Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Stockholders and the Board of Directors of

The Williams Companies, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of The Williams Companies, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, based on our audits and the report of other auditors, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We did not audit the financial statements of Gulfstream Natural Gas System, L.L.C. (Gulfstream), a limited liability corporation in which the Company has a 50 percent interest. In the consolidated financial statements, the Company’s investment in Gulfstream was $204 million and $217 million as of December 31, 2020 and 2019, respectively, and the Company’s equity earnings in the net income of Gulfstream were $77 million in 2020, $74 million in 2019 and $75 million in 2018. Gulfstream’s financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Gulfstream, is based solely on the report of other auditors.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.


Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
									Pension and Other Postretirement Benefit Obligations
Description of the Matter									At December 31, 2020, the Company’s aggregate pension and other postretirement benefit obligations were $1,403 million and were exceeded by the fair value of pension and other postretirement plan assets of $1,635 million, resulting in overfunded pension and other postretirement benefit obligations of $232 million. As explained in Note 10 to the consolidated financial statements, the Company utilized key assumptions to determine the pension and other postretirement benefit obligations. Auditing the pension and other postretirement benefit obligations is complex and required the involvement of specialists due to the judgmental nature of the actuarial assumptions (e.g., discount rates and cash balance interest crediting rate) used in the measurement process. These assumptions have a significant effect on the projected benefit obligations.
How We Addressed the Matter in Our Audit									We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls relating to the measurement and valuation of the pension and other postretirement benefit obligations, including controls over management’s review of the pension and other postretirement obligations, the significant actuarial assumptions, and the data inputs. To test the pension and other postretirement benefit obligations, our audit procedures included, among others, evaluating the methodologies used, the significant actuarial assumptions discussed above, and the underlying data used by the Company. We compared the actuarial assumptions used by management to historical trends and evaluated the changes in the funded status from prior year. In addition, we involved our actuarial specialists to assist with our procedures. For example, we evaluated management’s methodology for determining the discount rates that reflect the maturity and duration of the benefit payments and are used to measure the pension and other postretirement benefit obligations. As part of this assessment, we independently developed a range of yield curves, we compared the projected cash flows to prior year, and compared the current year benefits paid to the prior year projected cash flows. To test the cash balance interest crediting rate, we independently calculated a range of rates and compared them to the rate used by management. We also tested the completeness and accuracy of the underlying data, including the participant data.


									Impairment Review of Equity-Method Investments
Description of the Matter									As discussed in Note 7 to the consolidated financial statements, the Company has investments in nonconsolidated entities accounted for using the equity-method, totaling $5,159 million as of December 31, 2020, and recorded impairments of equity-method investments of $1,046 million during 2020. The carrying value of each equity-method investment is evaluated for impairment when events or changes in circumstances indicate that the carrying value of the investment may have experienced an other-than-temporary decline in value. When there are indicators of impairment, the fair value of the equity-method investment is estimated. Fair value is estimated using various methods, including income and market approaches. When the estimated fair value is lower than the carrying value, the Company determines whether the impairment is other-than-temporary. Auditing the Company’s impairment assessments was complex and judgmental due to the estimation required in the determination of fair value of the investments for which evidence of loss in value has occurred.
How We Addressed the Matter in Our Audit									We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s equity-method impairment review process, including controls over the determination of fair value. For the equity-method investments with evidence of loss in value, we performed audit procedures that included, among others, assessing the methodologies used by management to determine fair value, evaluating the significant assumptions, and testing the underlying data used by the Company in its analyses. For example, we compared the estimated cash flows used within the assessments to current operating results and future expected economic trends, and obtained third-party support, where available, to evaluate significant assumptions. We also recalculated management’s estimate. We involved our valuation specialists to assist with our evaluation of the methodologies used by the Company and significant assumptions included in the fair value estimates.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1962.

Tulsa, Oklahoma

February 24, 2021

Report of Independent Registered Public Accounting Firm

To the Management Committee and Members of Gulfstream Natural Gas System, L.L.C.:

Opinion on the Financial Statements

We have audited the statements of financial position of Gulfstream Natural Gas System, L.L.C. (the “Company”) as of December 31, 2020 and 2019, and the related statements of earnings, comprehensive income, changes in members’ equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “financial statements”) (not presented herein). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to those charged with governance and that (i) relate to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments. We determined there are no critical audit matters.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

February 24, 2021

We have served as the Company’s auditor since 2018.

The Williams Companies, Inc.

Consolidated Statement of Operations


		Year Ended December 31,
		2020		2019		2018
	(Millions, except per-share amounts)
Revenues:
Service revenues		$	5,924	$	5,933	$	5,502
Service revenues – commodity consideration		129		203		400
Product sales		1,666		2,065		2,784
Total revenues		7,719		8,201		8,686
Costs and expenses:
Product costs		1,545		1,961		2,707
Processing commodity expenses		68		105		137
Operating and maintenance expenses		1,326		1,468		1,507
Depreciation and amortization expenses		1,721		1,714		1,725
Selling, general, and administrative expenses		466		558		569
Impairment of certain assets (Note 18)		182		464		1,915
Impairment of goodwill (Note 18)		187		—		—
Gain on sale of certain assets and businesses (Note 3)		—		2		(692)
Other (income) expense – net		22		8		50
Total costs and expenses		5,517		6,280		7,918
Operating income (loss)		2,202		1,921		768
Equity earnings (losses) (Note 7)		328		375		396
Impairment of equity-method investments (Note 18)		(1,046)		(186)		(32)
Other investing income (loss) – net (Note 7)		8		107		219
Interest incurred		(1,192)		(1,218)		(1,160)
Interest capitalized		20		32		48
Other income (expense) – net		(43)		33		92
Income (loss) from continuing operations before income taxes		277		1,064		331
Less: Provision (benefit) for income taxes		79		335		138
Income (loss) from continuing operations		198		729		193
Income (loss) from discontinued operations		—		(15)		—
Net income (loss)		198		714		193
Less: Net income (loss) attributable to noncontrolling interests		(13)		(136)		348
Net income (loss) attributable to The Williams Companies, Inc.		211		850		(155)
Less: Preferred stock dividends (Note 16)		3		3		1
Net income (loss) available to common stockholders		$	208	$	847	$	(156)
Amounts attributable to The Williams Companies, Inc. available to common stockholders:
Income (loss) from continuing operations		$	208	$	862	$	(156)
Income (loss) from discontinued operations		—		(15)		—
Net income (loss)		$	208	$	847	$	(156)
Basic earnings (loss) per common share:
Income (loss) from continuing operations		$	.17	$	.71	$	(.16)
Income (loss) from discontinued operations		—		(.01)		—
Net income (loss)		$	.17	$	.70	$	(.16)
Weighted-average shares (thousands)		1,213,631		1,212,037		973,626
Diluted earnings (loss) per common share:
Income (loss) from continuing operations		$	.17	$	.71	$	(.16)
Income (loss) from discontinued operations		—		(.01)		—
Net income (loss)		$	.17	$	.70	$	(.16)
Weighted-average shares (thousands)		1,215,165		1,214,011		973,626

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Comprehensive Income (Loss)


	Year Ended December 31,
	2020		2019		2018
	(Millions)
Net income (loss)	$	198	$	714	$	193
Other comprehensive income (loss):
Cash flow hedging activities:
Net unrealized gain (loss) from derivative instruments, net of taxes of $—, $—, and $1 in 2020, 2019, and 2018, respectively	(2)		—		(7)
Reclassifications into earnings of net derivative instruments (gain) loss, net of taxes of $—, $—, and ($1) in 2020, 2019, and 2018, respectively	1		—		8



Pension and other postretirement benefits:


Net actuarial gain (loss) arising during the year, net of taxes of ($27), ($20), and $3 in 2020, 2019, and 2018, respectively	81		59		(6)
Amortization of actuarial (gain) loss and net actuarial loss from settlements included in net periodic benefit cost (credit), net of taxes of ($7), ($4), and ($11) in 2020, 2019, and 2018, respectively	23		12		35



Other comprehensive income (loss)	103		71		30
Comprehensive income (loss)	301		785		223
Less: Comprehensive income (loss) attributable to noncontrolling interests	(13)		(136)		346
Comprehensive income (loss) attributable to The Williams Companies, Inc.	$	314	$	921	$	(123)

See accompanying notes.

The Williams Companies, Inc.

Consolidated Balance Sheet


	December 31,
	2020		2019
	(Millions, except per-share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	142	$	289
Trade accounts and other receivables	1,000		1,002
Allowance for doubtful accounts	(1)		(6)
Trade accounts and other receivables - net	999		996
Inventories	136		125
Other current assets and deferred charges	152		170
Total current assets	1,429		1,580

Investments	5,159		6,235
Property, plant, and equipment – net	28,929		29,200
Intangible assets – net of accumulated amortization	7,444		7,959
Regulatory assets, deferred charges, and other	1,204		1,066
Total assets	$	44,165	$	46,040

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	482	$	552
Accrued liabilities	944		1,276
Long-term debt due within one year	893		2,140
Total current liabilities	2,319		3,968

Long-term debt	21,451		20,148
Deferred income tax liabilities	1,923		1,782
Regulatory liabilities, deferred income, and other	3,889		3,778
Contingent liabilities and commitments (Note 19)

Equity:
Stockholders’ equity:
Preferred stock	35		35
Common stock ($1 par value; 1,470 million shares authorized at December 31, 2020 and December 31, 2019; 1,248 million shares issued at December 31, 2020 and 1,247 million shares issued at December 31, 2019)	1,248		1,247
Capital in excess of par value	24,371		24,323
Retained deficit	(12,748)		(11,002)
Accumulated other comprehensive income (loss)	(96)		(199)
Treasury stock, at cost (35 million shares of common stock)	(1,041)		(1,041)
Total stockholders’ equity	11,769		13,363
Noncontrolling interests in consolidated subsidiaries	2,814		3,001
Total equity	14,583		16,364
Total liabilities and equity	$	44,165	$	46,040

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Changes in Equity


	The Williams Companies, Inc. Stockholders
	Preferred Stock		Common Stock		Capital in Excess of Par Value		Retained Deficit		AOCI*		Treasury Stock		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
	(Millions)
Balance at December 31, 2017	$	—	$	861	$	18,508	$	(8,434)	$	(238)	$	(1,041)	$	9,656	$	6,519	$	16,175
Adoption of new accounting standards	—		—		—		(23)		(61)		—		(84)		(37)		(121)
Net income (loss)	—		—		—		(155)		—		—		(155)		348		193
Other comprehensive income (loss)	—		—		—		—		32		—		32		(2)		30
WPZ Merger (Note 1)	—		382		6,112		—		(3)		—		6,491		(4,629)		1,862
Issuance of preferred stock (Note 16)	35		—		—		—		—		—		35		—		35

Cash dividends – common stock ($1.36 per share)	—		—		—		(1,386)		—		—		(1,386)		—		(1,386)
Dividends and distributions to noncontrolling interests	—		—		—		—		—		—		—		(637)		(637)
Stock-based compensation and related common stock issuances, net of tax	—		1		60		—		—		—		61		—		61
Sales of limited partner units of Williams Partners L.P.	—		—		—		—		—		—		—		46		46
Changes in ownership of consolidated subsidiaries, net	—		—		14		—		—		—		14		(18)		(4)
Contributions from noncontrolling interests	—		—		—		—		—		—		—		15		15
Deconsolidation of subsidiary (Note 7)	—		—		—		—		—		—		—		(267)		(267)
Other	—		1		(1)		(4)		—		—		(4)		(1)		(5)
Net increase (decrease) in equity	35		384		6,185		(1,568)		(32)		—		5,004		(5,182)		(178)
Balance at December 31, 2018	35		1,245		24,693		(10,002)		(270)		(1,041)		14,660		1,337		15,997
Net income (loss)	—		—		—		850		—		—		850		(136)		714
Other comprehensive income (loss)	—		—		—		—		71		—		71		—		71
Cash dividends – common stock ($1.52 per share)	—		—		—		(1,842)		—		—		(1,842)		—		(1,842)
Dividends and distributions to noncontrolling interests	—		—		—		—		—		—		—		(124)		(124)
Stock-based compensation and related common stock issuances, net of tax	—		2		56		—		—		—		58		—		58
Sale of partial interest in consolidated subsidiary (Note 3)	—		—		—		—		—		—		—		1,334		1,334
Change in ownership of consolidated subsidiaries, net (Note 3)	—		—		(426)		—		—		—		(426)		567		141
Contributions from noncontrolling interests	—		—		—		—		—		—		—		36		36
Deconsolidation of subsidiary (Note 7)	—		—		—		—		—		—		—		(13)		(13)
Other	—		—		—		(8)		—		—		(8)		—		(8)
Net increase (decrease) in equity	—		2		(370)		(1,000)		71		—		(1,297)		1,664		367
Balance at December 31, 2019	35		1,247		24,323		(11,002)		(199)		(1,041)		13,363		3,001		16,364
Net income (loss)	—		—		—		211		—		—		211		(13)		198
Other comprehensive income (loss)	—		—		—		—		103		—		103		—		103
Cash dividends – common stock ($1.60 per share)	—		—		—		(1,941)		—		—		(1,941)		—		(1,941)
Dividends and distributions to noncontrolling interests	—		—		—		—		—		—		—		(185)		(185)
Stock-based compensation and related common stock issuances, net of tax	—		1		50		—		—		—		51		—		51


Contributions from noncontrolling interests	—		—		—		—		—		—		—		7		7

Other	—		—		(2)		(16)		—		—		(18)		4		(14)
Net increase (decrease) in equity	—		1		48		(1,746)		103		—		(1,594)		(187)		(1,781)
Balance at December 31, 2020	$	35	$	1,248	$	24,371	$	(12,748)	$	(96)	$	(1,041)	$	11,769	$	2,814	$	14,583

*Accumulated Other Comprehensive Income (Loss)

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Cash Flows


	Year Ended December 31,
	2020		2019		2018
	(Millions)
OPERATING ACTIVITIES:
Net income (loss)	$	198	$	714	$	193
Adjustments to reconcile to net cash provided (used) by operating activities:
Depreciation and amortization	1,721		1,714		1,725
Provision (benefit) for deferred income taxes	108		376		220
Equity (earnings) losses	(328)		(375)		(396)
Distributions from unconsolidated affiliates	653		657		693
Gain on disposition of equity-method investments (Note 7)	—		(122)		—

(Gain) on sale of certain assets and businesses (Note 3)	—		2		(692)
(Gain) loss on deconsolidation of businesses (Note 7)	—		29		(203)
Impairment of goodwill (Note 18)	187		—		—
Impairment of equity-method investments (Note 18)	1,046		186		32
Impairment of certain assets (Note 18)	182		464		1,915
Amortization of stock-based awards	52		57		55


Cash provided (used) by changes in current assets and liabilities:
Accounts receivable	(2)		34		(36)
Inventories	(11)		5		(16)
Other current assets and deferred charges	11		21		17
Accounts payable	(7)		(46)		(93)
Accrued liabilities	(309)		153		23
Other, including changes in noncurrent assets and liabilities	(5)		(176)		(144)
Net cash provided (used) by operating activities	3,496		3,693		3,293
FINANCING ACTIVITIES:

Proceeds from long-term debt	3,899		767		3,926
Payments of long-term debt	(3,841)		(909)		(3,204)
Proceeds from issuance of common stock	9		10		15
Proceeds from sale of partial interest in consolidated subsidiary (Note 3)	—		1,334		—
Common dividends paid	(1,941)		(1,842)		(1,386)
Dividends and distributions paid to noncontrolling interests	(185)		(124)		(591)
Contributions from noncontrolling interests	7		36		15

Payments for debt issuance costs	(20)		—		(26)


Other – net	(13)		(17)		(48)
Net cash provided (used) by financing activities	(2,085)		(745)		(1,299)
INVESTING ACTIVITIES:
Property, plant, and equipment:
Capital expenditures (1)	(1,239)		(2,109)		(3,256)
Dispositions – net	(36)		(40)		(7)
Contributions in aid of construction	37		52		411
Proceeds from sale of businesses, net of cash divested (Note 3)	—		(2)		1,296
Purchases of businesses, net of cash acquired (Note 3)	—		(728)		—
Proceeds from dispositions of equity-method investments (Note 7)	—		485		—
Purchases of and contributions to equity-method investments (Note 7)	(325)		(453)		(1,132)

Other – net	5		(32)		(37)
Net cash provided (used) by investing activities	(1,558)		(2,827)		(2,725)
Increase (decrease) in cash and cash equivalents	(147)		121		(731)
Cash and cash equivalents at beginning of year	289		168		899
Cash and cash equivalents at end of year	$	142	$	289	$	168
_________
(1) Increases to property, plant, and equipment	$	(1,160)	$	(2,023)	$	(3,021)
Changes in related accounts payable and accrued liabilities	(79)		(86)		(235)
Capital expenditures	$	(1,239)	$	(2,109)	$	(3,256)

See accompanying notes.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements

Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies

General

Unless the context clearly indicates otherwise, references in this report to “Williams,” “we,” “our,” “us,” or like terms refer to The Williams Companies, Inc. and its subsidiaries. Unless the context clearly indicates otherwise, references to “Williams,” “we,” “our,” and “us” include the operations in which we own interests accounted for as equity-method investments that are not consolidated in our financial statements. When we refer to our equity investees by name, we are referring exclusively to their businesses and operations.

WPZ Merger

On August 10, 2018, we completed our merger with Williams Partners L.P. (WPZ), our previously consolidated master limited partnership, pursuant to which we acquired all of the approximately 256 million publicly held outstanding common units of WPZ in exchange for 382 million shares of our common stock (WPZ Merger). Williams continued as the surviving entity. The WPZ Merger was accounted for as a noncash equity transaction resulting in increases to Common stock of $382 million, Capital in excess of par value of $6.112 billion, and Regulatory assets, deferred charges, and other of $33 million and decreases to Accumulated other comprehensive income (loss) (AOCI) of $3 million, Noncontrolling interests in consolidated subsidiaries of $4.629 billion, and Deferred income tax liabilities of $1.829 billion in the Consolidated Balance Sheet. Prior to the completion of the WPZ Merger and pursuant to its distribution reinvestment program, WPZ had issued common units to the public in 2018 associated with reinvested distributions of $46 million.

Description of Business

We are a Delaware corporation whose common stock is listed and traded on the New York Stock Exchange. Our operations are located in the United States. Our operations are presented within the following reportable segments: Transmission & Gulf of Mexico, Northeast G&P, and West, consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources. All remaining business activities as well as corporate activities are included in Other.

Transmission & Gulf of Mexico is comprised of our interstate natural gas pipelines, Transcontinental Gas Pipe Line Company, LLC (Transco) and Northwest Pipeline LLC (Northwest Pipeline), as well as natural gas gathering and processing and crude oil production handling and transportation assets in the Gulf Coast region, including a 51 percent interest in Gulfstar One LLC (Gulfstar One) (a consolidated variable interest entity, or VIE), which is a proprietary floating production system, a 50 percent equity-method investment in Gulfstream Natural Gas System, L.L.C. (Gulfstream), and a 60 percent equity-method investment in Discovery Producer Services LLC (Discovery).

Northeast G&P is comprised of our midstream gathering, processing, and fractionation businesses in the Marcellus Shale region primarily in Pennsylvania and New York, and the Utica Shale region of eastern Ohio, as well as a 65 percent interest in Ohio Valley Midstream LLC (Northeast JV) (a consolidated VIE) which operates in West Virginia, Ohio, and Pennsylvania, a 66 percent interest in Cardinal Gas Services, L.L.C. (Cardinal) (a consolidated VIE) which operates in Ohio, a 69 percent equity-method investment in Laurel Mountain Midstream, LLC (Laurel Mountain), a 99 percent interest in Caiman Energy II, LLC (Caiman II) (a former equity-method investment which is a consolidated entity following our November 2020 acquisition of an additional ownership interest and was subsequently renamed Blue Racer Midstream Holdings, LLC) which owns a 50 percent equity-method investment in Blue Racer Midstream LLC (Blue Racer) (see Note 7 – Investing Activities), and Appalachia Midstream Services, LLC, a wholly owned subsidiary that owns equity-method investments with an approximate average 66 percent interest in multiple gas gathering systems in the Marcellus Shale region (Appalachia Midstream Investments).


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Notes to Consolidated Financial Statements – (Continued)

West is comprised of our gas gathering, processing, and treating operations in the Rocky Mountain region of Colorado and Wyoming, the Barnett Shale region of north-central Texas, the Eagle Ford Shale region of south Texas, the Haynesville Shale region of northwest Louisiana, and the Mid-Continent region which includes the Anadarko, Arkoma, and Permian basins. This segment also includes our natural gas liquid (NGL) and natural gas marketing business, storage facilities, an undivided 50 percent interest in an NGL fractionator near Conway, Kansas, a 50 percent equity-method investment in Overland Pass Pipeline Company LLC (OPPL), a 50 percent equity-method investment in Rocky Mountain Midstream Holdings LLC (RMM), a 20 percent equity-method investment in Targa Train 7 LLC (Targa Train 7) (a nonconsolidated VIE), and a 15 percent interest in Brazos Permian II, LLC (Brazos Permian II) (a nonconsolidated VIE).

Basis of Presentation

Discontinued operations

Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates to our continuing operations.

Significant risks and uncertainties

We believe that the carrying value of certain of our property, plant, and equipment and other identifiable intangible assets, notably certain acquired assets accounted for as business combinations between 2012 and 2014, may be in excess of current fair value. However, the carrying value of these assets, in our judgment, continues to be recoverable. It is reasonably possible that future strategic decisions, including transactions such as monetizing non-core assets or contributing assets to new ventures with third parties, as well as unfavorable changes in expected producer activities, including effects of financial distress caused by financial and commodity market declines, could impact our assumptions and ultimately result in impairments of these assets. Such transactions or developments may also indicate that certain of our equity-method investments have experienced other-than-temporary declines in value, which could result in impairment.

Customer bankruptcy

In June 2020, our customer, Chesapeake Energy Corporation (Chesapeake), announced that it had voluntarily filed for relief under Chapter 11 of the U.S. Bankruptcy Code. We provide midstream services, including wellhead gathering, for the natural gas that Chesapeake and its joint interest owners produce, primarily in the Eagle Ford Shale, Haynesville Shale, and Marcellus Shale regions (through Appalachia Midstream Investments).

In November 2020, we reached a global resolution with Chesapeake as part of Chesapeake’s restructuring process. The resolution was approved by the bankruptcy court in December 2020 and per the terms, Chesapeake paid all outstanding pre-petition amounts due to us. Additional terms include reduced gathering fees in the Haynesville Shale region, continuation of the gathering agreements in the Eagle Ford Shale and Marcellus Shale regions, a long-term gas supply commitment for Transco’s Regional Energy Access pipeline currently under development, and transferring certain natural gas properties in Louisiana to us. As a result of this resolution, we recorded increases to our other nonregulated property, plant, and equipment of $98 million, contract liabilities of $67 million (see Note 5 – Revenue Recognition), and asset retirement obligations (AROs) of $31 million (see Note 11 – Property, Plant, and Equipment).

Summary of Significant Accounting Policies

Principles of consolidation

The consolidated financial statements include the accounts of all entities that we control and our proportionate interest in the accounts of certain ventures in which we own an undivided interest. Our judgment is required to evaluate whether we control an entity. Key areas of that evaluation include:


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Notes to Consolidated Financial Statements – (Continued)

Determining whether an entity is a VIE;
Determining whether we are the primary beneficiary of a VIE, including evaluating which activities of the VIE most significantly impact its economic performance and the degree of power that we and our related parties have over those activities through our variable interests;
Identifying events that require reconsideration of whether an entity is a VIE and continuously evaluating whether we are a VIE’s primary beneficiary;
Evaluating whether other owners in entities that are not VIEs are able to effectively participate in significant decisions that would be expected to be made in the ordinary course of business such that we do not have the power to control such entities.

We apply the equity method of accounting to investments over which we exercise significant influence but do not control. Distributions received from equity-method investees are presented in the Consolidated Statement of Cash Flows according to the nature of the distributions approach, which classifies distributions received from equity-method investees as either returns on investment (cash inflows from operating activities) or returns of investment (cash inflows from investing activities) based on the nature of the activities of the equity-method investee that generated the distribution.

Equity-method investment basis differences

Differences between the cost of our equity-method investments and our underlying equity in the net assets of investees are accounted for as if the investees were consolidated subsidiaries. Equity earnings (losses) in the Consolidated Statement of Operations includes our allocable share of net income (loss) of investees adjusted for any depreciation and amortization, as applicable, associated with basis differences.

Use of estimates

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

Significant estimates and assumptions include:

Impairment assessments of investments, property, plant, and equipment, goodwill, and other identifiable intangible assets;
Litigation-related contingencies;
Environmental remediation obligations;
Depreciation and/or amortization of long-lived assets;
Depreciation and/or amortization of equity-method investment basis differences;
AROs;
Pension and postretirement valuation variables;
Measurement of regulatory liabilities;
Measurement of deferred income tax assets and liabilities, including assumptions related to the realization of deferred income tax assets;


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Notes to Consolidated Financial Statements – (Continued)

Revenue recognition, including estimates utilized in recognition of deferred revenue;
Purchase price accounting.

These estimates are discussed further throughout these notes.

Regulatory accounting

Transco and Northwest Pipeline are regulated by the Federal Energy Regulatory Commission (FERC), and their rates are established by the FERC. Therefore, we have determined that it is appropriate under Accounting Standards Codification (ASC) Topic 980, “Regulated Operations,” (ASC 980) that certain costs that would otherwise be charged to expense should be deferred as regulatory assets, based on the expected recovery from customers in future rates. Likewise, certain actual or anticipated credits that would otherwise reduce expense should be deferred as regulatory liabilities, based on the expected return to customers in future rates. Management’s expected recovery of deferred costs and return of deferred credits generally results from specific decisions by regulators granting such ratemaking treatment. We record certain incurred costs and obligations as regulatory assets or liabilities if, based on regulatory orders or other available evidence, it is probable that the costs or obligations will be included in amounts allowable for recovery or refunded in future rates. Accounting for these operations that are regulated can differ from the accounting requirements for nonregulated operations. For example, for regulated operations, allowance for funds used during construction (AFUDC) represents the estimated cost of debt and equity funds applicable to utility plant in the process of construction and is capitalized as a cost of property, plant, and equipment because it constitutes an actual cost of construction under established regulatory practices; nonregulated operations are only allowed to capitalize the cost of debt funds related to construction activities, while a component for equity is prohibited. The components of our regulatory assets and liabilities relate to the effects of deferred taxes on equity funds used during construction, AROs, shipper imbalance activity, fuel and power cost differentials, levelized incremental depreciation, negative salvage, pension and other postretirement benefits, customer tax refunds, and rate allowances for deferred income taxes at a historically higher federal income tax rate.

Our current and noncurrent regulatory asset and liability balances for the years ended December 31, 2020 and 2019 are as follows:


	December 31,
	2020		2019
	(Millions)
Current assets reported within Other current assets and deferred charges	$	64	$	72
Noncurrent assets reported within Regulatory assets, deferred charges, and other	442		466
Total regulated assets	$	506	$	538

Current liabilities reported within Accrued liabilities	$	59	$	60
Noncurrent liabilities reported within Regulatory liabilities, deferred income, and other	1,314		1,277
Total regulated liabilities	$	1,373	$	1,337

Cash and cash equivalents

Cash and cash equivalents in the Consolidated Balance Sheet consist of highly liquid investments with original maturities of three months or less when acquired.

Accounts receivable

Accounts receivable are carried on a gross basis, with no discounting, less an allowance for doubtful accounts. We estimate the allowance for doubtful accounts, considering current expected credit losses (as discussed below in Accounting standards issued and adopted), the financial condition of our customers, and age of past due accounts. We do not offer extended payment terms and typically receive payment within one month. We consider receivables


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Notes to Consolidated Financial Statements – (Continued)

past due if full payment is not received by the contractual due date. Interest income related to past due accounts receivable is generally recognized at the time full payment is received or collectability is assured. Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been exhausted.

Inventories

Inventories in the Consolidated Balance Sheet primarily consist of NGLs, natural gas in underground storage, and materials and supplies and are stated at the lower of cost or net realizable value. The cost of inventories is primarily determined using the average-cost method.

Property, plant, and equipment

Property, plant, and equipment is initially recorded at cost. We base the carrying value of these assets on estimates, assumptions, and judgments relative to capitalized costs, useful lives, and salvage values.

As regulated entities, Northwest Pipeline and Transco provide for depreciation using the straight-line method at FERC-prescribed rates. Depreciation for nonregulated entities is provided primarily on the straight-line method over estimated useful lives, except for certain offshore facilities that apply an accelerated depreciation method.

Gains or losses from the ordinary sale or retirement of property, plant, and equipment for regulated pipelines are credited or charged to accumulated depreciation. Other gains or losses are recorded in Other (income) expense – net included in Operating income (loss) in the Consolidated Statement of Operations.

Ordinary maintenance and repair costs are generally expensed as incurred. Costs of major renewals and replacements are capitalized as property, plant, and equipment.

We record a liability and increase the basis in the underlying asset for the present value of each expected future ARO at the time the liability is initially incurred, typically when the asset is acquired or constructed. As regulated entities, Northwest Pipeline and Transco offset the depreciation of the underlying asset that is attributable to capitalized ARO cost to a regulatory asset as we expect to recover these amounts in future rates. We measure changes in the liability due to passage of time by applying an interest rate to the liability balance. This amount is recognized as an increase in the carrying amount of the liability and as a corresponding accretion expense included in Operating and maintenance expenses in the Consolidated Statement of Operations, except for regulated entities, for which the liability is offset by a regulatory asset. The regulatory asset is amortized commensurate with our collection of those costs in rates.

Measurements of AROs include, as a component of future expected costs, an estimate of the price that a third party would demand, and could expect to receive, for bearing the uncertainties inherent in the obligations, sometimes referred to as a market-risk premium.

Goodwill

Goodwill included within Intangible assets – net of accumulated amortization in the Consolidated Balance Sheet, as of December 31, 2019, represents the excess of the consideration, plus the fair value of any noncontrolling interest or any previously held equity interest, over the fair value of the net assets acquired. It is not subject to amortization but is evaluated annually as of October 1 for impairment or more frequently if impairment indicators are present that would indicate it is more likely than not that the fair value of the reporting unit is less than its carrying amount. As part of the evaluation, we compare our estimate of the fair value of the reporting unit with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, an impairment charge is recorded for the difference (not to exceed the carrying value of goodwill). Judgments and assumptions are inherent in our management’s estimates of fair value.


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Notes to Consolidated Financial Statements – (Continued)

Other identifiable intangible assets

Our other identifiable intangible assets included within Intangible assets – net of accumulated amortization in the Consolidated Balance Sheet are primarily related to gas gathering, processing, and fractionation contractual customer relationships. Our other identifiable intangible assets are amortized on a straight-line basis over the period in which these assets contribute to our cash flows. We evaluate these assets for changes in the expected remaining useful lives and would reflect any changes prospectively through amortization over the revised remaining useful life.

Impairment of property, plant, and equipment, other identifiable intangible assets, and investments

We evaluate our property, plant, and equipment and other identifiable intangible assets for impairment when, in our judgment, events or circumstances, including probable abandonment, indicate that the carrying value of such assets may not be recoverable. When an indicator of impairment has occurred, we compare our estimate of undiscounted future cash flows attributable to the assets to the carrying value of the assets to determine whether an impairment has occurred and we may apply a probability-weighted approach to consider the likelihood of different cash flow assumptions and possible outcomes including selling in the near term or holding for the remaining estimated useful life. 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. This evaluation is performed at the lowest level for which separately identifiable cash flows exist.

For assets identified to be disposed of in the future and considered held for sale, we compare the carrying value to the estimated fair value less the cost to sell to determine if recognition of an impairment is required. Until the assets are disposed of, the estimated fair value, which includes estimated cash flows from operations until the assumed date of sale, is recalculated when related events or circumstances change.

We evaluate our investments for impairment when, in our judgment, events or circumstances indicate 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. 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.

Judgments and assumptions are inherent in our estimate of undiscounted future cash flows and an asset’s or investment’s fair value. Additionally, judgment is used to determine the probability of sale with respect to assets considered for disposal.

Contingent liabilities

We record liabilities for estimated loss contingencies, including environmental matters, when we assess that a loss is probable, and the amount of the loss can be reasonably estimated. These liabilities are calculated based upon our assumptions and estimates with respect to the likelihood or amount of loss and upon advice of legal counsel, engineers, or other third parties regarding the probable outcomes of the matters. These calculations are made without consideration of any potential recovery from third parties. We recognize insurance recoveries or reimbursements from others when realizable. Revisions to these liabilities are generally reflected in income when new or different facts or information become known or circumstances change that affect the previous assumptions or estimates.

Cash flows from revolving credit facilities and commercial paper program

Proceeds and payments related to borrowings under our credit facilities are reflected in the financing activities in the Consolidated Statement of Cash Flows on a gross basis. Proceeds and payments related to borrowings under our commercial paper program are reflected in the financing activities in the Consolidated Statement of Cash Flows on a net basis, as the outstanding notes generally have maturity dates less than three months from the date of issuance. (See Note 14 – Debt and Banking Arrangements.)


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

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, at cost in the Consolidated Balance Sheet. Gains and losses on the subsequent reissuance of shares are credited or charged to Capital in excess of par value in the Consolidated Balance Sheet using the average-cost method.

Derivative instruments and hedging activities

We may utilize derivatives to manage a portion of our commodity price risk. These instruments consist primarily of swaps, futures, and forward contracts involving short- and long-term purchases and sales of energy commodities. We report the fair value of derivatives, except those for which the normal purchases and normal sales exception has been elected, in Other current assets and deferred charges; Regulatory assets, deferred charges, and other; Accrued liabilities; or Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet. We determine the current and noncurrent classification based on the timing of expected future cash flows of individual trades. We report these amounts on a gross basis. Additionally, we report cash collateral receivables and payables with our counterparties on a gross basis.

The accounting for the changes in fair value of a commodity derivative can be summarized as follows:


Derivative Treatment						Accounting Method
Normal purchases and normal sales exception						Accrual accounting
Designated in a qualifying hedging relationship						Hedge accounting
All other derivatives						Mark-to-market accounting

We may elect the normal purchases and normal sales exception for certain short- and long-term purchases and sales of physical energy commodities. Under accrual accounting, any change in the fair value of these derivatives is not reflected on the balance sheet after the initial election of the exception.

We may also designate a hedging relationship for certain commodity derivatives. For a derivative to qualify for designation in a hedging relationship, it must meet specific criteria and we must maintain appropriate documentation. We establish hedging relationships pursuant to our risk management policies. We evaluate the hedging relationships at the inception of the hedge and on an ongoing basis to determine whether the hedging relationship is, and is expected to remain, highly effective in achieving offsetting changes in fair value or cash flows attributable to the underlying risk being hedged. We also regularly assess whether the hedged forecasted transaction is probable of occurring. If a derivative ceases to be or is no longer expected to be highly effective, or if we believe the likelihood of occurrence of the hedged forecasted transaction is no longer probable, hedge accounting is discontinued prospectively, and future changes in the fair value of the derivative are recognized currently in Product sales or Product costs in the Consolidated Statement of Operations.

For commodity derivatives designated as a cash flow hedge, the change in fair value of the derivative is reported in AOCI in the Consolidated Balance Sheet and reclassified into earnings in the period in which the hedged item affects earnings. Gains or losses deferred in AOCI associated with terminated derivatives, derivatives that cease to be highly effective hedges, derivatives for which the forecasted transaction is reasonably possible but no longer probable of occurring, and cash flow hedges that have been otherwise discontinued remain in AOCI until the hedged item affects earnings. If it becomes probable that the forecasted transaction designated as the hedged item in a cash flow hedge will not occur, any gain or loss deferred in AOCI is recognized in Product sales or Product costs in the Consolidated Statement of Operations at that time. The change in likelihood of a forecasted transaction is a judgmental decision that includes qualitative assessments made by us.

For commodity derivatives that are not designated in a hedging relationship, and for which we have not elected the normal purchases and normal sales exception, we report changes in fair value currently in Product sales or Product costs in the Consolidated Statement of Operations*.*


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Certain gains and losses on derivative instruments included in the Consolidated Statement of Operations are netted together to a single net gain or loss, while other gains and losses are reported on a gross basis. Gains and losses recorded on a net basis include unrealized gains and losses on all derivatives that are not designated as hedges and for which we have not elected the normal purchases and normal sales exception.

Realized gains and losses on derivatives that (1) require physical delivery, (2) are used for managing commodity risk on NGL processing or natural gas production activities, and (3) are not held for trading purposes nor were entered into as a pre-contemplated buy/sell arrangement, are recorded on a gross basis.

Revenue recognition

Customers in our gas pipeline businesses are comprised of public utilities, municipalities, gas marketers and producers, intrastate pipelines, direct industrial users, and electrical power generators. Customers in our midstream businesses are comprised of oil and natural gas producer counterparties. Customers for our product sales are comprised of public utilities, gas marketers, and direct industrial users.

Service revenue contracts from our gas pipeline and midstream businesses contain a series of distinct services, with the majority of our contracts having a single performance obligation that is satisfied over time as the customer simultaneously receives and consumes the benefits provided by our performance. Most of our product sales contracts have a single performance obligation with revenue recognized at a point in time when the products have been sold and delivered to the customer.

Certain customers reimburse us for costs we incur associated with construction of property, plant, and equipment utilized in our operations. For our rate-regulated gas pipeline businesses that apply ASC 980, we follow FERC guidelines with respect to reimbursement of construction costs. FERC tariffs only allow for cost reimbursement and are non-negotiable in nature; thus, in our judgment, the construction activities do not represent an ongoing major and central operation of our gas pipeline businesses and are not within the scope of ASC Topic 606, “Revenue from Contracts with Customers” (ASC 606). Accordingly, cost reimbursements are treated as a reduction to the cost of the constructed asset. For our midstream businesses, reimbursement and service contracts with customers are viewed together as providing the same commercial objective, as we have the ability to negotiate the mix of consideration between reimbursements and amounts billed over time. Accordingly, we generally recognize reimbursements of construction costs from customers on a gross basis as a contract liability separate from the associated costs included within property, plant, and equipment. The contract liability is recognized into service revenues as the underlying performance obligations are satisfied.

Service Revenues

Gas pipeline businesses: Revenues from our regulated interstate natural gas pipeline businesses, which are subject to regulation by certain state and federal authorities, including the FERC, include both firm and interruptible transportation and storage contracts. Firm transportation and storage agreements provide for a fixed reservation charge based on the pipeline or storage capacity reserved, and a commodity charge based on the volume of natural gas delivered/stored, each at rates specified in our FERC tariffs or based on negotiated contractual rates, with contract terms that are generally long-term in nature. Most of our long-term contracts contain an evergreen provision, which allows the contracts to be extended for periods primarily up to one year in length an indefinite number of times following the specified contract term and until terminated generally by either us or the customer. Interruptible transportation and storage agreements provide for a volumetric charge based on actual commodity transportation or storage utilized in the period in which those services are provided, and the contracts are generally limited to one-month periods or less. Our performance obligations related to our interstate natural gas pipeline businesses include the following:

*•*Firm transportation or storage under firm transportation and storage contracts—an integrated package of services typically constituting a single performance obligation, which includes standing ready to provide such services and receiving, transporting or storing (as applicable), and redelivering commodities;


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Notes to Consolidated Financial Statements – (Continued)

*•*Interruptible transportation or storage under interruptible transportation and storage contracts—an integrated package of services typically constituting a single performance obligation once scheduled, which includes receiving, transporting or storing (as applicable), and redelivering commodities.

In situations where, in our judgment, we consider the integrated package of services as a single performance obligation, which represents a majority of our interstate natural gas pipeline contracts with customers, we do not consider there to be multiple performance obligations because the nature of the overall promise in the contract is to stand ready (with regard to firm transportation and storage contracts), receive, transport or store, and redeliver natural gas to the customer; therefore, revenue is recognized over time upon satisfaction of our daily stand ready performance obligation.

We recognize revenues for reservation charges over the performance obligation period, which is the contract term, regardless of the volume of natural gas that is transported or stored. Revenues for commodity charges from both firm and interruptible transportation services and storage services are recognized when natural gas is delivered at the agreed upon delivery point or when natural gas is injected or withdrawn from the storage facility because they specifically relate to our efforts to provide these distinct services. Generally, reservation charges and commodity charges in our interstate natural gas pipeline businesses are recognized as revenue in the same period they are invoiced to our customers. As a result of the ratemaking process, certain amounts collected by us may be subject to refund upon the issuance of final orders by the FERC in pending rate proceedings. We use judgment to record estimates of rate refund liabilities considering our and other third-party regulatory proceedings, advice of counsel, and other risks.

Midstream businesses: Revenues from our non-regulated gathering, processing, transportation, and storage midstream businesses include contracts for natural gas gathering, processing, treating, compression, transportation, and other related services with contract terms that are generally long-term in nature and may extend up to the production life of the associated reservoir. Additionally, our midstream businesses generate revenues from fees charged for storing customers’ natural gas and NGLs, generally under prepaid contracted storage capacity contracts. In situations where, in our judgment, we provide an integrated package of services combined into a single performance obligation, which represents a majority of this class of contracts with customers, we do not consider there to be multiple performance obligations because the nature of the overall promise in the contract is to provide gathering, processing, transportation, storage, and related services resulting in the delivery, or redelivery in the context of storage services, of pipeline-quality natural gas and NGLs to the customer. As such, revenue is recognized at the daily completion of the integrated package of services as the integrated package represents a single performance obligation. Additionally, certain contracts in our midstream businesses contain fixed or upfront payment terms that result in the deferral of revenues until such services have been performed or such capacity has been made available.

We also earn revenues from offshore crude oil and natural gas gathering and transportation and offshore production handling. These services represent an integrated package of services and are considered a single distinct performance obligation for which we recognize revenues as the services are provided to the customer.

We generally earn a contractually stated fee per unit for the volume of product transported, gathered, processed, or stored. The rate is generally fixed; however, certain contracts contain variable rates that are subject to change based on commodity prices, levels of throughput, or an annual adjustment based on a formulaic cost of service calculation. In addition, we have contracts with contractually stated fees that decline over the contract term, such as declines based on the passage of time periods or achievement of cumulative throughput amounts. For all of our contracts, we allocate the transaction price to each performance obligation based on the judgmentally determined relative standalone selling price. The excess of consideration received over revenue recognized results in the deferral of those amounts until future periods based on a units of production or straight-line methodology as these methods appropriately match the consumption of services provided to the customer. The units of production methodology requires the use of production estimates that are uncertain and the use of judgment when developing estimates of future production volumes, thus impacting the rate of revenue recognition. Production estimates are monitored as circumstances and events warrant. Certain


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

of our gas gathering and processing agreements have minimum volume commitments (MVC). If a customer under such an agreement fails to meet its MVC for a specified period (thus not exercising all the contractual rights to gathering and processing services within the specified period, herein referred to as “breakage”), it is obligated to pay a contractually determined fee based upon the shortfall between the actual gathered or processed volumes and the MVC for the period contained in the contract. When we conclude, based on management’s judgment, it is probable that the customer will not exercise all or a portion of its remaining rights, we recognize revenue associated with such breakage amount in proportion to the pattern of exercised rights within the respective MVC period.

Under keep-whole and percent-of-liquids processing contracts, we receive commodity consideration in the form of NGLs and take title to the NGLs at the tailgate of the plant. We recognize such commodity consideration as service revenue based on the market value of the NGLs retained at the time the processing is provided. The current market value, as opposed to the market value at the contract inception date, is used due to a combination of factors, including the fact that the volume, mix, and market price of NGL consideration to be received is unknown at the time of contract execution and is not specified in our contracts with customers. Additionally, product sales revenue (discussed below) is recognized upon the sale of the NGLs to a third party based on the sales price at the time of sale. As a result, revenue is recognized in the Consolidated Statement of Operations both at the time the processing service is provided in Service revenues – commodity consideration and at the time the NGLs retained as part of the processing service are sold in Product sales. The recognition of revenue related to commodity consideration has the impact of increasing the book value of NGL inventory, resulting in higher cost of goods sold at the time of sale. Given that most inventory is sold in the same period that it is generated, the impact of these transactions is expected to have little impact to operating income.

Product Sales

In the course of providing transportation services to customers of our gas pipeline businesses and gathering and processing services to customers of our midstream businesses, we may receive different quantities of natural gas from customers than the quantities delivered on behalf of those customers. The resulting imbalances are primarily settled through the purchase or sale of natural gas with each customer under terms provided for in our FERC tariffs or gathering and processing agreements, respectively. Revenue is recognized from the sale of natural gas upon settlement of imbalances.

In certain instances, we purchase NGLs, crude oil, and natural gas from our oil and natural gas producer customers which we remarket. In addition, we retain NGLs as consideration in certain processing arrangements, as discussed above in the Service Revenues - Midstream businesses section. We recognize revenue from the sale of these commodities when the products have been sold and delivered. Our product sales contracts are primarily short-term contracts based on prevailing market rates at the time of the transaction.

Contract Assets

Our contract assets primarily consist of revenue recognized under contracts containing MVC features whereby management has concluded it is probable there will be a short-fall payment at the end of the current MVC period, which typically follows the calendar year, and that a significant reversal of revenue recognized currently for the future MVC payment will not occur. As a result, our contract assets related to our future MVC payments are generally expected to be collected within the next 12 months and are included within Other current assets and deferred charges in the Consolidated Balance Sheet until such time as the MVC short-fall payments are invoiced to the customer.

Contract Liabilities

Our contract liabilities consist of advance payments primarily from midstream business customers which include construction reimbursements, prepayments, and other billings and transactions for which future services are to be provided under the contract. These amounts are deferred until recognized in revenue when the


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

associated performance obligation has been satisfied, which is primarily based on a units of production methodology over the remaining contractual service periods, and are classified as current or noncurrent according to when such amounts are expected to be recognized. Current and noncurrent contract liabilities are included within Accrued liabilities and Regulatory liabilities, deferred income, and other, respectively, in the Consolidated Balance Sheet.

Contracts requiring advance payments and the recognition of contract liabilities are evaluated to determine whether the advance payments provide us with a significant financing benefit. This determination is based on the combined effect of the expected length of time between when we transfer the promised good or service to the customer, when the customer pays for those goods or services, and the prevailing interest rates. We have assessed our contracts for significant financing components and determined, in our judgment, that one group of contracts entered into in contemplation of one another for certain capital reimbursements contains a significant financing component. As a result, we recognize noncash interest expense based on the effective interest method and revenue (noncash) is recognized when the underlying asset is placed into service utilizing a units of production or straight-line methodology over the life of the corresponding customer contract.

Leases

We recognize a lease liability with an offsetting right-of-use asset in the Consolidated Balance Sheet for operating leases based on the present value of the future lease payments. We have elected to combine lease and nonlease components for all classes of leased assets in our calculation of the lease liability and the offsetting right-of-use asset.

Our lease agreements require both fixed and variable periodic payments, with initial terms typically ranging from one year to 20 years, but a certain land lease has a term of 108 years. Payment provisions in certain of our lease agreements contain escalation factors which may be based on stated rates or a change in a published index at a future time. The amount by which a lease escalates based on the change in a published index, which is not known at lease commencement, is considered a variable payment and is not included in the present value of the future lease payments, which only includes those that are stated or can be calculated based on the lease agreement at lease commencement. In addition to the noncancellable periods, many of our lease agreements provide for one or more extensions of the lease agreement for periods ranging from one year in length to an indefinite number of times following the specified contract term. Other lease agreements provide for extension terms that allow us to utilize the identified leased asset for an indefinite period of time so long as the asset continues to be utilized in our operations. In consideration of these renewal features, we assess the term of the lease agreements, which includes using judgment in the determination of which renewal periods and termination provisions, when at our sole election, will be reasonably certain of being exercised. Periods after the initial term or extension terms that allow for either party to the lease to cancel the lease are not considered in the assessment of the lease term. Additionally, we have elected to exclude leases with an original term of one year or less, including renewal periods, from the calculation of the lease liability and the offsetting right-of-use asset.

We use judgment in determining the discount rate upon which the present value of the future lease payments is determined. This rate is based on a collateralized interest rate corresponding to the term of the lease agreement using company, industry, and market information available.

When permitted under our lease agreements, we may sublease certain unused office space for fixed periods that could extend up to the length of the original lease agreement.

Interest capitalized

We capitalize interest during construction on major projects with construction periods of at least 3 months and a total project cost in excess of $1 million. Interest is capitalized on borrowed funds and, where regulation by the FERC exists, on internally generated funds (equity AFUDC). The latter is included in Other income (expense) – net below Operating income (loss) in the Consolidated Statement of Operations. The rates used by regulated companies


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

are calculated in accordance with FERC rules. Rates used by nonregulated companies are based on our average interest rate on debt.

Employee stock-based awards

We recognize compensation expense on employee stock-based awards on a straight-line basis; forfeitures are recognized when they occur.

Pension and other postretirement benefits

The funded status of each of the pension and other postretirement benefit plans is recognized separately in the Consolidated Balance Sheet as either an asset or liability. The funded status is the difference between the fair value of plan assets and the plan’s benefit obligation. The plans’ benefit obligations and net periodic benefit costs (credits) are actuarially determined and impacted by various assumptions and estimates.

The discount rates are determined separately for each of our pension and other postretirement benefit plans based on an approach specific to our plans. The year-end discount rates are determined considering a yield curve comprised of high-quality corporate bonds and the timing of the expected benefit cash flows of each plan.

The expected long-term rates of return on plan assets are determined by combining a review of the historical returns within the portfolio, the investment strategy included in the plans’ investment policy statement, and capital market projections for the asset classes in which the portfolio is invested, as well as the weighting of each asset class.

Unrecognized actuarial gains and losses and unrecognized prior service costs and credits are deferred and recorded in AOCI or, for Transco and Northwest Pipeline, as a regulatory asset or liability, until amortized as a component of net periodic benefit cost (credit). Unrecognized actuarial gains and losses in excess of 10 percent of the greater of the benefit obligation or the market-related value of plan assets are amortized over the participants’ average remaining future years of service, which is approximately 10 years for our pension plans and approximately 6 years for our other postretirement benefit plan.

The expected return on plan assets component of net periodic benefit cost (credit) is calculated using the market-related value of plan assets. For our pension plans, the market-related value of plan assets is equal to the fair value of plan assets adjusted to reflect the amortization of gains or losses associated with the difference between the expected and actual return on plan assets over a 5-year period. Additionally, the market-related value of assets may be no more than 110 percent or less than 90 percent of the fair value of plan assets at the beginning of the year. The market-related value of plan assets for our other postretirement benefit plan is equal to the unadjusted fair value of plan assets at the beginning of the year.

Income taxes

We include the operations of our domestic corporate subsidiaries and income from our subsidiary partnerships in our consolidated federal income tax return and also file tax returns in various foreign and state jurisdictions as required. 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 our assets and liabilities. Our judgment and income tax assumptions are used to determine the levels, if any, of valuation allowances associated with deferred tax assets.

Earnings (loss) per common share

Basic earnings (loss) per common share in the Consolidated Statement of Operations is based on the sum of the weighted-average number of common shares outstanding and vested restricted stock units. Diluted earnings (loss) per common share in the Consolidated Statement of Operations includes any dilutive effect of nonvested restricted stock units, stock options, and convertible instruments, unless otherwise noted. Diluted earnings (loss) per common share is calculated using the treasury-stock method.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Accounting standards issued and adopted

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13). ASU 2016-13 changed the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities are required to use a forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. We adopted ASU 2016-13 effective January 1, 2020, which primarily applied to our short-term trade receivables. There was no cumulative effect adjustment to retained earnings upon adoption.

The majority of our trade receivable balances are due within 30 days. We monitor the credit quality of our counterparties through review of collection trends, credit ratings, and other analyses, such as bankruptcy monitoring. Financial assets from our natural gas transmission business and gathering and transportation business are segregated into separate pools for evaluation due to different counterparty risks inherent in each business. Changes in counterparty risk factors could lead to reassessment of the composition of our financial assets as separate pools or the need for additional pools. We calculate our allowance for credit losses incorporating an aging method. In estimating our expected credit losses, we utilized historical loss rates over many years, which included periods of both high and low commodity prices. Commodity prices could have a significant impact on a portion of our gathering and processing counterparties’ financial health and ability to satisfy current liabilities. Our expected credit loss estimate considered both internal and external forward-looking commodity price expectations, as well as counterparty credit ratings, and factors impacting their near-term liquidity. In addition, our expected credit loss estimate considered potential contractual, physical, and commercial protections and outcomes in the case of a counterparty bankruptcy. The physical location and nature of our services help to mitigate collectability concerns of our gathering and processing producer customers. Our gathering lines in many cases are physically connected to the customers’ wellheads and pads, and there may not be alternative gathering lines nearby. The construction of gathering systems is capital intensive and it would be costly for others to replicate, especially considering the depletion to date of the associated reserves. As a result, we play a critical role in getting customers’ production from the wellhead to a marketable condition and location. This tends to reduce collectability risk as our services enable producers to generate operating cash flows. Commodity price movements generally do not impact the majority of our natural gas transmission businesses customers’ financial condition.

Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been exhausted. We do not have a material amount of significantly aged receivables at December 31, 2020.

Note 2 – Variable Interest Entities

Consolidated VIEs

As of December 31, 2020, we consolidate the following VIEs:

Northeast JV

We own a 65 percent interest in the Northeast JV, a subsidiary that is a VIE due to certain of our voting rights being disproportionate to our obligation to absorb losses and substantially all of the Northeast JV’s activities being performed on our behalf. We are the primary beneficiary because we have the power to direct the activities that most significantly impact the Northeast JV’s economic performance. The Northeast JV provides midstream services for producers in the Marcellus Shale and Utica Shale regions. Future expansion activity is expected to be funded with capital contributions from us and the other equity partner on a proportional basis.

Gulfstar One

We own a 51 percent interest in Gulfstar One, a subsidiary that, due to certain risk-sharing provisions in its customer contracts, is a VIE. Gulfstar One includes a proprietary floating-production system, Gulfstar FPS, and


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

associated pipelines that provide production handling and gathering services in the eastern deepwater Gulf of Mexico. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Gulfstar One’s economic performance.

Cardinal

We own a 66 percent interest in Cardinal, a subsidiary that provides gathering services for the Utica Shale region and is a VIE due to certain risks shared with customers. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Cardinal’s economic performance. Future expansion activity is expected to be funded with capital contributions from us and the other equity partner on a proportional basis.

The following table presents amounts included in the Consolidated Balance Sheet that are only for the use or obligation of our consolidated VIEs:


	December 31,
	2020		2019
	(Millions)
Assets (liabilities):
Cash and cash equivalents	$	107	$	102
Trade accounts and other receivables – net	148		167
Other current assets and deferred charges	7		5
Property, plant, and equipment – net	5,514		5,745
Intangible assets – net of accumulated amortization	2,376		2,669
Regulatory assets, deferred charges, and other	15		13
Accounts payable	(42)		(58)
Accrued liabilities	(34)		(66)

Regulatory liabilities, deferred income, and other	(289)		(283)

Nonconsolidated VIEs

Targa Train 7

We own a 20 percent interest in Targa Train 7, which provides fractionation services at Mt. Belvieu and is a VIE due primarily to our limited participating rights as the minority equity holder. At December 31, 2020, the carrying value of our investment in Targa Train 7 was $51 million. Our maximum exposure to loss is limited to the carrying value of our investment.

Brazos Permian II

We own a 15 percent interest in Brazos Permian II (see Note 7 – Investing Activities), which provides gathering and processing services in the Delaware basin and is a VIE due primarily to our limited participating rights as the minority equity holder. During the first quarter of 2020 we recorded an impairment of our equity-method investment in Brazos Permian II (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk). Our maximum exposure to loss is limited to the carrying value of our investment.

Note 3 – Acquisitions and Divestitures

UEOM

As of December 31, 2018, we owned a 62 percent interest in Utica East Ohio Midstream LLC (UEOM) which we accounted for as an equity-method investment. On March 18, 2019, we signed and closed the acquisition of the


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

remaining 38 percent interest in UEOM. Total consideration paid, including post-closing adjustments, was $741 million in cash funded through credit facility borrowings and cash on hand, net of $13 million cash acquired. As a result of acquiring this additional interest, we obtained control of and consolidated UEOM.

UEOM is involved primarily in the processing and fractionation of natural gas and natural gas liquids in the Utica Shale play in eastern Ohio. The purpose of the acquisition was to enhance our position in the region. We expect synergies through common ownership of UEOM and our Ohio Valley midstream systems to create a more efficient platform for capital spending in the region, resulting in reduced operating and maintenance expenses and creating enhanced capabilities and benefits for producers in the area.

The acquisition of UEOM was accounted for as a business combination, which requires, among other things, that identifiable assets acquired and liabilities assumed be recognized at their acquisition date fair values. In March 2019, based on the transaction price for our purchase of the remaining interest in UEOM as finalized just prior to the acquisition, we recognized a $74 million noncash impairment loss related to our existing 62 percent interest (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk). Thus, there was no gain or loss on remeasuring our existing equity-method investment to fair value due to the impairment recognized just prior to closing the acquisition of the additional interest.

The valuation techniques used to measure the acquisition date fair value of the UEOM acquisition consisted of the market approach for our previous equity-method investment in UEOM and the income approach (excess earnings method) for valuation of intangible assets and depreciated replacement costs for property, plant, and equipment.

The following table presents the allocation of the acquisition date fair value of the major classes of the assets acquired, which are presented in the Northeast G&P segment, and liabilities assumed, including post closing purchase price adjustments. The net assets acquired reflect the sum of the consideration transferred and the noncash elimination of the fair value of our existing equity-method investment upon our acquisition of the additional interest. The fair value of accounts receivable acquired, presented in current assets in the table, equals contractual amounts receivable.


	(Millions)
Current assets, including $13 million cash acquired	$	56
Property, plant, and equipment	1,387
Other intangible assets	328
Total identifiable assets acquired	1,771

Current liabilities	7
Total liabilities assumed	7

Net identifiable assets acquired	1,764

Goodwill	187
Net assets acquired	$	1,951

The goodwill recognized in the acquisition related primarily to enhancing and diversifying our basin positions and is reported within the Northeast G&P segment. Substantially all of the goodwill is expected to be deductible for tax purposes. As of December 31, 2019, goodwill was included within Intangible assets – net of accumulated amortization in the Consolidated Balance Sheet and represented the excess of the consideration, plus the fair value of any previously held equity interest, over the fair value of the net assets acquired.

The goodwill recognized in the UEOM acquisition of $187 million, which includes a $1 million adjustment recorded in the first quarter of 2020, was impaired during first quarter of 2020. Our partner’s $65 million share of


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

this impairment is reflected within Net income (loss) attributable to noncontrolling interests in the Consolidated Statement of Operations (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk).

Other intangible assets recognized in the acquisition are related to contractual customer relationships from gas gathering, processing, and fractionation 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 contractual customer relationships discounted using a risk-adjusted discount rate. These intangible assets are being amortized on a straight-line basis over a period of 20 years which represents the term over which the contractual customer relationships are expected to contribute to our cash flows. Approximately 49 percent of the expected future revenues from these contractual customer relationships are impacted by our ability and intent to renew or renegotiate existing customer contracts. We expense costs incurred to renew or extend the terms of our gas gathering, processing, and fractionation contracts with customers. Based on the estimated future revenues during the current contract periods (as estimated at the time of the acquisition), the weighted-average period prior to the next renewal or extension of the existing contractual customer relationships was approximately 10 years.

The following unaudited pro forma Revenues and Net income (loss) attributable to The Williams Companies, Inc. for the years ended December 31, 2019 and 2018, respectively, are presented as if the UEOM acquisition had been completed on January 1, 2018. 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 (loss) 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 transaction or the potential costs to achieve these cost savings, operating synergies, and revenue enhancements.


	Year Ended December 31,
	2019		2018
	(Millions)
Revenues	$	8,233	$	8,836
Net income (loss) attributable to The Williams Companies, Inc.	928		(128)

Adjustments to pro forma Net income (loss) attributable to The Williams Companies, Inc. include the removal of the previously described $74 million impairment loss recognized in March 2019 just prior to the acquisition.

During the period from the acquisition date of March 18, 2019 to December 31, 2019, UEOM contributed Revenues of $179 million and Net income (loss) attributable to The Williams Companies, Inc. of $53 million.

Costs related to this acquisition are $4 million and are reported within our Northeast G&P segment and included in Selling, general, and administrative expenses in the Consolidated Statement of Operations for the year ended December 31, 2019.

Northeast JV

Concurrent with the UEOM acquisition, we executed an agreement whereby we contributed our consolidated interests in UEOM and our Ohio Valley midstream business to a newly formed partnership. In June 2019, our partner invested approximately $1.33 billion for a 35 percent ownership interest, and we retained 65 percent ownership of, as well as operate and consolidate, the Northeast JV business. The change in ownership due to this transaction increased Noncontrolling interests in consolidated subsidiaries by $567 million, and decreased Capital in excess of par value by $426 million and Deferred income tax liabilities by $141 million in the Consolidated Balance Sheet as of December 31, 2019. Costs related to this transaction are $6 million and are reported within our Northeast G&P segment and included in Selling, general, and administrative expenses in the Consolidated Statement of Operations for the year ended December 31, 2019.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Sale of Gulf Coast Pipeline Systems

In November 2018, we completed the sale of certain assets and operations located in the Gulf Coast area for $177 million in cash. As a result of this sale, we recorded a gain of approximately $101 million in the fourth quarter of 2018, consisting of $81 million in our Transmission & Gulf of Mexico segment and $20 million in Other.

Previous impairments made to a portion of these assets and operations include $66 million related to certain idle pipelines in the second quarter of 2018. The impairment is reflected in Impairment of certain assets in the Consolidated Statement of Operations. (See Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk.) The results of operations for this disposal group, excluding the impairments and gains noted, were not significant for the reporting period.

Sale of Four Corners Assets

In October 2018, we completed the sale of our natural gas gathering and processing assets in the Four Corners area of New Mexico and Colorado for total consideration of $1.125 billion. As a result of this sale, we recorded a gain of approximately $591 million within the West segment in the fourth quarter of 2018.

The following table presents the results of operations for the Four Corners area, excluding the gain noted above:


	Year Ended December 31,
	2018
	(Millions)
Income (loss) before income taxes of Four Corners area	$	52
Income (loss) before income taxes of Four Corners area attributable to The Williams Companies, Inc.	43

Note 4 – Related Party Transactions

Transactions with Equity-Method Investees

We have purchases from our equity-method investees included in Product costs in the Consolidated Statement of Operations of $348 million, $304 million, and $236 million for the years ended 2020, 2019, and 2018, respectively. We have $50 million and $36 million included in Accounts payable in the Consolidated Balance Sheet with our equity-method investees at December 31, 2020 and 2019, respectively.

We have operating agreements with certain equity-method investees. These operating agreements typically provide for reimbursement or payment to us for certain direct operational payroll and employee benefit costs, materials, supplies, and other charges and also for management services. The total charges to equity-method investees for these fees are $79 million, $103 million, and $75 million for the years ended 2020, 2019, and 2018, respectively.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 5 – Revenue Recognition

Revenue by Category

The following table presents our revenue disaggregated by major service line:


	Transco		Northwest Pipeline		Gulf of Mexico Midstream		Northeast Midstream		West Midstream		Other		Eliminations		Total
	(Millions)
2020
Revenues from contracts with customers:
Service revenues:
Regulated interstate natural gas transportation and storage	$	2,404	$	449	$	—	$	—	$	—	$	—	$	(7)	$	2,846
Gathering, processing, transportation, fractionation, and storage:
Monetary consideration	—		—		348		1,279		1,204		—		(75)		2,756
Commodity consideration	—		—		21		7		101		—		—		129
Other	10		—		27		164		65		1		(14)		253
Total service revenues	2,414		449		396		1,450		1,370		1		(96)		5,984
Product sales:
NGL and natural gas	80		—		114		57		1,565		—		(147)		1,669
Total revenues from contracts with customers	2,494		449		510		1,507		2,935		1		(243)		7,653
Other revenues (1)	10		—		9		22		8		33		(16)		66
Total revenues	$	2,504	$	449	$	519	$	1,529	$	2,943	$	34	$	(259)	$	7,719

2019
Revenues from contracts with customers:
Service revenues:
Regulated interstate natural gas transportation and storage	$	2,336	$	450	$	—	$	—	$	—	$	—	$	(6)	$	2,780
Gathering, processing, transportation, fractionation, and storage:
Monetary consideration	—		—		479		1,171		1,309		—		(75)		2,884
Commodity consideration	—		—		41		12		150		—		—		203
Other	11		—		26		147		42		—		(16)		210
Total service revenues	2,347		450		546		1,330		1,501		—		(97)		6,077
Product sales:
NGL and natural gas	106		—		185		150		1,795		—		(173)		2,063
Total revenues from contracts with customers	2,453		450		731		1,480		3,296		—		(270)		8,140
Other revenues (1)	1		—		8		20		14		30		(12)		61
Total revenues	$	2,454	$	450	$	739	$	1,500	$	3,310	$	30	$	(282)	$	8,201


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)


	Transco		Northwest Pipeline		Gulf of Mexico Midstream		Northeast Midstream		West Midstream		Other		Eliminations		Total
	(Millions)
2018
Revenues from contracts with customers:
Service revenues:
Regulated interstate natural gas transportation and storage	$	1,921	$	443	$	—	$	—	$	—	$	—	$	(2)	$	2,362
Gathering, processing, transportation, fractionation, and storage:
Monetary consideration	—		—		541		861		1,590		2		(73)		2,921
Commodity consideration	—		—		59		20		321		—		—		400
Other	2		—		17		94		46		—		(15)		144
Total service revenues	1,923		443		617		975		1,957		2		(90)		5,827
Product sales:
NGL and natural gas	127		—		307		287		2,421		—		(382)		2,760
Other	—		—		—		—		21		—		(4)		17
Total product sales	127		—		307		287		2,442		—		(386)		2,777
Total revenues from contracts with customers	2,050		443		924		1,262		4,399		2		(476)		8,604
Other revenues (1)	11		—		18		21		12		32		(12)		82
Total revenues	$	2,061	$	443	$	942	$	1,283	$	4,411	$	34	$	(488)	$	8,686

(1)Revenues not within the scope of ASC 606, “Revenue from Contracts with Customers,” consist of leasing revenues associated with our headquarters building and management fees that we receive for certain services we provide to operated equity-method investments, which are reported in Service revenues in the Consolidated Statement of Operations, and amounts associated with our derivative contracts, which are reported in Product sales in the Consolidated Statement of Operations**.**

Contract Assets

The following table presents a reconciliation of our contract assets:


	Year Ended December 31,
	2020		2019
	(Millions)
Balance at beginning of year	$	8	$	4
Revenue recognized in excess of amounts invoiced	145		62
Minimum volume commitments invoiced	(141)		(58)
Balance at end of year	$	12	$	8


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Contract Liabilities

The following table presents a reconciliation of our contract liabilities:


	Year Ended December 31,
	2020		2019
	(Millions)
Balance at beginning of year	$	1,215	$	1,397
Payments received and deferred	140		157
Significant financing component	11		13
Chesapeake global resolution (Note 1)	67		—
Recognized in revenue	(224)		(352)
Balance at end of year	$	1,209	$	1,215

Remaining Performance Obligations

Remaining performance obligations primarily include reservation charges on contracted capacity for our gas pipeline firm transportation contracts with customers, storage capacity contracts, long-term contracts containing minimum volume commitments associated with our midstream businesses, and fixed payments associated with offshore production handling. For our interstate natural gas pipeline businesses, remaining performance obligations reflect the rates for such services in our current FERC tariffs for the life of the related contracts; however, these rates may change based on future tariffs approved by the FERC and the amount and timing of these changes are not currently known.

Our remaining performance obligations exclude variable consideration, including contracts with variable consideration for which we have elected the practical expedient for consideration recognized in revenue as billed. Certain of our contracts contain evergreen and other renewal provisions for periods beyond the initial term of the contract. The remaining performance obligation amounts as of December 31, 2020, do not consider potential future performance obligations for which the renewal has not been exercised and exclude contracts with customers for which the underlying facilities have not received FERC authorization to be placed into service. Consideration received prior to December 31, 2020, that will be recognized in future periods is also excluded from our remaining performance obligations and is instead reflected in contract liabilities.

The following table presents the amount of the contract liabilities balance expected to be recognized as revenue when performance obligations are satisfied and the transaction price allocated to the remaining performance obligations under certain contracts as of December 31, 2020.


	Contract Liabilities		Remaining Performance Obligations
	(Millions)
2021	$	129	$	3,537
2022	113		3,329
2023	118		3,076
2024	98		2,443
2025	92		2,310
Thereafter	659		17,760
Total	$	1,209	$	32,455


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 6 – Other Income and Expenses

The following table presents by segment, certain items within Operating and maintenance expenses and Selling, general, and administrative expenses in the Consolidated Statement of Operations:


	Transmission & Gulf of Mexico		Northeast G&P		West		Other
	(Millions)
2020
Income related to benefit policy change	$	(22)	$	(9)	$	(9)	$	—
2019
Severance and related costs	39		7		10		1
2018
Expense from charitable contribution of preferred stock to the Williams Companies Foundation, Inc. (Note 16)	—		—		—		35
WPZ Merger related costs	—		—		—		20

Additional Items

Other income (expense) – net below Operating income (loss) includes $15 million, $32 million, and $89 million of income for equity AFUDC within the Transmission & Gulf of Mexico segment for the years ended December 31, 2020, 2019, and 2018, respectively. Other income (expense) – net below Operating income (loss) also includes $(13) million of loss and $9 million and $35 million of income, for the years ended December 31, 2020, 2019, and 2018, respectively, associated with regulatory assets related to the effects of deferred taxes on equity funds used during construction primarily within the Other segment.

Note 7 – Investing Activities

Acquisition of Additional Interests in Caiman II

As of December 31, 2019, we effectively owned a 29 percent indirect interest in Blue Racer through our 58 percent interest in Caiman II, whose primary asset is a 50 percent interest in Blue Racer. On November 18, 2020, we paid $157 million, net of cash acquired, to acquire an additional 41 percent ownership interest in Caiman II. We now control and consolidate Caiman II, reporting the 50 percent interest in Blue Racer as an equity-method investment. Since substantially all of the fair value of the Caiman II assets acquired is concentrated in a single asset, the investment in Blue Racer, and we previously held a noncontrolling interest in Caiman II, we recorded the November 18, 2020, additional purchase of interests as an asset acquisition.

Equity Earnings (Losses)

Equity earnings (losses) in 2020 includes a $78 million loss associated with the first-quarter full impairment of goodwill recognized by our investee RMM, which was allocated entirely to our member interest per the terms of the membership agreement. Also included in 2020 are losses of $11 million, $26 million, and $10 million for our share of asset impairments at Laurel Mountain, Appalachia Midstream Investments, and Blue Racer, respectively.

Impairments of Equity-Method Investments

See Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk for information regarding impairments of our equity-method investments of $1,046 million, $186 million, and $32 million for 2020, 2019, and 2018, respectively.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Other Investing Income (Loss) – Net

The following table presents certain items reflected in Other investing income (loss) – net in the Consolidated Statement of Operations:


	Year Ended December 31,
	2020		2019		2018
	(Millions)

Gain (loss) on deconsolidation of businesses	$	—	$	(29)	$	203
Gain on disposition of Jackalope	—		122		—
Other	8		14		16
Other investing income (loss) – net	$	8	$	107	$	219

Constitution deconsolidation

Upon determination that we were no longer the primary beneficiary, we deconsolidated our interest in Constitution Pipeline Company, LLC (Constitution) as of December 31, 2019, recognizing a loss on deconsolidation of $27 million.

Delaware basin asset deconsolidation and Brazos Permian II equity-method investment

During the fourth quarter of 2018, we contributed the majority of our existing Delaware basin assets and $27 million in cash in exchange for a 15 percent interest in the Brazos Permian II, which consists of gas and crude oil gathering pipelines, natural gas processing, and oil storage facilities. We recorded a deconsolidation gain of $141 million reflecting the excess of the fair value of our acquired interest over the carrying value of the assets contributed. We estimated the fair value of our interest to be $192 million primarily using a market approach (a Level 3 measurement within the fair value hierarchy). This approach involved the observation of recent transaction multiples in the Permian basin, including recent acquisitions consummated during 2018. Our interest in Brazos Permian II is considered an equity-method investment due to the fact that we are able to exert significant influence over its operating and financial policies.

Jackalope deconsolidation

During the second quarter of 2018, we deconsolidated our 50 percent interest in Jackalope Gas Gathering Services, L.L.C. (Jackalope). We recorded our interest in Jackalope as an equity-method investment at its estimated fair value, resulting in a deconsolidation gain of $62 million. We estimated the fair value of our interest to be $310 million using an income approach based on expected future cash flows and an appropriate discount rate (a Level 3 measurement within the fair value hierarchy). The determination of expected future cash flows involved significant assumptions regarding gathering and processing volumes and related capital spending. A 10.9 percent discount rate was utilized and reflected our estimate of the cost of capital as impacted by market conditions and risks associated with the underlying business. The deconsolidated carrying value of the net assets of Jackalope included $47 million of goodwill.

Gain on disposition of Jackalope

In April 2019, we sold our 50 percent equity-method interest in Jackalope for $485 million in cash, resulting in a gain on the disposition of $122 million.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Equity-Method Investments


	Ownership Interest at December 31, 2020		December 31,
		2020			2019
			(Millions)
Appalachia Midstream Investments	(1)		$	3,087		$	3,236
RMM	50%		421			881
OPPL	50%		395			403
Blue Racer/Caiman II (2)	50%		357			428
Discovery	60%		352			472
Laurel Mountain	69%		219			249
Gulfstream	50%		204			217
Brazos Permian II	15%		—			194
Other	Various		124			155
			$	5,159		$	6,235

(1)Includes equity-method investments in multiple gathering systems in the Marcellus Shale with an approximate average 66 percent interest.

(2)See previous discussion in the section Acquisition of Additional Interests in Caiman II above.

The carrying value of our Appalachia Midstream Investments exceeds our portion of the underlying net assets by approximately $1.2 billion and $1.4 billion at December 31, 2020 and 2019, respectively. These differences were assigned at the acquisition date to property, plant, and equipment and customer relationship intangible assets. Certain of our other equity-method investments have a carrying value less than our portion of the underlying net assets primarily due to other than temporary impairments that we have recognized but that were not required to be recognized in the investees’ financial statements. These differences total approximately $1.3 billion and $360 million at December 31, 2020 and 2019, respectively, and were assigned to property, plant, and equipment and customer relationship intangible assets. Differences in the carrying value of our equity-method investments and our portion of the underlying net assets are generally amortized over the remaining useful lives of the associated underlying assets and included in Equity earnings (losses) within the Consolidated Statement of Operations.

Purchases of and contributions to equity-method investments

We generally fund our portion of significant expansion or development projects of these investees through additional capital contributions. These transactions increased the carrying value of our investments and included:


	Year Ended December 31,
	2020		2019		2018
	(Millions)
Blue Racer/Caiman II (1)	$	157	$	28	$	—
Appalachia Midstream Investments	116		140		246
Targa Train 7	6		43		—
Laurel Mountain	5		36		16
RMM	—		145		795
Jackalope	—		24		42
Brazos Permian II	—		18		27
Discovery	—		—		5
Other	41		19		1
	$	325	$	453	$	1,132

(1)See previous discussion in the section Acquisition of Additional Interests in Caiman II above.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Dividends and distributions

The organizational documents of entities in which we have an equity-method investment generally require distribution of available cash to members on at least a quarterly basis. These transactions reduced the carrying value of our investments and included:


	Year Ended December 31,
	2020		2019		2018
	(Millions)
Appalachia Midstream Investments	$	357	$	293	$	297
Gulfstream	93		86		93
OPPL	50		77		73
Blue Racer/Caiman II (1)	47		42		46
RMM	39		38		—
Laurel Mountain	31		30		23
Discovery	21		41		45
UEOM	—		13		70
Other	15		37		46
	$	653	$	657	$	693

(1)See previous discussion in the section Acquisition of Additional Interests in Caiman II above.

Summarized Financial Position and Results of Operations of All Equity-Method Investments


	December 31,
	2020		2019
	(Millions)
Assets (liabilities):
Current assets	$	630	$	581
Noncurrent assets	13,424		11,966
Current liabilities	(312)		(341)
Noncurrent liabilities	(3,884)		(2,532)


	Year Ended December 31,
	2020		2019		2018
	(Millions)
Gross revenue	$	2,625	$	2,490	$	2,411
Operating income	508		685		804
Net income	459		598		795


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 8 – Provision (Benefit) for Income Taxes

The Provision (benefit) for income taxes includes:


	Year Ended December 31,
	2020		2019		2018
	(Millions)
Current:
Federal	$	(29)	$	(41)	$	(83)
State	—		(5)		1
Foreign	—		2		—
	(29)		(44)		(82)
Deferred:
Federal	98		280		183
State	10		99		37

	108		379		220
Provision (benefit) for income taxes	$	79	$	335	$	138

Reconciliations from the Provision (benefit) at statutory rate to recorded Provision (benefit) for income taxes are as follows:


	Year Ended December 31,
	2020		2019		2018
	(Millions)
Provision (benefit) at statutory rate	$	58	$	224	$	69
Increases (decreases) in taxes resulting from:
Impact of nontaxable noncontrolling interests	3		29		(73)
State income taxes (net of federal benefit)	6		74		(10)
State deferred income tax rate change	—		—		38
Federal valuation allowance	1		3		105
Other – net	11		5		9
Provision (benefit) for income taxes	$	79	$	335	$	138

Income (loss) from continuing operations before income taxes includes $1 million, $6 million, and $3 million of foreign loss in 2020, 2019, and 2018, respectively.

During the course of audits of our business by domestic and foreign tax authorities, we frequently face challenges regarding the amount of taxes due. These challenges include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the liability associated with our various filing positions, we apply the two-step process of recognition and measurement. In association with this liability, we record an estimate of related interest and tax exposure as a component of our tax provision. The impact of this accrual is included within Other – net in our reconciliation of the Provision (benefit) at statutory rate to recorded Provision (benefit) for income taxes.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Significant components of Deferred income tax liabilities and Deferred income tax assets are as follows:


	December 31,
	2020		2019
	(Millions)
Deferred income tax liabilities:
Property, plant and equipment	$	2,320	$	1,921
Investments	1,515		1,411
Other	140		82
Total deferred income tax liabilities	3,975		3,414
Deferred income tax assets:
Accrued liabilities	747		729
Minimum tax credit	—		29
Foreign tax credit	140		140
Federal loss carryovers	905		544
State losses and credits	445		362
Other	140		147
Total deferred income tax assets	2,377		1,951
Less valuation allowance	325		319
Net deferred income tax assets	2,052		1,632
Overall net deferred income tax liabilities	$	1,923	$	1,782

The valuation allowance at December 31, 2020 and 2019 serves to reduce the available deferred income tax assets to an amount that will, more likely than not, be realized. We considered all available positive and negative evidence, which incorporates available tax planning strategies, and management’s estimate of future reversals of existing taxable temporary differences, and have determined that a portion of our deferred income tax assets related to the Foreign tax credit and State losses and credits may not be realized. The amounts presented in the table above are, with respect to state items, before any federal benefit. The change from prior year for the State losses and credits reflects increases in losses and credits generated in the current and prior years less losses and/or credits utilized in the current year. We have loss and credit carryovers in multiple state taxing jurisdictions. These attributes generally expire between 2021 and 2039 with some carryovers having indefinite carryforward periods.

Federal loss carryovers include deferred tax assets on loss carryovers of $905 million which have no expiration date.

Cash refunds for income taxes (net of payments) were $40 million and $86 million in 2020 and 2019, respectively. Cash payments for income taxes (net of refunds) were $11 million in 2018.

As of December 31, 2020, we had approximately $51 million of unrecognized tax benefits. No change occurred to the amount of unrecognized tax benefits in each of the years 2020 and 2019. If recognized, income tax expense would be reduced by $51 million for each of the years 2020 and 2019, including the effect of these changes on other tax attributes, with state income tax amounts included net of federal tax effect.

We recognize related interest and penalties as a component of Provision (benefit) for income taxes. Total interest and penalties recognized as part of income tax provision were a benefit of $900 thousand in 2020 and expenses of $500 thousand and $800 thousand for 2019 and 2018, respectively. Approximately $4 million and $3 million of interest and penalties primarily relating to uncertain tax positions have been accrued as of December 31, 2020 and 2019, respectively.

During the next 12 months, we do not expect ultimate resolution of any unrecognized tax benefit associated with domestic or international matters to have a material impact on our unrecognized tax benefit position.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Consolidated U.S. Federal income tax returns are open to Internal Revenue Service (IRS) examination for years after 2010, excluding 2015 and 2016, for which the statutes have expired. As of December 31, 2020, examinations of tax returns for 2011 through 2014 are currently in appeals. We do not expect material changes in our financial position resulting from these examinations. The statute of limitations for most states expires one year after expiration of the IRS statute. Generally, tax returns for our previously owned Canadian entities are open to audit for tax years after 2012. Tax years 2013 and 2014 are currently under income tax examination. In September 2016, we sold the majority of our Canadian operations and, as part of the sale, indemnified the purchaser for any increases in Canadian tax due to an audit of any tax periods prior to the sale.

Note 9 – Earnings (Loss) Per Common Share from Continuing Operations


	Year Ended December 31,
	2020		2019		2018
	(Dollars in millions, except per-share amounts; shares in thousands)
Income (loss) from continuing operations available to common stockholders	$	208	$	862	$	(156)
Basic weighted-average shares	1,213,631		1,212,037		973,626
Effect of dilutive securities:
Nonvested restricted stock units	1,531		1,811		—
Stock options	3		163		—
Diluted weighted-average shares (1)	1,215,165		1,214,011		973,626
Earnings (loss) per common share from continuing operations:
Basic	$	.17	$	.71	$	(.16)
Diluted	$	.17	$	.71	$	(.16)

(1) For the year ended December 31, 2018, 2.0 million weighted-average nonvested restricted stock units and 0.5 million weighted-average stock options have been excluded from the computation of diluted earnings (loss) per common share as their inclusion would be antidilutive due to our loss from continuing operations attributable to The Williams Companies, Inc.

Note 10 – Employee Benefit Plans

Pension Plans

We have noncontributory defined benefit pension plans for eligible employees hired prior to January 1, 2019. Eligible employees earn compensation credits based on a cash balance formula. As of January 1, 2020, certain active employees are no longer eligible to receive compensation credits. At the time of retirement, participants may elect, to the extent they are eligible for the various options, to receive annuity payments, a lump-sum payment, or a combination of annuity and lump-sum payments.

We recognized a pre-tax, noncash settlement charge of $23 million in 2018, which is substantially reported in Other income (expense) – net below Operating income (loss) in the Consolidated Statement of Operations. This amount is included within the subsequent tables of net periodic benefit cost (credit) and other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) before taxes.

Other Postretirement Benefits

We currently provide subsidized retiree medical and life insurance benefits to certain eligible participants. Generally, employees hired after December 31, 1991, are not eligible for the subsidized retiree medical benefits, except for participants that were employees or retirees of Transco Energy Company on December 31, 1995. Subsidized retiree medical benefits for eligible participants age 65 and older are paid through contributions to health reimbursement accounts. Subsidized retiree medical benefits for eligible participants under age 65 are provided through a self-insured medical plan sponsored by us. The self-insured retiree medical plan provides for retiree


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

contributions and contains other cost-sharing features such as deductibles, co-payments, and co-insurance. The accounting for this plan anticipates estimated future increases to our contribution levels to the health reimbursement accounts for participants age 65 and older, as well as future cost-sharing that is consistent with our expressed intent to increase the retiree contribution level generally in line with health care cost increases for participants under age 65.

Defined Contribution Plan

We have a defined contribution plan for the benefit of substantially all employees. Plan participants may contribute a portion of their compensation on a pre-tax or after-tax basis. Generally, we match employee contributions up to 6 percent of eligible compensation. Additionally, eligible active employees that are not eligible to receive compensation credits under the defined benefit pension plan are eligible for a fixed annual contribution made by us to the defined contribution plan. Our contributions charged to expense were $42 million in 2020, $36 million in 2019, and $35 million in 2018.

Funded Status

The following table presents the changes in benefit obligations and plan assets for pension benefits and other postretirement benefits for the years indicated:


	Pension Benefits				Other Postretirement Benefits
	2020		2019		2020		2019
	(Millions)
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,237	$	1,187	$	215	$	186
Service cost	31		45		1		1
Interest cost	36		50		7		8
Plan participants’ contributions	—		—		2		2
Benefits paid	(41)		(111)		(14)		(12)
Net actuarial loss (gain)	47		69		9		30
Settlements	(127)		(3)		—		—
Net increase (decrease) in benefit obligation	(54)		50		5		29
Benefit obligation at end of year	1,183		1,237		220		215
Change in plan assets:
Fair value of plan assets at beginning of year	1,299		1,132		247		214
Actual return on plan assets	212		218		37		38
Employer contributions	14		63		6		5
Plan participants’ contributions	—		—		2		2
Benefits paid	(41)		(111)		(14)		(12)
Settlements	(127)		(3)		—		—
Net increase (decrease) in fair value of plan assets	58		167		31		33
Fair value of plan assets at end of year	1,357		1,299		278		247
Funded status — overfunded (underfunded)	$	174	$	62	$	58	$	32
Accumulated benefit obligation	$	1,167	$	1,221


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

The overfunded (underfunded) status of our pension plans and other postretirement benefit plan presented in the previous table are recognized in the Consolidated Balance Sheet within the following accounts:


	December 31,
	2020		2019
	(Millions)
Overfunded (underfunded) pension plans:
Noncurrent assets	$	203	$	92
Current liabilities	(3)		(3)
Noncurrent liabilities	(26)		(27)

Overfunded (underfunded) other postretirement benefit plan:
Noncurrent assets	64		38
Current liabilities	(6)		(6)

The plan assets within our other postretirement benefit plan are intended to be used for the payment of benefits for certain groups of participants. The Current liabilities for the other postretirement benefit plan represent the current portion of benefits expected to be payable in the subsequent year for the groups of participants whose benefits are not expected to be paid from plan assets.

The pension plans’ benefit obligation Net actuarial loss (gain) of $47 million in 2020 and $69 million in 2019 are primarily due to the impact of decreases in the discount rates utilized to calculate the benefit obligation, partially offset by the impact of decreases in the cash balance interest crediting rate assumption.

The 2020 benefit obligation Net actuarial loss (gain) of $9 million for our other postretirement benefit plan is primarily due to a decrease in the discount rate used to calculate the benefit obligation, partially offset by the net impact of experience related items. The 2019 benefit obligation Net actuarial loss (gain) of $30 million for our other postretirement benefit plan is primarily due to a decrease in the discount rate used to calculate the benefit obligation and other assumption changes, partially offset by the impact of benefit payment experience and tax law changes.

The following table summarizes information for pension plans with obligations in excess of plan assets.


	December 31,
	2020		2019
	(Millions)
Plans with a projected benefit obligation in excess of plan assets:
Projected benefit obligation	$	29	$	29
Fair value of plan assets	—		—

Plans with an accumulated benefit obligation in excess of plan assets:
Accumulated benefit obligation	25		26
Fair value of plan assets	—		—


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Pre-tax amounts not yet recognized in Net periodic benefit cost (credit) at December 31 are as follows:


	Pension Benefits				Other Postretirement Benefits
	2020		2019		2020		2019
	(Millions)
Amounts included in Accumulated other comprehensive income (loss):
Net actuarial loss	$	(101)	$	(243)	$	(25)	$	(21)
Amounts included in regulatory liabilities associated with Transco and Northwest Pipeline:
Net actuarial gain	N/A		N/A		$	32	$	11

In addition to the regulatory liabilities included in the previous table, differences in the amount of actuarially determined Net periodic benefit cost (credit) for our other postretirement benefit plan and the other postretirement benefit costs recovered in rates for Transco and Northwest Pipeline are deferred as a regulatory asset or liability. We have regulatory liabilities of $100 million at December 31, 2020 and $106 million at December 31, 2019, related to these deferrals. Additionally, Transco recognizes a regulatory liability for rate collections in excess of its amount funded to the tax-qualified pension plans. At December 31, 2020 and 2019, these regulatory liabilities were $39 million and $43 million, respectively. These pension and other postretirement plans amounts will be reflected in rates based on the rate structures of these gas pipelines.

Net Periodic Benefit Cost (Credit)

Net periodic benefit cost (credit) for the years ended December 31 consist of the following:


	Pension Benefits						Other Postretirement Benefits
	2020		2019		2018		2020		2019		2018
	(Millions)
Components of net periodic benefit cost (credit):
Service cost	$	31	$	45	$	50	$	1	$	1	$	1
Interest cost	36		50		46		7		8		7
Expected return on plan assets	(53)		(61)		(63)		(11)		(10)		(11)
Amortization of prior service credit	—		—		—		—		—		(2)
Amortization of net actuarial loss	21		15		23		—		—		—
Net actuarial loss from settlements	9		1		23		—		—		—
Reclassification to regulatory liability	—		—		—		2		1		2
Net periodic benefit cost (credit)	$	44	$	50	$	79	$	(1)	$	—	$	(3)

The components of Net periodic benefit cost (credit) other than the service cost component are included in Other income (expense) – net below Operating income (loss) in the Consolidated Statement of Operations.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Items Recognized in Other Comprehensive Income (Loss) and Regulatory Assets and Liabilities

Other changes in plan assets and benefit obligations recognized in Other comprehensive income (loss) before taxes for the years ended December 31 consist of the following:


	Pension Benefits						Other Postretirement Benefits
	2020		2019		2018		2020		2019		2018
	(Millions)
Other changes in plan assets and benefit obligations recognized in Other comprehensive income (loss):
Net actuarial gain (loss)	$	112	$	88	$	(18)	$	(4)	$	(9)	$	9
Amortization of net actuarial loss	21		15		23		—		—		—
Net actuarial loss from settlements	9		1		23		—		—		—
Other changes in plan assets and benefit obligations recognized in Other comprehensive income (loss)	$	142	$	104	$	28	$	(4)	$	(9)	$	9

Other changes in plan assets and benefit obligations for our other postretirement benefit plan associated with Transco and Northwest Pipeline are recognized in regulatory assets and liabilities. Amounts recognized in regulatory assets and liabilities for the years ended December 31 consist of the following:


	2020		2019		2018
	(Millions)
Other changes in plan assets and benefit obligations recognized in regulatory (assets) and liabilities:
Net actuarial gain (loss)	$	21	$	7	$	(10)
Amortization of prior service credit	—		—		(2)

Key Assumptions

The weighted-average assumptions utilized to determine benefit obligations as of December 31 are as follows:


	Pension Benefits				Other Postretirement Benefits
	2020		2019		2020		2019
Discount rate	2.45	%	3.19	%	2.59	%	3.27	%
Rate of compensation increase	3.76		3.68		N/A		N/A
Cash balance interest crediting rate	3.00		3.50		N/A		N/A

The weighted-average assumptions utilized to determine Net periodic benefit cost (credit) for the years ended December 31 are as follows:


	Pension Benefits						Other Postretirement Benefits
	2020		2019		2018		2020		2019		2018
Discount rate	3.08	%	4.33	%	3.67	%	3.27	%	4.39	%	3.71	%
Expected long-term rate of return on plan assets	4.67		5.26		5.34		4.39		5.01		4.95
Rate of compensation increase	3.68		4.83		4.93		N/A		N/A		N/A
Cash balance interest crediting rate	3.50		4.25		4.25		N/A		N/A		N/A


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

The mortality assumptions used to determine the benefit obligations for our pension and other postretirement benefit plans reflect generational projection mortality tables.

The assumed health care cost trend rate for 2021 is 7.0 percent. This rate decreases to 4.5 percent by 2027.

Plan Assets

Plan assets for our pension and other postretirement benefit plans consist primarily of equity and fixed income securities including mutual funds and commingled investment funds invested in equity and fixed income securities. The plans’ investment policy provides for a strategy in accordance with the Employee Retirement Income Security Act (ERISA), which governs the investment of the assets in a diversified portfolio. The plans follow a policy of diversifying the investments across various asset classes and investment managers.

The investment policy for the pension plans includes a general target asset allocation at December 31, 2020, of 25 percent equity securities and 75 percent fixed income securities. The target allocation includes the investments in equity and fixed income mutual and commingled investment funds.

Equity securities may include U.S. equities and non-U.S. equities. Investment in Williams’ securities or an entity in which Williams has a majority ownership is prohibited except where these securities may be owned in a commingled investment fund in which the plans’ trusts invest. No more than 5 percent of the total stock portfolio valued at market may be invested in the common stock of any one corporation.

Fixed income securities may consist of U.S. as well as international instruments, including emerging markets. The fixed income strategies may invest in U.S. and sovereign government, corporate, asset-backed securities, and mortgage-backed obligations. The weighted-average credit rating of the fixed income strategies must be at least “investment grade” including ratings by Moody’s and/or Standard & Poor’s. No more than 5 percent of the total fixed income portfolio may be invested in the fixed income securities of any one issuer with the exception of bond index funds and U.S. government guaranteed and agency securities.

The following securities and transactions are not authorized: unregistered securities, commodities or commodity contracts, short sales or margin transactions, or other leveraging strategies. Additionally, real estate equity, natural resource property, venture capital, leveraged buyouts, and other high-return, high-risk investments are generally restricted. Use of derivative securities in mutual funds and commingled investment funds held by the plans’ trusts is allowed. However, direct investment in derivative securities requires approval. Currently, investment managers are approved to enter into U.S. Treasury futures contracts on behalf of the plans to implement and manage duration and yield curve strategy in the fixed income portfolio.

There are no significant concentrations of risk within the plans’ investment securities because of the diversity of the types of investments, diversity of the various industries, and the diversity of the fund managers and investment strategies. Generally, the investments held in the plans are publicly traded, therefore, minimizing liquidity risk in the portfolio.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

The fair values of our pension plan assets at December 31, 2020 and 2019 by asset class are as follows:


	2020
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(Millions)
Pension assets:
Cash management fund	$	21	$	—	$	—	$	21
Equity securities	39		22		—		61
Fixed income securities (1):
U.S. Treasury securities	110		—		—		110
Government and municipal bonds	—		32		—		32
Mortgage and asset-backed securities	—		19		—		19
Corporate bonds	—		342		—		342
Other	—		4		—		4
	$	170	$	419	$	—	589
Commingled investment funds measured at net asset value practical expedient (2):
Equities — U.S. large cap							137
Equities — Global large and mid cap							121
Equities — International emerging markets							30
Fixed income — U.S. long and intermediate duration							346
Fixed income — Corporate bonds							134
Total assets at fair value at December 31, 2020							$	1,357


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)


	2019
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(Millions)
Pension assets:
Cash management fund	$	11	$	—	$	—	$	11
Equity securities	41		22		—		63
Fixed income securities (1):
U.S. Treasury securities	62		—		—		62
Government and municipal bonds	—		35		—		35
Mortgage and asset-backed securities	—		11		—		11
Corporate bonds	—		360		—		360
Other	5		4		—		9
	$	119	$	432	$	—	551
Commingled investment funds measured at net asset value practical expedient (2):
Equities — U.S. large cap							133
Equities — Global large and mid cap							100
Equities — International emerging markets							26
Fixed income — U.S. long and intermediate duration							380
Fixed income — Corporate bonds							109
Total assets at fair value at December 31, 2019							$	1,299


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

The fair values of our other postretirement benefits plan assets at December 31, 2020 and 2019 by asset class are as follows:


	2020
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(Millions)
Other postretirement benefit assets:
Cash management funds	$	12	$	—	$	—	$	12
Equity securities	38		10		—		48
Fixed income securities (1):
U.S. Treasury securities	14		—		—		14
Government and municipal bonds	—		4		—		4
Mortgage and asset-backed securities	—		3		—		3
Corporate bonds	—		45		—		45
Mutual fund — Municipal bonds	52		—		—		52
	$	116	$	62	$	—	178
Commingled investment funds measured at net asset value practical expedient (2):
Equities — U.S. large cap							18
Equities — Global large and mid cap							16
Equities — International emerging markets							4
Fixed income — U.S. long and intermediate duration							45
Fixed income — Corporate bonds							17
Total assets at fair value at December 31, 2020							$	278


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)


	2019
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(Millions)
Other postretirement benefit assets:
Cash management funds	$	11	$	—	$	—	$	11
Equity securities	35		9		—		44
Fixed income securities (1):
U.S. Treasury securities	8		—		—		8
Government and municipal bonds	—		4		—		4
Mortgage and asset-backed securities	—		1		—		1
Corporate bonds	—		43		—		43
Mutual fund — Municipal bonds	46		—		—		46
	$	100	$	57	$	—	157
Commingled investment funds measured at net asset value practical expedient (2):
Equities — U.S. large cap							16
Equities — Global large and mid cap							12
Equities — International emerging markets							3
Fixed income — U.S. long and intermediate duration							46
Fixed income — Corporate bonds							13
Total assets at fair value at December 31, 2019							$	247

(1)The weighted-average credit quality rating of the fixed income security portfolio is investment grade with a weighted-average duration of approximately 16 years for 2020 and 14 years for 2019.

(2) The stated intents of the funds vary based on each commingled fund’s investment objective. These objectives generally include strategies to replicate or outperform various market indices. Certain standard withdrawal restrictions generally apply, which may include redemption notification period restrictions ranging from 1 day to 30 days. Additionally, the fund managers retain the right to restrict withdrawals from and/or purchases into the funds so as not to disadvantage other investors in the funds. Generally, the funds also reserve the right to make all or a portion of the redemption in-kind rather than in cash or a combination of cash and in-kind.

The fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement of an asset.

Shares of the cash management and mutual funds are valued at fair value based on published market prices as of the close of business on the last business day of the year, which represents the net asset values of the shares held.

The fair values of equity securities traded on U.S. exchanges are derived from quoted market prices as of the close of business on the last business day of the year. The fair values of equity securities traded on foreign exchanges are also derived from quoted market prices as of the close of business on an active foreign exchange on the last business day of the year. However, the valuation requires translation of the foreign currency to U.S. dollars and this translation is considered an observable input to the valuation.

The fair values of all commingled investment funds are determined based on the net asset values per unit of each of the funds. The net asset values per unit represent the aggregate values of the funds’ assets at fair value less liabilities, divided by the number of units outstanding.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

The fair values of fixed income securities, except U.S. Treasury securities, are determined using pricing models. These pricing models incorporate observable inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads for similar securities to determine fair value. The U.S. Treasury securities are valued at fair value based on closing prices on the last business day of the year reported in the active market in which the security is traded.

Plan Benefit Payments and Employer Contributions

Following are the expected benefits to be paid by the plans. These estimates are based on the same assumptions previously discussed and reflect future service as appropriate. The actuarial assumptions are based on long-term expectations and include, but are not limited to, assumptions as to average expected retirement age and form of benefit payment. Actual benefit payments could differ significantly from expected benefit payments if near-term participant behaviors differ significantly from the actuarial assumptions.


	Pension Benefits		Other Postretirement Benefits
	(Millions)
2021	$	96	$	14
2022	91		14
2023	86		14
2024	82		13
2025	82		13
2026-2030	378		57

In 2021, we do not expect to contribute to our tax-qualified pension plans. We expect to contribute approximately $2 million to our nonqualified pension plans and approximately $6 million to our other postretirement benefit plan.

Note 11 – Property, Plant, and Equipment

The following table presents nonregulated and regulated Property, plant, and equipment – net as presented on the Consolidated Balance Sheet for the years ended:


	Estimated Useful Life (1) (Years)		Depreciation Rates (1) (%)	December 31,
2020		2019
				(Millions)
Nonregulated:
Natural gas gathering and processing facilities	5 - 40			$	17,813	$	17,593
Construction in progress	Not applicable			289		354
Other	2 - 45			2,658		2,519
Regulated:
Natural gas transmission facilities			1.25 - 7.13	18,688		18,076
Construction in progress	Not applicable		Not applicable	382		586
Other	5 - 45		0.00 - 33.33	2,659		2,382
Total property, plant, and equipment, at cost				42,489		41,510
Accumulated depreciation and amortization				(13,560)		(12,310)
Property, plant, and equipment — net				$	28,929	$	29,200

(1) Estimated useful life and depreciation rates are presented as of December 31, 2020. Depreciation rates and estimated useful lives for regulated assets are prescribed by the FERC.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Depreciation and amortization expense for Property, plant, and equipment – net was $1.393 billion, $1.390 billion, and $1.392 billion in 2020, 2019, and 2018, respectively.

Regulated Property, plant, and equipment – net includes approximately $507 million and $547 million at December 31, 2020 and 2019, respectively, related to amounts in excess of the original cost of the regulated facilities within our gas pipeline businesses as a result of our prior acquisitions. This amount is being amortized over 40 years using the straight-line amortization method. Current FERC policy does not permit recovery through rates for amounts in excess of original cost of construction.

Asset Retirement Obligations

Our accrued obligations primarily relate to offshore platforms and pipelines, gas transmission pipelines and facilities, gas processing, fractionation, and compression facilities, gas gathering well connections and pipelines, underground storage caverns, and producing wells. At the end of the useful life of each respective asset, we are legally obligated to dismantle offshore platforms and appropriately abandon offshore pipelines, to remove certain components of gas transmission facilities from the ground, to restore land and remove surface equipment at gas processing, fractionation, and compression facilities, to cap certain gathering pipelines at the wellhead connection and remove any related surface equipment, to plug storage caverns and remove any related surface equipment, and to plug producing wells and remove any related surface equipment.

The following table presents the significant changes to our ARO, of which $1.159 billion and $1.117 billion are included in Regulatory liabilities, deferred income, and other with the remaining current portion in Accrued liabilities at December 31, 2020 and 2019, respectively.


	December 31,
	2020		2019
	(Millions)
Balance at beginning of year	$	1,165	$	1,032
Liabilities incurred (1)	37		15
Liabilities settled	(19)		(8)
Accretion expense	65		59
Revisions (2)	(26)		67
Balance at end of year	$	1,222	$	1,165

(1)As a result of the global resolution with Chesapeake in 2020, we recorded $31 million of ARO related to natural gas properties transferred to us. (See Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies.)

(2)Several factors are considered in the annual review process, including inflation rates, current estimates for removal cost, market risk premiums, discount rates, and the estimated remaining useful life of the assets. The 2020 revisions reflect changes in removal cost estimates, increases in the estimated remaining useful life of certain assets, decreases in inflation rates, and decreases in the discount rates used in the annual review process. The 2019 revisions reflect changes in removal cost estimates, decreases in the estimated remaining useful life of certain assets, increases in inflation rates, and decreases in the discount rates used in the annual review process.

The funds Transco collects through a portion of its rates to fund its ARO are deposited into an external trust account dedicated to funding its ARO (ARO Trust). (See Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk.) Under its current rate settlement, Transco’s annual funding obligation is approximately $16 million, with installments to be deposited monthly.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 12 – Goodwill and Other Intangible Assets

Goodwill

Changes in the carrying amount of goodwill, included in Intangible assets – net of accumulated amortization in the Consolidated Balance Sheet, by reportable segment for the periods indicated are as follows:


	Northeast G&P
	(Millions)
December 31, 2018	$	—
UEOM Acquisition (Note 3)	188
December 31, 2019	188
Impairment of goodwill (Note 18)	(187)
Other (Note 3)	(1)
December 31, 2020	$	—

Goodwill is not subject to amortization, but is evaluated at least annually for impairment or more frequently if impairment indicators are present. We did not identify or recognize any impairments to goodwill in connection with our evaluation of goodwill for impairment during the years ended December 31, 2019, and 2018, respectively.

Other Intangible Assets

The gross carrying amount and accumulated amortization of other intangible assets, included in Intangible assets – net of accumulated amortization in the Consolidated Balance Sheet, at December 31 are as follows:


	2020				2019
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(Millions)


Other intangible assets	$	9,561	$	(2,117)	$	9,560	$	(1,789)

Other intangible assets primarily relate to gas gathering, processing, and fractionation contractual customer relationships recognized in acquisitions. Contractual customer relationships are being amortized on a straight-line basis over a period of 20 years for the acquisition of UEOM and 30 years for other acquisitions, which represents a portion of the term over which the contractual customer relationships 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. Based on the estimated future revenues during the contract periods (as estimated at the time of the acquisition), the weighted-average period prior to the next renewal or extension of the contractual customer relationships associated with the UEOM acquisition was approximately 10 years. Although a significant portion of the expected future cash flows associated with these contractual customer relationships are dependent on our ability to renew or extend the arrangements beyond the initial contract periods, these expected future cash flows are significantly influenced by the scope and pace of our producer customers’ drilling programs. Once producer customers’ wells are connected to our gathering infrastructure, their likelihood of switching to another provider before the wells are abandoned is reduced due to the significant capital investment required.

The amortization expense related to other intangible assets was $328 million, $324 million, and $333 million in 2020, 2019, and 2018, respectively. The estimated amortization expense for each of the next five succeeding fiscal years is approximately $328 million.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 13 – Accrued Liabilities


	December 31,
	2020		2019
	(Millions)
Interest on debt	$	271	$	288
Employee costs	149		226
Estimated rate refund liabilities	—		189
Contract liabilities (Note 5)	129		158
Asset retirement obligation (Note 11)	63		48
Operating lease liabilities (Note 15)	28		21
Other, including accrued loss contingencies	304		346
	$	944	$	1,276


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 14 – Debt and Banking Arrangements

Long-Term Debt


	December 31,
	2020		2019
	(Millions)
Transco:
7.08% Debentures due 2026	$	8	$	8
7.25% Debentures due 2026	200		200
7.85% Notes due 2026	1,000		1,000
4% Notes due 2028	400		400
3.25% Notes due 2030	700		—
5.4% Notes due 2041	375		375
4.45% Notes due 2042	400		400
4.6% Notes due 2048	600		600
3.95% Notes due 2050	500		—
Other financing obligation - Atlantic Sunrise	847		857
Other financing obligation - Dalton	257		259
Northwest Pipeline:
7.125% Debentures due 2025	85		85
4% Notes due 2027	500		500
Williams:
4.125% Notes due 2020	—		600
5.25% Notes due 2020	—		1,500
4% Notes due 2021	500		500
7.875% Notes due 2021	371		371
3.35% Notes due 2022	750		750
3.6% Notes due 2022	1,250		1,250
3.7% Notes due 2023	850		850
4.5% Notes due 2023	600		600
4.3% Notes due 2024	1,000		1,000
4.55% Notes due 2024	1,250		1,250
3.9% Notes due 2025	750		750
4% Notes due 2025	750		750
3.75% Notes due 2027	1,450		1,450
3.5% Notes due 2030	1,000		—
7.5% Debentures due 2031	339		339
7.75% Notes due 2031	252		252
8.75% Notes due 2032	445		445
6.3% Notes due 2040	1,250		1,250
5.8% Notes due 2043	400		400
5.4% Notes due 2044	500		500
5.75% Notes due 2044	650		650
4.9% Notes due 2045	500		500
5.1% Notes due 2045	1,000		1,000
4.85% Notes due 2048	800		800
Various — 7.7% to 10.25% Notes and Debentures due 2020 to 2027	3		24
Credit facility loans	—		—
Unamortized debt issuance costs	(125)		(119)
Net unamortized debt premium (discount)	(63)		(58)
Total long-term debt, including current portion	22,344		22,288
Long-term debt due within one year	(893)		(2,140)
Long-term debt	$	21,451	$	20,148


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Certain of our debt agreements contain covenants that restrict or limit, among other things, our ability to create liens supporting indebtedness, sell assets, and incur additional debt. Default of these agreements could also restrict our ability to make certain distributions or repurchase equity.

The following table presents aggregate minimum maturities of long-term debt and other financing obligations, excluding net unamortized debt premium (discount) and debt issuance costs, for each of the next five years:


	December 31, 2020
	(Millions)
2021	$	894
2022	2,025
2023	1,477
2024	2,280
2025	1,617

Issuances and retirements

On August 17, 2020, we retired $600 million of 4.125 percent senior unsecured notes that were due November 15, 2020.

On May 14, 2020, we completed a public offering of $1 billion of 3.5 percent senior unsecured notes due 2030.

On May 8, 2020, Transco issued $700 million of 3.25 percent senior unsecured notes due 2030 and $500 million of 3.95 percent senior unsecured notes due 2050 to investors in a private debt placement. As part of the issuance, Transco entered into a registration rights agreement with the initial purchasers of the unsecured notes. Under the terms of the agreement, Transco was obligated to file and consummate a registration statement for an offer to exchange the notes for a new issue of substantially identical notes registered under the Securities Act of 1933, as amended, within 365 days from closing and to use commercially reasonable efforts to complete the exchange offer. In the fourth quarter of 2020, Transco filed the registration statement and completed the exchange offer.

We retired $1.5 billion of 5.25 percent senior unsecured notes that matured on March 15, 2020.

We retired $14 million of 8.75 percent senior unsecured notes that matured on January 15, 2020.

We retired $32 million of 7.625 percent senior unsecured notes that matured on July 15, 2019.

Other financing obligations

During the construction of the Atlantic Sunrise and Dalton projects, Transco received funding from its partners for their proportionate share of construction costs. Amounts received were recorded within noncurrent liabilities and the costs associated with construction were capitalized in the Consolidated Balance Sheet. Upon placing these projects into service Transco began utilizing the partners’ undivided interest in the assets, including the associated pipeline capacity, and reclassified the funding previously received from its partners from noncurrent liabilities to debt. The obligations, which mature in 2038 and 2052, respectively, require monthly interest and principal payments and both bear an interest rate of approximately 9 percent.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Credit Facilities


	December 31, 2020
	Stated Capacity		Outstanding
	(Millions)
Long-term credit facility (1)	$	4,500	$	—
Letters of credit under certain bilateral bank agreements			15

(1) In managing our available liquidity, we do not expect a maximum outstanding amount in excess of the capacity of our credit facility inclusive of any outstanding amounts under our commercial paper program.

Revolving credit facility

In 2018, we along with Transco and Northwest Pipeline, the lenders named therein, and an administrative agent entered into a credit agreement (Credit Agreement) with aggregate commitments available of $4.5 billion, with up to an additional $500 million increase in aggregate commitments available under certain circumstances. The maturity date of the credit facility is August 10, 2023. However, the co-borrowers may request up to two extensions of the maturity date each for an additional one-year period to allow a maturity date as late as August 10, 2025, under certain circumstances. The Credit Agreement allows for swing line loans up to an aggregate of $200 million, subject to available capacity under the credit facility, and letters of credit commitments of $1 billion. Transco and Northwest Pipeline are each able to borrow up to $500 million under this credit facility to the extent not otherwise utilized by the other co-borrowers.

The Credit Agreement contains the following terms and conditions:

Various covenants may limit, among other things, a borrower’s and its material subsidiaries’ ability to grant certain liens supporting indebtedness, merge or consolidate, sell all or substantially all of its assets, make certain distributions during an event of default, and enter into certain restrictive agreements.
If an event of default with respect to a borrower occurs under the credit facility, the lenders will be able to terminate the commitments and accelerate the maturity of the loans and exercise other rights and remedies.
Other than swing line loans, each time funds are borrowed, the applicable borrower may choose from two methods of calculating interest: a fluctuating base rate equal to Citibank N.A.'s alternate base rate plus an applicable margin or a periodic fixed rate equal to the London Interbank Offered Rate plus an applicable margin. We are required to pay a commitment fee based on the unused portion of the credit facility. The applicable margin and the commitment fee are determined by reference to a pricing schedule based on the applicable borrower’s senior unsecured long-term debt ratings.

Significant financial covenants under the Credit Agreement require the ratio of debt to EBITDA (earnings before interest, taxes, depreciation, and amortization), each as defined in the credit facility, to be no greater than 5.0 to 1, except for the fiscal quarter and the two following fiscal quarters in which one or more acquisitions with a total aggregate purchase price of $25 million or more has been executed, in which case the ratio of debt to EBITDA is to be no greater than 5.5 to 1.

The ratio of debt to capitalization (defined as net worth plus debt) must be no greater than 65 percent for each of Transco and Northwest Pipeline.

At December 31, 2020, we are in compliance with these covenants.

Commercial Paper Program

In 2018, we entered into a $4 billion commercial paper program. The maturities of the commercial paper notes vary but may not exceed 397 days from the date of issuance. The commercial paper notes are sold under customary


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

terms in the commercial paper market and are issued at a discount from par, or, alternatively, are sold at par and bear varying interest rates on a fixed or floating basis. The net proceeds of issuances of the commercial paper notes are expected to be used to fund planned capital expenditures and for other general corporate purposes. At December 31, 2020 and 2019, no commercial paper was outstanding.

Cash Payments for Interest (Net of Amounts Capitalized)

Cash payments for interest (net of amounts capitalized) were $1.149 billion in 2020, $1.153 billion in 2019, and $1.064 billion in 2018.

Note 15 – Leases

We are a lessee through noncancellable lease agreements for property and equipment consisting primarily of buildings, land, vehicles, and equipment used in both our operations and administrative functions.


	Year Ended December 31,
	2020		2019
	(Millions)
Lease Cost:
Operating lease cost	$	37	$	40

Variable lease cost	19		27
Sublease income	(1)		(2)
Total lease cost	$	55	$	65
Cash paid for amounts included in the measurement of operating lease liabilities	$	30	$	39
	December 31,
	2020		2019
	(Millions)
Other Information:
Right-of-use asset (included in Regulatory assets, deferred charges, and other in the Consolidated Balance Sheet)	$	182	$	207
Operating lease liabilities:
Current (included in Accrued liabilities in the Consolidated Balance Sheet)	$	28	$	21
Noncurrent (included in Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet)	$	161	$	188
Weighted-average remaining lease term – operating leases (years)	13		13
Weighted-average discount rate – operating leases	4.60%		4.61%

Prior to adopting ASU 2016-02 “Leases (Topic 842)”, which was effective January 1, 2019, total rent expense was $73 million in 2018 and primarily included in Operating and maintenance expenses and Selling, general, and administrative expenses in the Consolidated Statement of Operations.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

As of December 31, 2020, the following table represents our operating lease maturities, including renewal provisions that we have assessed as being reasonably certain of exercise, for each of the years ended December 31:


	(Millions)
2021	$	34
2022	28
2023	23
2024	19
2025	17
Thereafter	140
Total future lease payments	261
Less amount representing interest	72
Total obligations under operating leases	$	189

We are the lessor to certain lease agreements for office space in our headquarters building, which are insignificant to our financial statements.

Note 16 – Stockholders' Equity

On January 26, 2021, our board of directors approved a regular quarterly dividend to common stockholders of $0.41 per share payable on March 29, 2021.

Stockholder Rights Agreement

On March 19, 2020, our board of directors approved the adoption of a limited duration stockholder rights agreements (Rights Agreement) and declared a distribution of one preferred stock purchase right for each outstanding share of common stock. The Rights Agreement is intended to protect the interests of us and our stockholders by reducing the likelihood of another party gaining control of or significant influence over us without paying an appropriate premium considering recent volatile markets. Each preferred stock purchase right represents the right to purchase, upon certain terms and conditions, one one-thousandths (.001) of a share of Series C Participating Cumulative Preferred Stock, $1.00 par value per share. Each one-thousandth (.001) of a share of Series C Participating Cumulative Preferred Stock, if issued, would have rights similar to one share of our common stock. The distribution of preferred stock purchase rights occurred on March 30, 2020, to holders of record as of the close of business on that date. The Rights Agreement expires on March 20, 2021. Please see our Current Report on Form 8-K dated March 20, 2020, for additional details of the Rights Agreement.

On August 27, 2020, a purported shareholder filed a putative class action lawsuit in the Delaware Court of Chancery challenging the Rights Agreement. The plaintiff alleges that the individual members of our board of directors breached their fiduciary duties by adopting the Rights Agreement. On September 3, 2020, a purported shareholder filed a separate putative class action lawsuit in the Delaware Court of Chancery, asserting identical claims to the August 27, 2020, lawsuit. Both complaints seek declaratory relief, an injunction against the agreement, and an award of attorneys’ fees and costs, which are not expected to be material. The court consolidated the lawsuits. The trial occurred January 12 through January 14, 2021, and we are awaiting the court’s decision.

Issuance of Preferred Stock

In July 2018, through a wholly owned subsidiary, we contributed 35,000 shares of newly issued Series B Non-Voting Perpetual Preferred Stock (Preferred Stock) to The Williams Companies Foundation, Inc. (a not-for-profit corporation) for use in future charitable and nonprofit causes. The charitable contribution of Preferred Stock was recorded as an expense in the third quarter of 2018. The Preferred Stock was issued for an aggregate value of $35 million and pays non-cumulative quarterly cash dividends when, as and if declared, at a rate of 7.25 percent per year. Our certificate of incorporation authorizes 30 million shares of Preferred Stock, $1 par value per share.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

AOCI

The following table presents the changes in AOCI by component, net of income taxes:


	Cash Flow Hedges		Foreign Currency Translation		Pension and Other Post Retirement Benefits		Total
	(Millions)
Balance at December 31, 2019	$	(2)	$	(1)	$	(196)	$	(199)

Other comprehensive income (loss) before reclassifications	(2)		—		81		79
Amounts reclassified from accumulated other comprehensive income (loss)	1		—		23		24
Other comprehensive income (loss)	(1)		—		104		103
Balance at December 31, 2020	$	(3)	$	(1)	$	(92)	$	(96)

Reclassifications out of AOCI are presented in the following table by component for the year ended December 31, 2020:


Component	Reclassifications		Classification
	(Millions)
Cash flow hedges:
Energy commodity contracts	$	1	Product sales


Pension and other postretirement benefits:

Amortization of actuarial (gain) loss and net actuarial loss from settlements included in net periodic benefit cost (credit)	30		Other income (expense) – net below Operating income (loss)





Income tax benefit	(7)		Provision (benefit) for income taxes


Reclassifications during the period	$	24

Note 17 – Equity-Based Compensation

Williams’ Plan Information

The Williams Companies, Inc. 2007 Incentive Plan (the Plan) provides common-stock-based awards to both employees and nonmanagement directors. To date, 50 million new shares have been authorized for making awards under the Plan, including 10 million shares added on April 28, 2020. The Plan permits the granting of various types of awards including, but not limited to, restricted stock units and stock options. At December 31, 2020, 31 million shares of our common stock were reserved for issuance pursuant to existing and future stock awards, of which 19 million shares were available for future grants.

Additionally, up to 5.2 million new shares of our common stock have been authorized to date to be available for sale under our Employee Stock Purchase Plan (ESPP), including 1.6 million shares added on April 28, 2020. Employees purchased 347 thousand shares at a weighted-average price of $16.07 per share during 2020. Approximately 1.7 million shares were available for purchase under the ESPP at December 31, 2020.

Operating and maintenance expenses and Selling, general, and administrative expenses in the Consolidated Statement of Operations include equity-based compensation expense for the years ended December 31, 2020, 2019, and 2018 of $52 million, $57 million, and $54 million, respectively. Income tax benefit recognized related to the stock-based compensation expense for the years ended December 31, 2020, 2019, and 2018 was $13 million, $14 million, and $14 million, respectively. Measured but unrecognized stock-based compensation expense at December 31, 2020, was $57 million, substantially all of which related to restricted stock units. These amounts are expected to be recognized over a weighted-average period of 1.7 years.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Nonvested Restricted Stock Units

The following summary reflects nonvested restricted stock unit activity and related information for the year ended December 31, 2020:


Restricted Stock Units Outstanding	Shares	Weighted- Average Fair Value (1)
	(Millions)
Nonvested at December 31, 2019	5.4	$	28.11
Granted	2.8	$	18.32
Forfeited	(0.5)	$	27.90
Vested	(1.5)	$	29.04
Nonvested at December 31, 2020	6.2	$	23.53

(1)Performance-based restricted stock units are valued considering measures of total shareholder return utilizing a Monte Carlo valuation method, as well as return on capital employed and a ratio of debt to EBITDA. All other restricted stock units are valued at the grant-date market price. Restricted stock units generally vest after three years.


Value of Restricted Stock Units	2020		2019		2018
Weighted-average grant date fair value of restricted stock units granted during the year, per share	$	18.32	$	25.87	$	30.48
Total fair value of restricted stock units vested during the year (in millions)	$	43	$	29	$	35

Performance-based restricted stock units granted under the Plan represent 41 percent of nonvested restricted stock units outstanding at December 31, 2020. These grants may be earned at the end of the vesting period based on actual performance against a performance target. Based on the extent to which certain financial targets are achieved, vested shares may range from zero percent to 200 percent of the original grant amount.

Stock Options

The following summary reflects stock option activity and related information for the year ended December 31, 2020:


Stock Options	Options	Weighted- Average Exercise Price		Aggregate Intrinsic Value
	(Millions)			(Millions)
Outstanding at December 31, 2019	6.8	$	32.64
Granted	—	$	—
Exercised	(0.3)	$	17.28
Cancelled	(0.5)	$	34.04
Outstanding at December 31, 2020	6.0	$	33.18	$	—
Exercisable at December 31, 2020	5.7	$	33.41	$	—

The following table summarizes additional information related to stock option activity during each of the last three years:


	Year Ended December 31,
	2020		2019		2018
	(Millions)
Total intrinsic value of options exercised	$	1	$	6	$	3
Tax benefits realized on options exercised	$	—	$	1	$	—
Cash received from the exercise of options	$	3	$	4	$	9


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

The weighted-average remaining contractual lives for stock options outstanding and exercisable at December 31, 2020, were 3.5 years and 3.3 years, respectively.

The estimated fair value at date of grant of options for our common stock granted in each respective year, using the Black-Scholes option pricing model, is as follows:


	2018
Weighted-average grant date fair value of options for our common stock granted during the year, per share	$	5.49
Weighted-average assumptions:
Dividend yield	4.7		%
Volatility	30.1		%
Risk-free interest rate	2.7		%
Expected life (years)	6.0

There were no stock options granted in 2020 or 2019. The expected dividend yield for each respective year is based on the dividend forecast for that year and the grant-date market price of our stock. Our expected future volatility is determined using the historical volatility of our stock and implied volatility on our traded options. Historical volatility is based on the blended 10-year historical volatility of our stock and certain peer companies. The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option is based on historical exercise behavior and expected future experience.

Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk

The following table presents, by level within the fair value hierarchy, certain of our significant financial assets and liabilities. The carrying values of cash and cash equivalents, accounts receivable, margin deposits, and accounts payable approximate fair value because of the short-term nature of these instruments. Therefore, these assets and liabilities are not presented in the following table.


					Fair Value Measurements Using
	Carrying Amount		Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Millions)
Assets (liabilities) at December 31, 2020:
Measured on a recurring basis:
ARO Trust investments	$	235	$	235	$	235	$	—	$	—



Additional disclosures:


Long-term debt, including current portion	(22,344)		(27,043)		—		(27,043)		—
Guarantees	(40)		(27)		—		(11)		(16)

Assets (liabilities) at December 31, 2019:
Measured on a recurring basis:
ARO Trust investments	$	201	$	201	$	201	$	—	$	—



Additional disclosures:

Long-term debt, including current portion	(22,288)		(25,319)		—		(25,319)		—
Guarantees	(41)		(27)		—		(11)		(16)


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Fair Value Methods

We use the following methods and assumptions in estimating the fair value of our financial instruments:

Assets measured at fair value on a recurring basis

ARO Trust investments*:* Transco deposits a portion of its collected rates, pursuant to its rate case settlement, into an external trust that is specifically designated to fund future ARO’s. The ARO Trust invests in a portfolio of actively traded mutual funds that are measured at fair value on a recurring basis based on quoted prices in an active market and is reported in Regulatory assets, deferred charges, and other in the Consolidated Balance Sheet. Both realized and unrealized gains and losses are ultimately recorded as regulatory assets or liabilities.

Additional fair value disclosures

Long-term debt, including current portion*:* The disclosed fair value of our long-term debt is determined primarily by a market approach using broker quoted indicative period-end bond prices. The quoted prices are based on observable transactions in less active markets for our debt or similar instruments. The fair values of the financing obligations associated with our Dalton lateral and Atlantic Sunrise projects, which are included within long-term debt, were determined using an income approach (see Note 14 – Debt and Banking Arrangements).

Guarantees*:* Guarantees primarily consist of a guarantee we have provided in the event of nonpayment by our previously owned communications subsidiary, Williams Communications Group (WilTel), on a lease performance obligation that extends through 2042. Guarantees also include an indemnification related to a disposed operation.

To estimate the fair value of the WilTel guarantee, an estimated default rate is applied to the sum of the future contractual lease payments using an income approach. The estimated default rate is determined by obtaining the average cumulative issuer-weighted corporate default rate based on the credit rating of WilTel’s current owner and the term of the underlying obligation. The default rate is published by Moody’s Investors Service. The carrying value of the WilTel guarantee is reported in Accrued liabilities in the Consolidated Balance Sheet. The maximum potential undiscounted exposure is approximately $27 million at December 31, 2020. Our exposure declines systematically through the remaining term of WilTel’s obligation.

The fair value of the guarantee associated with the indemnification related to a disposed operation was estimated using an income approach that considered probability-weighted scenarios of potential levels of future performance. The terms of the indemnification do not limit the maximum potential future payments associated with the guarantee. The carrying value of this guarantee is reported in Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet.

We are required by our revolving credit agreement to indemnify lenders for certain taxes required to be withheld from payments due to the lenders and for certain tax payments made by the lenders. The maximum potential amount of future payments under these indemnifications is based on the related borrowings and such future payments cannot currently be determined. These indemnifications generally continue indefinitely unless limited by the underlying tax regulations and have no carrying value. We have never been called upon to perform under these indemnifications and have no current expectation of a future claim.

Nonrecurring fair value measurements

During the first quarter of 2020, we observed a significant decline in the publicly traded price of our common stock (NYSE: WMB), which declined 40 percent during the quarter, including a 26 percent decline in the month of March. These changes were generally attributed to macroeconomic and geopolitical conditions, including significant declines in crude oil prices driven by both surplus supply and a decrease in demand caused by the coronavirus (COVID-19) pandemic. As a result of these conditions, we performed an interim assessment of the goodwill


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

associated with our Northeast G&P reporting unit as of March 31, 2020. This goodwill resulted from the March 2019 acquisition of UEOM (see Note 3 – Acquisitions and Divestitures).

The assessment considered the total fair value of the businesses within the Northeast G&P reporting unit, which was determined using income and market approaches. We utilized internally developed industry weighted-average discount rates and estimates of valuation multiples of comparable publicly traded gathering and processing companies. In assessing the fair value as of the March 31, 2020, measurement date, we were required to consider recent publicly available indications of value, which included lower observed publicly traded EBITDA market multiples as compared with recent history and significantly higher industry weighted-average discount rates. The fair value of the reporting unit was further reconciled to our estimated total enterprise value as of March 31, 2020, which considered observable valuation multiples of comparable publicly traded companies applied to each distinct business including the Northeast G&P reporting unit. This assessment indicated that the estimated fair value of the Northeast G&P reporting unit was below its carrying value, including goodwill. As a result of this Level 3 measurement, we recognized a full impairment charge of $187 million as of March 31, 2020, in Impairment of goodwill in the Consolidated Statement of Operations. Our partner’s $65 million share of this impairment is reflected within Net income (loss) attributable to noncontrolling interests in the Consolidated Statement of Operations (see Note 3 – Acquisitions and Divestitures).

The following table presents impairments of assets and equity-method investments associated with certain nonrecurring fair value measurements within Level 3 of the fair value hierarchy, except as specifically noted.


					Impairments
					Year Ended December 31,
	Segment	Date of Measurement	Fair Value		2020		2019		2018
			(Millions)
Impairment of certain assets:
Certain capitalized project costs (1)	Transmission & Gulf of Mexico	December 31, 2020	$	42	$	170
Certain gathering assets (2)	Northeast G&P	December 31, 2020	5		12
Certain pipeline project (3)	Transmission & Gulf of Mexico	December 31, 2019	22				$	354
Certain gathering assets (4)	West	December 31, 2019	25				20
Certain gathering assets (4)	West	June 30, 2019	40				59
Certain idle gathering assets (5)	West	March 31, 2019	—				12
Certain gathering assets (6)	West	December 31, 2018	470						$	1,849
Certain idle pipeline assets (7)	Other	June 30, 2018	25						66
Other impairments and write-downs (8)							19
Impairment of certain assets					$	182	$	464	$	1,915


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)


					Impairments
					Year Ended December 31,
	Segment	Date of Measurement	Fair Value		2020		2019		2018
			(Millions)
Impairment of equity-method investments:
RMM (9)	West	December 31, 2020	$	421	$	108
RMM (10)	West	March 31, 2020	557		243
Brazos Permian II (10)	West	March 31, 2020	—		193
Caiman II (11)	Northeast G&P	March 31, 2020	191		229
Appalachia Midstream Investments (11)	Northeast G&P	March 31, 2020	2,700		127
Aux Sable (11)	Northeast G&P	March 31, 2020	7		39
Laurel Mountain (11)	Northeast G&P	March 31, 2020	236		10
Discovery (11)	Transmission & Gulf of Mexico	March 31, 2020	367		97
Laurel Mountain (12)	Northeast G&P	September 30, 2019	242				$	79
Appalachia Midstream Investments (13)	Northeast G&P	September 30, 2019	102				17
Pennant (14)	Northeast G&P	August 31, 2019	11				17
UEOM (15)	Northeast G&P	March 17, 2019	1,210				74
UEOM (15)	Northeast G&P	December 31, 2018	1,293						$	32
Other							(1)
Impairment of equity-method investments					$	1,046	$	186	$	32

(1)Relates to capitalized project development costs for the Northeast Supply Enhancement project. As previously disclosed, approvals required for the project from the New York State Department of Environmental Conservation and the New Jersey Department of Environmental Protection have been denied and we have not refiled at this time. Beginning in May 2020, we discontinued capitalization of costs related to this project. Considering that the customer precedent agreements and FERC certificate for the project remain in effect, we had previously concluded that the probability of completing the project was sufficient to not require impairment. However, recent developments in the political and regulatory environments have caused us to slightly lower that assessed probability such that the capitalized project costs now required impairment. The estimated fair value of the materials within the capitalized project costs considered other internal uses and salvage values for the Property, plant, and equipment – net. The remaining capitalized costs were determined to have no fair value.

(2)Relates to a gathering system in the Marcellus Shale region, that is more likely than not to be sold in the short term. The estimated fair value of the Property, plant, and equipment – net and Intangible assets – net of accumulated amortization was determined using a market approach, which incorporated an indication of interest by a third party. These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

(3)Relates to the Constitution proposed pipeline project extending from Susquehanna County, Pennsylvania, to the Iroquois Gas Transmission and the Tennessee Gas Pipeline systems in New York. Although Constitution received a certificate of public convenience and necessity from the FERC to construct and operate the proposed pipeline and obtained, among other approvals, a waiver of the water quality certification under Section 401 of the Clean Water Act for the New York portion of the project, the members of Constitution, following extensive evaluation and discussion, determined that the underlying risk-adjusted return for this greenfield pipeline project had diminished in such a way that further development was no longer supported. The estimated fair value of the Property, plant, and equipment – net was based on probability-weighted third-party quotes. Our partners’ $209 million share of this impairment is reflected within Net income (loss) attributable to noncontrolling interests in the Consolidated Statement of Operations.

(4)Relates to a gas gathering system in the Eagle Ford Shale region with expected declines in asset utilization and possible idling of the gathering system. We designated these operations as held for sale, included in Other current assets and deferred charges, as of December 31, 2019. As a result, we measured the fair value of the disposal group using the expected sales price under a contract with a third party. These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy. The estimated fair value of the Property, plant, and equipment – net at June 30, 2019, was determined using a market approach, which incorporated indications of interest from third parties.

(5)Reflects impairment of Property, plant, and equipment – net that is no longer in use for which the fair value was determined to be lower than the carrying value.

(6)Relates to our gathering operations in the Barnett Shale region. Certain of our contractual gathering rates, primarily those in the Barnett Shale region, are based on a percentage of the New York Mercantile Exchange (NYMEX) natural gas prices. During the fourth quarter of 2018, we determined there was a sustained decline in the forward price curves for natural gas. During this same period, a large producer customer in the Barnett Shale region removed their remaining drilling rig. These factors gave rise to an impairment evaluation of these assets, which incorporated management’s projections of future drilling activity and gathering rates, taking into consideration the information previously noted as well as recently available information regarding producer drilling cost assumptions in the basin. The resulting estimate of future undiscounted cash flows was less than our carrying value, necessitating the estimation of the fair value of the Property, plant, and equipment – net and Intangible assets – net of accumulated amortization. To arrive at the fair value, we utilized an income approach with a discount rate of 8.5 percent, reflecting an estimated cost of capital and risks associated with the underlying assets.

(7)Relates to certain idle pipelines. The estimated fair value of the Property, plant, and equipment – net was determined by a market approach incorporating information derived from bids received for these assets, which we marketed for sale together with certain other assets. These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy. We sold these assets in the fourth quarter of 2018. (See Note 3 – Acquisitions and Divestitures.)

(8)Reflects multiple individually insignificant impairments and write-downs of other certain assets that may no longer be in use or are surplus in nature for which the fair value was determined to be lower than the carrying value.

(9)During the fourth quarter of 2020, RMM renegotiated service contracts with a significant customer in connection with the customer’s Chapter 11 bankruptcy proceedings. The renegotiated contracts result in lower service rates and lower projected future cash flows. As a result, we evaluated this investment for other-than-temporary impairment. The fair value was measured using an income approach. We utilized a discount rate of 18 percent in our analysis.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

(10)Following the previously described declining market conditions during the first quarter of 2020, we evaluated these investments for other-than-temporary impairment. The fair value was measured using an income approach. Both investees operate in primarily oil-driven basins where significant expected reductions in producer activities led to reduced estimates of expected future cash flows. Our fair value estimates also reflected discount rates of approximately 17 percent for these investments. We also considered any debt held at the investee level, and its impact to fair value. The industry weighted-average discount rates utilized were significantly influenced by the recent market declines previously discussed.

(11)Following the previously described declining market conditions during the first quarter of 2020, we evaluated these investments for other-than-temporary impairment. The impairments within our Northeast G&P segment are primarily associated with operations in wet-gas areas where producer drilling activities are influenced by NGL prices which historically trend with crude oil prices. The fair values of our investments in Caiman II and Aux Sable Liquid Products LP (Aux Sable) were estimated using a market approach, reflecting valuation multiples ranging from 5.0x to 6.2x EBITDA (weighted-average 6.0x). The fair values of the other investments, including gathering systems that are part of Appalachia Midstream Investments, were estimated using an income approach, with discount rates ranging from 9.7 percent to 13.5 percent (weighted-average 12.6 percent). We also considered any debt held at the investee level, and its impact to fair value. The assumed valuation multiples and industry weighted-average discount rates utilized were both significantly influenced by the recent market declines previously discussed.

(12)Relates to a gas gathering system in the Marcellus Shale region that was adversely impacted by lower sustained forward natural gas price expectations and changes in expected producer activity. The estimated fair value was determined using an income approach. We utilized a discount rate of 10.2 percent in our analysis.

(13)Relates to a certain gathering system held in Appalachia Midstream Investments that was adversely impacted by changes in the timing of expected producer activity. The estimated fair value was determined using an income approach. We utilized a discount rate of 9 percent in our analysis.

(14)The estimated fair value of Pennant Midstream, LLC (Pennant) was determined by a market approach based on recent observable third-party transactions. These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy.

(15)The estimated fair value at March 17, 2019, was determined by a market approach based on the transaction price for the purchase of the remaining interest in UEOM as finalized just prior to the signing and closing of the acquisition in March 2019 (see Note 3 – Acquisitions and Divestitures). These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy. The estimated fair value at December 31, 2018, was determined by a market approach based on our analysis of inputs in the principal market.

Concentration of Credit Risk

The following table summarizes concentration of receivables, net of allowances:


	December 31,
	2020		2019
	(Millions)
NGLs, natural gas, and related products and services	$	638	$	613
Transportation of natural gas and related products	254		277
Accounts Receivable related to revenues from contracts with customers	892		890
Other	107		106
Trade accounts and other receivables - net	$	999	$	996


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Customers include producers, distribution companies, industrial users, gas marketers, and pipelines primarily located in the continental United States. As a general policy, collateral is not required for receivables, but customers’ financial condition and credit worthiness are evaluated regularly. Based upon this evaluation, we may obtain collateral to support receivables.

Note 19 – Contingent Liabilities and Commitments

Reporting of Natural Gas-Related Information to Trade Publications

Direct and indirect purchasers of natural gas in various states filed individual and class actions against us, our former affiliate WPX Energy, Inc. (WPX) and its subsidiaries, and others alleging the manipulation of published gas price indices and seeking unspecified amounts of damages. Such actions were transferred to the Nevada federal district court for consolidation of discovery and pre-trial issues. We have agreed to indemnify WPX and its subsidiaries related to this matter.

In the individual action, filed by Farmland Industries Inc. (Farmland), the court issued an order on May 24, 2016, granting one of our co-defendant’s motion for summary judgment as to Farmland’s claims. On January 5, 2017, the court extended such ruling to us, entering final judgment in our favor. Farmland appealed. On March 27, 2018, the appellate court reversed the district court’s grant of summary judgment, and on April 10, 2018, the defendants filed a petition for rehearing with the appellate court, which was denied on May 9, 2018. The case was remanded to the Nevada federal district court and subsequently remanded to its originally filed court, the Kansas federal district court where we re-urged our motion for summary judgment. The district court denied the motion but granted our request to seek permission for an immediate appeal to the appellate court. Oral argument occurred before the appellate court on January 19, 2021.

In the putative class actions, on March 30, 2017, the court issued an order denying the plaintiffs’ motions for class certification. On June 13, 2017, the United States Court of Appeals for the Ninth Circuit granted the plaintiffs’ petition for permission to appeal the order. On August 6, 2018, the Ninth Circuit reversed the order denying class certification and remanded the case to the Nevada federal district court.

We reached an agreement to settle two of the actions, and on April 22, 2019, the Nevada federal district court preliminarily approved the settlements, which are on behalf of Kansas and Missouri class members. The final fairness hearing on the settlement occurred August 5, 2019, and a final judgment of dismissal with prejudice was entered the same day.

Two putative class actions remain unresolved, and they have been remanded to their originally filed court, the Wisconsin federal district court. Trial is scheduled to begin June 14, 2021.

Because of the uncertainty around the remaining unresolved issues, we cannot reasonably estimate a range of potential exposure at this time. However, it is reasonably possible that the ultimate resolution of these actions and our related indemnification obligation could result in a potential loss that may be material to our results of operations. In connection with this indemnification, we have an accrued liability balance associated with this matter and, as a result, have exposure to future developments.

Alaska Refinery Contamination Litigation

We are involved in litigation arising from our ownership and operation of the North Pole Refinery in North Pole, Alaska, from 1980 until 2004, through our wholly owned subsidiaries Williams Alaska Petroleum Inc. (WAPI) and MAPCO Inc. We sold the refinery to Flint Hills Resources Alaska, LLC (FHRA), a subsidiary of Koch Industries, Inc., in 2004. The litigation involves three cases, with filing dates ranging from 2010 to 2014. The actions primarily arise from sulfolane contamination allegedly emanating from the refinery. A putative class action lawsuit was filed by James West in 2010 naming us, WAPI, and FHRA as defendants. We and FHRA filed claims against each other seeking, among other things, contractual indemnification alleging that the other party caused the sulfolane contamination. In 2011, we and FHRA settled the claim with James West. Certain claims by FHRA


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

against us were resolved by the Alaska Supreme Court in our favor. FHRA’s claims against us for contractual indemnification and statutory claims for damages related to off-site sulfolane were remanded to the Alaska Superior Court. The State of Alaska filed its action in March 2014, seeking damages. The City of North Pole (North Pole) filed its lawsuit in November 2014, seeking past and future damages, as well as punitive damages. Both we and WAPI asserted counterclaims against the State of Alaska and North Pole, and cross-claims against FHRA. FHRA has also filed cross-claims against us.

The underlying factual basis and claims in the cases are similar and may duplicate exposure. As such, in February 2017, the three cases were consolidated into one action in state court containing the remaining claims from the James West case and those of the State of Alaska and North Pole. The State of Alaska later announced the discovery of additional contaminants per- and polyfluoralkyl (PFOS and PFOA) offsite of the refinery, and the court permitted the State of Alaska to amend its complaint to add a claim for offsite PFOS/PFOA contamination. The court subsequently remanded the offsite PFOS/PFOA claims to the Alaska Department of Environmental Conservation for investigation and stayed the claims pending their potential resolution at the administrative agency. Several trial dates encompassing all three cases have been scheduled and stricken. In the summer of 2019, the court deconsolidated the cases for purposes of trial. A bench trial on all claims except North Pole’s claims began in October 2019.

In January 2020, the Alaska Superior Court issued its Memorandum of Decision finding in favor of the State of Alaska and FHRA, with the total incurred and potential future damages estimated to be $86 million. The court found that FHRA is not entitled to contractual indemnification from us because FHRA contributed to the sulfolane contamination. On March 23, 2020, the court entered final judgment in the case. Filing deadlines were stayed until May 1, 2020. However, on April 21, 2020, we filed a Notice of Appeal. We also filed post-judgment motions including a Motion for New Trial and a Motion to Alter or Amend the Judgment. These post-trial motions were resolved with the court’s denial of the last motion on June 11, 2020. Our Statement of Points on Appeal was filed on July 13, 2020. On June 22, 2020, the court stayed the North Pole’s case pending resolution of the appeal in the State of Alaska and FHRA case. On December 23, 2020, we filed our opening brief on appeal. We have recorded an accrued liability in the amount of our estimate of the probable loss. It is reasonably possible that we may not be successful on appeal and could ultimately pay up to the amount of judgment.

Royalty Matters

Certain of our customers, including Chesapeake, have been named in various lawsuits alleging underpayment of royalties and claiming, among other things, violations of anti-trust laws and the Racketeer Influenced and Corrupt Organizations Act. We have also been named as a defendant in certain of these cases filed in Pennsylvania based on allegations that we improperly participated with Chesapeake in causing the alleged royalty underpayments. We believe that the claims asserted are subject to indemnity obligations owed to us by Chesapeake. Chesapeake has reached a tentative settlement to resolve substantially all Pennsylvania royalty cases pending, which settlement would apply to both Chesapeake and us. The settlement as reported would not require any contribution from us.

Litigation Against Energy Transfer and Related Parties

On April 6, 2016, we filed suit in Delaware Chancery Court against Energy Transfer Equity, L.P. (Energy Transfer) and LE GP, LLC (the general partner for Energy Transfer) alleging willful and material breaches of the Agreement and Plan of Merger (ETE Merger Agreement) with Energy Transfer resulting from the private offering by Energy Transfer on March 8, 2016, of Series A Convertible Preferred Units (Special Offering) to certain Energy Transfer insiders and other accredited investors. The suit seeks, among other things, an injunction ordering the defendants to unwind the Special Offering and to specifically perform their obligations under the ETE Merger Agreement. On April 19, 2016, we filed an amended complaint seeking the same relief. On May 3, 2016, Energy Transfer and LE GP, LLC filed an answer and counterclaims.

On May 13, 2016, we filed a separate complaint in Delaware Chancery Court against Energy Transfer, LE GP, LLC and the other Energy Transfer affiliates that are parties to the ETE Merger Agreement, alleging material


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

breaches of the ETE Merger Agreement for failing to cooperate and use necessary efforts to obtain a tax opinion required under the ETE Merger Agreement (Tax Opinion) and for otherwise failing to use necessary efforts to consummate the merger under the ETE Merger Agreement wherein we would be merged with and into the newly formed Energy Transfer Corp LP (ETC) (ETC Merger). The suit sought, among other things, a declaratory judgment and injunction preventing Energy Transfer from terminating or otherwise avoiding its obligations under the ETE Merger Agreement due to any failure to obtain the Tax Opinion.

The Court of Chancery coordinated the Special Offering and Tax Opinion suits. On May 20, 2016, the Energy Transfer defendants filed amended affirmative defenses and verified counterclaims in the Special Offering and Tax Opinion suits, alleging certain breaches of the ETE Merger Agreement by us and seeking, among other things, a declaration that we were not entitled to specific performance, that Energy Transfer could terminate the ETC Merger, and that Energy Transfer is entitled to a $1.48 billion termination fee. On June 24, 2016, following a two-day trial, the court issued a Memorandum Opinion and Order denying our requested relief in the Tax Opinion suit. The court did not rule on the substance of our claims related to the Special Offering or on the substance of Energy Transfer’s counterclaims. On June 27, 2016, we filed an appeal of the court’s decision with the Supreme Court of Delaware, seeking reversal and remand to pursue damages. On March 23, 2017, the Supreme Court of Delaware affirmed the Court of Chancery’s ruling. On March 30, 2017, we filed a motion for reargument with the Supreme Court of Delaware, which was denied on April 5, 2017.

On September 16, 2016, we filed an amended complaint with the Court of Chancery seeking damages for breaches of the ETE Merger Agreement by defendants. On September 23, 2016, Energy Transfer filed a second amended and supplemental affirmative defenses and verified counterclaim with the Court of Chancery seeking, among other things, payment of the $1.48 billion termination fee due to our alleged breaches of the ETE Merger Agreement. On December 1, 2017, the court granted our motion to dismiss certain of Energy Transfer’s counterclaims, including its claim seeking payment of the $1.48 billion termination fee. On December 8, 2017, Energy Transfer filed a motion for reargument, which the Court of Chancery denied on April 16, 2018. The Court of Chancery had scheduled trial for May 20 through May 24, 2019; the court struck this setting and reset the trial for June 8 through June 11, and June 15, 2020. Due to COVID-19, the court struck the June 2020 setting and re-scheduled the trial for August 31 through September 4, 2020; this setting was also struck as a result of COVID-19. The court reset trial for December 14 through December 18, 2020, but also struck this setting as a result of COVID-19. Trial has been reset for May 10 through May 17, 2021.

Former Olefins Business

SABIC Petrochemicals, the other interest owner in our former Geismar, Louisiana, olefins facility we sold in July 2017, sought recovery from us for losses it allegedly suffered, including its share of personal injury settlements in which it was a co-defendant, as well as amounts related to lost income, defense costs, and property damage associated with an explosion and fire at the plant in June 2013. We settled this claim with SABIC Petrochemicals in the fourth quarter 2020. Part of the settlement is covered by our general liability policy and any uninsured losses are immaterial.

Environmental Matters

We are a participant in certain environmental activities in various stages including assessment studies, cleanup operations, and/or remedial processes at certain sites, some of which we currently do not own. We are monitoring these sites in a coordinated effort with other potentially responsible parties, the U.S. Environmental Protection Agency (EPA), or other governmental authorities. We are jointly and severally liable along with unrelated third parties in some of these activities and solely responsible in others. Certain of our subsidiaries have been identified as potentially responsible parties at various Superfund and state waste disposal sites. In addition, these subsidiaries have incurred, or are alleged to have incurred, various other hazardous materials removal or remediation obligations under environmental laws. As of December 31, 2020, we have accrued liabilities totaling $33 million for these matters, as discussed below. Estimates of the most likely costs of cleanup are generally based on completed assessment studies, preliminary results of studies, or our experience with other similar cleanup operations. At


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

December 31, 2020, certain assessment studies were still in process for which the ultimate outcome may yield different estimates of most likely costs. Therefore, 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.

The EPA and various state regulatory agencies routinely promulgate and propose new rules and issue updated guidance to existing rules. These rulemakings include, but are not limited to, rules for reciprocating internal combustion engine and combustion turbine maximum achievable control technology, air quality standards for one-hour nitrogen dioxide emissions, and volatile organic compound and methane new source performance standards impacting design and operation of storage vessels, pressure valves, and compressors. The EPA previously issued its rule regarding National Ambient Air Quality Standards for ground-level ozone. We are monitoring the rule’s implementation as it will trigger additional federal and state regulatory actions that may impact our operations. Implementation of the regulations is expected to result in impacts to our operations and increase the cost of additions to Property, plant, and equipment – net in the Consolidated Balance Sheet for both new and existing facilities in affected areas. We are unable to reasonably estimate the cost of additions that may be required to meet the regulations at this time due to uncertainty created by various legal challenges to these regulations and the need for further specific regulatory guidance.

Continuing operations

Our interstate gas pipelines are involved in remediation activities related to certain facilities and locations for polychlorinated biphenyls, mercury, and other hazardous substances. These activities have involved the EPA and various state environmental authorities, resulting in our identification as a potentially responsible party at various Superfund waste sites. At December 31, 2020, we have accrued liabilities of $4 million for these costs. We expect that these costs will be recoverable through rates.

We also accrue environmental remediation costs for natural gas underground storage facilities, primarily related to soil and groundwater contamination. At December 31, 2020, we have accrued liabilities totaling $8 million for these costs.

Former operations

We have potential obligations in connection with assets and businesses we no longer operate. These potential obligations include remediation activities at the direction of federal and state environmental authorities and the indemnification of the purchasers of certain of these assets and businesses for environmental and other liabilities existing at the time the sale was consummated. Our responsibilities relate to the operations of the assets and businesses described below.

Former agricultural fertilizer and chemical operations and former retail petroleum and refining operations;
Former petroleum products and natural gas pipelines;
Former petroleum refining facilities;
Former exploration and production and mining operations;
Former electricity and natural gas marketing and trading operations.

At December 31, 2020, we have accrued environmental liabilities of $21 million related to these matters.

Other Divestiture Indemnifications

Pursuant to various purchase and sale agreements relating to divested businesses and assets, we have indemnified certain purchasers against liabilities that they may incur with respect to the businesses and assets acquired from us. The indemnities provided to the purchasers are customary in sale transactions and are contingent


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

upon the purchasers incurring liabilities that are not otherwise recoverable from third parties. The indemnities generally relate to breach of warranties, tax, historic litigation, personal injury, property damage, environmental matters, right of way, and other representations that we have provided.

At December 31, 2020, other than as previously disclosed, we are not aware of any material claims against us involving the above-described indemnities; thus, we do not expect any of the indemnities provided pursuant to the sales agreements to have a material impact on our future financial position. Any claim for indemnity brought against us in the future may have a material adverse effect on our results of operations in the period in which the claim is made.

In addition to the foregoing, various other proceedings are pending against us that are incidental to our operations, none of which are expected to be material to our expected future annual results of operations, liquidity, and financial position.

Summary

We have disclosed our estimated range of reasonably possible losses for certain matters above, as well as all significant matters for which we are unable to reasonably estimate a range of possible loss. We estimate that for all other matters for which we are able to reasonably estimate a range of loss, our aggregate reasonably possible losses beyond amounts accrued are immaterial to our expected future annual results of operations, liquidity, and financial position. These calculations have been made without consideration of any potential recovery from third parties.

Commitments

Commitments for construction and acquisition of property, plant, and equipment are approximately $262 million at December 31, 2020.

Note 20 – Segment Disclosures

Our reportable segments are Transmission & Gulf of Mexico, Northeast G&P, and West. All remaining business activities are included in Other. (See Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies.)

Performance Measurement

We evaluate segment operating performance based upon Modified EBITDA. This measure represents the basis of our internal financial reporting and is the primary performance measure used by our chief operating decision maker in measuring performance and allocating resources among our reportable segments. Intersegment revenues primarily represent the sale of NGLs from our natural gas processing plants and transportation services provided to our marketing business.

We define Modified EBITDA as follows:

Net income (loss) before:

◦Income (loss) from discontinued operations;

◦Provision (benefit) for income taxes;

◦Interest incurred, net of interest capitalized;

◦Equity earnings (losses);

◦Impairment of equity-method investments;

◦Other investing income (loss) – net;


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

◦Impairment of goodwill;

◦Depreciation and amortization expenses;

◦Accretion expense associated with asset retirement obligations for nonregulated operations.

This measure is further adjusted to include our proportionate share (based on ownership interest) of Modified EBITDA from our equity-method investments calculated consistently with the definition described above.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

The following table reflects the reconciliation of Segment revenues to Total revenues as reported in the Consolidated Statement of Operations and Other financial information:


	Transmission & Gulf of Mexico		Northeast G&P		West		Other		Eliminations		Total
	(Millions)
2020
Segment revenues:
Service revenues
External	$	3,207	$	1,416	$	1,280	$	21	$	—	$	5,924
Internal	50		49		—		13		(112)		—
Total service revenues	3,257		1,465		1,280		34		(112)		5,924
Total service revenues – commodity consideration	21		7		101		—		—		129
Product sales
External	144		16		1,506		—		—		1,666
Internal	47		41		56		—		(144)		—
Total product sales	191		57		1,562		—		(144)		1,666
Total revenues	$	3,469	$	1,529	$	2,943	$	34	$	(256)	$	7,719

Other financial information:
Additions to long-lived assets	$	706	$	137	$	318	$	122	$	—	$	1,283
Proportional Modified EBITDA of equity-method investments	166		473		110		—		—		749

2019
Segment revenues:
Service revenues
External	$	3,261	$	1,291	$	1,364	$	17	$	—	$	5,933
Internal	50		47		—		13		(110)		—
Total service revenues	3,311		1,338		1,364		30		(110)		5,933
Total service revenues – commodity consideration	41		12		150		—		—		203
Product sales
External	217		115		1,733		—		—		2,065
Internal	71		35		64		—		(170)		—
Total product sales	288		150		1,797		—		(170)		2,065
Total revenues	$	3,640	$	1,500	$	3,311	$	30	$	(280)	$	8,201

Other financial information:
Additions to long-lived assets	$	1,341	$	1,245	$	304	$	21	$	—	$	2,911
Proportional Modified EBITDA of equity-method investments	177		454		115		—		—		746


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)


	Transmission & Gulf of Mexico		Northeast G&P		West		Other		Eliminations		Total
	(Millions)
2018
Segment revenues:
Service revenues
External	$	2,904	$	935	$	1,641	$	22	$	—	$	5,502
Internal	49		41		—		12		(102)		—
Total service revenues	2,953		976		1,641		34		(102)		5,502
Total service revenues – commodity consideration	59		20		321		—		—		400
Product sales
External	174		245		2,365		—		—		2,784
Internal	261		42		83		—		(386)		—
Total product sales	435		287		2,448		—		(386)		2,784
Total revenues	$	3,447	$	1,283	$	4,410	$	34	$	(488)	$	8,686

Other financial information:
Additions to long-lived assets	$	2,379	$	477	$	279	$	36	$	—	$	3,171
Proportional Modified EBITDA of equity-method investments	183		493		94		—		—		770

The following table reflects the reconciliation of Modified EBITDA to Net income (loss) as reported in the Consolidated Statement of Operations:


	Year Ended December 31,
	2020		2019		2018
	(Millions)
Modified EBITDA by segment:
Transmission & Gulf of Mexico	$	2,379	$	2,175	$	2,293
Northeast G&P	1,489		1,314		1,086
West	998		952		38
Other	(15)		6		(29)
	4,851		4,447		3,388
Accretion expense associated with asset retirement obligations for nonregulated operations	(35)		(33)		(33)

Depreciation and amortization expenses	(1,721)		(1,714)		(1,725)
Impairment of goodwill	(187)		—		—
Equity earnings (losses)	328		375		396
Impairment of equity-method investments	(1,046)		(186)		(32)
Other investing income (loss) – net	8		107		219
Proportional Modified EBITDA of equity-method investments	(749)		(746)		(770)
Interest expense	(1,172)		(1,186)		(1,112)
(Provision) benefit for income taxes	(79)		(335)		(138)
Income (loss) from discontinued operations	—		(15)		—
Net income (loss)	$	198	$	714	$	193


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

The following table reflects Total assets and Equity-method investments by reportable segments:


	Total Assets				Equity-Method Investments
	December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019
	(Millions)
Transmission & Gulf of Mexico	$	19,110	$	18,796	$	610	$	741
Northeast G&P	14,569		15,399		3,682		3,973
West	10,558		11,265		867		1,521
Other	927		1,151		—		—
Eliminations (1)	(999)		(571)		—		—
Total	$	44,165	$	46,040	$	5,159	$	6,235

(1) Eliminations primarily relate to the intercompany notes and accounts receivable generated by our cash management program.

Note 21 – Subsequent Event

In February 2021, we acquired certain oil and gas properties, primarily approximately 2,000 operated wells, in the Wamsutter basin in Wyoming from a supermajor oil and gas company for a total of $79 million paid from cash on hand. We are working to identify an operating partner to optimize development of the properties and enhance the value of our connected midstream infrastructure. We expect to report these operations within our Other segment.

The Williams Companies, Inc.

Schedule II — Valuation and Qualifying Accounts


			Additions
	Beginning Balance		Charged (Credited) To Costs and Expenses		Other		Deductions		Ending Balance
	(Millions)
2020
Deferred tax asset valuation allowance (1)	$	319	$	6	$	—	$	—	$	325
2019
Deferred tax asset valuation allowance (1)	320		(1)		—		—		319
2018
Deferred tax asset valuation allowance (1)	224		96		—		—		320

(1) Deducted from related assets.

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