General

We are an energy infrastructure company focused on connecting North America's significant hydrocarbon resource plays to growing markets for natural gas, natural gas liquids (NGLs), and olefins. Our operations span from the deepwater Gulf of Mexico to the Canadian oil sands and include midstream gathering and processing assets, an olefins production facility, and interstate natural gas pipelines held through our significant investment in Williams Partners L.P. (NYSE: WPZ), of which we currently own approximately 70 percent, including the general partner interest. We also process oil sands offgas in Canada and hold an overall approximate 25 percent interest in Access Midstream Partners, L.P. (NYSE: ACMP), including a 50 percent interest in the general partner and the associated incentive distribution rights. ACMP owns and operates midstream assets located in the Barnett, Eagle Ford, Haynesville, Marcellus, Niobrara and Utica shales and Mid-Continent region.

We are organized into the Williams Partners, Williams NGL & Petchem Services, and Access Midstream Partners reportable segments. All remaining business activities are included in Other. (See Note 1 of Notes to Consolidated Financial Statements for further discussion of these segments.)

Unless indicated otherwise, the following discussion and analysis of critical accounting estimates, results of operations, and financial condition and liquidity relates to our current continuing operations and should be read in conjunction with the consolidated financial statements and notes thereto included in Part II, Item 8 of this document.

Acquisitions

In February 2012, WPZ completed the acquisition of 100 percent of the ownership interests in certain entities from Delphi Midstream Partners, LLC (Laser Acquisition). These entities primarily own the Laser Gathering System, which is comprised of 33 miles of 16-inch natural gas pipeline and associated gathering facilities in the Marcellus Shale in Susquehanna County, Pennsylvania, as well as 10 miles of gathering lines in southern New York. This acquisition represents a strategic platform to enhance WPZ's expansion in the Marcellus Shale by providing our customers with both operational flow assurance and marketing flexibility. (See Results of Operations - Segments, Williams Partners.)

In April 2012, WPZ completed the acquisition of 100 percent of the ownership interest in Caiman Eastern Midstream, LLC (Caiman Acquisition). The acquired entity operates a gathering and processing business in northern West Virginia, southwestern Pennsylvania and eastern Ohio. WPZ believes this acquisition will provide it with a significant footprint and growth potential in the NGL-rich portion of the Marcellus Shale. (See Results of Operations - Segments, Williams Partners.)

In December 2012, we made significant investments in Access Midstream Partners GP, L.L.C. (Access GP) and Access Midstream Partners, L.P. (ACMP) (collectively referred to as Access Midstream Partners). We now own a 50 percent indirect interest in Access GP which holds the 2 percent general partner interest in ACMP and incentive distribution rights. In addition, we hold approximately 24 percent limited partner interest in ACMP for a combined ownership interest of approximately 25 percent of ACMP. ACMP is a publicly traded master limited partnership that owns, operates, develops and acquires natural gas gathering systems and other midstream energy assets, which bolsters our position in the Marcellus and Utica shale plays and adds diversity via the Eagle Ford, Haynesville, Barnett, Mid-Continent and Niobrara areas. (See Results of Operations - Segments, Access Midstream Partners.)

Dividend Growth

We increased our quarterly dividends from $0.25 per share in the fourth quarter of 2011 to $0.325 per share in the fourth-quarter of 2012. Also, consistent with our expectation of receiving increasing cash distributions from our interests in WPZ and Access Midstream Partners, we expect to increase our dividend on a quarterly basis. Our Board of Directors has approved a dividend of $0.33875 per share for the first quarter of 2013 and we expect a 20 percent annual increase in total dividends in both 2013 and 2014.

Overview

During the second quarter 2012, NGL margins declined sharply largely attributable to a record-warm winter, a slowing global economy, and growing NGL supplies. The downward trend of per-unit NGL margins leveled-off during the second-half of 2012. We have been impacted by this environment as our 2012 income (loss) from continuing operations attributable to The Williams Companies, Inc. decreased by $80 million compared to 2011. This decrease is primarily due to an unfavorable change in operating income (loss) and the absence of certain income tax provision benefits recognized in 2011, partially offset by the absence of early debt retirement costs incurred in 2011. See additional discussion in Results of Operations.

Our net cash provided by operating activities for 2012 decreased $1.604 billion compared to 2011, largely due to the absence of operating cash flows from our former exploration and production business and lower operating results.

Abundant and low-cost natural gas reserves in the United States continue to drive strong demand for midstream and pipeline infrastructure. We believe we have successfully positioned our energy infrastructure businesses for significant future growth, as highlighted by the following accomplishments during 2012 through the present:

Recent Events

In addition to the previously discussed acquisitions, we note the following:

• In February 2012, we announced a new interstate gas pipeline project. The new 120-mile Constitution Pipeline will connect Williams Partners' gathering system in Susquehanna County, Pennsylvania, to the Iroquois Gas Transmission and Tennessee Gas Pipeline systems. We currently own 51 percent of Constitution Pipeline with two other parties holding 25 percent and 24 percent, respectively. This project, along with the newly acquired Laser Gathering System and our Springville pipeline, are key steps in Williams Partners' strategy to create the Susquehanna Supply Hub, a major natural gas supply hub in northeastern Pennsylvania. In April 2012, we began the Federal Energy Regulatory Commission (FERC) pre-filing process for the Constitution Pipeline and expect to file a FERC application during the second quarter of 2013.

• In March 2012, a settlement agreement was reached under which our majority-owned entities that owned and operated the El Furrial and PIGAP II gas compression facilities in Venezuela sold the assets of these facilities following their expropriation by the Venezuelan government in 2009. In connection with the settlement, we received $98 million of cash and the right to receive quarterly installments of $15 million through the first quarter of 2016. Also as part of this settlement, we received $63 million in cash in March 2012 related to a previous agreement to sell our interest in Accroven SRL. (See Notes 3 and 4 of Notes to Consolidated Financial Statements.)

• In April 2012, we issued 30 million shares of common stock in a public offering at a price of $30.59 per share. We used the net proceeds of $887 million to fund a portion of the purchase of additional WPZ common units in connection with WPZ's Caiman Acquisition.

• In April 2012, WPZ completed an equity issuance of 10 million common units representing limited partner interests at a price of $54.56 per unit. Subsequently, WPZ sold an additional 973,368 common units for $54.56 per unit to the underwriters upon the underwriters' exercise of their option to purchase additional common units. The net proceeds were used for general partnership purposes, including funding a portion of the cash purchase price of WPZ's Caiman Acquisition.

• In July 2012, Transcontinental Gas Pipe Line Company, LLC (Transco) issued $400 million of 4.45 percent senior unsecured notes due 2042 to investors in a private debt placement. A portion of these proceeds was used to repay Transco's $325 million 8.875 percent senior unsecured notes that matured

• In July 2012, WPZ formed Caiman Energy II, LLC with Caiman Energy, LLC and others to develop large-scale natural gas gathering and processing and the associated liquids infrastructure serving oil and gas producers in the Utica shale, primarily in Ohio and northwest Pennsylvania. As a result, WPZ plans to contribute $380 million through 2014 to fund a portion of Blue Racer Midstream, a joint project formed in December 2012 between Caiman Energy II, LLC and another party.

• In August 2012, WPZ completed an equity issuance of 8,500,000 common units representing limited partner interests at a price of $51.43 per unit. Subsequently, WPZ sold an additional 1,275,000 common units for $51.43 per unit to the underwriters upon the underwriters' exercise of their option to purchase additional common units. The net proceeds of these transactions were primarily used to repay outstanding borrowings on WPZ's senior unsecured revolving credit facility (WPZ's revolver).

• In August 2012, WPZ completed a public offering of $750 million of 3.35 percent senior unsecured notes due 2022. The net proceeds were used to repay outstanding borrowings on WPZ's revolver and for general partnership purposes.

• In November 2012, we contributed to WPZ our 83.3 percent undivided interest and operatorship of an olefins-production facility located in Geismar, Louisiana, along with our refinery grade propylene splitter and pipelines in the Gulf region. These businesses were previously reported through our Williams NGL & Petchem Services segment; however, they are now reported in our Williams Partners segment and prior period segment disclosures have been recast for this transaction. WPZ funded substantially all of the transaction with the issuance of limited partner units to us.

• In November 2012, we completed the purchase of 10 liquids pipelines in the Gulf Coast region. The acquired pipelines will be combined with an organic build-out of several projects to expand our petrochemical services in that region. The projects are expected to be placed into service beginning in late 2014.

• In December 2012, we issued approximately 53 million shares of common stock in a public offering at a price of $31 per share. We used the net proceeds of $1.6 billion to fund a portion of our investment in Access Midstream Partners. (See Note 2 of Notes to Consolidated Financial Statements).

• In December 2012, we completed a public offering of $850 million of 3.7 percent senior unsecured notes due 2023. We used the net proceeds to fund a portion of our investment in Access Midstream Partners. (See Note 2 of Notes to Consolidated Financial Statements).

• In January 2013, WPZ agreed to sell a 49 percent ownership interest in its Gulfstar FPS™ project to a third party. The transaction is expected to close in second-quarter 2013, at which time we expect the third party will contribute $225 million to fund its proportionate share of the project costs, following with monthly capital contributions to fund its share of ongoing construction.

Outlook for 2013

Our strategy is to provide large-scale energy infrastructure designed to maximize the opportunities created by the vast supply of natural gas, natural gas products, and crude oil that exists in North America. We seek to accomplish this through further developing our scale positions in current key markets and basins and entering new growth markets and basins where we can become the large-scale service provider. We will maintain a strong commitment to operational excellence and customer satisfaction. We believe that accomplishing these goals will position us to deliver an attractive return to our stockholders.

Fee-based businesses are a significant component of our portfolio. As we continue to transition to an overall business mix that is increasingly fee-based, the influence of commodity price fluctuations on our operating results and cash flows is expected to become somewhat less significant.

In light of the above, our business plan for 2013 continues to reflect both significant capital investment and dividend growth. Our planned consolidated capital investments for 2013 total approximately $4.275 billion, of which we expect to fund primarily through cash on hand, cash flow from operations, and debt and equity issuances by WPZ. We also expect 20 percent growth in total 2013 dividends, which we expect to fund primarily with distributions received from WPZ. Our structure is designed to drive lower capital costs, enhance reliable access to capital markets, and create a greater ability to pursue development projects and acquisitions.

Potential risks and/or obstacles that could impact the execution of our plan include:

• General economic, financial markets, or industry downturn;

• Availability of capital;

• Lower than expected levels of cash flow from operations;

• Counterparty credit and performance risk;

• Decreased volumes from third parties served by our midstream businesses;

• Unexpected significant increases in capital expenditures or delays in capital project execution;

• Lower than anticipated energy commodity prices and margins;

• Changes in the political and regulatory environments;

• Physical damages to facilities, especially damage to offshore facilities by named windstorms.

We continue to address these risks through maintaining a strong financial position and ample liquidity, as well as managing a diversified portfolio of energy infrastructure assets.

Critical Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. We have reviewed the selection, application, and disclosure of these critical accounting estimates with our Audit Committee. We believe that the nature of these estimates and assumptions is material due to the subjectivity and judgment necessary, or the susceptibility of such matters to change, and the impact of these on our financial condition or results of operations.

Pension and Postretirement Obligations

We have employee benefit plans that include pension and other postretirement benefits. Net periodic benefit cost and obligations for these plans are impacted by various estimates and assumptions. These estimates and assumptions include the expected long-term rates of return on plan assets, discount rates, expected rate of compensation increase, health care cost trend rates, and employee demographics, including retirement age and mortality. These assumptions are reviewed annually and adjustments are made as needed. The assumptions utilized to compute cost and the benefit obligations are shown in Note 8 of Notes to Consolidated Financial Statements.

The following table presents the estimated increase (decrease) in net periodic benefit cost and obligations resulting from a one-percentage-point change in the specific assumption.

                                                Benefit Cost                               Benefit Obligation
                                         One-                  One-                  One-                    One-
                                     Percentage-            Percentage-           Percentage-             Percentage-
                                        Point                  Point                 Point                   Point
                                       Increase              Decrease              Increase                Decrease
                                                                        (Millions)
Pension benefits:
Discount rate                       $           (8 )       $           9         $        (148 )        $           175
Expected long-term rate of
return on plan assets                          (10 )                  10                    -                        -
Rate of compensation increase                    2                    (1 )                   9                       (7 )
Other postretirement benefits:
Discount rate                                   (4 )                   5                   (42 )                     53
Expected long-term rate of
return on plan assets                           (2 )                   2                    -                        -
Assumed health care cost trend
rate                                             7                    (5 )                  46                      (38 )

Our expected long-term rates of return on plan assets, as determined at the beginning of each fiscal year, are based on the average rate of return expected on the funds invested in the plans. We determine our long-term expected rates of return on plan assets using our expectations of capital market results, which includes an analysis of historical results as well as forward-looking projections. These capital market expectations are based on a period of at least ten years and take into account our investment strategy and mix of assets, which is weighted toward domestic and international equity securities. We develop our expectations using input from several external sources, including consultation with our third-party independent investment consultant. The forward-looking capital market projections are developed using a consensus of economists' expectations for inflation, GDP growth, and dividend yield along with expected changes in risk premiums. The capital market return projections for specific asset classes in the investment portfolio are then applied to the relative weightings of the asset classes in the investment portfolio. The resulting rates are an estimate of future results and, thus, likely to be different than actual results.

In 2012, the benefit plans' assets reflected strong equity performance coupled with modest returns from the fixed income strategies. While the 2012 investment performance was greater than our expected rates of return, the expected rates of return on plan assets are long-term in nature and are not significantly impacted by short-term market performance. Changes to our asset allocation would also impact these expected rates of return. Our expected long-term rate of return on plan assets used for our pension plans had been 7.5 percent since 2010. In 2012, we reduced our expected long-term rate of return on pension assets to 6.3 percent. This reduction was implemented due to a downward trend in long-term capital market expectations and a more conservative asset allocation in the investment portfolio reflecting some shift to more fixed income securities relative to equity securities. The 2012 actual return on plan assets for our pension plans was approximately 12.1 percent. The ten-year average rate of return on pension plan assets through December 2012 was approximately 6.8 percent.

The discount rates are used to measure the benefit obligations of our pension and other postretirement benefit plans. The objective of the discount rates is to determine the amount, if invested at the December 31 measurement date in a portfolio of high-quality debt securities, that will provide the necessary cash flows when benefit payments are due. Increases in the discount rates decrease the obligation and, generally, decrease the related cost. The discount rates for our pension and other postretirement benefit plans are determined separately based on an approach specific to our plans and their respective expected benefit cash flows as described in Note 8 of Notes to Consolidated Financial Statements. Our discount rate assumptions are impacted by changes in general economic and market conditions that affect interest rates on long-term, high-quality debt securities as well as by the duration of our plans' liabilities. The weighted-average discount rate used to measure our pension plans' benefit obligation declined during 2012 by 55 basis points, which significantly contributed to the actuarial loss of $98 million in the current year.

The expected rate of compensation increase represents average long-term salary increases. An increase in this rate causes the pension obligation and cost to increase.

The assumed health care cost trend rates are based on national trend rates adjusted for our actual historical cost rates and plan design. An increase in this rate causes the other postretirement benefit obligation and cost to increase.

Goodwill and Intangible Assets

At December 31, 2012, our Consolidated Balance Sheet includes $649 million of goodwill and $1.7 billion in intangible assets related to the Laser and Caiman Acquisitions, which were completed earlier this year.

Goodwill

We performed our annual assessment of goodwill for impairment as of October 1. All of our goodwill is allocated to WPZ's midstream business (the reporting unit). In our evaluation, our estimate of the fair value of the reporting unit significantly exceeded its carrying value, including goodwill, and thus no impairment loss was recognized in 2012. If the carrying value of the reporting unit had exceeded its fair value, a computation of the implied fair value of the goodwill would have been compared with its related carrying value. If the carrying value of the reporting unit goodwill had exceeded the implied fair value of that goodwill, an impairment loss would have been recognized in the amount of the excess.

The fair value of WPZ's midstream business was estimated by both an income approach utilizing discounted cash flows and a market approach utilizing EBITDA multiples.

Other intangible assets

We evaluate other intangible assets for both changes in the expected remaining useful lives and impairment when events or changes in circumstances indicate, in our management's judgment, that the estimated useful lives have changed or the carrying value of such assets may not be recoverable. Changes in an estimated remaining useful life would be reflected prospectively through amortization over the revised remaining useful life. When an indicator of impairment has occurred, we compare our management's estimate of undiscounted future cash flows attributable to the intangible assets to the carrying value of the assets to determine whether an impairment has occurred and we apply a probability-weighted approach to consider the likelihood of different cash flow assumptions and possible outcomes. If an impairment of the carrying value has occurred, we determine the amount of the impairment recognized in the financial statements by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value. Indicators of potential impairment may include:

• Laws prohibiting the production of reserves in the areas where our assets from the Laser and Caiman Acquisitions operate;

• The development of alternative energy sources that would halt the production of reserves in these areas; or

• The loss of or failure to renew customer contracts. A significant portion of the value allocated to these contracts in our purchase price allocation was based on our assumptions regarding our ability and intent to renew or renegotiate existing customer contracts. (See Note 2 of Notes to Consolidated Financial Statements.)

We have not evaluated our intangible assets for impairment as of December 31, 2012, as there were no indicators of potential impairment.

Equity-method Investments

At December 31, 2012, our Consolidated Balance Sheet includes approximately $4 billion of investments that are accounted for under the equity method of accounting. We evaluate these investments for impairment when events or changes in circumstances indicate, in our management's judgment, that the carrying value of such investments may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, we compare our estimate of fair value of the investment to the carrying value of the investment to determine whether an impairment has occurred. We generally estimate the fair value of our investments using an income approach where significant judgments and assumptions include expected future cash flows and the appropriate discount rate. In some cases, we may utilize a form of market approach to estimate the fair value of our investments.

If the estimated fair value is less than the carrying value and we consider the decline in value to be other-than-temporary, the excess of the carrying value over the fair value is recognized in the consolidated financial statements as an impairment charge. Events or changes in circumstances that may be indicative of an other-than-temporary decline in value will vary by investment, but may include:

• A significant or sustained decline in the market value of a publicly-traded investee;

• Lower than expected cash distributions from investees (including incentive distributions);

• Significant asset impairments or operating losses recognized by investees;

• Significant delays in or lack of producer development or significant declines in producer volumes in markets served by investees; and,

• Significant delays in or failure to complete significant growth projects of investees.

No impairments of investments accounted for under the equity method have been recorded for the year ended December 31, 2012.

Results of Operations

Consolidated Overview

The following table and discussion is a summary of our consolidated results of
operations for the three years ended December 31, 2012. The results of
operations by segment are discussed in further detail following this
consolidated overview discussion.



                                                                        Years Ended December 31,
                                                   $ Change       % Change                    $ Change      % Change
                                                     from           from                        from          from
                                      2012          2011*          2011*          2011          2010*         2010*          2010
                                                                               (Millions)
Revenues:
Service revenues                     $ 2,729            +197             +8 %    $ 2,532           +173            +7 %    $  2,359
Product sales                          4,757            -641            -12 %      5,398         +1,119           +26 %       4,279

Total revenues                         7,486                                       7,930                                      6,638

Costs and expenses:
Product costs                          3,496            +438            +11 %      3,934           -674           -21 %       3,260
Operating and maintenance expenses     1,027             -37             -4 %        990           -120           -14 %         870
. . .