CONTINUED:
Notes to Consolidated Financial Statements

8. Extraordinary Loss
9. Employee Benefit Plans
10. Inventories
11. Property, Plant and Equipment
12. Accounts Payable and Accrued Liabilities
13. Debt, Leases and Banking Arrangements

The extraordinary loss in 1994 resulted from early extinguishment of debt. 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).

PENSIONS
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
OTHER

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:

(Millions)	1995	1994	1993
Service cost for benefits earned
during the year	$19.50	$13.90	$10.90
Interest cost on projected benefit
obligation	40.1	21.8	21.1
Actual return on plan assets	-120.3	3.1	-28.3
Amortization and deferrals	82	-24.2	8.2
Settlement loss	-	-	5.7
Net pension expense	$21.30	$14.60	$17.60
Net pension expense:
Continuing operations	$21.30	$10.00	$14.90
Discontinued operations	-	4.6	2.7
	$21.30	$14.60	$17.60

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.

The following table presents the funded status of the plans:

(Millions)	1995	1994
Actuarial present value of benefit obligations:
Vested benefits	$422	$191
Non-vested benefits	21	10
Accumulated benefit obligations	443	201
Effect of projected salary increases	137	58
Projected benefit obligations	580	259
Assets at market value	550	251
Assets less than projected
benefit obligations	30	8
Unrecognized net loss	-	-12
Unrecognized prior-service cost	-11	-10
Unrecognized transition asset	4	5
Pension liability (asset)	$23	($9)

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 its network services operations' plan participants up to the date of sale (see Note 3). The discount rate used to measure the present value of benefit obligations is 71/4 percent (81/2 percent in 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 health care plans that provide 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 and are a participant in the company 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 plans provide for retiree contributions and contain other cost-sharing features such as deductibles and coinsurance. The accounting for the plans anticipates future cost- sharing changes to the written plans that are consistent with Williams' expressed intent to increase the retiree contribution rate annually, generally in line with health care cost increases, except for 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 two master trusts and money market funds. One of the master 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:

(Millions)	1995	1994	1993
Service cost for benefits earned
during the year	$7.40	$3.90	$3.70
Interest cost on accumulated
postretirement benefit obligation	23.9	7.8	8.2
Actual return on plan assets	-17.9	-0.6	-0.7
Amortization of unrecognized
transition obligation	5	5.1	5.2
Amortization and deferrals	23.1	0.1	-3.5
Net postretirement benefit expense	$41.50	$16.30	$12.90
Net postretirement benefit expense:
Continuing operations	$41.50	$14.70	$11.40
Discontinued operations	-	1.6	1.5
	$41.50	$16.30	$12.90

Net postretirement benefit expense at December 31, 1995, includes approximately $26 million for the Transco Energy plans' participants.

The following table presents the funded status of the plans:

(Millions)	1995	1994
Actuarial present value of postretirement benefit obligation:
Retirees	$227	$55
Fully eligible active plan participants	24	11
Other active plan participants	85	34
Accumulated postretirement benefit obligation	336	100
Assets at market value	124	16
Assets less than accumulated postretirement
benefit obligation	212	84
Unrecognized net gain	25	19
Unrecognized prior-service cost	-6	-
Unrecognized transition obligation	-71	-78
Postretirement benefit liability	$160	$25

Included in the postretirement benefit liability at December 31, 1995, is approximately $139 million for the 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 be recovered through rates over the next 17 years.

The discount rate used to measure the present value of benefit obligations is 711/4 percent (81/2 percent in 1994). The expected long-term rate of return on plan assets is 10 percent (6 percent after taxes). The annual assumed rate of increase in the health care cost trend rate for 1996 is 10 to 13 percent, systematically decreasing to 5 percent by 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, 1995, by $5 million and the accumulated postretirement benefit obligation as of December 31, 1995, by $50 million.

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. Contributions to these plans made by discontinued operations were $3 million in both 1994 and 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.

(Millions)	1995	1994
Natural gas in underground storage:
Transcontinental Gas Pipe Line (LIFO)	$21.40	$ -
Williams Energy Services	6	8.7
Other	2.2	9.9
Petroleum products:
Williams Energy Services	12.8	13.5
Other	27.4	19.2
Materials and supplies:
WilTel	28.2	28.6
Other	87.8	32.4
Other	3.2	-
	$189.00	$112.30

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

(Millions)	1995	1994
Cost:
Northwest Pipeline	$1,403.5	$1,275.4
Williams Natural Gas	761.6	745
Transcontinental Gas Pipe Line	2,756.70	-
Texas Gas Transmission	917.3	-
Williams Field Services Group	2,324.90	1,273.20
Williams Pipe Line	1,023.30	809.6
WilTel	55.2	32.1
WilTech Group	90.7	69.5
Other	l45.5	106.3
	9,478.70	4,311.10
Accumulated depreciation	-1,464.00	-1,187.10
	$8,014.7	$3,124.0

Commitments for construction and acquisition of property, plant and equipment are approximately $256 million at December 31, 1995.

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.

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.

(Millions)	1995	1994
Accrued liabilities:
Income taxes payable	$371.60	$38.00
Rate refunds	180.6	83.8
Employee costs	135.9	51.7
Interest	72.9	39.9
Taxes other than income taxes	51.2	41.8
Other	318	106.2
	$1,130.2	$361.40

NOTES PAYABLE
DEBT
LEASES

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 outstanding short-term borrowings at December 31, 1994, was 6.75 percent.

Debt

(Millions)	Weighted average interest rate*	1995	1994
The Williams Companies, Inc.
Revolving credit loans	6.20%	$50.00	$350.00
Debentures, 8.875% - 10.25%,
payable 2012, 2020, 2021 and 2025	9.6	587.7	379.7
Notes, 7.5% - 9.625%, payable
through 2001	8.8	842.4	363.8
Capital lease obligations, 11.1%	-	-	31
Northwest Pipeline
Debentures, 7.125% - 10.65%,
payable through 2025	9	369.2	293
Adjustable rate notes, payable
through 2002	9	11.7	13.3
Williams Natural Gas
Variable rate notes, payable 1999	6.3	130	130
Transcontinental Gas Pipe Line
Debentures, 9.125%, payable 1998
through 2017	9.1	153	-
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	125.1	-
Texas Gas Transmission
Notes, 9.625% and 8.625%, payable
1997 and 2004	9	255.9	-
Williams Holdings of Delaware
Revolving credit loans	6.3	150	-
Williams Pipe Line
Notes, 8.95% and 9.78%, payable
through 2001	9.3	110	120
Williams Energy Ventures
Adjustable rate notes, payable
1996 through 2002	8.3	21	-
Other, payable through 1999	8	6.8	10
		3,193.90 -319.9	1,690.80 -383.0
Current portion of long-term debt
		$2,874.0	$1,307.8
*At December 31, 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, Transcontinental Gas Pipe 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, 1995, under this facility do not reduce amounts available to Williams in the future. The available amount at December 31, 1995, is $670 million.

In 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 to finance the purchase of the remaining 50 percent interest in Kern River Gas Transmission Company (see Note 5).

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 (5.88 percent at December 31, 1995). The difference between the fixed and variable rate is included in interest expense.

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

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

(Millions)
1996	$319
1997	222
1998	341
1999	313
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. Cash payments for interest (net of amounts capitalized) related to discontinued operations are as follows: 1994 - $6 million and 1993 - $16 million.

Leases

Future minimum annual rentals under non-cancelable operating leases related to continuing operations are $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. Total rent expense from discontinued operations was $70 million in 1994 and $59 million in 1993.

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