Note 3 – Acquisition

On July 1, 2014, we acquired 50 percent of the general partner interest and 55.1 million limited partner units in ACMP previously held by GIP for $5.995 billion in cash. We now own 100 percent of the general partner interest, including IDRs, and approximately 50 percent of the limited partner units in ACMP. The acquisition was funded through the issuance of equity (See Note 10 – Stockholders’ Equity) and debt (See Note 9 – Debt and Banking Arrangements), credit facility borrowings, and cash on hand.

ACMP is a publicly traded master limited partnership listed on the New York Stock Exchange that owns, operates, develops, and acquires natural gas gathering systems and other midstream energy assets. The purpose of the acquisition is to enhance our position in the Marcellus and Utica shale plays, provide additional diversity via the Eagle Ford, Haynesville, Barnett, Mid-Continent, and Niobrara areas, and to fortify our stable, fee-based business model and support our dividend growth strategy.

Following the ACMP Acquisition, we no longer account for our investment in ACMP by applying the equity method. The preliminary acquisition-date fair value of our equity-method investment in ACMP was $4.6 billion. As a result of remeasuring our equity-method investment to fair value, we recognized a $2.5 billion non-cash gain in the third quarter of 2014 associated with obtaining control and we now consolidate our investment in ACMP.

Through our 100 percent ownership of the general partner, we have obtained control of ACMP. Therefore, this acquisition was accounted for as a business combination which, among other things, requires identifiable assets acquired and liabilities assumed to be measured at their acquisition-date fair values. The excess of the consideration, including the fair value of the noncontrolling interest and our previously held equity-method interest, over those fair values is recorded as goodwill. Goodwill recognized in the acquisition relates primarily to enhancing and diversifying our basin positions and is reported in our Access Midstream Partners segment. Allocation to its reporting units has not been completed. The goodwill is not subject to amortization, but will be evaluated at least annually for impairment or more frequently if impairment indicators are present. Substantially all of the goodwill is expected to be deductible for tax purposes.

The valuation techniques used to measure the acquisition-date fair value of our equity-method investment in ACMP consisted of valuing the existing limited partner units and general partner interest separately. The limited partner units, consisting of common and Class B units, were valued based on ACMP’s closing common unit price at July 1, 2014. The general partner interest, including IDRs, was valued on a noncontrolling basis using an income approach based on a discounted cash flow analysis and two market approaches consisting of comparable guideline companies and an implied fair value from our GIP purchase.

The following table presents the preliminary allocation of the acquisition-date fair value of the major classes of the assets acquired, which are presented in the Access Midstream Partners segment, liabilities assumed, and noncontrolling interest at July 1, 2014. These amounts are preliminary because our valuation work has not been completed. The fair value of accounts receivable acquired equals contractual amounts receivable.



Accounts receivable	$	177
Other current assets	61
Investments	4,648
Property, plant, and equipment - net	7,092
Goodwill	1,012
Other intangible assets	9,615
Current liabilities	(407		)
Debt	(4,052		)
Other noncurrent liabilities	(10		)
Noncontrolling interest in ACMP’s subsidiaries	(985		)
Noncontrolling interest in ACMP	(6,544		)

Intangible assets recognized in the acquisition are related to contractual customer relationships from gas gathering agreements with our customers. The basis for determining the value of these intangible assets is estimated future net cash flows to be derived from acquired customer contracts and relationships and discounted using a risk-adjusted discount rate. These intangible assets are being amortized on a straight-line basis over 30 years during which customer contracts are expected to contribute to our cash flows. We expense costs incurred to renew or extend the terms of our gas gathering, processing, and fractionation contracts with customers. Approximately 59 percent of the expected future revenues from the customer contracts associated with the ACMP Acquisition are impacted by our ability and intent to renew or renegotiate existing customer contracts. Based on the estimated future revenues during the current contract periods, the weighted-average periods prior to the next renewal or extension of the existing customer contracts is approximately 17 years.

The non-cash adjustment to record the fair value of the noncontrolling interest in ACMP was determined based on the common units owned by the noncontrolling interest and ACMP’s closing common unit price at July 1, 2014.

The following unaudited pro forma revenues and net income attributable to The Williams Companies, Inc. for the three months ended September 30, 2013, and nine months ended September 30, 2014 and 2013, are presented as if the ACMP Acquisition had been completed on January 1, 2013. These pro forma amounts are not necessarily indicative of what the actual results would have been if the acquisition had in fact occurred on the date or for the periods indicated, nor do they purport to project revenues or net income attributable to The Williams Companies, Inc. for any future periods or as of any date. These amounts do not give effect to any potential cost savings, operating synergies, or revenue enhancements to result from the transactions or the potential costs to achieve these cost savings, operating synergies, and revenue enhancements.



	Three months ended September 30,		Nine months ended September 30,
	2013		2014		2013

Revenues	$	1,884	$	6,066	$	5,945

Net income attributable to The Williams Companies, Inc.	$	130	$	1,899	$	387

Significant adjustments to net income attributable to The Williams Companies, Inc. include additional depreciation and amortization expense associated with reflecting the acquired property, plant, and equipment and other intangible assets at fair value. The adjustments assume estimated useful lives of 30 years. Other significant adjustments to net income attributable to The Williams Companies, Inc. include interest expense related to debt financing associated with the acquisition as well as net income attributable to noncontrolling interests.

During the three and nine months ended September 30, 2014, ACMP contributed revenues of $300 million and net income attributable to The Williams Companies, Inc. of $37 million.

ACMP has one customer that accounted for $257 million of revenue for the three months ended September 30, 2014, and is included in our consolidated results. This customer accounted for $470 million for the six months ended June 30, 2014, and $220 million and $633 million for the three and nine months ended September 30, 2013, respectively, that occurred prior to our acquisition and are not included in our consolidated results but are included in the pro forma results in the above table.

Costs related to this acquisition are $15 million and are reported within our ACMP segment and included in Selling, general, and administrative expenses in our Consolidated Statement of Income. Direct transaction costs associated with financing commitments are $9 million and reported within Interest incurred in our Consolidated Statement of Income. Equity earnings (losses) includes $19 million of equity losses associated with certain compensation-related costs at ACMP that were triggered by the acquisition.