What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-28 compared with 2021-02-24 · 704 added, 821 removed, 1383 unchanged (52% of the section changed)

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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”).

(the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

generally accepted accounting principles.

We did not audit the financial statements of Gulfstream Natural Gas System, L.L.C.

We did not audit the 2020 or 2019 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.

In the consolidated financial statements, the Company’s investment in Gulfstream was $204 million as of December 31, 2020, and the Company’s equity earnings in the net income of Gulfstream were $77 million in 2020 and $74 million in 2019.

Those 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 for 2020 and 2019, 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, 2021, 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 28, 2022 expressed an unqualified opinion thereon.

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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.

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Pension and Other Postretirement Benefit Obligations

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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

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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.

We have audited the statement of financial position of Gulfstream Natural Gas System, L.L.C.

(the “Company”) as of December 31, 2020, and the related statements of earnings, comprehensive income, changes in members’ equity and cash flows for each two 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 the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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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

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The Williams Companies, Inc.

Consolidated Statement of Operations

Consolidated Statement of Income

Year Ended December 31,

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Product sales 4,536 1,671 2,063

Net gain (loss) on commodity derivatives ( 148 ) ( 5 ) 2

Total revenues 10,627 7,719 8,201

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Impairment of certain assets (Note 17)

182 464 1,915

Impairment of goodwill (Note 17)

Gain on sale of certain assets and businesses (Note 3)

Other (income) expense – net 14 22 10

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1,517 211 850

Preferred stock dividends (Note 16)

Preferred stock dividends 3 3 3

Net income (loss) available to common stockholders $ 1,514 $ 208 $ 847

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Inventories 379 136

Derivative assets 301 3

Other current assets and deferred charges 211 149

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Stockholders’ equity:

Preferred stock

Preferred stock ($ 1 par value;

30 million shares authorized at December 31, 2021 and December 31, 2020;

35,000 shares issued at December 31, 2021 and December 31, 2020)

Common stock ($ 1 par value;

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Balance at December 31, 2018 $ 35 $ 1,245 $ 24,693 $ ( 10,002 ) $ ( 270 ) $ ( 1,041 ) $ 14,660 $ 1,337 $ 15,997

Adoption of new accounting standards — — — ( 23 ) ( 61 ) — ( 84 ) ( 37 ) ( 121 )

Net income (loss) — — — 850 — — 850 ( 136 ) 714

Other comprehensive income (loss) — — — — 71 — 71 — 71

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 ($ 1.52 per share)

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Dividends and distributions to noncontrolling interests — — — — — — — ( 124 ) ( 124 )

— — — — — — — ( 637 ) ( 637 )

Stock-based compensation and related common stock issuances, net of tax — 2 56 — — — 58 — 58

— 1 60 — — — 61 — 61

Sales of limited partner units of Williams Partners L.P.

— — — — — — — 46 46

Sale of partial interest in consolidated subsidiary — — — — — — — 1,334 1,334

Changes in ownership of consolidated subsidiaries, net — — ( 426 ) — — — ( 426 ) 567 141

— — 14 — — — 14 ( 18 ) ( 4 )

Contributions from noncontrolling interests — — — — — — — 36 36

— — — — — — — 15 15

Deconsolidation of subsidiary (Note 9) — — — — — — — ( 13 ) ( 13 )

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Other comprehensive income (loss) — — — — 103 — 103 — 103

— — — — 71 — 71 — 71

Cash dividends – common stock ($ 1.60 per share)

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Dividends and distributions to noncontrolling interests — — — — — — — ( 185 ) ( 185 )

— — — — — — — ( 124 ) ( 124 )

Stock-based compensation and related common stock issuances, net of tax — 1 50 — — — 51 — 51

— 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 — — — — — — — 7 7

— — — — — — — 36 36

Deconsolidation of subsidiary (Note 7) — — — — — — — ( 13 ) ( 13 )

Other — — ( 2 ) ( 16 ) — — ( 18 ) 4 ( 14 )

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Dividends and distributions to noncontrolling interests — — — — — — — ( 187 ) ( 187 )

— — — — — — — ( 185 ) ( 185 )

Stock-based compensation and related common stock issuances, net of tax — 2 78 — — — 80 — 80

Purchase of partial interest in consolidated subsidiary (Note 9)

— — — — — — — ( 3 ) ( 3 )

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Gain on disposition of equity-method investments (Note 9)

(Gain) on sale of certain assets and businesses (Note 3)

(Gain) loss on deconsolidation of businesses (Note 9)

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Impairment of certain assets (Note 17)

182 464 1,915

Net unrealized (gain) loss from derivative instruments 109 — ( 3 )

Amortization of stock-based awards 81 52 57

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Accrued liabilities 58 ( 309 ) 153

Changes in current and noncurrent derivative assets and liabilities ( 277 ) ( 4 ) 3

Other, including changes in noncurrent assets and liabilities ( 1 ) ( 1 ) ( 174 )

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Contributions in aid of construction 52 37 52

Proceeds from sale of businesses, net of cash divested (Note 3)

— ( 2 ) 1,296

Purchases of businesses, net of cash acquired (Note 3)

( 151 ) — ( 728 )

Proceeds from dispositions of equity-method investments (Note 9)

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When we refer to our equity investees by name, we are referring exclusively to their businesses and operations.

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.

Our operations are located in the United States and are presented within the following reportable segments:

Transmission & Gulf of Mexico, Northeast G&P, West, and Sequent, consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources.

All remaining business activities, including our upstream operations, 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.

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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).

(Cardinal) (a consolidated VIE) which operates in Ohio, a 69 percent equity-method investment in Laurel Mountain Midstream, LLC (Laurel Mountain), a 50 percent equity-method investment in Blue Racer Midstream LLC (Blue Racer) (we previously effectively owned a 29 percent indirect interest in Blue Racer through our 58 percent equity-method investment in Blue Racer Midstream Holdings, LLC (BRMH) (previously named Caiman Energy II, LLC) until acquiring a controlling interest of BRMH in November 2020 and the remaining interest in September 2021) (see Note 9 – 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).

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 and Permian basins.

This segment also includes our natural gas liquid (NGL) and natural gas marketing business (excluding the activities within the Sequent segment described below), 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).

Sequent includes 100 percent of the operations of Sequent Energy Management, L.P.

and Sequent Energy Canada, Corp.

acquired on July 1, 2021 (Sequent Acquisition).

Sequent focuses on risk management and the marketing, trading, storage, and transportation of natural gas for a diverse set of natural gas utilities, municipalities,

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

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).

power generators, and producers, and moves gas to markets through transportation and storage agreements on strategically positioned assets, including our Transco system.

(See Note 3 – Acquisitions.)

Basis of Presentation

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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.

We believe that the carrying value of certain of our property, plant, and equipment and 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.

It is reasonably possible that future strategic decisions, including transactions such as monetizing assets or contributing assets to new ventures with third parties, as well as unfavorable changes in expected producer activities, 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

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Key areas of that evaluation include:

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

• Determining whether an entity is a VIE;

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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.

Distributions received from equity-method investees are presented in our 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.

Equity earnings (losses) in our

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

Consolidated Statement of Income 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

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Significant estimates and assumptions include:

• Impairment assessments of investments, property, plant, and equipment, goodwill, and other identifiable intangible assets;

• Impairment assessments of investments, property, plant, and equipment, and intangible assets;

• Litigation-related contingencies;

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• Depreciation and/or amortization of equity-method investment basis differences;

• Asset retirement obligations (AROs);

• Measurement of fair value of derivatives;

• Pension and postretirement valuation variables;

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• Measurement of deferred income tax assets and liabilities, including assumptions related to the realization of deferred income tax assets;

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

• Revenue recognition, including estimates utilized in recognition of deferred revenue;

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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.

The components of our regulatory assets and liabilities relate to the effects of deferred taxes on equity funds used during

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

construction, AROs, shipper imbalance activity, fuel and power cost differentials, 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, 2021 and 2020 are as follows:

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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.

Cash and cash equivalents in our 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

We estimate the allowance for doubtful accounts, considering current expected credit losses using a forward-looking “expected loss” model, the financial condition of our customers, and the age of past due accounts.

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, gathering and transportation business, marketing business, and upstream operations 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 utilize historical loss rates over many years, which include periods of both high and low commodity prices.

Commodity prices could have a significant impact on a portion of our gathering and processing and upstream counterparties’ financial health and ability to satisfy current obligations.

Our expected credit loss estimate considers 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 considers 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.

We also provide marketing and risk management services to retail and wholesale gas marketers, utility companies, upstream producers, and industrial customers.

These counterparties utilize netting agreements that enable us to net receivables and payables by counterparty upon settlement.

We also net across product lines and against cash collateral received to collateralize receivable positions, provided the netting and cash collateral

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

past due if full payment is not received by the contractual due date.

agreements include such provisions.

While the amounts due from, or owed to, our counterparties are settled net, they are recorded on a gross basis in our Consolidated Balance Sheet as accounts receivable and accounts payable.

We do not offer extended payment terms and typically receive payment within one month.

We consider receivables 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 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.

We do not have a material amount of significantly aged receivables at December 31, 2021 and 2020.

Inventories in our Consolidated Balance Sheet primarily consist of natural gas in underground storage, NGLs, and materials and supplies and primarily are stated at the lower of cost or net realizable value.

The cost of inventories is primarily determined using the average-cost method.

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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.

We follow the successful efforts method of accounting for our undivided interest in upstream properties.

Our oil and gas producing property costs are depreciated using a units of production 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.

Gains or losses from the ordinary sale or retirement of property, plant, and equipment for nonregulated assets are primarily recorded in Other (income) expense – net included in Operating income (loss) in our Consolidated Statement of Income.

Ordinary maintenance and repair costs are generally expensed as incurred.

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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.

For our upstream properties, the ARO is recorded based on our working interest in the underlying properties.

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.

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 our Consolidated Statement of Income, except for regulated entities, for which the increase in the liability results in a corresponding increase to 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 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.

The Williams Companies, Inc.

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.

Intangible assets

Our intangible assets included within Intangible assets – net of accumulated amortization in our Consolidated Balance Sheet are primarily related to gas gathering, processing, and fractionation customer relationships.

Our intangible assets are generally 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.

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

We evaluate our property, plant, and equipment and 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 the assets in the near term or holding them for their remaining estimated useful life.

If an impairment of the carrying value has occurred, we determine the amount of the impairment to be recognized in our consolidated 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.

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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.

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 our consolidated financial statements as an impairment charge.

Judgment 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.

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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.

Cash flows from revolving credit facility and commercial paper program

Proceeds and payments related to borrowings under our revolving credit facility are reflected in the financing activities in our 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 our 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 13 – Debt and Banking Arrangements.)

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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.

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 our Consolidated Balance Sheet.

Gains and losses on the subsequent reissuance of shares are credited or charged to Capital in excess of par value in our 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.

We are exposed to commodity price risk.

We 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 purchase natural gas for storage when the current market price paid to buy and transport natural gas plus the cost to store and finance the natural gas is less than an estimated, forward market price that can be received in the future.

Additionally, we enter into transactions to secure transportation capacity between delivery points in order to serve our customers and various markets.

Commodity-based exchange-traded futures contracts and over-the-counter (OTC) contracts are used to capture the price differential or spread between the locations served by the capacity in order to substantially protect the natural gas revenues that will ultimately be realized when the physical flow of natural gas between receipt and delivery points occurs.

Some commodity-related derivative contracts require physical delivery as opposed to financial settlement, and this type of derivative is both common and prevalent within the natural gas marketing operations.

These contracts generally meet the definition of derivatives and are typically not designated as hedges for accounting purposes.

When a commodity-related derivative contract is settled physically, any cumulative unrealized gain or loss is reversed, and the contract price is recognized in the respective line item in our Consolidated Statement of Income representing the actual price of the underlying goods being delivered.

Unrealized gains and losses on physically settled commodity-related derivative contracts are recognized in Net gain (loss) on commodity derivatives in our Consolidated Statement of Income.

Realized and unrealized gains and losses on non-designated commodity-related derivative contracts that are financially settled are reported in Net gain (loss) on commodity derivatives in our Consolidated Statement of Income.

We experience significant earnings volatility from the fair value accounting required for the derivatives used to hedge a portion of the economic value of the underlying transportation and storage portfolio.

However, the unrealized fair value measurement gains and losses are generally offset by valuation changes in the economic value of the underlying transportation and storage portfolio, which is not recognized until the underlying transportation and storage transaction occurs.

(See Note 18 – Derivatives.)

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;

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Accrued liabilities ;

or Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet.

or Regulatory liabilities, deferred income, and other in our Consolidated Balance Sheet.

These amounts are presented on a net basis and reflect the netting of asset and liability positions permitted under the terms of master netting arrangements and cash held on deposit in margin accounts that we have received or remitted to collateralize certain derivative positions.

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:

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All other derivatives Mark-to-market accounting

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Notes to Consolidated Financial Statements – (Continued)

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.

Under accrual accounting, any change in the fair value of these derivatives is not reflected in our Consolidated Balance Sheet after the initial election of the exception.

We may also designate a hedging relationship for certain commodity derivatives.

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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.

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 Net gain (loss) on commodity derivatives in our Consolidated Statement of Income.

For commodity derivatives designated as a cash flow hedge, the change in fair value of the derivative is reported in Accumulated other comprehensive income (loss) (AOCI) in our 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.

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 Net gain (loss) on commodity derivatives in our Consolidated Statement of Income 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 .

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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.

As of December 31, 2021, we are not applying hedge accounting to any commodity derivative instruments.

Revenue recognition

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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.

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The contract liability is recognized into service revenues as the underlying performance obligations are satisfied.

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Notes to Consolidated Financial Statements – (Continued)

Service Revenues

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• 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.

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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.

Additionally, certain contracts in our midstream

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Notes to Consolidated Financial Statements – (Continued)

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.

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Production estimates are monitored as circumstances and events warrant.

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Notes to Consolidated Financial Statements – (Continued)

of our gas gathering and processing agreements have minimum volume commitments (MVC).

Certain 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.

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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 .

As a result, revenue is recognized in our Consolidated Statement of Income 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.

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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.

In addition, we retain NGLs as consideration in certain processing arrangements,

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Notes to Consolidated Financial Statements – (Continued)

as discussed above in the Service Revenues - Midstream businesses section.

We also market natural gas and NGLs from the production at our upstream properties.

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.

Commodity-based exchange-traded futures contracts and OTC contracts are used to sell natural gas at that future price to substantially protect the natural gas revenues that will ultimately be realized when the stored natural gas is sold.

Additionally, we enter into transactions to secure transportation capacity between delivery points in order to serve our customers and various markets.

The physical purchase, transportation, storage, and sale of natural gas are accounted for on a weighted-average cost or accrual basis, as appropriate, rather than on the fair value basis utilized for the derivatives used to mitigate the natural gas price risk associated with the storage and transportation portfolio.

Monthly demand charges are incurred for the contracted storage and transportation capacity and payments associated with asset management agreements, and these demand charges and payments are recognized in our Consolidated Statement of Income in the period they are incurred.

As we are acting as an agent for our natural gas marketing customers, our natural gas marketing revenues are presented net of the related costs of those activities.

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.

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 our 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

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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.

These amounts are deferred until recognized in revenue when the 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 our 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.

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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.

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.

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Notes to Consolidated Financial Statements – (Continued)

We recognize a lease liability with an offsetting right-of-use asset in our 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.

Our lease agreements require both fixed and variable periodic payments, with initial terms typically ranging from one year to 20 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.

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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

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Notes to Consolidated Financial Statements – (Continued)

are calculated in accordance with FERC rules.

The latter is included in Other income (expense) – net below Operating income (loss) in our Consolidated Statement of Income.

The rates used by regulated companies are calculated in accordance with FERC rules.

Rates used by nonregulated companies are based on our average interest rate on debt.

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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 funded status of each of the pension and other postretirement benefit plans is recognized separately in our Consolidated Balance Sheet as either an asset or liability.

The plans’ benefit obligations and net periodic benefit costs (credits) are actuarially determined and impacted by various assumptions and estimates.

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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.

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Notes to Consolidated Financial Statements – (Continued)

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 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 5 years for our other postretirement benefit plan.

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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.

Basic earnings (loss) per common share in our Consolidated Statement of Income 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 our Consolidated Statement of Income 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.

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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

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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.

In accordance with the contract, future expansion activity is required 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:

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Trade accounts and other receivables – net 132 148

Inventories 3 —

Other current assets and deferred charges 7 7

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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

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

Note 3 – Acquisitions

On July 1, 2021, we completed the Sequent Acquisition in which we acquired 100 percent of Sequent Energy Management, L.P.

and Sequent Energy Canada, Corp.

Total consideration for this acquisition was $ 159 million, which included $ 109 million related to working capital.

Operations acquired in the Sequent Acquisition focus on risk management and the marketing, trading, storage, and transportation of natural gas for a diverse set of natural gas utilities, municipalities, power generators, and producers, as well as moving gas to markets through transportation and storage agreements on strategically positioned assets, including our Transco system.

The purpose of the Sequent Acquisition was to expand our natural

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Notes to Consolidated Financial Statements – (Continued)

remaining 38 percent interest in UEOM.

gas marketing activities as well as optimize our pipeline and storage capabilities with expansions into new markets to reach incremental gas-fired power generation, liquified natural gas exports, and future renewable natural gas and other emerging opportunities.

The Sequent Acquisition 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.

Pro forma revenues and earnings as if the Sequent Acquisition had been completed on January 1, 2020, are not materially different from our historical results for the years ended December 31, 2021 and 2020.

During the period from the acquisition date of July 1, 2021 to December 31, 2021, Sequent’s results included net product sales of $( 43 ) million (including $ 80 million of purchases from affiliates), n et loss on commodity derivatives of $ 43 million, and unfavorable Modified EBITDA (as defined in Note 20 – Segment Disclosures) of $ 112 million.

Both the net loss on commodity derivatives and Modified EBITDA amounts reflect a net unrealized loss on commodity derivatives of $ 109 million for the period.

Costs related to the Sequent Acquisition are approximately $ 5 million and are included in Selling, general, and administrative expenses in our Consolidated Statement of Income.

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 Sequent segment, and liabilities assumed at July 1, 2021.

The fair value of accounts receivable acquired equals contractual amounts receivable.

Preliminary fair value measurements were made for certain acquired assets and liabilities, primarily intangible assets;

however, adjustments to those measurements may be made in subsequent periods, up to one year from the acquisition date, as new information related to facts and circumstances as of the acquisition date may be identified.

The fair value of the intangible assets were measured using an income approach.

The inventory acquired relates to natural gas in underground storage.

The fair value of this inventory was based on the market price of the underlying commodity at the acquisition date.

See Note 17 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk for the valuation techniques used to measure fair value of derivative assets and liabilities.

Cash and cash equivalents $ 8

Trade accounts and other receivables – net 498

Inventories 121

Other current assets and deferred charges 4

Commodity derivatives included in other current assets and deferred charges

Property, plant, and equipment – net 5

Intangible assets 306

Regulatory assets, deferred charges, and other 3

Commodity derivatives included in regulatory assets, deferred charges, and other

Total assets acquired $ 1,051

Accounts payable $ 514

Accrued liabilities 46

Commodity derivatives included in accrued liabilities

Regulatory liabilities, deferred income, and other 1

Commodity derivatives included in regulatory liabilities, deferred income, and other

Total liabilities assumed $ 892

Net assets acquired $ 159

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Notes to Consolidated Financial Statements – (Continued)

Accounts receivable and accounts payable

Sequent provides services to retail and wholesale gas marketers, utility companies, upstream producers, and industrial customers.

See Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies for our policy regarding netting receivables and payables.

Intangible assets

Intangible assets are primarily related to transportation and storage capacity contracts.

The basis for determining the value of these intangible assets was estimated future net cash flows to be derived from acquired transportation and storage capacity contracts that provide future economic benefits due to their market location, discounted using an industry weighted-average cost of capital.

This intangible asset is being amortized based on the expected benefit period over which the underlying contracts are expected to contribute to our cash flows ranging from 1 year to 8 years.

As a result, we expect a significant portion of the amortization to be recognized within the first few years of this range.

See Note 11 – Intangible Assets.

Commodity derivatives

We are exposed to commodity price risk.

To manage this volatility, we use various contracts in our marketing and trading activities that generally meet the definition of derivatives.

We enter into commodity-related derivatives to economically hedge exposures to natural gas and retain exposure to price changes that can, in a volatile energy market, be material and can adversely affect our results of operations;

see Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies for our accounting policy for derivatives.

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 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.

UEOM is involved primarily in the processing and fractionation of natural gas and NGLs in the Utica Shale play in eastern Ohio.

The purpose of the acquisition was to enhance our position in the region.

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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 net assets acquired reflect the sum of the consideration transferred and the noncash

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Notes to Consolidated Financial Statements – (Continued)

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.

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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.

Substantially all of the goodwill is deductible for tax purposes.

The goodwill 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).

Our partner’s $ 65 million share of this impairment is reflected within Net income (loss) attributable to noncontrolling interests in our Consolidated Statement of Income (see Note 17 – 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.

See Note 11 – Intangible Assets for a discussion of the valuation and amortization of these intangible assets.

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.

for the year ended December 31, 2019 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.

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include the removal of the previously described $ 74 million impairment loss recognized in March 2019 just prior to the acquisition.

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

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.

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 our Consolidated Statement of Income for the year ended December 31, 2019.

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,

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.

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 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 our 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 our Consolidated Statement of Income for the year ended December 31, 2019.

The Williams Companies, Inc.

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Transco Northwest Pipeline Gulf of Mexico Midstream Northeast

Midstream West Midstream Other Eliminations Total

Midstream West Midstream Sequent Other Eliminations Total

Revenues from contracts with customers:

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Product sales 88 — 269 99 4,330 2,139 333 ( 637 ) 6,621

NGL and natural gas

80 — 114 57 1,565 — ( 147 ) 1,669

Total revenues from contracts with customers

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10 3 8 25 ( 73 ) 2,673 11 ( 13 ) 2,644

Other adjustments (2) — — — — — ( 4,898 ) — 97 ( 4,801 )

Total revenues

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Product sales 80 — 114 57 1,565 — — ( 147 ) 1,669

NGL and natural gas

106 — 185 150 1,795 — ( 173 ) 2,063

Total revenues from contracts with customers

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Transco Northwest Pipeline Gulf of Mexico Midstream Northeast

Midstream West Midstream Other Eliminations Total

Midstream West Midstream Sequent Other Eliminations Total

Revenues from contracts with customers:

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Product sales 106 — 185 150 1,795 — — ( 173 ) 2,063

NGL and natural gas

127 — 307 287 2,421 — ( 382 ) 2,760

— — — — 21 — ( 4 ) 17

Total product sales

127 — 307 287 2,442 — ( 386 ) 2,777

Total revenues from contracts with customers

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______________________________

(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 .

(1) Revenues not derived 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 Income, and realized and unrealized gains and losses associated with our derivative contracts, which are reported in Net gain (loss) on commodity derivatives in the Consolidated Statement of Income.

(2) Other adjustments relate to costs of Sequent’s risk management activities.

As Sequent is acting as an agent for its customers, its revenues are presented net of the related costs of those activities in the Consolidated Statement of Income.

In addition, all of Sequent’s derivative activities qualify as held for trading purposes, which requires net presentation.

Contract Assets

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Significant financing component

Chesapeake global resolution (Note 1)

Chesapeake global bankruptcy resolution — 67

Contract liability acquired 1 —

Recognized in revenue

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Contract Liabilities Remaining Performance Obligations

2021 $ 129 $ 3,537

2022 113 3,329

2023 118 3,076

2024 98 2,443

2022 ( one year )

$ 138 $ 3,624

Thereafter 659 17,760

2023 ( one year )

2024 ( one year )

2025 ( one year )

2026 ( one year )

Total $ 1,126 $ 32,479

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Note 5 – 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:

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

Transmission & Gulf of Mexico Northeast G&P West Other

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Severance and related costs 39 7 10 1

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 $ 17 million, $ 15 million, and $ 32 million of income for equity AFUDC within the Transmission & Gulf of Mexico segment for the years ended December 31, 2021, 2020, and 2019, 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

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.

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

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

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

Appalachia Midstream Investments $ 357 $ 293 $ 297

Gulfstream 93 86 93

OPPL 50 77 73

Blue Racer/Caiman II (1) 47 42 46

Laurel Mountain 31 30 23

Discovery 21 41 45

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

Assets (liabilities):

Current assets

Noncurrent assets

13,424 11,966

Current liabilities

( 312 ) ( 341 )

Noncurrent liabilities

( 3,884 ) ( 2,532 )

Year Ended December 31,

2020 2019 2018

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)

Other income (expense) – net below Operating income (loss) also includes $ 4 million and $ 9 million of income for the years ended December 31, 2021 and 2019, respectively, and $( 13 ) million of loss for the year ended December 31, 2020, associated with regulatory assets related to the effects of deferred taxes on equity funds used during construction primarily within the Other segment.

Note 6 – Provision (Benefit) for Income Taxes

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State income taxes (net of federal benefit)

State deferred income tax rate change

Federal valuation allowance

Provision (benefit) for income taxes $ 511 $ 79 $ 335

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

Income (loss) from continuing operations before income taxes includes $ 2 million, $ 1 million, and $ 6 million of foreign loss in 2021, 2020, and 2019, respectively.

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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:

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Accrued liabilities

Minimum tax credit

Foreign tax credit

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These attributes generally expire between 2022 and 2040 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.

Federal loss carryovers include deferred tax assets on loss carryovers of $ 879 million at the end of 2021 which have no expiration date.

Cash refunds for income taxes (net of payments) were $ 45 million, $ 40 million, and $ 86 million in 2021, 2020, and 2019, respectively.

As of December 31, 2021, we had approximately $ 52 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.

If recognized, income tax expense would be reduced by $ 51 million for 2021 and 2020, respectively, including the effect of these changes on other tax attributes, with state income tax amounts included net of federal tax effect.

It is reasonably possible that the total amounts of unrecognized tax benefits will significantly decrease within 12 months by as much

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

as $ 32 million due to the resolution of audits related to U.S.

federal and state tax positions.

If recognized, Provision (benefit) for income taxes would be reduced by $ 31 million, including the effect of these changes on other tax attributes, with state income tax amounts included net of federal tax effect.

The remaining unrecognized tax positions, if recognized, would reduce Provision (benefit) for income taxes by $ 20 million in 2021 and 2020.

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 benefits of $ 1 million in each of 2021 and 2020, and expenses of $ 1 million for 2019.

Approximately $ 4 million of interest and penalties primarily relating to uncertain tax positions have been accrued as of both December 31, 2021 and 2020.

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.

Federal income tax returns are open to Internal Revenue Service (IRS) examination for years after 2010, excluding 2015 through 2017, for which the statutes have expired.

As of December 31, 2021, examinations of tax returns for 2011 through 2013 are currently in appeals, 2014 is being surveyed, and 2018 is currently under examination.

The statute for 2018 is extended to September 30, 2023.

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.

Generally, tax returns for our previously owned Canadian entities are closed.

Tax years 2013 and 2014 were under income tax examination, but in September of 2021 we received “no change” letters for both years.

Note 7 – Earnings (Loss) Per Common Share from Continuing Operations

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$ 1.24 $ .17 $ .71

________________

(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.

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

Note 8 – Employee Benefit Plans

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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 Total

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Balance at December 31, 2021 $ ( 2 ) $ ( 1 ) $ ( 30 ) $ ( 33 )

_______________

(1) As of December 31, 2021, we are not applying hedge accounting to any commodity derivative instruments.

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

Reclassifications out of AOCI are presented in the following table by component for the year ended December 31, 2021:

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Energy commodity contracts

$ 1 Product sales

$ 55 Net gain (loss) on commodity derivatives

Pension and other postretirement benefits:

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Approximately 1.4 million shares were available for purchase under the ESPP at December 31, 2021.

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.

Operating and maintenance expenses and Selling, general, and administrative expenses in our Consolidated Statement of Income include equity-based compensation expense for the years ended December 31, 2021, 2020, and 2019 of $ 81 million, $ 52 million, and $ 57 million, respectively.

Income tax benefit recognized related to the stock-based compensation expense for the years ended December 31, 2021, 2020, and 2019 was $ 20 million, $ 13 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.

Measured but unrecognized stock-based compensation expense at December 31, 2021, was $ 64 million, all of which related to restricted stock units.

These amounts are expected to be recognized over a weighted-average period of 1.7 years.

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______________

(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.

(1) Performance-based restricted stock units are valued considering measures such as total shareholder return utilizing a Monte Carlo valuation method, as well as return on capital employed, a ratio of debt to EBITDA, and available funds from operations.

All time based restricted stock units are valued at the grant-date market price.

Restricted stock units generally vest after three years .

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Stock Options

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

Stock Options Options Weighted-

Price Aggregate

(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

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

There were no stock options granted in 2021, 2020, or 2019.

At December 31, 2021, we had 5.2 million stock options that were both outstanding and exercisable, with a weighted-average exercise price of $ 33.51 .

The weighted-average remaining contractual life for stock options that were both outstanding and exercisable at December 31, 2021, was 2.9 years.

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:

Weighted-average grant date fair value of options for our common stock granted during the year, per share

Weighted-average assumptions:

Dividend yield

Risk-free interest rate

Expected life (years)

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 17 – 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.

The carrying values of cash and cash equivalents, accounts receivable, 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.

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ARO Trust investments $ 260 $ 260 $ 260 $ — $ —

Commodity derivative assets (1) 84 84 2 81 1

Commodity derivative liabilities (1) ( 488 ) ( 488 ) ( 69 ) ( 403 ) ( 16 )

Additional disclosures:

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ARO Trust investments $ 235 $ 235 $ 235 $ — $ —

Commodity derivative assets 3 3 1 2 —

Commodity derivative liabilities ( 6 ) ( 6 ) ( 3 ) ( 1 ) ( 2 )

Additional disclosures:

1 unchanged sentence

Guarantees ( 40 ) ( 27 ) — ( 11 ) ( 16 )

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

(1) Excludes approximately $ 296 million of net cash collateral in Level 1.

Fair Value Methods

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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.

Commodity derivatives :

Commodity derivatives include exchange-traded contracts and OTC contracts, which consist of physical forwards, futures, and swaps that are measured at fair value on a recurring basis.

We also have other derivatives related to asset management agreements and other contracts that require physical delivery.

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

Derivatives classified as Level 1 are valued using New York Mercantile Exchange (NYMEX) futures prices.

Derivatives classified as Level 2 are valued using basis transactions that represent the cost to transport natural gas from a NYMEX delivery point to the contract delivery point.

These transactions are based on quotes obtained either through electronic trading platforms or directly from brokers.

Derivatives classified as Level 3 are valued using a combination of observable and unobservable inputs.

Beginning in the third quarter of 2021 the fair value amounts are presented on a net basis and reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements and cash held on deposit in margin accounts that we have received or remitted to collateralize certain derivative positions.

Commodity derivative assets are reported in Other current assets and deferred charges and Regulatory assets, deferred charges, and other in our Consolidated Balance Sheet.

Commodity derivative liabilities are reported in Accrued liabilities and Regulatory liabilities, deferred income, and other in our Consolidated Balance Sheet.

See Note 18 – Derivatives for additional information on our derivatives.

The following table presents a reconciliation of changes in fair value of our net commodity derivatives classified as Level 3 in the fair value hierarchy.

Year Ended December 31,

Balance at beginning of period $ ( 2 ) $ ( 2 )

Realized and unrealized gains (losses):

Included in income (loss) ( 62 ) —

Purchases, issuances, and settlements 13 —

Acquired derivatives (Note 3)

Transfers out of Level 3 12 —

Balance at end of period $ ( 15 ) $ ( 2 )

Additional fair value disclosures

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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).

The fair values of the financing obligations associated with our Dalton, Leidy South, and Atlantic Sunrise projects, which are included within long-term debt, were determined using an income approach (see Note 13 – Debt and Banking Arrangements).

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.

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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 carrying value of the WilTel guarantee is reported in Accrued liabilities in our Consolidated Balance Sheet.

The maximum potential undiscounted exposure is approximately $ 25 million at December 31, 2021.

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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.

The carrying value of this guarantee is reported in Regulatory liabilities, deferred income, and other in our Consolidated Balance Sheet.

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

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.

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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).

As a result of these conditions, we performed an interim assessment of the goodwill 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).

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.

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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).

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 our Consolidated Statement of Income.

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

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.

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Impairment of certain assets:

Certain capitalized project costs (1) Transmission & Gulf of Mexico June 30, 2021 $ 1 $ 2

Certain capitalized project costs (1) Transmission & Gulf of Mexico December 31, 2020 42 $ 170

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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 (6) 19

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$ 2 $ 182 $ 464

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

Year Ended December 31,

Segment Date of Measurement Fair Value 2020 2019 2018

Impairment of equity-method investments:

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Brazos Permian II (8) West March 31, 2020 — 193

Caiman II (11) Northeast G&P March 31, 2020 191 229

BRMH (9) Northeast G&P March 31, 2020 191 229

Appalachia Midstream Investments (9) Northeast G&P March 31, 2020 2,700 127

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UEOM (13) Northeast G&P March 17, 2019 1,210 74

UEOM (15) Northeast G&P December 31, 2018 1,293 $ 32

Impairment of equity-method investments

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(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.

As previously disclosed, approvals required for the project from the New York State Department of Environmental

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

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 .

However, developments in the political and regulatory environments 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 at December 31, 2020 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 certain capitalized project costs at June 30, 2021, was determined by a market approach, which incorporated an indication of interest by a third-party.

(2) Relates to a gathering system in the Marcellus Shale region, that was sold in 2021.

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.

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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.

Our partners’ $ 209 million share of this impairment is reflected within Net income (loss) attributable to noncontrolling interests in our Consolidated Statement of Income.

(4) Relates to a gas gathering system in the Eagle Ford Shale region for which we expected declines in asset utilization and possible idling of the gathering system.

As a result, we measured the fair value of these assets at December 31, 2019 using a market approach.

These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy.

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(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.)

(6) 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.

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We utilized a discount rate of 18 percent in our analysis .

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

(8) Following the previously described declining market conditions during the first quarter of 2020, we evaluated these investments for other-than-temporary impairment.

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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.

We also considered any debt held at

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

the investee level, and its impact to fair value.

The industry weighted-average discount rates utilized were significantly influenced by the market declines previously discussed.

(9) 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 5.0 x to 6.2 x EBITDA (weighted-average 6.0 x).

The fair values of our investments in BRMH and Aux Sable Liquid Products LP (Aux Sable) were estimated using a market approach, reflecting valuation multiples ranging from 5.0 x to 6.2 x EBITDA (weighted-average 6.0 x).

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.

The assumed valuation multiples and industry weighted-average discount rates utilized were both significantly influenced by the market declines previously discussed.

(10) 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.

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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).

(13) 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).

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

Accounts receivable

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

NGLs, natural gas, and related products and services $ 486 $ 470

Transportation of natural gas and related products 254 277

Regulated interstate natural gas transportation and storage 274 254

Marketing of natural gas and NGLs (1) 609 167

Upstream activities 82 1

Accounts Receivable related to revenues from contracts with customers

Other 107 106

Derivative receivables (2) 462 —

Trade accounts and other receivables - net $ 1,978 $ 999

(1) Includes $ 290 million related to our Sequent segment as of December 31, 2021.

(2) Includes $ 462 million related to our Sequent segment as of December 31, 2021.

The Williams Companies, Inc.

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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.

As a general policy, collateral is not required for receivables with the exception of the marketing receivables discussed below.

Customers’ financial condition and credit worthiness are evaluated regularly and, based upon this evaluation, we may obtain collateral to support receivables.

We use established credit policies to determine and monitor the creditworthiness of gas marketing and trading counterparties, including requirements to post collateral or other credit security, as well as the quality of pledged collateral.

Collateral or credit security is most often in the form of cash or letters of credit from an investment-grade financial institution, but may also include U.S.

government securities.

We also utilize netting agreements whenever possible to mitigate exposure to gas marketing and trading counterparty credit risk.

When more than one derivative transaction with the same counterparty is outstanding and a legally enforceable netting agreement exists with that counterparty, the “net” mark-to-market exposure represents a reasonable measure of our credit risk with that counterparty.

Note 18 – Derivatives

Commodity-Related Derivatives

We are exposed to commodity price risk.

To manage this volatility we use various contracts in our marketing and trading activities that generally meet the definition of derivatives.

Derivative positions are monitored using techniques including, but not limited to value at risk.

Derivative instruments are recognized at fair value in our Consolidated Balance Sheet as either assets or liabilities and are presented on a net basis by counterparty, net of margin deposits.

See Note 17 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk for additional fair value information.

In our Consolidated Statement of Cash Flows, any cash impacts of settled commodity-related derivatives are recorded as operating activities.

We enter into commodity-related derivatives to economically hedge exposures to natural gas, NGLs, and crude oil and retain exposure to price changes that can, in a volatile energy market, be material and can adversely affect our results of operations.

At December 31, 2021, the notional volume of the net long (short) positions for our commodity derivative contracts were as follows:

Segment Commodity Unit of Measure Net Long (Short) Position

Sequent (1) Natural Gas MMBtu 623,763,087

West - Central Hub Risk Natural Gas Liquids Barrels 302,000

West - Basis Risk Natural Gas Liquids Barrels ( 19,649,000 )

West - Central Hub Risk Natural Gas MMBtu ( 22,375,500 )

West - Basis Risk Natural Gas MMBtu ( 33,050,500 )

_______________

(1) Derivative instruments include both long and short natural gas positions.

The volume represents the net of long natural gas positions of 4.0 billion MMBtu (million British thermal units) and short natural gas positions of 3.4 billion MMBtu .

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

Derivative Financial Statement Presentation

The fair value of commodity-related derivatives was reflected in our Consolidated Balance Sheet as follows:

2021 December 31,

Derivative Category Assets (Liabilities) Assets (Liabilities)

Derivatives designated as hedging instruments

Current $ — $ — $ 1 $ ( 2 )

Noncurrent — — — —

Total derivatives designated as hedging instruments $ — $ — $ 1 $ ( 2 )

Derivatives not designated as hedging instruments

Current $ 619 $ ( 760 ) $ 2 $ ( 3 )

Noncurrent 166 ( 429 ) — ( 1 )

Total derivatives not designated as hedging instruments $ 785 $ ( 1,189 ) $ 2 $ ( 4 )

Gross amounts recognized $ 785 $ ( 1,189 ) $ 3 $ ( 6 )

Counterparty and collateral netting offset ( 476 ) 772 — —

Amounts recognized in our Consolidated Balance Sheet $ 309 $ ( 417 ) $ 3 $ ( 6 )

For the years ended December 31, 2021, 2020, and 2019 the pre-tax effects of commodity-related derivatives instruments in Net gain (loss) on commodity derivatives in our Consolidated Statement of Income were as follows:

Year Ended December 31,

2021 2020 2019

Realized commodity-related derivatives designated as hedging instruments $ ( 55 ) $ ( 2 ) $ —

Realized commodity-related derivatives not designated as hedging instruments 16 ( 3 ) ( 1 )

Net unrealized gain (loss) from derivative instruments not designated as hedging instruments (1) ( 109 ) — 3

Net gain (loss) on commodity derivatives $ ( 148 ) $ ( 5 ) $ 2

_______________

(1) All of the net loss in 2021 related to our Sequent segment.

All of the net gain in 2019 related to our West segment.

Contingent Features

Generally, collateral may be provided by a parent guaranty, letter of credit, or cash.

If collateral is required, fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are offset against fair value amounts recognized for derivatives executed with the same counterparty.

We have trade and credit contracts that contain minimum credit rating requirements.

These credit rating requirements typically give counterparties the right to suspend or terminate credit if our credit ratings are downgraded to non-investment grade status.

Under such circumstances, we would need to post collateral to continue

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

transacting business with some of our counterparties.

As of December 31, 2021 the required collateral in the event of a credit rating downgrade to non-investment grade status was $ 13 million.

We maintain accounts with brokers or the clearing houses of certain exchanges to facilitate financial derivative transactions.

Based on the value of the positions in these accounts and the associated margin requirements, we may be required to deposit cash into these accounts.

At December 31, 2021, net cash collateral held on deposit in broker margin accounts was $ 296 million.

Note 19 – Contingent Liabilities and Commitments

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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.

(WPX) and its subsidiaries, and others alleging the manipulation of published gas price indices in 2000 and 2002 and seeking unspecified amounts of damages.

Such actions were transferred to the Nevada federal district court for consolidation of discovery and pre-trial issues.

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Oral argument occurred before the appellate court on January 19, 2021.

On June 22, 2021, the appellate court ruled that we are not entitled to summary judgment and remanded the case to the Kansas federal district court.

The court scheduled trial to begin May 9, 2022.

In January 2022, we reached an agreement to settle this action and it has been dismissed.

In the putative class actions, on March 30, 2017, the court issued an order denying the plaintiffs’ motions for class certification.

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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.

Two putative class actions remain unresolved, and they have been remanded to their originally filed court, the Wisconsin federal district court where the plaintiffs have re-urged their motion for class certification.

Trial was scheduled to begin June 14, 2021, but the court struck the setting and has not reset it.

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.

In connection with this indemnification, we have an accrued liability balance associated with this matter and 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.

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

and MAPCO Inc.

We sold the refinery to Flint Hills Resources Alaska, LLC (FHRA), a subsidiary of Koch Industries, Inc., in 2004.

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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.

Certain claims by FHRA 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.

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On December 23, 2020, we filed our opening brief on appeal.

Oral argument was held on December 15, 2021.

We have recorded an accrued liability in the amount of our estimate of the probable loss.

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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.

Certain of our customers, including Chesapeake Energy Corporation (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.

Chesapeake has reached a settlement to resolve substantially all Pennsylvania royalty cases pending, which settlement applies to both Chesapeake and us.

The settlement does not require any contribution from us.

On August 23, 2021, the court approved the settlement, but two objectors filed an appeal with the United States Court of Appeals for the Fifth Circuit.

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 Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

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.

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On May 3, 2016, Energy Transfer and LE GP, LLC filed an answer and counterclaims.

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).

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 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.

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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.

The Court of Chancery originally scheduled trial for May 20 through May 24, 2019;

the court struck that setting and reset trial to occur in 2020.

All 2020 trial settings were struck due to COVID-19.

Trial was held May 10 through May 17, 2021.

Post-trial argument occurred September 16, 2021.

On December 29, 2021, the court entered judgment in our favor in the amount of $ 410 million, plus interest at the contractual rate, and our reasonable attorneys’ fees and expenses.

The judgment may be appealed to the Delaware Supreme Court.

Environmental Matters

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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 December 31, 2021, certain assessment studies were still in process for which the ultimate outcome may yield

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.

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.

The EPA and various state regulatory agencies routinely propose and promulgate 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, reviews and updates to the National Ambient Air Quality Standards, and rules for new and existing source performance standards for volatile organic compound and methane.

We continuously monitor these regulatory changes and how they may impact our operations.

Implementation of new or modified regulations may 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;

however, due to regulatory uncertainty on final rule content and applicability timeframes, we are unable to reasonably estimate the cost of these regulatory impacts at this time.

Continuing operations

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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 indemnities provided to the purchasers are customary in sale transactions and are contingent 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.

The Williams Companies, Inc.

Notes to Consolidated Financial Statements – (Continued)

upon the purchasers incurring liabilities that are not otherwise recoverable from third parties.

At December 31, 2021, other than as previously disclosed, we are not aware of any material claims against us involving the above-described indemnities;

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Commitments for construction and acquisition of property, plant, and equipment are approximately $ 214 million at December 31, 2021.

Commitments for Sequent pipeline transportation capacity, storage capacity, and gas supply are approximately $ 420 million at December 31, 2021.

Note 20 – Segment Disclosures

Our reportable segments are Transmission & Gulf of Mexico, Northeast G&P, and West.

Our reportable segments are Transmission & Gulf of Mexico, Northeast G&P, West, and Sequent.

All remaining business activities are included in Other.

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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.

Intersegment Service revenues primarily represent transportation services provided to our marketing business and gathering services provided to our oil and gas properties.

Intersegment Product sales primarily represent the sale of NGLs from our natural gas processing plants and our oil and gas properties to our marketing business.

We define Modified EBITDA as follows:

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

Year Ended December 31,

2021 2020 2019

Modified EBITDA by segment:

Transmission & Gulf of Mexico $ 2,621 $ 2,379 $ 2,175

Northeast G&P 1,712 1,489 1,314

West 1,095 998 952

Sequent ( 112 ) — —

Other 178 ( 15 ) 6

5,494 4,851 4,447

Accretion expense associated with asset retirement obligations for nonregulated operations ( 45 ) ( 35 ) ( 33 )

Depreciation and amortization expenses ( 1,842 ) ( 1,721 ) ( 1,714 )

Impairment of goodwill — ( 187 ) —

Equity earnings (losses) 608 328 375

Impairment of equity-method investments — ( 1,046 ) ( 186 )

Other investing income (loss) – net 7 8 107

Proportional Modified EBITDA of equity-method investments ( 970 ) ( 749 ) ( 746 )

Interest expense ( 1,179 ) ( 1,172 ) ( 1,186 )

(Provision) benefit for income taxes ( 511 ) ( 79 ) ( 335 )

Income (loss) from discontinued operations — — ( 15 )

Net income (loss) $ 1,562 $ 198 $ 714

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 :

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

Transmission &

Gulf of Mexico Northeast G&P West Other Eliminations Total

Gulf of Mexico Northeast G&P West Sequent (1) Other Eliminations Total

Segment revenues:

9 unchanged sentences

Total product sales 349 99 4,330 ( 43 ) 333 ( 532 ) 4,536

Net gain (loss) on commodity derivatives (2) — — ( 85 ) ( 43 ) ( 20 ) — ( 148 )

Total revenues $ 3,786 $ 1,634 $ 5,645 $ ( 86 ) $ 345 $ ( 697 ) $ 10,627

14 unchanged sentences

Total product sales 191 57 1,567 — — ( 144 ) 1,671

Net gain (loss) on commodity derivatives (2) — — ( 5 ) — — — ( 5 )

Total revenues $ 3,469 $ 1,529 $ 2,943 $ — $ 34 $ ( 256 ) $ 7,719

7 unchanged sentences

Transmission &

Gulf of Mexico Northeast G&P West Other Eliminations Total

Gulf of Mexico Northeast G&P West Sequent (1) Other Eliminations Total

Segment revenues:

8 unchanged sentences

Total product sales 288 150 1,795 — — ( 170 ) 2,063

Net gain (loss) on commodity derivatives (2) — — 2 — — — 2

Total revenues $ 3,640 $ 1,500 $ 3,311 $ — $ 30 $ ( 280 ) $ 8,201

4 unchanged sentences

177 454 115 — — — 746

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,

______________

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)

(1) Sequent nets revenues from marketing and trading activities with the associated costs.

(2) We record transactions that qualify as derivatives at fair value with changes in fair value recognized in earnings in the period of change and characterized as unrealized gains or losses.

Gains and losses on derivatives held for energy trading purposes are presented on a net basis in revenue.

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

4 unchanged sentences

West 10,851 10,558 838 867

Sequent 1,592 — — —

Other (1) 3,233 927 — —

Eliminations (2) ( 3,394 ) ( 999 ) — —

$ 44,165 $ 46,040 $ 5,159 $ 6,235

Total $ 47,612 $ 44,165 $ 5,121 $ 5,159

______________

(1) Increase in Other is due primarily to an increased cash balance and the acquisitions of oil and gas properties in 2021.

(2) 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.

11 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data