned subsidiary of
Williams, and other gas producers in the San Juan Basin area, alleging that
certain coal strata were reserved by the United States for the benefit of the
Tribe and that

F-36
59

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the extraction of coal-seam gas from the coal strata was
wrongful. The Tribe seeks compensation for the value of the coal-seam gas. The
Tribe also seeks an order transferring to the Tribe ownership of all of the
defendants' equipment and facilities utilized in the extraction of the coal-seam
gas. On September 13, 1994, the Courtcourt granted summary judgment in favor of the
defendants. The Tribe
sought a certification of an interlocutory appeal from the Court which was
denied. Nevertheless, the Tribe has lodged an interlocutory appeal with the U.S. Court of
Appeals for the Tenth Circuit. Williams Production agreed to indemnify the
Williams Coal Seam Gas Royalty Trust (Trust) against any losses that may arise
in respect of certain properties subject to

F-40
64

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the lawsuit. In addition, if the Tribe is successful in showing that Williams
Production has no rights in the coal-seam gas, Williams Production has agreed to
pay to the Trust for distribution to then-current unitholders, an amount
representing a return of a portion of the original purchase price paid for the
units. While Williams believes that such a payment is not probable, it has
reserved a portion of the proceeds from the sale of the units in the Trust.

Relative to a proposal forIn October 1990, Dakota Gasification Company (Dakota), the acquisitionowner of WilTel submitted to Williams
by LDDS Communications, Inc. (LDDS)the
Great Plains Coal Gasification Plant (Plant), contained in a letter dated May 3, 1994,
and attached as an exhibit to a report on Form 8-K filed by LDDS on that day,
two class action lawsuits were filed on May 9, 1994,suit in the ChanceryU.S. District
Court of
Delawarein North Dakota against Transcontinental Gas Pipe Line and three other
pipeline companies alleging that Williams' directors breachedthe pipeline companies had not complied with
their fiduciary duty to the
plaintiffrespective obligations under certain gas purchase and gas transportation
contracts. On September 8, 1992, Dakota and the membersDepartment of the putative class by summarily rejecting the LDDS
proposal and by issuing false and misleading statements. On September 26, 1994,
both suits were dismissed without prejudice. See Note 2 for information
regarding the sale of WilTel's network services operationsJustice on January 5, 1995.

On October 6, 1994, the Antitrust Divisionbehalf
of the Department of Justice
issued a civil investigation demand to Williams Natural Gas concerning its
provision of transportation services in Kansas and Missouri. Williams Natural
Gas hasEnergy filed a response, and believes that it has not violated the antitrust
lawsan amended complaint adding as defendants in
the conductsuit, Transco Energy Company, Transco Coal Gas Company (Transco Energy
Company and Transco Coal Gas Company being wholly owned subsidiaries of
its business.

On December 21, 1994, Williams Natural Gas received a second civil
investigative demand fromWilliams) and all of the Antitrust Divisionother partners in the partnership that originally
constructed the Plant and each of the parent companies of these entities. Dakota
and the Department of Justice concerningsought declaratory and injunctive relief and the
recovery of damages, alleging that the four pipeline defendants underpaid for
gas, collectively, as of June 30, 1992, by more than $232 million plus interest
and for additional damages for transportation services and costs and expenses
including attorneys' fees. On March 30, 1994, the parties executed definitive
agreements which would settle the litigation subject to final non-appealable
regulatory approvals. The settlement is also subject to a FERC ruling that
Transcontinental Gas Pipe Line's existing authority to recover in rates certain
gathering activitiescosts related to the purchase and transportation of Williams Naturalgas produced by Dakota will
pertain to gas purchase and transportation costs Transcontinental Gas Pipe Line
will pay Dakota under the terms of the settlement. On October 18, 1994, the FERC
issued an order consolidating Transcontinental Gas Pipe Line's petition for
approval of the settlement with similar petitions pending relative to two of the
other three pipeline companies (the third pipeline having entered into a
settlement) and Williams'setting the matter for hearing before an administrative law
judge. On December 29, 1995, the administrative law judge issued an initial
decision in which he concluded that the settlement was imprudent. If the
decision is upheld on appeal, Transcontinental Gas Pipe Line and the other operating subsidiaries. Williams is preparing a response but believes that
nonetwo
pipelines would be required to refund to their customers amounts collected in
excess of its subsidiaries has violated the antitrust lawsamounts deemed appropriate by the administrative law judge. The
pipelines would be entitled to collect the amount of any such customer refunds
from Dakota. The administrative law judge's decision will be appealed; however,
in the conduct of its
business.

Relativeevent that the necessary regulatory approvals are not ultimately obtained
and Dakota elects to a certain Agreement and Plan of Merger, dated December 12,
1994, among Williams, a Williams subsidiary andcontinue the litigation, Transcontinental Gas Pipe Line,
Transco Energy Company (Transco), seven class actionand Transco Coal Gas Company intend to vigorously defend
the suit.

In connection with agreements to resolve take-or-pay and other contract
claims and to amend gas purchase contracts, Transcontinental Gas Pipe Line and
Texas Gas each entered into certain settlements with producers which may require
the indemnification of certain claims for additional royalties which the
producers may be required to pay as a result of such settlements. As a result of
such settlements, Transcontinental Gas Pipe Line and Texas Gas have been named
as defendants in, respectively, six and two lawsuits were filed on December 12, 1994, and
later, in the Chancery Courtwhich damages claimed
aggregate in excess of Delaware, challenging the transaction and
alleging$133 million. Texas Gas has settled its two lawsuits for
a breachtotal cost of fiduciary duties$3.7 million, all but $700,000 of which is recoverable as
transition costs under Order 636. On July 17, 1995, a judge in a Texas state
court granted a motion by Transco's directors. In sixTranscontinental Gas Pipe Line for partial summary
judgment, rejecting a major portion of the lawsuits, Williamsplaintiff's claims in one of its
lawsuits. Producers may receive other demands which could result in additional
claims. Indemnification for royalties will depend on, among other things, the
specific lease provisions between the producer and the lessor and the terms of
the settlement between the producer and either Transcontinental Gas Pipe Line or
Texas Gas. Texas Gas may file to recover 75 percent of any such additional
amounts it may be required to pay pursuant to indemnities for royalties under
the provisions of Order 528.

F-41
65

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)

On November 14, 1994, Continental Energy Associates Limited Partnership
(the Partnership) filed a voluntary petition under Chapter 11 of the Bankruptcy
Code with the U.S. Bankruptcy Court, Middle District of Pennsylvania. The
Partnership owns a cogeneration facility in Hazleton, Pennsylvania (the
Facility). Hazleton Fuel Management Company (HFMC), a subsidiary of Transco
Energy, supplies natural gas and fuel oil to the Facility. As of December 31,
1995, it had current outstanding receivables from the Partnership of
approximately $20 million, all of which has been reserved. The construction of
the Facility was named asfunded by several banks that have a party defendant, the plaintiffs alleging that
Williams aided and abetted the alleged breach of duty. On January 6, 1995, the
parties tosecurity interest in all of
the lawsuits entered into an agreement in principle and on
January 9, 1995, a stipulation and agreementPartnership's assets. HFMC has asserted to the Bankruptcy Court that payment
of compromise, settlement and
release was executed subjectits receivables is superior to approvalthe lien of the Court. See Note 16banks and intends to
vigorously pursue the collection of such amounts. HFMC has also filed suit
against the lead bank with respect to this and other matters, including the
alleged tortious interference with HFMC's contractual relations with the
Partnership and other parties. On March 21, 1995, the Bankruptcy Court approved
the rejection of the gas supply contract between the Partnership and HFMC. HFMC
has in turn asserted force majeure under a contract with a producer under which
HFMC purchased natural gas for information regarding the acquisition of Transco.Facility.

In addition to the foregoing, various other proceedings are pending against
Williams or its subsidiaries incidental to their operations.

Summary

While no assurances may be given, Williams does not believe that the
ultimate resolution of the foregoing matters, taken as a whole and after
consideration of amounts accrued, insurance coverage, recovery from customers or
other indemnification arrangements, will have a materially adverse financial effect upon
Williams in the future.

NOTE 16 -- TRANSCO ACQUISITION

Subsequent to December 31, 1994, Williams acquired 60 percentWilliams' future financial position, results of Transco's
outstanding common stock in aoperations and cash tender offer for $430.5 million. Williams
also plans to acquire the remaining 40 percent of Transco's

F-37flow
requirements.

F-42
60

THE WILLIAMS COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding common stock through a merger which will exchange the remaining
Transco common stock for approximately 10.2 million shares of Williams common
stock. The cash portion of the acquisition was financed from the proceeds of the
WilTel network services sale.

Transco is engaged primarily in the natural gas pipeline and natural gas
marketing businesses. Williams plans to sell certain other Transco operations,
such as coal mining and coalbed methane extraction in 1995. The estimated
purchase price, including transaction fees and other related costs, is
approximately $775 million, excluding $2.3 billion in preferred stock and debt
obligations of Transco. The acquisition will be accounted for as a purchase in
1995 and it is expected that the excess purchase price will be allocated to
Transco's property, plant and equipment.

F-38
6166

THE WILLIAMS COMPANIES, INC.

QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data are as follows (millions, except
per-share amounts). Certain amountsRevenues and costs and operating expenses for the six months
ended June 30, 1995, have been restated as described in Note 2reclassified to report natural gas sales net of
Notes to Consolidated Financial Statements.related gas purchase costs.

FIRST SECOND THIRD FOURTH
19941995 QUARTER QUARTER QUARTER QUARTER
----------------------------------------------- ------ ------ ------ ---------- -------- ------- ------- -------

Revenues....................................... $386.6 $419.9 $467.3 $477.3Revenues......................................... $ 642.4 $ 663.9 $ 712.4 $ 837.0
Costs and operating expenses...................expenses..................... 351.1 400.1 438.9 510.6
Net income....................................... 1,088.9 83.3 68.5 77.5
Primary earnings per common and common-equivalent
share.......................................... 11.57 .79 .58 .70
Fully diluted earnings per common and common-
equivalent share............................... 11.55 .78 .58 .69

1994
----

Revenues......................................... $ 386.6 $ 419.9 $ 467.3 $ 477.3
Costs and operating expenses..................... 248.5 274.0 335.4 329.8
Income before extraordinary loss...............loss................. 52.8 74.0 55.6 76.5
Net income.....................................income....................................... 52.8 62.9 55.6 75.4
Primary earnings per common and common-equivalent
share:
Income before extraordinary loss..........loss............ .48 .69 .51 .77
Net income................................income.................................. .48 .58 .51 .76
Fully diluted earnings per common and common-
equivalent share:
Income before extraordinary loss..........loss............ .48 .69 .51 .77
Net income................................income.................................. .48 .58 .51 .76
1993
Revenues....................................... $613.2 $388.8 $371.0 $420.4
Costs and operating expenses................... 448.2 279.8 267.1 288.8
Net income..................................... 125.6 36.1 18.0 52.1
Primary earnings per common and
common-equivalent share...................... 1.28 .33 .15 .48
Fully diluted earnings per common and common-
equivalent share............................. 1.21 .32 .15 .48

The sum of earnings per share for the four quarters may not equal the total
earnings per share for the year due to changes in the average number of common
shares outstanding.

First-quarter 1995 net income includes the after-tax gain of $1 billion on
the sale of Williams' network services operations (see Note 3 of Notes to
Consolidated Financial Statements). The second quarter of 1995 includes a $16
million after-tax gain from the sale of Williams' 15 percent interest in
Texasgulf Inc. (see Note 5 of Notes to Consolidated Financial Statements) and an
$8 million income tax benefit resulting from settlements with taxing
authorities. Northwest Pipeline's third-quarter 1995 operating profit includes
the approximate $11 million net favorable effect of two reserve accrual
adjustments. In third-quarter 1995, Williams Field Services Group recorded $20
million of income from the favorable resolution of contingency issues involving
previously regulated gathering and processing assets, partially offset by an $8
million accrual for a future minimum price natural gas purchase commitment.

Second-quarter 1994 includes a $23 million gain from the sale of assets
(see Note 46 of Notes to Consolidated Financial Statements).

First-quarter 1993 includes gains totaling $95 million from the sales of
assets (see Note 4 of Notes to Consolidated Financial Statements). Third-quarter
1993 net income was reduced $15 million related to the cumulative effect of the
1 percent increase in the federal income tax rate.

F-39F-43
6267

THE WILLIAMS COMPANIES, INC.

QUARTERLY FINANCIAL DATA (UNAUDITED) (CONCLUDED)

Selected comparative fourth-quarter data are as follows (millions, except
per-share amounts). Certain 19931994 amounts have been restated as described in Note
21 of Notes to Consolidated Financial Statements.

1995 1994 1993
------ ------

Operating profit (loss):
Williams Interstate Natural Gas Pipelines:Systems:
Northwest Pipeline...........................................Pipeline............................................ $ 25.1 $ 22.7
$ 20.1
Williams Natural Gas.........................................Gas.......................................... 15.5 15.1
13.6Transcontinental Gas Pipe Line................................ 47.4 --
Texas Gas Transmission........................................ 28.6 --
Williams Field Services Group................................... 39.3 31.8
Liquids Pipeline/Group.................................... 43.2 40.4
Williams Energy Ventures:Services......................................... .3 (3.9)
Williams Pipe Line........................................... 19.8 10.7
Williams Energy Ventures..................................... (11.0) .1
Williams Telecommunications Systems.............................Line............................................... 19.3 11.9
WilTel........................................................... 7.2 6.7
3.8
Other........................................................... (4.2) (4.8)WilTech Group.................................................... .8 (4.5)
Other............................................................ (.2) --
------ ------
Total operating profit..................................profit................................... 187.2 88.4 75.3
General corporate expenses........................................expenses......................................... (12.1) (7.0) (15.9)
Interest expense -- net...........................................net............................................ (69.7) (39.1)
(34.4)
Investing income..................................................income................................................... 12.7 10.8
13.5Write-off of project costs......................................... (41.4) --
Other income (expense) -- net.....................................net...................................... 5.2 (2.5) .2
------ ------
Income from continuing operations before income taxes.............taxes.............. 81.9 50.6 38.7
Provision for income taxes........................................taxes......................................... 17.5 16.4 3.5
------ ------
Income from continuing operations.................................operations.................................. 64.4 34.2 35.2
Income from discontinued operations...............................operations................................ 13.1 42.3 16.9
------ ------
Income before extraordinary loss..................................loss................................... 77.5 76.5
52.1
Extraordinary loss................................................loss................................................. -- (1.1) --
------ ------
Net income........................................................income......................................................... $ 75.477.5 $ 52.175.4
====== ======
Primary earnings per common and fullycommon-equivalent share............ $ .70 $ .76
====== ======
Fully diluted earnings per common and common-equivalent share.........................................share...... $ .69 $ .76
$ .48
====== ======

Williams Energy Services' fourth-quarter 1995 operating profit includes
loss accruals of approximately $6 million, primarily related to contract
disputes. In fourth-quarter 1995, the development of a commercial coal
gasification venture in south-central Wyoming was canceled, resulting in a $41.4
million pre-tax charge (see Note 6 of Notes to Consolidated Financial
Statements). Fourth-quarter 1995 income from discontinued operations reflects
the after-tax effect of the reversal of accruals established at the time of the
sale of the network services operations (see Note 3 of Notes to Consolidated
Financial Statements).

In fourth-quarter 1994, Williams Natural Gas recorded a $7 million reversal
of excess contract-reformation accruals. Williams Energy Ventures'Pipe Line's fourth-quarter
1994 operating lossprofit includes $5 million in costs for evaluating and
determining whether to build an oil refinery. Fourth-quarter 1994 discontinued
operations includes favorable adjustments of approximately $15 million relating
to bad debt recoveries and accrual reversals.

In fourth-quarter 1993, Williams Field Services Group recorded an $11
million favorable settlement involving processing revenues from prior periods.
General corporate expenses in the fourth quarter of 1993 include $5 million of
additional accruals for supplemental retirement benefits. Fourth-quarter 1993
discontinued operations includes favorable adjustments of approximately $6
million relating to bad debt recoveries and accrual reversals.

ITEM 9. CHANGES9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

F-40F-44
6368

THE WILLIAMS COMPANIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 14(A) 1 AND 2

PAGE
----

Covered by report of independent auditors:
Consolidated statement of income for the three years ended December 31, 1995........ F-12
Consolidated balance sheet at December 31, 1995 and 1994............................ F-14
Consolidated statement of stockholders' equity for the three years ended December
31, 1995......................................................................... F-15
Consolidated statement of cash flows for the three years ended December 31, 1995.... F-16
Notes to consolidated financial statements.......................................... F-17
Schedules for the three years ended December 31, 1995:
I -- Condensed financial information of registrant.............................. F-46
II -- Valuation and qualifying accounts.......................................... F-51
Not covered by report of independent auditors:
Quarterly financial data (unaudited)................................................ F-43

All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.

F-45
69

THE WILLIAMS COMPANIES, INC.

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENT OF INCOME (PARENT)

YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- ------ ------

(MILLIONS, EXCEPT PER-SHARE
AMOUNTS)
Investing income............................................ $ 50.7 $ 29.4 $ 27.3
Interest accrued............................................ (189.9) (91.8) (95.8)
Gain on sales of assets (Note 3)............................ -- -- 51.6
Other income (expense) -- net............................... (12.9) 2.9 (16.9)
-------- ------ ------
Loss from continuing operations before income taxes and
equity in subsidiaries' income............................ (152.1) (59.5) (33.8)
Equity in consolidated subsidiaries' income................. 376.5 195.0 189.8
-------- ------ ------
Income from continuing operations before income taxes....... 224.4 135.5 156.0
Credit for income taxes..................................... (75.0) (29.4) (29.4)
-------- ------ ------
Income from continuing operations........................... 299.4 164.9 185.4
Income from discontinued operations (Note 2)................ 1,018.8 94.0 46.4
-------- ------ ------
Income before extraordinary loss............................ 1,318.2 258.9 231.8
Extraordinary loss from early extinguishment of debt........ -- (12.2) --
-------- ------ ------
Net income.................................................. 1,318.2 246.7 231.8
Preferred stock dividends................................... 15.3 8.8 11.8
-------- ------ ------
Income applicable to common stock........................... $1,302.9 $237.9 $220.0
======== ====== ======
Primary earnings per common and common-equivalent share:
Income from continuing operations......................... $ 2.78 $ 1.52 $ 1.74
Income from discontinued operations....................... 9.99 .92 .46
-------- ------ ------
Income before extraordinary loss.......................... 12.77 2.44 2.20
Extraordinary loss........................................ -- (.12) --
-------- ------ ------
Net income................................................ $ 12.77 $ 2.32 $ 2.20
======== ====== ======
Fully diluted earnings per common and common-equivalent
share:
Income from continuing operations......................... $ 2.76 $ 1.52 $ 1.71
Income from discontinued operations....................... 9.72 .92 .45
-------- ------ ------
Income before extraordinary loss.......................... 12.48 2.44 2.16
Extraordinary loss........................................ -- (.12) --
-------- ------ ------
Net income................................................ $ 12.48 $ 2.32 $ 2.16
======== ====== ======

See accompanying notes.

F-46
70

THE WILLIAMS COMPANIES, INC.

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)

BALANCE SHEET (PARENT)

ASSETS

DECEMBER 31,
---------------------
1995 1994
-------- --------
(MILLIONS)

Current assets:
Cash and cash equivalents............................................. $ 57.6 $ 16.5
Due from consolidated subsidiaries.................................... 131.6 138.4
Receivables........................................................... 28.9 65.3
Investment in discontinued operations (Note 2)........................ -- 743.6
Other................................................................. 15.0 4.9
-------- --------
Total current assets.......................................... 233.1 968.7
Investments:
Equity in consolidated subsidiaries (Note 1).......................... 5,551.4 1,634.8
Receivables from consolidated subsidiaries............................ 68.7 387.8
-------- --------
5,620.1 2,022.6
Other................................................................. -- 44.0
-------- --------
5,620.1 2,066.6
Property, plant and equipment--net...................................... 20.6 36.3
Other assets and deferred charges....................................... 23.9 14.8
-------- --------
Total assets.................................................. $5,897.7 $3,086.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable......................................................... $ -- $ 73.8
Due to consolidated subsidiaries...................................... 291.9 137.6
Accounts payable and accrued liabilities.............................. 100.2 84.1
Long-term debt due within one year (Note 4)........................... 20.0 361.5
-------- --------
Total current liabilities..................................... 412.1 657.0
Long-term debt (Note 4)................................................. 1,460.0 763.0
Long-term debt due to consolidated subsidiary (Note 4).................. 360.0 --
Due to consolidated subsidiaries........................................ 440.5 --
Other liabilities....................................................... 38.0 160.9
Stockholders' equity:
Preferred stock....................................................... 173.5 100.0
Common stock.......................................................... 105.3 104.4
Capital in excess of par value........................................ 1,051.1 991.0
Retained earnings..................................................... 1,915.6 716.5
Unamortized deferred compensation..................................... (2.3) (1.3)
-------- --------
3,243.2 1,910.6
Less treasury stock (Notes 4 and 5)................................... (56.1) (405.1)
-------- --------
Total stockholders' equity.................................... 3,187.1 1,505.5
-------- --------
Total liabilities and stockholders' equity.................... $5,897.7 $3,086.4
======== ========

See accompanying notes.

F-47
71

THE WILLIAMS COMPANIES, INC.

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)

STATEMENT OF CASH FLOWS (PARENT)

YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
--------- ------- -------
(MILLIONS)

Operating activities:
Net income............................................. $ 1,318.2 $ 246.7 $ 231.8
Adjustments to reconcile to cash provided from
operations:
Equity in subsidiaries' income, net of cash
dividends......................................... 732.7 153.1 (60.0)
Discontinued operations............................. (1,018.8) (94.0) (46.4)
Extraordinary loss.................................. -- 12.2 --
Depreciation........................................ 4.2 4.3 4.2
Provision (credit) for deferred income taxes........ 13.0 20.8 (1.7)
Gain on sales of property, plant and equipment...... -- -- (52.1)
Changes in receivables.............................. 33.3 (59.5) 5.0
Changes in other current assets..................... 5.0 (7.1) 1.4
Changes in accounts payable......................... (2.7) 3.0 (.7)
Changes in accrued liabilities...................... (.2) (12.1) (18.7)
Other, including changes in non-current assets and
liabilities....................................... (7.2) (2.5)* 58.5
--------- ------- -------
Net cash provided by operating activities...... 1,077.5 264.9 121.3
--------- ------- -------
Financing activities:
Proceeds from notes payable............................ 53.4 73.8 --
Payments of notes payable.............................. (127.2) -- --
Proceeds from long-term debt........................... 85.0 350.0 --
Payments of long-term debt............................. (549.2) (181.7) (128.8)
Proceeds from issuance of common stock................. 32.0 26.4 63.4
Purchase of treasury stock............................. (3.7) (18.4) --
Dividends paid......................................... (119.0) (93.9) (89.4)
Other -- net........................................... (3.7) -- (.6)
--------- ------- -------
Net cash provided (used) by financing
activities................................... (632.4) 156.2* (155.4)
--------- ------- -------
Investing activities:
Property, plant and equipment:
Capital expenditures................................ (2.8) (1.1) (1.6)
Proceeds from sales of property, plant and
equipment......................................... 1.0 -- 115.1
Purchase of note receivable............................ (75.1) -- --
Investments in consolidated subsidiaries............... (1,248.1) (71.2) (75.3)
Changes in advances to subsidiaries.................... 914.7 (354.4) 1.0
Other -- net........................................... 6.3 (4.0) (.6)
--------- ------- -------
Net cash provided (used) by investing
activities................................... (404.0) (430.7) 38.6
--------- ------- -------
Increase (decrease) in cash and cash
equivalents.................................. 41.1 (9.6) 4.5
Cash and cash equivalents at beginning of year......... 16.5 26.1 21.6
--------- ------- -------
Cash and cash equivalents at end of year............... $ 57.6 $ 16.5 $ 26.1
========= ======= =======

See accompanying notes.

- ---------------

* Reclassified to conform to current classification.

F-48
72

THE WILLIAMS COMPANIES, INC.

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)

NOTES TO FINANCIAL INFORMATION (PARENT)

NOTE 1. TRANSCO ENERGY ACQUISITION

NOTE 2. DISCONTINUED OPERATIONS

On January 5, 1995, Williams sold its network services operations to LDDS
Communications, Inc. (LDDS) for $2.5 billion in cash. The sale yielded a gain of
$1 billion (net of income taxes of approximately $732 million) which is reported
as income from discontinued operations. Prior period operating results for the
network services operations are reported as discontinued operations. See Note 3
of Notes to Consolidated Financial Statements for additional information on
discontinued operations.

NOTE 3. SALES OF ASSETS

NOTE 4. LONG-TERM DEBT AND LEASES

During 1995, Williams issued $360 million in convertible debentures and
warrants to a wholly-owned subsidiary in exchange for 12.2 million shares of
Williams common stock held by that subsidiary (see Note 5). The convertible
debentures bear interest at 6 percent, mature in 2005 and are convertible into
9.3 million shares of Williams common stock at $38.58 per share. The warrants
give the subsidiary the right to purchase 7.5 million shares of Williams common
stock at $46.67 per share.

Long-term debt due within one year at December 31, 1994 includes $350
million of borrowings under Williams' credit agreement. Amounts were repaid in
January 1995.

Aggregate minimum maturities and sinking-fund requirements, excluding lease
payments, for each of the next five years are as follows: 1996 -- $20 million;
1997 -- none; 1998 -- $310 million; 1999 -- $150 million; and 2000 -- $175
million. See Note 13 of Notes to Consolidated Financial Statements for
additional information on long-term debt.

NOTE 5. STOCKHOLDERS' EQUITY

In connection with the May 1, 1995, merger with Transco Energy, Williams
exchanged all of Transco Energy's outstanding $3.50 cumulative convertible
preferred stock for 2.5 million shares of Williams' $3.50 cumulative convertible
preferred stock. See Note 14 of Notes to Consolidated Financial Statements for
additional information on this exchange.

F-49
73

THE WILLIAMS COMPANIES, INC.

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONCLUDED)

NOTES TO FINANCIAL INFORMATION (PARENT)

During 1995, Williams exchanged 2.8 million shares of its $2.21 cumulative
preferred stock with a carrying value of $69 million for 9.6 percent debentures.
See Note 14 of Notes to Consolidated Financial Statements for additional
information on this exchange.

For financial reporting purposes, treasury stock of $394.8 million held at
December 31, 1994, by a wholly-owned subsidiary of Williams has been presented
as a reduction of stockholders' equity. A portion of this treasury stock was
used in the acquisition of Transco Energy (see Note 1).

NOTE 6. DIVIDENDS RECEIVED

Cash dividends from subsidiaries and companies accounted for on an equity
basis are as follows: 1995 -- $1,110.2 million; 1994 -- $354.2 million; and
1993 -- $142.6 million.

NOTE 7. INCOME TAX AND INTEREST PAYMENTS

Cash payments for income taxes are as follows: 1995 -- $326 million;
1994 -- $112 million; and 1993 -- $118 million.

Cash payments for interest are as follows: 1995 -- $127.9 million;
1994 -- $90 million; and 1993 -- $96.6 million.

NOTE 8. FINANCIAL INSTRUMENTS

Disclosure of financial instruments for the parent company are included in
the consolidated disclosures. See Note 15 of Notes to Consolidated Financial
Statements.

F-50
74

THE WILLIAMS COMPANIES, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS(A)

ADDITIONS
--------------------
CHARGED
TO COSTS
BEGINNING AND ENDING
BALANCE EXPENSES OTHER DEDUCTIONS(B) BALANCE
--------- -------- ----- ------------- -------
(MILLIONS)

Allowance for doubtful accounts:
1995.............................. $ 7.9 $3.8 $1.6 (c) $ 2.0 $11.3
1994.............................. 10.2 4.2(d) -- 6.5(e) 7.9
1993.............................. 17.3 .5(f) -- 7.6 10.2

- ---------------

(a) Deducted from related assets.

(b) Represents balances written off, net of recoveries and reclassifications.

(d) Excludes $5.7 million related to discontinued operations.

(e) Includes the discontinued operations beginning balance reclassification of
$3.6 million.

(f) Includes $4.1 million reversal of amounts previously accrued.

F-51
75

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information regarding the Directors and nominees for Director of
Williams required by Item 401 of Regulation S-K is presented under the heading
"Election of Directors" in Williams' Proxy Statement prepared for the
solicitation of proxies in connection with the Annual Meeting of Stockholders of
the Company for 19951996 (the "Proxy Statement"), which information is incorporated
by reference herein. A copy of the Proxy Statement will beis filed as an exhibit to the
Form 10-K. Information regarding the executive officers of Williams is presented
following Item 4 herein, as permitted by General Instruction G(3) to Form 10-K
and Instruction 3 to Item 401(b) of Regulation S-K. Information required by Item
405 of Regulation S-K is included under the heading "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Proxy Statement, which
information is incorporated by reference herein.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 402 of Regulation S-K regarding executive
compensation is presented under the headings "Election of Directors" and
"Executive Compensation and Other Information" in the Proxy Statement, which
information is incorporated by reference herein. Notwithstanding the foregoing,
the information provided under the headings "Compensation Committee Report on
Executive Compensation" and "Stockholder Return Performance Presentation" in the
Proxy Statement are not incorporated by reference herein. A copy of the Proxy
Statement will beis filed as an exhibit to the Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information regarding the security ownership of certain beneficial
owners and management required by Item 403 of Regulation S-K is presented under
the headings "Security Ownership of Certain Beneficial Owners and Management" in
the Proxy Statement, which information is incorporated by reference herein. A
copy of the Proxy Statement will beis filed as an exhibit to the Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There is no information regarding certain relationships and related
transactions required by Item 404 of Regulation S-K to be reported in response
to this Item.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1 and 2. The financial statements and schedules listed in the
accompanying index to consolidated financial statements are filed as part of
this annual report.

(a) 3 and (c). The exhibits listed below are filed as part of this annual
report.

Exhibit 2 --

*(a) Agreement and Plan of Merger, dated as of December 12, 1994,
among Williams, WC Acquisition Corp. and Transco (filed as Exhibit
(c)(1) to Schedule 14D-1, dated December 16, 1994).

*(b) Amendment to Agreement and Plan of Merger, dated as of
February 17, 1995 (filed as Exhibit 6 to Amendment No. 8 to Schedule
13D, dated February 23, 1995).

*(c) Stock Option Agreement, dated as of December 12, 1994, by and
between Williams and Transco (filed as Exhibit (c)(2) to Schedule 14D-1,
dated December 16, 1994).

F-41
64

Exhibit 3 --

*(a) Restated Certificate of Incorporation of Williams (filed as
Exhibit 4(a) to Form 8-B Registration Statement, filed August 20, 1987).

F-52
76

*(b) Certificate of Designation with respect to the $2.21
Cumulative Preferred Stock (filed as Exhibit 4.3 to the Registration
Statement on Form S-3, filed August 19, 1992).

*(c) Certificate of Increase of Authorized Number of Shares of
Series A Junior Participating Preferred Stock (filed as Exhibit 3(c) to
Form 10-K for the year ended December 31, 1988).

(d)*(d) Certificate of Amendment of Restated Certificate of
Incorporation, dated May 20, 1994.1994 (filed as Exhibit 3(d) to Form 10-K
for the fiscal year ended December 31, 1994).

*(e) AmendedCertificate of Designation with respect to the $3.50
Cumulative Convertible Preferred Stock (filed as Exhibit 3.1(c) to the
Prospectus and RestatedInformation Statement to Amendment No. 2 to the
Registration Statement on Form S-4, filed March 30, 1995).

(f) Certificate of Increase of Authorized Number of Shares of
Series A Junior Participating Preferred Stock.

*(g) Rights Agreement, dated as of July 12,
1988,February 6, 1996, between
Williams and First Chicago Trust Company of New York (filed as Exhibit 4(c)4
to Williams Form 8, dated July 28, 1988)8-K, filed January 24, 1996).

*(f)*(h) By-laws of Williams (filed as Exhibit 3 to Form 10-Q for the
quarter ended September 30, 1993).

Exhibit 4 --

*(a) Form of Senior Debt Indenture between the Company and Chemical
Bank, Trustee, relating to the 10 1/4% Debentures, due 2020; the 9 3/8%
Debentures, due 2021; the 8 1/4% Notes, due 1998; Medium-Term Notes
(8.50%-9.31%), due 1996 through 2001; the 7 1/2% Notes, due 1999, and
the 8 7/8% Debentures, due 2012 (filed as Exhibit 4.1 to Form S-3
Registration Statement No. 33-33294, filed February 2, 1990).

(b)*(b) U.S. $800,000,000 Credit Agreement, dated as of February 23,
1995, among Williams and certain of its subsidiaries and the banks named
therein and Citibank, N.A., as agent.agent (filed as Exhibit 4(b) to Form 10-K
for the fiscal year ended December 31, 1994).

Exhibit 10(iii) -- Compensatory Plans and Management Contracts

*(a) The Williams Companies, Inc. Supplemental Retirement Plan,
effective as of January 1, 1988 (filed as Exhibit 10(iii)(c) to Form
10-K for the year ended December 31, 1987).

*(b) Form of Employment Agreement, dated January 1, 1990, between
Williams and certain executive officers (filed as Exhibit 10(iii)(d) to
Form 10-K for the year ended December 31, 1989).

*(c) Form of The Williams Companies, Inc. Change in Control
Protection Plan between Williams and employees (filed as Exhibit
10(iii)(e) to Form 10-K for the year ended December 31, 1989).

*(d) The Williams Companies, Inc. 1985 Stock Option Plan (filed as
Exhibit A to Williams' Proxy Statement, dated March 13, 1985).

*(e) The Williams Companies, Inc. 1988 Stock Option Plan for
Non-Employee Directors (filed as Exhibit A to Williams' Proxy Statement,
dated March 14, 1988).

*(f) The Williams Companies, Inc. 1990 Stock Plan (filed as Exhibit
A to Williams' Proxy Statement, dated March 12, 1990).

*(g)(g) The Williams Companies, Inc. Stock Plan for Non-Officer
Employees.

*(h) The Williams Companies, Inc. 1996 Stock Plan (filed as Exhibit
A to Williams' Proxy Statement, dated March 27, 1996).

*(i) The Williams Companies, Inc. 1996 Stock Plan for Non-Employee
Directors (filed as Exhibit B to Williams' Proxy Statement, dated March
27, 1996).

F-53
77

*(j) Indemnification Agreement, effective as of August 1, 1986,
between Williams and members of the Board of Directors and certain
officers of Williams (filed as Exhibit 10(iii)(e) to Form 10-K for the
year ended December 31, 1986).

Exhibit 11 -- Computation of Earnings Per Common and Common-equivalent
Share.

Exhibit 12 -- Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividend Requirements.

F-42
65

Exhibit 20 -- Definitive Proxy Statement of Williams for 1995 (to be
filed by amendment).1996.

Exhibit 21 -- Subsidiaries of the registrant.

Exhibit 23 -- Consent of Independent Auditors.

Exhibit 24 -- Power of Attorney together with certified resolution.

Exhibit 27 -- Financial Data ScheduleSchedule.

(b) Reports on Form 8-K.

No reports on Form 8-K were filed by Williams with the Securities and
Exchange Commission during the fourth quarter of 1994.1995.

(d) The financial statements of partially ownedpartially-owned companies are not presented
herein since none of them individually, or in the aggregate, constitute a
significant subsidiary.

- ---------------

* Each such exhibit has heretofore been filed with the Securities and Exchange
Commission as part of the filing indicated and is incorporated herein by
reference.

F-43F-54
66

THE WILLIAMS COMPANIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 14(A) 1 AND 2

PAGE
----

Covered by report of independent auditors:
Consolidated statement of income for the three years ended December 31, 1994........ F-11
Consolidated balance sheet at December 31, 1994 and 1993............................ F-13
Consolidated statement of stockholders' equity for the three years ended December
31, 1994......................................................................... F-14
Consolidated statement of cash flows for the three years ended December 31, 1994.... F-15
Notes to consolidated financial statements.......................................... F-16
Schedules for the three years ended December 31, 1994:
I -- Condensed financial information of registrant.............................. F-45
II -- Valuation and qualifying accounts.......................................... F-49
Not covered by report of independent auditors:
Quarterly financial data (unaudited)................................................ F-39

F-44
67

THE WILLIAMS COMPANIES, INC.

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENT OF INCOME (PARENT)

YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993* 1992*
------ ------ ------
(MILLIONS, EXCEPT PER-SHARE
AMOUNTS)

Investing income............................................. $ 29.4 $ 27.3 $ 16.3
Interest accrued............................................. (91.8) (95.8) (90.9)
Gain on sales of assets (Note 2)............................. -- 51.6 --
Other income (expense) -- net................................ 2.9 (16.9) .6
------ ------ ------
Loss from continuing operations before income taxes and
equity in subsidiaries' income............................. (59.5) (33.8) (74.0)
Equity in consolidated subsidiaries' income.................. 195.0 189.8 131.5
------ ------ ------
Income from continuing operations before income taxes........ 135.5 156.0 57.5
Credit for income taxes...................................... (29.4) (29.4) (45.6)
------ ------ ------
Income from continuing operations............................ 164.9 185.4 103.1
Income from discontinued operations (Note 1)................. 94.0 46.4 25.2
------ ------ ------
Income before extraordinary credit (loss).................... 258.9 231.8 128.3
Extraordinary credit (loss) from early extinguishment of
debt....................................................... (12.2) -- 9.9
------ ------ ------
Net income................................................... 246.7 231.8 138.2
Preferred stock dividends.................................... 8.8 11.8 14.5
------ ------ ------
Income applicable to common stock............................ $237.9 $220.0 $123.7
====== ====== ======
Primary earnings per common and common-equivalent share:
Income from continuing operations.......................... $ 1.52 $ 1.74 $ .97
Income from discontinued operations........................ .92 .46 .28
------ ------ ------
Income before extraordinary credit (loss).................. 2.44 2.20 1.25
Extraordinary credit (loss)................................ (.12) -- .11
------ ------ ------
Net income................................................. $ 2.32 $ 2.20 $ 1.36
====== ====== ======
Fully diluted earnings per common and common-equivalent
share:
Income from continuing operations.......................... $ 1.52 $ 1.71 $ .97
Income from discontinued operations........................ .92 .45 .28
------ ------ ------
Income before extraordinary credit (loss).................. 2.44 2.16 1.25
Extraordinary credit (loss)................................ (.12) -- .11
------ ------ ------
Net income................................................. $ 2.32 $ 2.16 $ 1.36
====== ====== ======

- ---------------

*Certain amounts have been restated as described in Note 1.

See accompanying notes.

F-45
68

THE WILLIAMS COMPANIES, INC.

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)

BALANCE SHEET (PARENT)

DECEMBER 31,
--------------------
1994 1993
------- -------
(MILLIONS)

ASSETS
Current assets:
Cash and cash equivalents........................................... $ 16.5 $ 26.1
Due from consolidated subsidiaries.................................. 138.4 31.5
Receivables......................................................... 65.3 1.8
Investment in discontinued operations (Note 1)...................... 743.6 --
Other............................................................... 4.9 .5
-------- --------
Total current assets........................................ 968.7 59.9
Investments:
Equity in consolidated subsidiaries................................. 1,634.8 2,658.4
Receivables from consolidated subsidiaries.......................... 387.8 260.2
-------- --------
2,022.6 2,918.6
Other............................................................... 44.0 43.7
-------- --------
2,066.6 2,962.3
Property, plant and equipment -- net.................................. 36.3 47.4
Other assets and deferred charges..................................... 14.8 46.9
-------- --------
Total assets................................................ $3,086.4 $3,116.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable....................................................... $ 73.8 $ --
Due to consolidated subsidiaries.................................... 137.6 256.6
Accounts payable and accrued liabilities............................ 84.1 71.2
Long-term debt due within one year (Note 3)......................... 361.5 11.4
-------- --------
Total current liabilities................................... 657.0 339.2
Long-term debt (Note 3)............................................... 763.0 944.8
Other liabilities..................................................... 160.9 108.5
Stockholders' equity:
Preferred stock..................................................... 100.0 100.0
Common stock........................................................ 104.4 103.1
Capital in excess of par value...................................... 991.0 959.1
Retained earnings................................................... 716.5 563.7
Unamortized deferred compensation................................... (1.3) (1.9)
-------- --------
1,910.6 1,724.0
Less treasury stock (Note 4)........................................ (405.1) --
-------- --------
Total stockholders' equity.................................. 1,505.5 1,724.0
-------- --------
Total liabilities and stockholders' equity.................. $3,086.4 $3,116.5
======== ========

See accompanying notes.

F-46
69

THE WILLIAMS COMPANIES, INC.

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)

STATEMENT OF CASH FLOWS (PARENT)

YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993* 1992*
------- ------- -------

(MILLIONS)
Operating activities:
Net income.................................................. $ 246.7 $ 231.8 $ 138.2
Adjustments to reconcile to cash provided from operations:
Equity in subsidiaries' income, net of cash dividends.... 153.1 (60.0) (101.5)
Discontinued operations.................................. (94.0) (46.4) (25.2)
Extraordinary (credit) loss.............................. 12.2 -- (9.9)
Depreciation............................................. 4.3 4.2 4.3
Provision (credit) for deferred income taxes............. 20.8 (1.7) (4.5)
Gain on sales of property, plant and equipment........... -- (52.1) --
Changes in receivables................................... (59.5) 5.0 (7.0)
Changes in other current assets.......................... (7.1) 1.4 (1.5)
Changes in accounts payable.............................. 3.0 (.7) (.2)
Changes in accrued liabilities........................... (12.1) (18.7) 13.1
Other, including changes in non-current assets and
liabilities............................................ 6.4 58.5 (4.2)
------- ------- -------
Net cash provided by operating activities........... 273.8 121.3 1.6
------- ------- -------
Financing activities:
Changes in notes payable.................................... 73.8 -- --
Proceeds from long-term debt................................ 350.0 -- 300.0
Payments of long-term debt.................................. (181.7) (128.8) (44.0)
Premium on early extinguishment of debt..................... (8.9) -- --
Proceeds from issuance of preferred stock................... -- -- 96.2
Proceeds from issuance of common stock...................... 26.4 63.4 146.1
Purchase of treasury stock.................................. (18.4) -- --
Dividends paid.............................................. (93.9) (89.4) (82.7)
Other -- net................................................ -- (.6) --
------- ------- -------
Net cash provided (used) by financing activities.... 147.3 (155.4) 415.6
------- ------- -------
Investing activities:
Property, plant and equipment:
Capital expenditures..................................... (1.1) (1.6) (1.3)
Proceeds from sales of property, plant and equipment..... -- 115.1 --
Investments in consolidated subsidiaries.................... (71.2) (75.3) (184.9)
Changes in advances to subsidiaries......................... (354.4) 1.0 (251.1)
Other -- net................................................ (4.0) (.6) (1.0)
------- ------- -------
Net cash provided (used) by investing activities.... (430.7) 38.6 (438.3)
------- ------- -------
Increase (decrease) in cash and cash equivalents.... (9.6) 4.5 (21.1)
Cash and cash equivalents at beginning of year.............. 26.1 21.6 42.7
------- ------- -------
Cash and cash equivalents at end of year.................... $ 16.5 $ 26.1 $ 21.6
======= ======= =======

- ---------------

* Certain amounts have been restated as described in Note 1.

See accompanying notes.

F-47
70

THE WILLIAMS COMPANIES, INC.

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONCLUDED)

NOTES TO FINANCIAL INFORMATION (PARENT)

NOTE 1. DISCONTINUED OPERATIONS

In August 1994, Williams signed a definitive agreement to sell WilTel's
network services operations to LDDS Communications, Inc. (LDDS) for $2.5 billion
in cash. The sale closed January 5, 1995, yielding an after-tax gain of
approximately $1 billion, which will be recorded in the first quarter of 1995.
The Condensed Financial Information of Registrant have been prepared to present
operating results of network services as discontinued operations, with prior
period operating results restated.

NOTE 2. SALES OF ASSETS

NOTE 3. LONG-TERM DEBT AND LEASES

Long-term debt due within one year includes $350 million of borrowings
under Williams' $600 million credit agreement. This agreement terminates in
December 1995 and Williams expects to replace it with a similar agreement.

Aggregate minimum maturities and sinking-fund requirements, excluding lease
payments, for each of the next five years are as follows: 1995 -- $361 million;
1996 -- $23 million; 1997 -- none; 1998 -- $110 million; and 1999 -- $150
million.

Future minimum annual rentals under non-cancelable capital leases for each
of the next five years are $4 million. See Note 11 of Notes to Consolidated
Financial Statements for additional information on long-term debt.

NOTE 4. TREASURY STOCK

For financial reporting purposes, treasury stock of $394.8 million held by
a wholly-owned subsidiary of Williams has been presented as a reduction of
stockholders' equity.

NOTE 5. DIVIDENDS RECEIVED

Cash dividends from subsidiaries and companies accounted for on an equity
basis are as follows: 1994 -- $354.2 million; 1993 -- $142.6 million; and
1992 -- $36 million.

NOTE 6. INCOME TAX AND INTEREST PAYMENTS

Cash payments for income taxes are as follows: 1994 -- $112 million;
1993 -- $118 million; and 1992 -- $49.6 million.

Cash payments for interest are as follows: 1994 -- $90 million;
1993 -- $96.6 million; and 1992 -- $79.2 million.

NOTE 7. FINANCIAL INSTRUMENTS

Disclosure of financial instruments for the parent company are included in
the consolidated disclosures. See Note 13 of Notes to Consolidated Financial
Statements.

F-48
71

THE WILLIAMS COMPANIES, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS(A)

ADDITIONS
------------------
CHARGED
TO COSTS
BEGINNING AND ENDING
BALANCE EXPENSES OTHER DEDUCTIONS(B) BALANCE
--------- -------- ----- ------------- -------
(MILLIONS)

Allowance for doubtful accounts:
1994................................... $10.2 $ 4.2(c) $ -- $ 6.5(d) $ 7.9
1993................................... 17.3 .5(e) -- 7.6 10.2
1992................................... 22.4 16.2 -- 21.3 17.3

- ---------------

(a) Deducted from related assets.

(b) Represents balances written off, net of recoveries and reclassifications.

(d) Includes the discontinued operations beginning balance reclassification of
$3.6 million.

(e) Includes $4.1 million reversal of amounts previously accrued.

F-49
7278

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

THE WILLIAMS COMPANIES, INC.
(Registrant)

By: /s/ DAVID M. HIGBEE
-----------------------------
David M. Higbee
Attorney-in-FactAttorney-in-fact
Dated: March 2, 199527, 1996

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE
- --------------------------------------------- -----------------------------------------------------------------------------------------

/s/ KEITH E. BAILEY* Chairman of the Board, President, Chief
Keith E. Bailey- --------------------------------------------- Executive Officer (Principal Executive
Keith E. Bailey Officer) and Director

/s/ JACK D. MCCARTHY* Senior Vice President -- Finance (Principal
- --------------------------------------------- Financial Officer)
Jack D. McCarthy Financial Officer)

/s/ GARY R. BELITZ* Controller (Chief(Principal Accounting Officer)
- ---------------------------------------------
Gary R. Belitz

/s/ HAROLD W. ANDERSEN* Director
- ---------------------------------------------
Harold W. Andersen

/s/ RALPH E. BAILEY* Director
- ---------------------------------------------
Ralph E. Bailey

/s/ GLENN A. COX* Director
- ---------------------------------------------
Glenn A. Cox

/s/ THOMAS H. CRUIKSHANK* Director
- ---------------------------------------------
Thomas H. Cruikshank

/s/ ERVIN S. DUGGAN* Director
- ---------------------------------------------
Ervin S. Duggan

/s/ PATRICIA L. HIGGINS* Director
- ---------------------------------------------
Patricia L. Higgins

/s/ ROBERT J. LAFORTUNE* Director
- ---------------------------------------------
Robert J. LaFortune

/s/ JAMES C. LEWIS* Director
- ---------------------------------------------
James C. Lewis

II-1
7379

SIGNATURE TITLE
- --------------------------------------------- -----------------------------------------------------------------------------------------

/s/ JACK A. MACALLISTER* Director
- ---------------------------------------------
Jack A. MacAllister

/s/ JAMES A. MCCLURE* Director
- ---------------------------------------------
James A. McClure

/s/ PETER C. MEINIG* Director
- ---------------------------------------------
Peter C. Meinig

/s/ KAY A. ORR* Director
- ---------------------------------------------
Kay A. Orr

/s/ GORDON R. PARKER* Director
- ---------------------------------------------
Gordon R. Parker

/s/ JOSEPH H. WILLIAMS* Director
- ---------------------------------------------
Joseph H. Williams

*By /s/ DAVID M. HIGBEE
Director----------------------------------------
David M. Higbee
Attorney-in-FactAttorney-in-fact

Dated: March 2, 199527, 1996

II-2 74
INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

Exhibit 2 -- *(a) Agreement and Plan of Merger, dated as of December 12, 1994,
among Williams, WC Acquisition Corp. and Transco (filed as
Exhibit (c)(1) to Schedule 14D-1, dated December 16, 1994).

*(b) Amendment to Agreement and Plan of Merger, dated as of
February 17, 1995 (filed as Exhibit 6 to Amendment No. 8 to
Schedule 13D, dated February 23, 1995).

*(c) Stock Option Agreement, dated as of December 12, 1994, by
and between Williams and Transco (filed as Exhibit (c)(2) to
Schedule 14D-1, dated December 16, 1994).

Exhibit 3 -- *(a) Restated Certificate of Incorporation of Williams (filed as
Exhibit 4(a) to Form 8-B Registration Statement, filed August 20,
1987).

*(b) Certificate of Designation with respect to the $2.21
Cumulative Preferred Stock (filed as Exhibit 4.3 to the
Registration Statement on Form S-3, filed August 19, 1992).

*(c) Certificate of Increase of Authorized Number of Shares of
Series A Junior Participating Preferred Stock (filed as Exhibit
3(c) to Form 10-K for the year ended December 31, 1988).

(d) Certificate of Amendment of Restated Certificate of
Incorporation, dated May 20, 1994.

*(e) Amended and Restated Rights Agreement, dated as of July 12,
1988, between Williams and First Chicago Trust Company of New
York (filed as Exhibit 4(c) to Williams Form 8, dated July
28, 1988).

*(f) By-laws of Williams (filed as Exhibit 3 to Form 10-Q for the
quarter ended September 30, 1993).

Exhibit 4 -- *(a) Form of Senior Debt Indenture between the Company and
Chemical Bank, Trustee, relating to the 10 1/4% Debentures, due
2020; the 9 3/8% Debentures, due 2021; the 8 1/4% Notes, due
1998; Medium-Term Notes (8.50%-9.31%), due 1996 through 2001; the
7 1/2% Notes, due 1999, and the 8 7/8% Debentures, due 2012
(filed as Exhibit 4.1 to Form S-3 Registration Statement No.
33-33294, filed February 2, 1990).

(b) U.S. $800,000,000 Credit Agreement, dated as of February 23,
1995, among Williams and certain of its subsidiaries and the
banks named therein and Citibank, N.A., as agent.

Exhibit 10(iii) -- Compensatory Plans and Management Contracts

*(a) The Williams Companies, Inc. Supplemental Retirement Plan,
effective as of January 1, 1988 (filed as Exhibit 10(iii)(c) to
Form 10-K for the year ended December 31, 1987).

*(b) Form of Employment Agreement, dated January 1, 1990, between
Williams and certain executive officers (filed as Exhibit 10(iii)
(d) to Form 10-K for the year ended December 31, 1989).

*(c) Form of The Williams Companies, Inc. Change in Control
Protection Plan between Williams and employees (filed as Exhibit
10(iii) (e) to Form 10-K for the year ended December 31, 1989).

*(d) The Williams Companies, Inc. 1985 Stock Option Plan (filed
as Exhibit A to Williams' Proxy Statement, dated March 13,
1985).

*(e) The Williams Companies, Inc. 1988 Stock Option Plan for
Non-Employee Directors (filed as Exhibit A to Williams' Proxy
Statement, dated March 14, 1988).

*(f) The Williams Companies, Inc. 1990 Stock Plan (filed as
Exhibit A to Williams' Proxy Statement, dated March 12, 1990).

*(g) Indemnification Agreement, effective as of August 1, 1986,
between Williams and members of the Board of Directors and
certain officers of Williams (filed as Exhibit 10(iii) (e) to
Form 10-K for the year ended December 31, 1986).

Exhibit 11 -- Computation of Earnings Per Common and Common-equivalent Share.

Exhibit 12 -- Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividend Requirements.

Exhibit 20 -- Definitive Proxy Statement of Williams for 1995 (to be filed by
amendment).

Exhibit 21 -- Subsidiaries of the registrant.

Exhibit 23 -- Consent of Independent Auditors.

Exhibit 24 -- Power of Attorney together with certified resolution.

Exhibit 27 -- Financial Data Schedule