CONTINUED:
    Notes to Consolidated Financial Statements

      14.Stockholders' Equity
      15.Financial Instruments
      16.Other Financial Information


    14.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. 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 were recorded each year during 1995, 1994 and 1993.

    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 7.6 million shares of Williams common stock. Dividends per share of $.97 were recorded during 1993.

    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 preferred stock purchase right attached. Under certain conditions, each right may be exercised to purchase, at an exercise price of $140 (subject to adjustment), one two-hundredth of a share of junior participating preferred stock. The rights may be exercised only if an Acquiring Person acquires (or obtains the right to acquire) 15 percent or more of Williams common stock; or commences an offer for 15 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 2006 and may be redeemed at a price of $.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 15 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 engaged in a merger, 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 non-officer employees. The 1990 Plan is used for granting of awards to executive officers 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. 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 1995.

    Option price
    Shares Per share (Millions)
    Total
    Shares under option:
    31-Dec-94 2,884,008 $11- 30 $65
    Granted 2,261,058 30- 40 80
    Canceled or surrendered -81,892 14- 40 -2
    Exchanged options from
    Transco Energy acquisition - net 1,024,250 21-172 35
    Exercised -841,491 Nov-40 -25
    31-Dec-95 5,245,933 $11-172 $153
    Shares exercisable
    31-Dec-95
    4,421,447

    Under the plans, Williams granted 65,445, 127,706 and 97,504 deferred shares in 1995, 1994 and 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 70,122, 45,298 and 191,007 of previously deferred shares in 1995, 1994 and 1993, respectively. Williams also issued 55,300, 44,800 and 62,000 shares of restricted stock in 1995, 1994 and 1993, respectively. Restricted stock is valued on the issuance date, and the related expense is amortized over varying periods of three to 10 years.

    During November 1994, Williams entered into a deferred share agreement (the Agreement) in connection with the sale of its 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, less amounts necessary to meet minimum tax withholding requirements. Williams distributed 314,405 and 273,095 shares during 1995 and 1994, respectively.

    At December 31, 1995, 9,849,891 shares of common stock were reserved for issuance pursuant to existing and future stock awards, of which 2,698,799 were available for future grants (1,835,014 at December 31, 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.


    15.Financial Instruments

    FAIR-VALUE METHODS
    CARRYING AMOUNTS AND FAIR VALUES OF WILLIMAS' FINANCIAL INSTRUMENTS
    OFF-BALANCE-SHEET CREDIT AND MARKET RISK
    COMMODITY PRICE-RISK MANAGEMENT SERVICE
    CONCENTRATION OF CREDIT RISK

    Fair-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, 85 percent and 59 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.

    Interest-rate swaps: 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 that is the counterparty to the swap.

    Energy-related trading and hedging: Includes forwards, futures, options, swaps and purchase and sales commitments. Fair value reflects 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.

    Carrying amounts and fair values of Williams' financial instruments

    Asset (liability) 1995 1994
    (Millions) Carrying
    Amount    		 Fair
    Value    		 Carrying
    Amount    		 Fair
    Value
    Cash and cash equivalents $90.40 $90.40 $36.10 $36.10
    Notes and other
    non-current receivables 25.7 25.8 63.1 62.3
    Investment in Texasgulf Inc. - - 150 150
    Notes payable - - -507 -507
    Long-term debt, including
    current portion -3,193.10 -3,476.70 -1,657.60 -1,679.90
    Interest-rate swaps -0.4 -10.4 -0.3 1.4
    Energy-related trading:
    Assets 102.5 102.5 22.7 22.7
    Liabilities -283.1 -283.1 -15.8 -15.8
    Energy-related hedging:
    Assets 2.9 4.5 0.3 0.3
    Liabilities -0.6 -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 assets and liabilities is $9.2 million and $8.5 million, respectively.

    Williams has recorded liabilities of $24 million and $27 million at December 31, 1995 and 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 the 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 (1994 balance all related to discontinued operations). Williams received $196 million of proceeds in 1995, $110 million in 1994 and none in 1993. At December 31, 1995 and 1994, $166 million and $80 million (1994 balance all related to discontinued operations) of such receivables had been sold, respectively. Based on amounts outstanding at December 31, 1995, the maximum contractual credit loss under these arrangements is approximately $28 million, but the likelihood of loss is remote. Williams had no risk of credit loss for the amount sold at December 31, 1994, because amounts outstanding related to discontinued operations (see Note 3).

    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 17) and guaranteed minimum gas prices through 1997. At December 31, 1995 and 1994, Williams has a recorded liability of $10 million for these items, representing the maximum amount for the first guarantee 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 Williams' network services operations, Williams has been indemnified by LDDS against any losses related to retained guarantees of $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 $8 million and $9 million at December 31, 1995 and 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.

    Commodity price-risk management services

    Williams Energy Services 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, options contracts, swap agreements and purchase and sale commitments. See Note 1 for a description of the accounting for these trading activities.

    Williams Energy Services enters into forward contracts and purchase and sale commitments which involve physical delivery of an energy commodity. Prices under these contracts are both fixed and variable. Swap agreements call for Williams Energy Services 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 Services buys and sells option 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 Services 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.

    Williams Energy Services 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 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.

    The notional quantities for all trading financial instruments at December 31, 1995, and December 31, 1994, are 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) 1,841.20 1,517.20 85 136.3
    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. At December 31, 1995, the average remaining life of the trading fixed-price portfolio is approximately two years and four years for 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 $65.80 $14.20
    Gross marketing revenues 617.7* 249.2
    Gross marketing costs (599.2)* -
    Other 1.5 0.3
    $85.80 $263.70
    *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 its credit exposure to any one financial institution.

    At December 31, 1995 and 1994, approximately 62 percent and 40 percent, respectively, of receivables are for the sale or transportation of natural gas and related products or services. Approximately 27 percent and 30 percent of receivables at December 31, 1995 and 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 midwestern United States. Telecommunica tions customers include numerous corporations. As a general policy, collateral is not required for receivables, but customers' financial condition and credit worthiness are evaluated regularly.


    16.Other Financial Information

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

    (Millions) 1995 1994* 1993*
    Northwest Pipeline $1.80 $3.40 $3.60
    Williams Natural Gas 9.5 14.2 5.4
    Transcontinental Gas Pipe Line 34.2 - -
    Texas Gas Transmission 37.7 - -
    Williams Field Services Group 9.2 30.5 14.5
    Williams Energy Services 34 20.2 42.1
    Williams Pipe Line 32.8 16.7 1.4
    Other 0.3 0.4 -
    $159.50 $85.40 $67.00
    *Reclassified as described in Note 1.

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

    Identifiable assets, capital expenditures, and depreciation and depletion for business segments for the three years ended December 31, 1995, are included under "Selected Financial Data" on pages 7, 9, 11, 13, 17, 19, 21, 25 and 27. Total identifiable assets are as follows:

    (Millions) 1995 1994* 1993*
    Total on pages shown above $9,907.9 $3,934.0 $3,566.0
    Investments 307.6 379.1 437.1
    General corporate and other 279.3 169.4 122.1
    Discontinued operations - 743.6 895.2
    $10,494.8 $5,226.1 $5,020.4
    *Reclassified as described in Note 1.

    Identifiable assets are gross assets used by a business segment, including an allocated portion of assets used jointly by more than one business segment. Items such as investments are considered to be general corporate assets rather than identifiable assets of individual business segments.


    HOME

    ANNUAL REPORT
    CONTENTS

    NOTE 17