WILLIAMS COMPANIES, INC. 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm The Stockholders and the Board of Directors of The Williams Companies, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of The Williams Companies, Inc. (the Company) as of December 31, 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 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 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. Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. 66 Critical Audit Matters 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 Description of the Matter At December 31, 2021, the Company’s aggregate pension and other postretirement benefit obligations were $1,333 million and were exceeded by the fair value of pension and other postretirement plan assets of $1,623 million, resulting in overfunded pension and other postretirement benefit obligations of $290 million. As explained in Note 8 to the consolidated financial statements, the Company utilized key assumptions to determine the pension and other postretirement benefit obligations. Auditing the pension and other postretirement benefit obligations is complex and required the involvement of specialists due to the judgmental nature of the actuarial assumptions (e.g., discount rates and cash balance interest crediting rate) used in the measurement process. These assumptions have a significant effect on the projected benefit obligations. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls relating to the measurement and valuation of the pension and other postretirement benefit obligations, including controls over management’s review of the pension and other postretirement obligations, the significant actuarial assumptions, and the data inputs. To test the pension and other postretirement benefit obligations, our audit procedures included, among others, evaluating the methodologies used, the significant actuarial assumptions discussed above, and the underlying data used by the Company. We compared the actuarial assumptions used by management to historical trends and evaluated the changes in the funded status from prior year. In addition, we involved our actuarial specialists to assist with our procedures. For example, we evaluated management’s methodology for determining the discount rates that reflect the maturity and duration of the benefit payments and are used to measure the pension and other postretirement benefit obligations. As part of this assessment, we independently developed a range of yield curves, we compared the projected cash flows to prior year, and compared the current year benefits paid to the prior year projected cash flows. To test the cash balance interest crediting rate, we independently calculated a range of rates and compared them to the rate used by management. We also tested the completeness and accuracy of the underlying data, including the participant data. /s/ Ernst & Young LLP We have served as the Company’s auditor since 1962. Tulsa, Oklahoma February 28, 2022 67 Report of Independent Registered Public Accounting Firm To the Management Committee and Members of Gulfstream Natural Gas System, L.L.C.: Opinion on the Financial Statements We have audited the 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 These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these financial statements in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Houston, Texas February 28, 2022 We have served as the Company’s auditor since 2018. 68 The Williams Companies, Inc. Consolidated Statement of Income Year Ended December 31, 2021 2020 2019 (Millions, except per-share amounts) Revenues: Service revenues $ 6,001 $ 5,924 $ 5,933 Service revenues – commodity consideration 238 129 203 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 Costs and expenses: Product costs 3,931 1,545 1,961 Processing commodity expenses 101 68 105 Operating and maintenance expenses 1,548 1,326 1,468 Depreciation and amortization expenses 1,842 1,721 1,714 Selling, general, and administrative expenses 558 466 558 Impairment of certain assets (Note 17) 2 182 464 Impairment of goodwill (Note 17) — 187 — Other (income) expense – net 14 22 10 Total costs and expenses 7,996 5,517 6,280 Operating income (loss) 2,631 2,202 1,921 Equity earnings (losses) (Note 9) 608 328 375 Impairment of equity-method investments (Note 17) — ( 1,046 ) ( 186 ) Other investing income (loss) – net (Note 9) 7 8 107 Interest incurred ( 1,190 ) ( 1,192 ) ( 1,218 ) Interest capitalized 11 20 32 Other income (expense) – net 6 ( 43 ) 33 Income (loss) from continuing operations before income taxes 2,073 277 1,064 Less: Provision (benefit) for income taxes 511 79 335 Income (loss) from continuing operations 1,562 198 729 Income (loss) from discontinued operations — — ( 15 ) Net income (loss) 1,562 198 714 Less: Net income (loss) attributable to noncontrolling interests 45 ( 13 ) ( 136 ) Net income (loss) attributable to The Williams Companies, Inc. 1,517 211 850 Less: Preferred stock dividends 3 3 3 Net income (loss) available to common stockholders $ 1,514 $ 208 $ 847 Amounts attributable to The Williams Companies, Inc. available to common stockholders: Income (loss) from continuing operations $ 1,514 $ 208 $ 862 Income (loss) from discontinued operations — — ( 15 ) Net income (loss) $ 1,514 $ 208 $ 847 Basic earnings (loss) per common share: Income (loss) from continuing operations $ 1.25 $ .17 $ .71 Income (loss) from discontinued operations — — ( .01 ) Net income (loss) $ 1.25 $ .17 $ .70 Weighted-average shares (thousands) 1,215,221 1,213,631 1,212,037 Diluted earnings (loss) per common share: Income (loss) from continuing operations $ 1.24 $ .17 $ .71 Income (loss) from discontinued operations — — ( .01 ) Net income (loss) $ 1.24 $ .17 $ .70 Weighted-average shares (thousands) 1,218,215 1,215,165 1,214,011 See accompanying notes. 69 The Williams Companies, Inc. Consolidated Statement of Comprehensive Income (Loss) Year Ended December 31, 2021 2020 2019 (Millions) Net income (loss) $ 1,562 $ 198 $ 714 Other comprehensive income (loss): Cash flow hedging activities: Net unrealized gain (loss) from derivative instruments, net of taxes of $ 14 , $ — , and $ — in 2021, 2020, and 2019, respectively ( 40 ) ( 2 ) — Reclassifications into earnings of net derivative instruments (gain) loss, net of taxes of ($ 14 ), $ — , and $ — in 2021, 2020, and 2019, respectively 41 1 — Pension and other postretirement benefits: Net actuarial gain (loss) arising during the year, net of taxes of ($ 18 ), ($ 27 ), and ($ 20 ) in 2021, 2020, and 2019, respectively 51 81 59 Amortization of actuarial (gain) loss and net actuarial loss from settlements included in net periodic benefit cost (credit), net of taxes of ($ 4 ), ($ 7 ), and ($ 4 ) in 2021, 2020, and 2019, respectively 11 23 12 Other comprehensive income (loss) 63 103 71 Comprehensive income (loss) 1,625 301 785 Less: Comprehensive income (loss) attributable to noncontrolling interests 45 ( 13 ) ( 136 ) Comprehensive income (loss) attributable to The Williams Companies, Inc. $ 1,580 $ 314 $ 921 See accompanying notes. 70 The Williams Companies, Inc. Consolidated Balance Sheet December 31, 2021 2020 (Millions, except per-share amounts) ASSETS Current assets: Cash and cash equivalents $ 1,680 $ 142 Trade accounts and other receivables 1,986 1,000 Allowance for doubtful accounts ( 8 ) ( 1 ) Trade accounts and other receivables – net 1,978 999 Inventories 379 136 Derivative assets 301 3 Other current assets and deferred charges 211 149 Total current assets 4,549 1,429 Investments 5,127 5,159 Property, plant, and equipment – net 29,258 28,929 Intangible assets – net of accumulated amortization 7,402 7,444 Regulatory assets, deferred charges, and other 1,276 1,204 Total assets $ 47,612 $ 44,165 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 1,746 $ 482 Accrued liabilities 1,201 944 Long-term debt due within one year 2,025 893 Total current liabilities 4,972 2,319 Long-term debt 21,650 21,451 Deferred income tax liabilities 2,453 1,923 Regulatory liabilities, deferred income, and other 4,436 3,889 Contingent liabilities and commitments (Note 19) Equity: Stockholders’ equity: 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) 35 35 Common stock ($ 1 par value; 1,470 million shares authorized at December 31, 2021 and December 31, 2020; 1,250 million shares issued at December 31, 2021 and 1,248 million shares issued at December 31, 2020) 1,250 1,248 Capital in excess of par value 24,449 24,371 Retained deficit ( 13,237 ) ( 12,748 ) Accumulated other comprehensive income (loss) ( 33 ) ( 96 ) Treasury stock, at cost ( 35 million shares of common stock) ( 1,041 ) ( 1,041 ) Total stockholders’ equity 11,423 11,769 Noncontrolling interests in consolidated subsidiaries 2,678 2,814 Total equity 14,101 14,583 Total liabilities and equity $ 47,612 $ 44,165 See accompanying notes. 71 The Williams Companies, Inc. Consolidated Statement of Changes in Equity The Williams Companies, Inc. Stockholders Preferred Stock Common Stock Capital in Excess of Par Value Retained Deficit AOCI* Treasury Stock Total Stockholders’ Equity Noncontrolling Interests Total Equity (Millions) Balance at December 31, 2018 $ 35 $ 1,245 $ 24,693 $ ( 10,002 ) $ ( 270 ) $ ( 1,041 ) $ 14,660 $ 1,337 $ 15,997 Net income (loss) — — — 850 — — 850 ( 136 ) 714 Other comprehensive income (loss) — — — — 71 — 71 — 71 Cash dividends – common stock ($ 1.52 per share) — — — ( 1,842 ) — — ( 1,842 ) — ( 1,842 ) Dividends and distributions to noncontrolling interests — — — — — — — ( 124 ) ( 124 ) Stock-based compensation and related common stock issuances, net of tax — 2 56 — — — 58 — 58 Sale of partial interest in consolidated subsidiary — — — — — — — 1,334 1,334 Changes in ownership of consolidated subsidiaries, net — — ( 426 ) — — — ( 426 ) 567 141 Contributions from noncontrolling interests — — — — — — — 36 36 Deconsolidation of subsidiary (Note 9) — — — — — — — ( 13 ) ( 13 ) Other — — — ( 8 ) — — ( 8 ) — ( 8 ) Net increase (decrease) in equity — 2 ( 370 ) ( 1,000 ) 71 — ( 1,297 ) 1,664 367 Balance at December 31, 2019 35 1,247 24,323 ( 11,002 ) ( 199 ) ( 1,041 ) 13,363 3,001 16,364 Net income (loss) — — — 211 — — 211 ( 13 ) 198 Other comprehensive income (loss) — — — — 103 — 103 — 103 Cash dividends – common stock ($ 1.60 per share) — — — ( 1,941 ) — — ( 1,941 ) — ( 1,941 ) Dividends and distributions to noncontrolling interests — — — — — — — ( 185 ) ( 185 ) Stock-based compensation and related common stock issuances, net of tax — 1 50 — — — 51 — 51 Contributions from noncontrolling interests — — — — — — — 7 7 Other — — ( 2 ) ( 16 ) — — ( 18 ) 4 ( 14 ) Net increase (decrease) in equity — 1 48 ( 1,746 ) 103 — ( 1,594 ) ( 187 ) ( 1,781 ) Balance at December 31, 2020 35 1,248 24,371 ( 12,748 ) ( 96 ) ( 1,041 ) 11,769 2,814 14,583 Net income (loss) — — — 1,517 — — 1,517 45 1,562 Other comprehensive income (loss) — — — — 63 — 63 — 63 Cash dividends – common stock ($ 1.64 per share) — — — ( 1,992 ) — — ( 1,992 ) — ( 1,992 ) Dividends and distributions to noncontrolling interests — — — — — — — ( 187 ) ( 187 ) 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 ) Contributions from noncontrolling interests — — — — — — — 9 9 Other — — — ( 14 ) — — ( 14 ) — ( 14 ) Net increase (decrease) in equity — 2 78 ( 489 ) 63 — ( 346 ) ( 136 ) ( 482 ) Balance at December 31, 2021 $ 35 $ 1,250 $ 24,449 $ ( 13,237 ) $ ( 33 ) $ ( 1,041 ) $ 11,423 $ 2,678 $ 14,101 * Accumulated Other Comprehensive Income (Loss) See accompanying notes . 72 The Williams Companies, Inc. Consolidated Statement of Cash Flows Year Ended December 31, 2021 2020 2019 (Millions) OPERATING ACTIVITIES: Net income (loss) $ 1,562 $ 198 $ 714 Adjustments to reconcile to net cash provided (used) by operating activities: Depreciation and amortization 1,842 1,721 1,714 Provision (benefit) for deferred income taxes 509 108 376 Equity (earnings) losses ( 608 ) ( 328 ) ( 375 ) Distributions from unconsolidated affiliates 757 653 657 Gain on disposition of equity-method investments (Note 9) — — ( 122 ) (Gain) loss on deconsolidation of businesses (Note 9) — — 29 Impairment of goodwill (Note 17) — 187 — Impairment of equity-method investments (Note 17) — 1,046 186 Impairment of certain assets (Note 17) 2 182 464 Net unrealized (gain) loss from derivative instruments 109 — ( 3 ) Amortization of stock-based awards 81 52 57 Cash provided (used) by changes in current assets and liabilities: Accounts receivable ( 545 ) ( 2 ) 34 Inventories ( 124 ) ( 11 ) 5 Other current assets and deferred charges ( 63 ) 11 21 Accounts payable 643 ( 7 ) ( 46 ) 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 ) Net cash provided (used) by operating activities 3,945 3,496 3,693 FINANCING ACTIVITIES: Proceeds from long-term debt 2,155 3,899 767 Payments of long-term debt ( 894 ) ( 3,841 ) ( 909 ) Proceeds from issuance of common stock 9 9 10 Proceeds from sale of partial interest in consolidated subsidiary (Note 3) — — 1,334 Common dividends paid ( 1,992 ) ( 1,941 ) ( 1,842 ) Dividends and distributions paid to noncontrolling interests ( 187 ) ( 185 ) ( 124 ) Contributions from noncontrolling interests 9 7 36 Payments for debt issuance costs ( 26 ) ( 20 ) — Other – net ( 16 ) ( 13 ) ( 17 ) Net cash provided (used) by financing activities ( 942 ) ( 2,085 ) ( 745 ) INVESTING ACTIVITIES: Property, plant, and equipment: Capital expenditures (1) ( 1,239 ) ( 1,239 ) ( 2,109 ) Dispositions – net ( 8 ) ( 36 ) ( 40 ) Contributions in aid of construction 52 37 52 Purchases of businesses, net of cash acquired (Note 3) ( 151 ) — ( 728 ) Proceeds from dispositions of equity-method investments (Note 9) 1 — 485 Purchases of and contributions to equity-method investments (Note 9) ( 115 ) ( 325 ) ( 453 ) Other – net ( 5 ) 5 ( 34 ) Net cash provided (used) by investing activities ( 1,465 ) ( 1,558 ) ( 2,827 ) Increase (decrease) in cash and cash equivalents 1,538 ( 147 ) 121 Cash and cash equivalents at beginning of year 142 289 168 Cash and cash equivalents at end of year $ 1,680 $ 142 $ 289 _________ (1) Increases to property, plant, and equipment $ ( 1,305 ) $ ( 1,160 ) $ ( 2,023 ) Changes in related accounts payable and accrued liabilities 66 ( 79 ) ( 86 ) Capital expenditures $ ( 1,239 ) $ ( 1,239 ) $ ( 2,109 ) See accompanying notes . 73 The Williams Companies, Inc. Notes to Consolidated Financial Statements Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies General Unless the context clearly indicates otherwise, references in this report to “Williams,” “we,” “our,” “us,” or like terms refer to The Williams Companies, Inc. and its subsidiaries. Unless the context clearly indicates otherwise, references to “Williams,” “we,” “our,” and “us” include the operations in which we own interests accounted for as equity-method investments that are not consolidated in our financial statements. When we refer to our equity investees by name, we are referring exclusively to their businesses and operations. 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 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. (Gulfstream), and a 60 percent equity-method investment in Discovery Producer Services LLC (Discovery). Northeast G&P is comprised of our midstream gathering, processing, and fractionation businesses in the Marcellus Shale region primarily in Pennsylvania and New York, and the Utica Shale region of eastern Ohio, as well as a 65 percent interest in Ohio Valley Midstream LLC (Northeast JV) (a consolidated VIE) which operates in West Virginia, Ohio, and Pennsylvania, a 66 percent interest in Cardinal Gas Services, L.L.C. (Cardinal) (a consolidated VIE) which operates in Ohio, a 69 percent equity-method investment in Laurel Mountain Midstream, LLC (Laurel Mountain), a 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, 74 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) 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 Discontinued operations Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates to our continuing operations. Significant risks and uncertainties We believe that the carrying value of certain of our property, plant, and equipment and 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 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. Summary of Significant Accounting Policies Principles of consolidation The consolidated financial statements include the accounts of all entities that we control and our proportionate interest in the accounts of certain ventures in which we own an undivided interest. Our judgment is required to evaluate whether we control an entity. Key areas of that evaluation include: • Determining whether an entity is a VIE; • Determining whether we are the primary beneficiary of a VIE, including evaluating which activities of the VIE most significantly impact its economic performance and the degree of power that we and our related parties have over those activities through our variable interests; • Identifying events that require reconsideration of whether an entity is a VIE and continuously evaluating whether we are a VIE’s primary beneficiary; • Evaluating whether other owners in entities that are not VIEs are able to effectively participate in significant decisions that would be expected to be made in the ordinary course of business such that we do not have the power to control such entities. We apply the equity method of accounting to investments over which we exercise significant influence but do not control. Distributions received from equity-method investees are presented in 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 our 75 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 The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates and assumptions include: • Impairment assessments of investments, property, plant, and equipment, and intangible assets; • Litigation-related contingencies; • Environmental remediation obligations; • Depreciation and/or amortization of long-lived assets; • Depreciation and/or amortization of equity-method investment basis differences; • Asset retirement obligations (AROs); • Measurement of fair value of derivatives; • Pension and postretirement valuation variables; • Measurement of regulatory liabilities; • Measurement of deferred income tax assets and liabilities, including assumptions related to the realization of deferred income tax assets; • Revenue recognition, including estimates utilized in recognition of deferred revenue; • Purchase price accounting. These estimates are discussed further throughout these notes. Regulatory accounting Transco and Northwest Pipeline are regulated by the Federal Energy Regulatory Commission (FERC), and their rates are established by the FERC. Therefore, we have determined that it is appropriate under Accounting Standards Codification (ASC) Topic 980, “Regulated Operations,” (ASC 980) that certain costs that would otherwise be charged to expense should be deferred as regulatory assets, based on the expected recovery from customers in future rates. Likewise, certain actual or anticipated credits that would otherwise reduce expense should be deferred as regulatory liabilities, based on the expected return to customers in future rates. Management’s expected recovery of deferred costs and return of deferred credits generally results from specific decisions by regulators granting such ratemaking treatment. We record certain incurred costs and obligations as regulatory assets or liabilities if, based on regulatory orders or other available evidence, it is probable that the costs or obligations will be included in amounts allowable for recovery or refunded in future rates. Accounting for these operations that are regulated can differ from the accounting requirements for nonregulated operations. For example, for regulated operations, allowance for funds used during construction (AFUDC) represents the estimated cost of debt and equity funds applicable to utility plant in the process of construction and is capitalized as a cost of property, plant, and equipment because it constitutes an actual cost of construction under established regulatory practices; nonregulated operations are only allowed to capitalize the cost of debt funds related to construction activities, while a component for equity is prohibited. The components of our regulatory assets and liabilities relate to the effects of deferred taxes on equity funds used during 76 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: December 31, 2021 2020 (Millions) Current assets reported within Other current assets and deferred charges $ 111 $ 64 Noncurrent assets reported within Regulatory assets, deferred charges, and other 415 442 Total regulated assets $ 526 $ 506 Current liabilities reported within Accrued liabilities $ 56 $ 59 Noncurrent liabilities reported within Regulatory liabilities, deferred income, and other 1,324 1,314 Total regulated liabilities $ 1,380 $ 1,373 Cash and cash equivalents 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 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 77 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) 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. We do not have a material amount of significantly aged receivables at December 31, 2021 and 2020. Inventories 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. Property, plant, and equipment Property, plant, and equipment is initially recorded at cost. We base the carrying value of these assets on estimates, assumptions, and judgments relative to capitalized costs, useful lives, and salvage values. As regulated entities, Northwest Pipeline and Transco provide for depreciation using the straight-line method at FERC-prescribed rates. Depreciation for nonregulated entities is provided primarily on the straight-line method over estimated useful lives, except for certain offshore facilities that apply an accelerated depreciation method. 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. 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. Costs of major renewals and replacements are capitalized as property, plant, and equipment. We record a liability and increase the basis in the underlying asset for the present value of each expected future ARO at the time the liability is initially incurred, typically when the asset is acquired or constructed. 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 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. 78 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) 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, 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. For assets identified to be disposed of in the future and considered held for sale, we compare the carrying value to the estimated fair value less the cost to sell to determine if recognition of an impairment is required. Until the assets are disposed of, the estimated fair value, which includes estimated cash flows from operations until the assumed date of sale, is recalculated when related events or circumstances change. We evaluate our investments for impairment when, in our judgment, events or circumstances indicate that the carrying value of such investments may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, we compare our estimate of fair value of the investment to the carrying value of the investment to determine whether an impairment has occurred. If the estimated fair value is less than the carrying value and we consider the decline in value to be other-than-temporary, the excess of the carrying value over the fair value is recognized in 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. Contingent liabilities We record liabilities for estimated loss contingencies, including environmental matters, when we assess that a loss is probable, and the amount of the loss can be reasonably estimated. These liabilities are calculated based upon our assumptions and estimates with respect to the likelihood or amount of loss and upon advice of legal counsel, engineers, or other third parties regarding the probable outcomes of the matters. These calculations are made without consideration of any potential recovery from third parties. We recognize insurance recoveries or reimbursements from others when realizable. Revisions to these liabilities are generally reflected in income when new or different facts or information become known or circumstances change that affect the previous assumptions or estimates. Cash flows from revolving credit 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.) 79 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Treasury stock Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as Treasury stock, at cost in 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 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; Regulatory assets, deferred charges, and other; Accrued liabilities ; 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. The accounting for the changes in fair value of a commodity derivative can be summarized as follows: Derivative Treatment Accounting Method Normal purchases and normal sales exception Accrual accounting Designated in a qualifying hedging relationship Hedge accounting All other derivatives Mark-to-market accounting 80 The Williams Companies, Inc. 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 in our Consolidated Balance Sheet after the initial election of the exception. We may also designate a hedging relationship for certain commodity derivatives. For a derivative to qualify for designation in a hedging relationship, it must meet specific criteria and we must maintain appropriate documentation. We establish hedging relationships pursuant to our risk management policies. We evaluate the hedging relationships at the inception of the hedge and on an ongoing basis to determine whether the hedging relationship is, and is expected to remain, highly effective in achieving offsetting changes in fair value or cash flows attributable to the underlying risk being hedged. We also regularly assess whether the hedged forecasted transaction is probable of occurring. If a derivative ceases to be or is no longer expected to be highly effective, or if we believe the likelihood of occurrence of the hedged forecasted transaction is no longer probable, hedge accounting is discontinued prospectively, and future changes in the fair value of the derivative are recognized currently in 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 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. As of December 31, 2021, we are not applying hedge accounting to any commodity derivative instruments. Revenue recognition Customers in our gas pipeline businesses are comprised of public utilities, municipalities, gas marketers and producers, intrastate pipelines, direct industrial users, and electrical power generators. Customers in our midstream businesses are comprised of oil and natural gas producer counterparties. Customers for our product sales are comprised of public utilities, gas marketers, and direct industrial users. Service revenue contracts from our gas pipeline and midstream businesses contain a series of distinct services, with the majority of our contracts having a single performance obligation that is satisfied over time as the customer simultaneously receives and consumes the benefits provided by our performance. Most of our product sales contracts have a single performance obligation with revenue recognized at a point in time when the products have been sold and delivered to the customer. Certain customers reimburse us for costs we incur associated with construction of property, plant, and equipment utilized in our operations. For our rate-regulated gas pipeline businesses that apply ASC 980, we follow FERC guidelines with respect to reimbursement of construction costs. FERC tariffs only allow for cost reimbursement and are non-negotiable in nature; thus, in our judgment, the construction activities do not represent an ongoing major and central operation of our gas pipeline businesses and are not within the scope of ASC Topic 606, “Revenue from Contracts with Customers”. Accordingly, cost reimbursements are treated as a reduction to the cost of the constructed asset. For our midstream businesses, reimbursement and service contracts with customers are viewed together as providing the same commercial objective, as we have the ability to negotiate the mix of consideration between reimbursements and amounts billed over time. Accordingly, we generally recognize reimbursements of construction costs from customers on a gross basis as a contract liability separate from the associated costs included within property, plant, and equipment. The contract liability is recognized into service revenues as the underlying performance obligations are satisfied. 81 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Service Revenues Gas pipeline businesses: Revenues from our regulated interstate natural gas pipeline businesses, which are subject to regulation by certain state and federal authorities, including the FERC, include both firm and interruptible transportation and storage contracts. Firm transportation and storage agreements provide for a fixed reservation charge based on the pipeline or storage capacity reserved, and a commodity charge based on the volume of natural gas delivered/stored, each at rates specified in our FERC tariffs or based on negotiated contractual rates, with contract terms that are generally long-term in nature. Most of our long-term contracts contain an evergreen provision, which allows the contracts to be extended for periods primarily up to one year in length an indefinite number of times following the specified contract term and until terminated generally by either us or the customer. Interruptible transportation and storage agreements provide for a volumetric charge based on actual commodity transportation or storage utilized in the period in which those services are provided, and the contracts are generally limited to one-month periods or less. Our performance obligations related to our interstate natural gas pipeline businesses include the following: • Firm transportation or storage under firm transportation and storage contracts—an integrated package of services typically constituting a single performance obligation, which includes standing ready to provide such services and receiving, transporting or storing (as applicable), and redelivering commodities; • Interruptible transportation or storage under interruptible transportation and storage contracts—an integrated package of services typically constituting a single performance obligation once scheduled, which includes receiving, transporting or storing (as applicable), and redelivering commodities. In situations where, in our judgment, we consider the integrated package of services as a single performance obligation, which represents a majority of our interstate natural gas pipeline contracts with customers, we do not consider there to be multiple performance obligations because the nature of the overall promise in the contract is to stand ready (with regard to firm transportation and storage contracts), receive, transport or store, and redeliver natural gas to the customer; therefore, revenue is recognized over time upon satisfaction of our daily stand ready performance obligation. We recognize revenues for reservation charges over the performance obligation period, which is the contract term, regardless of the volume of natural gas that is transported or stored. Revenues for commodity charges from both firm and interruptible transportation services and storage services are recognized when natural gas is delivered at the agreed upon delivery point or when natural gas is injected or withdrawn from the storage facility because they specifically relate to our efforts to provide these distinct services. Generally, reservation charges and commodity charges in our interstate natural gas pipeline businesses are recognized as revenue in the same period they are invoiced to our customers. As a result of the ratemaking process, certain amounts collected by us may be subject to refund upon the issuance of final orders by the FERC in pending rate proceedings. We use judgment to record estimates of rate refund liabilities considering our and other third-party regulatory proceedings, advice of counsel, and other risks. Midstream businesses: Revenues from our non-regulated gathering, processing, transportation, and storage midstream businesses include contracts for natural gas gathering, processing, treating, compression, transportation, and other related services with contract terms that are generally long-term in nature and may extend up to the production life of the associated reservoir. Additionally, our midstream businesses generate revenues from fees charged for storing customers’ natural gas and NGLs, generally under prepaid contracted storage capacity contracts. In situations where, in our judgment, we provide an integrated package of services combined into a single performance obligation, which represents a majority of this class of contracts with customers, we do not consider there to be multiple performance obligations because the nature of the overall promise in the contract is to provide gathering, processing, transportation, storage, and related services resulting in the delivery, or redelivery in the context of storage services, of pipeline-quality natural gas and NGLs to the customer. As such, revenue is recognized at the daily completion of the integrated package of services as the integrated package represents a single performance obligation. Additionally, certain contracts in our midstream 82 The Williams Companies, Inc. 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. These services represent an integrated package of services and are considered a single distinct performance obligation for which we recognize revenues as the services are provided to the customer. We generally earn a contractually stated fee per unit for the volume of product transported, gathered, processed, or stored. The rate is generally fixed; however, certain contracts contain variable rates that are subject to change based on commodity prices, levels of throughput, or an annual adjustment based on a formulaic cost of service calculation. In addition, we have contracts with contractually stated fees that decline over the contract term, such as declines based on the passage of time periods or achievement of cumulative throughput amounts. For all of our contracts, we allocate the transaction price to each performance obligation based on the judgmentally determined relative standalone selling price. The excess of consideration received over revenue recognized results in the deferral of those amounts until future periods based on a units of production or straight-line methodology as these methods appropriately match the consumption of services provided to the customer. The units of production methodology requires the use of production estimates that are uncertain and the use of judgment when developing estimates of future production volumes, thus impacting the rate of revenue recognition. Production estimates are monitored as circumstances and events warrant. Certain of our gas gathering and processing agreements have minimum volume commitments (MVC). If a customer under such an agreement fails to meet its MVC for a specified period (thus not exercising all the contractual rights to gathering and processing services within the specified period, herein referred to as “breakage”), it is obligated to pay a contractually determined fee based upon the shortfall between the actual gathered or processed volumes and the MVC for the period contained in the contract. When we conclude, based on management’s judgment, it is probable that the customer will not exercise all or a portion of its remaining rights, we recognize revenue associated with such breakage amount in proportion to the pattern of exercised rights within the respective MVC period. Under keep-whole and percent-of-liquids processing contracts, we receive commodity consideration in the form of NGLs and take title to the NGLs at the tailgate of the plant. We recognize such commodity consideration as service revenue based on the market value of the NGLs retained at the time the processing is provided. The current market value, as opposed to the market value at the contract inception date, is used due to a combination of factors, including the fact that the volume, mix, and market price of NGL consideration to be received is unknown at the time of contract execution and is not specified in our contracts with customers. Additionally, product sales revenue (discussed below) is recognized upon the sale of the NGLs to a third party based on the sales price at the time of sale. As a result, revenue is recognized in 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. Given that most inventory is sold in the same period that it is generated, the impact of these transactions is expected to have little impact to operating income. Product Sales In the course of providing transportation services to customers of our gas pipeline businesses and gathering and processing services to customers of our midstream businesses, we may receive different quantities of natural gas from customers than the quantities delivered on behalf of those customers. The resulting imbalances are primarily settled through the purchase or sale of natural gas with each customer under terms provided for in our FERC tariffs or gathering and processing agreements, respectively. Revenue is recognized from the sale of natural gas upon settlement of imbalances. In certain instances, we purchase NGLs, crude oil, and natural gas from our oil and natural gas producer customers which we remarket. In addition, we retain NGLs as consideration in certain processing arrangements, 83 The Williams Companies, Inc. 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. 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, resulting in positive net product sales. 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 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 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. This determination is based on the combined effect of the expected length of time between when we transfer the promised good or service to the customer, when the customer pays for those goods or services, and the prevailing interest rates. We have assessed our contracts for significant financing components and determined, in our judgment, that one group of contracts entered into in contemplation of one another for certain capital reimbursements contains a significant financing component. As a result, we recognize noncash interest expense based on the effective interest method and revenue (noncash) is recognized when the underlying asset is placed into service utilizing a units of production or straight-line methodology over the life of the corresponding customer contract. 84 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Leases 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. Payment provisions in certain of our lease agreements contain escalation factors which may be based on stated rates or a change in a published index at a future time. The amount by which a lease escalates based on the change in a published index, which is not known at lease commencement, is considered a variable payment and is not included in the present value of the future lease payments, which only includes those that are stated or can be calculated based on the lease agreement at lease commencement. In addition to the noncancellable periods, many of our lease agreements provide for one or more extensions of the lease agreement for periods ranging from one year in length to an indefinite number of times following the specified contract term. Other lease agreements provide for extension terms that allow us to utilize the identified leased asset for an indefinite period of time so long as the asset continues to be utilized in our operations. In consideration of these renewal features, we assess the term of the lease agreements, which includes using judgment in the determination of which renewal periods and termination provisions, when at our sole election, will be reasonably certain of being exercised. Periods after the initial term or extension terms that allow for either party to the lease to cancel the lease are not considered in the assessment of the lease term. Additionally, we have elected to exclude leases with an original term of one year or less, including renewal periods, from the calculation of the lease liability and the offsetting right-of-use asset. We use judgment in determining the discount rate upon which the present value of the future lease payments is determined. This rate is based on a collateralized interest rate corresponding to the term of the lease agreement using company, industry, and market information available. When permitted under our lease agreements, we may sublease certain unused office space for fixed periods that could extend up to the length of the original lease agreement. Interest capitalized We capitalize interest during construction on major projects with construction periods of at least 3 months and a total project cost in excess of $ 1 million. Interest is capitalized on borrowed funds and, where regulation by the FERC exists, on internally generated funds (equity AFUDC). The latter is included in Other income (expense) – net below Operating income (loss) in 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. Employee stock-based awards We recognize compensation expense on employee stock-based awards on a straight-line basis; forfeitures are recognized when they occur. Pension and other postretirement benefits The funded status of each of the pension and other postretirement benefit plans is recognized separately in 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. The discount rates are determined separately for each of our pension and other postretirement benefit plans based on an approach specific to our plans. The year-end discount rates are determined considering a yield curve comprised of high-quality corporate bonds and the timing of the expected benefit cash flows of each plan. 85 The Williams Companies, Inc. 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 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. The expected return on plan assets component of net periodic benefit cost (credit) is calculated using the market-related value of plan assets. For our pension plans, the market-related value of plan assets is equal to the fair value of plan assets adjusted to reflect the amortization of gains or losses associated with the difference between the expected and actual return on plan assets over a 5 -year period. Additionally, the market-related value of assets may be no more than 110 percent or less than 90 percent of the fair value of plan assets at the beginning of the year. The market-related value of plan assets for our other postretirement benefit plan is equal to the unadjusted fair value of plan assets at the beginning of the year. Income taxes We include the operations of our domestic corporate subsidiaries and income from our subsidiary partnerships in our consolidated fed e ral income tax return and also file tax return s in various foreign and state jurisdictions as required . Deferred income taxes are computed using the liability method and are provided on all temporary differences between the financial basis and the tax basis of our assets and liabilities. Our judgment and income tax assumptions are used to determine the levels, if any, of v aluation allowances associated with deferred tax assets. Earnings (loss) per common share 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. Note 2 – Variable Interest Entities Consolidated VIEs As of December 31, 2021, we consolidate the following VIEs: Northeast JV We own a 65 percent interest in the Northeast JV, a subsidiary that is a VIE due to certain of our voting rights being disproportionate to our obligation to absorb losses and substantially all of the Northeast JV’s activities being performed on our behalf. We are the primary beneficiary because we have the power to direct the activities that most significantly impact the Northeast JV’s economic performance. The Northeast JV provides midstream services for producers in the Marcellus Shale and Utica Shale regions. Future expansion activity is expected to be funded with capital contributions from us and the other equity partner on a proportional basis. Gulfstar One We own a 51 percent interest in Gulfstar One, a subsidiary that, due to certain risk-sharing provisions in its customer contracts, is a VIE. Gulfstar One includes a proprietary floating-production system, Gulfstar FPS, and 86 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) associated pipelines that provide production handling and gathering services in the eastern deepwater Gulf of Mexico. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Gulfstar One’s economic performance. Cardinal We own a 66 percent interest in Cardinal, a subsidiary that provides gathering services for the Utica Shale region and is a VIE due to certain risks shared with customers. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Cardinal’s economic performance. 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: December 31, 2021 2020 (Millions) Assets (liabilities): Cash and cash equivalents $ 78 $ 107 Trade accounts and other receivables – net 132 148 Inventories 3 — Other current assets and deferred charges 7 7 Property, plant, and equipment – net 5,295 5,514 Intangible assets – net of accumulated amortization 2,267 2,376 Regulatory assets, deferred charges, and other 20 15 Accounts payable ( 61 ) ( 42 ) Accrued liabilities ( 29 ) ( 34 ) Regulatory liabilities, deferred income, and other ( 287 ) ( 289 ) Nonconsolidated VIEs Targa Train 7 We own a 20 percent interest in Targa Train 7, which provides fractionation services at Mt. Belvieu and is a VIE due primarily to our limited participating rights as the minority equity holder. At December 31, 2021, the carrying value of our investment in Targa Train 7 was $ 49 million. Our maximum exposure to loss is limited to the carrying value of our investment. Note 3 – Acquisitions Sequent 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 87 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) 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. (Millions) 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 57 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 49 Total assets acquired $ 1,051 Accounts payable $ 514 Accrued liabilities 46 Commodity derivatives included in accrued liabilities 116 Regulatory liabilities, deferred income, and other 1 Commodity derivatives included in regulatory liabilities, deferred income, and other 215 Total liabilities assumed $ 892 Net assets acquired $ 159 88 The Williams Companies, Inc. 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. UEOM As of December 31, 2018, we owned a 62 percent interest in Utica East Ohio Midstream LLC (UEOM) which we accounted for as an equity-method investment. On March 18, 2019, we signed and closed the acquisition of the 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 NGLs in the Utica Shale play in eastern Ohio. The purpose of the acquisition was to enhance our position in the region. We expect synergies through common ownership of UEOM and our Ohio Valley midstream systems to create a more efficient platform for capital spending in the region, resulting in reduced operating and maintenance expenses and creating enhanced capabilities and benefits for producers in the area. The acquisition of UEOM was accounted for as a business combination, which requires, among other things, that identifiable assets acquired and liabilities assumed be recognized at their acquisition date fair values. In March 2019, based on the transaction price for our purchase of the remaining interest in UEOM as finalized just prior to the acquisition, we recognized a $ 74 million noncash impairment loss related to our existing 62 percent interest (see Note 17 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk). Thus, there was no gain or loss on remeasuring our existing equity-method investment to fair value due to the impairment recognized just prior to closing the acquisition of the additional interest. The valuation techniques used to measure the acquisition date fair value of the UEOM acquisition consisted of the market approach for our previous equity-method investment in UEOM and the income approach (excess earnings method) for valuation of intangible assets and depreciated replacement costs for property, plant, and equipment. The following table presents the allocation of the acquisition date fair value of the major classes of the assets acquired, which are presented in the Northeast G&P segment, and liabilities assumed, including post closing purchase price adjustments. The net assets acquired reflect the sum of the consideration transferred and the noncash 89 The Williams Companies, Inc. 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. (Millions) Current assets, including $ 13 million cash acquired $ 56 Property, plant, and equipment 1,387 Other intangible assets 328 Total identifiable assets acquired 1,771 Current liabilities 7 Total liabilities assumed 7 Net identifiable assets acquired 1,764 Goodwill 187 Net assets acquired $ 1,951 The goodwill recognized in the acquisition related primarily to enhancing and diversifying our basin positions and is reported within the Northeast G&P segment. Substantially all of the goodwill is 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 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. 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 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. for any future periods or as of any date. These amounts do not give effect to any potential cost savings, operating synergies, or revenue enhancements to result from the transaction or the potential costs to achieve these cost savings, operating synergies, and revenue enhancements. Year Ended December 31, 2019 (Millions) Revenues $ 8,233 Net income (loss) attributable to The Williams Companies, Inc. 928 Adjustments to pro forma Net income (loss) attributable to The Williams Companies, Inc. include the removal of the previously described $ 74 million impairment loss recognized in March 2019 just prior to the acquisition. 90 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 our Consolidated Statement of Income for the year ended December 31, 2019. Northeast JV Concurrent with the UEOM acquisition, we executed an agreement whereby we contributed our consolidated interests in UEOM and our Ohio Valley midstream business to a newly formed partnership. In June 2019, our partner invested approximately $ 1.33 billion for a 35 percent ownership interest, and we retained 65 percent ownership of, as well as operate and consolidate, the Northeast JV business. The change in ownership due to this transaction increased Noncontrolling interests in consolidated subsidiaries by $ 567 million, and decreased Capital in excess of par value by $ 426 million and Deferred income tax liabilities by $ 141 million in 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. 91 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Note 4 – Revenue Recognition Revenue by Category The following table presents our revenue disaggregated by major service line: Transco Northwest Pipeline Gulf of Mexico Midstream Northeast Midstream West Midstream Sequent Other Eliminations Total (Millions) 2021 Revenues from contracts with customers: Service revenues: Regulated interstate natural gas transportation and storage $ 2,547 $ 441 $ — $ — $ — $ — $ — $ ( 33 ) $ 2,955 Gathering, processing, transportation, fractionation, and storage: Monetary consideration — — 344 1,308 1,157 — — ( 103 ) 2,706 Commodity consideration — — 52 7 179 — — — 238 Other 10 — 22 195 52 — 1 ( 16 ) 264 Total service revenues 2,557 441 418 1,510 1,388 — 1 ( 152 ) 6,163 Product sales 88 — 269 99 4,330 2,139 333 ( 637 ) 6,621 Total revenues from contracts with customers 2,645 441 687 1,609 5,718 2,139 334 ( 789 ) 12,784 Other revenues (1) 10 3 8 25 ( 73 ) 2,673 11 ( 13 ) 2,644 Other adjustments (2) — — — — — ( 4,898 ) — 97 ( 4,801 ) Total revenues $ 2,655 $ 444 $ 695 $ 1,634 $ 5,645 $ ( 86 ) $ 345 $ ( 705 ) $ 10,627 2020 Revenues from contracts with customers: Service revenues: Regulated interstate natural gas transportation and storage $ 2,404 $ 449 $ — $ — $ — $ — $ — $ ( 7 ) $ 2,846 Gathering, processing, transportation, fractionation, and storage: Monetary consideration — — 348 1,279 1,204 — — ( 75 ) 2,756 Commodity consideration — — 21 7 101 — — — 129 Other 10 — 27 164 65 — 1 ( 14 ) 253 Total service revenues 2,414 449 396 1,450 1,370 — 1 ( 96 ) 5,984 Product sales 80 — 114 57 1,565 — — ( 147 ) 1,669 Total revenues from contracts with customers 2,494 449 510 1,507 2,935 — 1 ( 243 ) 7,653 Other revenues (1) 10 — 9 22 8 — 33 ( 16 ) 66 Total revenues $ 2,504 $ 449 $ 519 $ 1,529 $ 2,943 $ — $ 34 $ ( 259 ) $ 7,719 92 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Transco Northwest Pipeline Gulf of Mexico Midstream Northeast Midstream West Midstream Sequent Other Eliminations Total (Millions) 2019 Revenues from contracts with customers: Service revenues: Regulated interstate natural gas transportation and storage $ 2,336 $ 450 $ — $ — $ — $ — $ — $ ( 6 ) $ 2,780 Gathering, processing, transportation, fractionation, and storage: Monetary consideration — — 479 1,171 1,309 — — ( 75 ) 2,884 Commodity consideration — — 41 12 150 — — — 203 Other 11 — 26 147 42 — — ( 16 ) 210 Total service revenues 2,347 450 546 1,330 1,501 — — ( 97 ) 6,077 Product sales 106 — 185 150 1,795 — — ( 173 ) 2,063 Total revenues from contracts with customers 2,453 450 731 1,480 3,296 — — ( 270 ) 8,140 Other revenues (1) 1 — 8 20 14 — 30 ( 12 ) 61 Total revenues $ 2,454 $ 450 $ 739 $ 1,500 $ 3,310 $ — $ 30 $ ( 282 ) $ 8,201 ______________________________ (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 The following table presents a reconciliation of our contract assets: Year Ended December 31, 2021 2020 (Millions) Balance at beginning of year $ 12 $ 8 Revenue recognized in excess of amounts invoiced 184 145 Minimum volume commitments invoiced ( 174 ) ( 141 ) Balance at end of year $ 22 $ 12 93 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Contract Liabilities The following table presents a reconciliation of our contract liabilities: Year Ended December 31, 2021 2020 (Millions) Balance at beginning of year $ 1,209 $ 1,215 Payments received and deferred 116 140 Significant financing component 10 11 Chesapeake global bankruptcy resolution — 67 Contract liability acquired 1 — Recognized in revenue ( 210 ) ( 224 ) Balance at end of year $ 1,126 $ 1,209 Remaining Performance Obligations Remaining performance obligations primarily include reservation charges on contracted capacity for our gas pipeline firm transportation contracts with customers, storage capacity contracts, long-term contracts containing minimum volume commitments associated with our midstream businesses, and fixed payments associated with offshore production handling. For our interstate natural gas pipeline businesses, remaining performance obligations reflect the rates for such services in our current FERC tariffs for the life of the related contracts; however, these rates may change based on future tariffs approved by the FERC and the amount and timing of these changes are not currently known. Our remaining performance obligations exclude variable consideration, including contracts with variable consideration for which we have elected the practical expedient for consideration recognized in revenue as billed. Certain of our contracts contain evergreen and other renewal provisions for periods beyond the initial term of the contract. The remaining performance obligation amounts as of December 31, 2021, do not consider potential future performance obligations for which the renewal has not been exercised and exclude contracts with customers for which the underlying facilities have not received FERC authorization to be placed into service. Consideration received prior to December 31, 2021, that will be recognized in future periods is also excluded from our remaining performance obligations and is instead reflected in contract liabilities. The following table presents the amount of the contract liabilities balance expected to be recognized as revenue when performance obligations are satisfied and the transaction price allocated to the remaining performance obligations under certain contracts as of December 31, 2021. Contract Liabilities Remaining Performance Obligations (Millions) 2022 ( one year ) $ 138 $ 3,624 2023 ( one year ) 117 3,366 2024 ( one year ) 116 3,162 2025 ( one year ) 111 2,520 2026 ( one year ) 107 2,427 Thereafter 537 17,380 Total $ 1,126 $ 32,479 94 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) 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 Income: Transmission & Gulf of Mexico Northeast G&P West Other (Millions) 2020 Income related to benefit policy change $ ( 22 ) $ ( 9 ) $ ( 9 ) $ — 2019 Severance and related costs 39 7 10 1 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 $ 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 The Provision (benefit) for income taxes includes: Year Ended December 31, 2021 2020 2019 (Millions) Current: Federal $ ( 1 ) $ ( 29 ) $ ( 41 ) State 3 — ( 5 ) Foreign — — 2 2 ( 29 ) ( 44 ) Deferred: Federal 421 98 280 State 88 10 99 509 108 379 Provision (benefit) for income taxes $ 511 $ 79 $ 335 Reconciliations from the Provision (benefit) at statutory rate to recorded Provision (benefit) for income taxes are as follows: Year Ended December 31, 2021 2020 2019 (Millions) Provision (benefit) at statutory rate $ 435 $ 58 $ 224 Increases (decreases) in taxes resulting from: Impact of nontaxable noncontrolling interests ( 9 ) 3 29 State income taxes (net of federal benefit) 71 6 74 Federal valuation allowance 3 1 3 Other – net 11 11 5 Provision (benefit) for income taxes $ 511 $ 79 $ 335 95 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. During the course of audits of our business by domestic and foreign tax authorities, we frequently face challenges regarding the amount of taxes due. These challenges include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the liability associated with our various filing positions, we apply the two-step process of recognition and measurement. In association with this liability, we record an estimate of related interest and tax exposure as a component of our tax provision. The impact of this accrual is included within Other – net in our reconciliation of the Provision (benefit) at statutory rate to recorded Provision (benefit) for income taxes . Significant components of Deferred income tax liabilities and Deferred income tax assets are as follows: December 31, 2021 2020 (Millions) Deferred income tax liabilities: Property, plant and equipment $ 2,777 $ 2,320 Investments 1,669 1,515 Other 154 140 Total deferred income tax liabilities 4,600 3,975 Deferred income tax assets: Accrued liabilities 872 747 Foreign tax credit 140 140 Federal loss carryovers 879 905 State losses and credits 421 445 Other 132 140 Total deferred income tax assets 2,444 2,377 Less valuation allowance 297 325 Net deferred income tax assets 2,147 2,052 Overall net deferred income tax liabilities $ 2,453 $ 1,923 The valuation allowance at December 31, 2021 and 2020 serves to reduce the available deferred income tax assets to an amount that will, more likely than not, be realized. We considered all available positive and negative evidence, which incorporates available tax planning strategies, and management’s estimate of future reversals of existing taxable temporary differences, and have determined that a portion of our deferred income tax assets related to the Foreign tax credit and State losses and credits may not be realized. The amounts presented in the table above are, with respect to state items, before any federal benefit. The change from prior year for the State losses and credits reflects increases in losses and credits generated in the current and prior years less losses and/or credits utilized in the current year. We have loss and credit carryovers in multiple state taxing jurisdictions. These attributes generally expire between 2022 and 2040 with some carryovers having indefinite carryforward periods. 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. 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 96 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 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 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 Year Ended December 31, 2021 2020 2019 (Dollars in millions, except per-share amounts; shares in thousands) Income (loss) from continuing operations available to common stockholders $ 1,514 $ 208 $ 862 Basic weighted-average shares 1,215,221 1,213,631 1,212,037 Effect of dilutive securities: Nonvested restricted stock units 2,973 1,531 1,811 Stock options 21 3 163 Diluted weighted-average shares 1,218,215 1,215,165 1,214,011 Earnings (loss) per common share from continuing operations: Basic $ 1.25 $ .17 $ .71 Diluted $ 1.24 $ .17 $ .71 97 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Note 8 – Employee Benefit Plans Pension Plans We have noncontributory defined benefit pension plans for eligible employees hired prior to January 1, 2019. Eligible employees earn compensation credits based on a cash balance formula. As of January 1, 2020, certain active employees are no longer eligible to receive compensation credits. Other Postretirement Benefits We provide subsidized retiree medical benefits to a closed group of participants as well as retiree life insurance benefits to eligible participants. Medical benefits for Medicare eligible participants are paid through contributions to health reimbursement accounts. Benefits for all other participants are provided through a self-insured medical plan, which includes participant contributions and contains other cost-sharing features such as deductibles, co-payments, and co-insurance. Defined Contribution Plan We have a defined contribution plan for the benefit of substantially all employees. Plan participants may contribute a portion of their compensation on a pre-tax or after-tax basis. Generally, we match employee contributions up to 6 percent of eligible compensation. Additionally, eligible active employees that do not receive compensation credits under the defined benefit pension plan are eligible for an additional annual fixed-percentage contribution made by us to the defined contribution plan. Our contributions charged to expense were $ 45 million in 2021, $ 42 million in 2020, and $ 36 million in 2019. 98 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Funded Status The following table presents the changes in benefit obligations and plan assets for pension benefits and other postretirement benefits for the years indicated: Pension Benefits Other Postretirement Benefits 2021 2020 2021 2020 (Millions) Change in benefit obligation: Benefit obligation at beginning of year $ 1,183 $ 1,237 $ 220 $ 215 Service cost 30 31 1 1 Interest cost 28 36 5 7 Plan participants’ contributions — — 2 2 Benefits paid ( 83 ) ( 41 ) ( 14 ) ( 14 ) Net actuarial loss (gain) (1) ( 21 ) 47 ( 14 ) 9 Settlements ( 4 ) ( 127 ) — — Net increase (decrease) in benefit obligation ( 50 ) ( 54 ) ( 20 ) 5 Benefit obligation at end of year 1,133 1,183 200 220 Change in plan assets: Fair value of plan assets at beginning of year 1,357 1,299 278 247 Actual return on plan assets 62 212 16 37 Employer contributions 4 14 5 6 Plan participants’ contributions — — 2 2 Benefits paid ( 83 ) ( 41 ) ( 14 ) ( 14 ) Settlements ( 4 ) ( 127 ) — — Net increase (decrease) in fair value of plan assets ( 21 ) 58 9 31 Fair value of plan assets at end of year 1,336 1,357 287 278 Funded status — overfunded (underfunded) $ 203 $ 174 $ 87 $ 58 Amounts recognized in the Consolidated Balance Sheet: Noncurrent assets $ 229 $ 203 $ 91 $ 64 Current liabilities ( 3 ) ( 3 ) ( 4 ) ( 6 ) Noncurrent liabilities ( 23 ) ( 26 ) — — Funded status — overfunded (underfunded) $ 203 $ 174 $ 87 $ 58 Accumulated benefit obligation $ 1,118 $ 1,167 ____________ (1) Amounts are due primarily to the following factors: 2021: pension benefits - discount rate assumptions, partially offset by experience-related items; other postretirement benefits - discount rate assumption and experience-related items. 2020: pension benefits - discount rate assumptions, partially offset by cash balance interest crediting rate assumptions; other postretirement benefits - discount rate assumptions, partially offset by other experience-related items. 99 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) The following table summarizes information for pension plans with obligations in excess of plan assets at December 31. 2021 2020 (Millions) Projected benefit obligation $ 26 $ 29 Accumulated benefit obligation 22 25 Fair value of plan assets — — Pre-tax amounts recognized in Accumulated other comprehensive income (loss) at December 31 are as follows: Pension Benefits Other Postretirement Benefits 2021 2020 2021 2020 (Millions) Net actuarial gain (loss) $ ( 46 ) $ ( 101 ) $ 4 $ ( 25 ) Additionally, as of December 31, 2021 and 2020, we have $ 150 million and $ 171 million, respectively, of pension and other postretirement plan amounts included in regulatory liabilities associated with our gas pipeline companies. Net Periodic Benefit Cost (Credit) Net periodic benefit cost (credit) for the years ended December 31 consist of the following: Pension Benefits Other Postretirement Benefits 2021 2020 2019 2021 2020 2019 (Millions) Components of net periodic benefit cost (credit): Service cost $ 30 $ 31 $ 45 $ 1 $ 1 $ 1 Interest cost 28 36 50 5 7 8 Expected return on plan assets ( 43 ) ( 53 ) ( 61 ) ( 10 ) ( 11 ) ( 10 ) Amortization of net actuarial loss 14 21 15 — — — Net actuarial loss from settlements 1 9 1 — — — Reclassification to regulatory liability — — — 2 2 1 Net periodic benefit cost (credit) (1) $ 30 $ 44 $ 50 $ ( 2 ) $ ( 1 ) $ — ____________ (1) Components other than Service cost are included in Other income (expense) – net below Operating income (loss) in the Consolidated Statement of Income . 100 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Items Recognized in Other Comprehensive Income (Loss) Other changes in plan assets and benefit obligations recognized in Other comprehensive income (loss) before taxes for the years ended December 31 consist of the following: Pension Benefits Other Postretirement Benefits 2021 2020 2019 2021 2020 2019 (Millions) Net actuarial gain (loss) arising during the year $ 40 $ 112 $ 88 $ 29 $ ( 4 ) $ ( 9 ) Amortization of net actuarial loss 14 21 15 — — — Net actuarial loss from settlements 1 9 1 — — — Total recognized in Other comprehensive income (loss) $ 55 $ 142 $ 104 $ 29 $ ( 4 ) $ ( 9 ) Key Assumptions The weighted-average assumptions utilized to determine benefit obligations and Net periodic benefit cost (credit) as of December 31 are as follows: Pension Benefits Other Postretirement Benefits 2021 2020 2019 2021 2020 2019 Benefit obligations: Discount rate 2.82 % 2.45 % 3.19 % 2.93 % 2.59 % 3.27 % Rate of compensation increase 3.67 3.76 3.68 N/A N/A N/A Cash balance interest crediting rate 3.00 3.00 3.50 N/A N/A N/A Net periodic benefit cost (credit): Discount rate 2.45 % 3.08 % 4.33 % 2.59 % 3.27 % 4.39 % Expected long-term rate of return on plan assets 3.69 4.67 5.26 3.61 4.39 5.01 Rate of compensation increase 3.76 3.68 4.83 N/A N/A N/A Cash balance interest crediting rate 3.00 3.50 4.25 N/A N/A N/A We use mortality tables issued by the Society of Actuaries to measure the benefit obligations. The assumed health care cost trend rate for 2022 is 6.9 percent. This rate decreases to 4.5 percent by 2028 . Plan Assets The plans’ investment objectives include a framework to manage the volatility of the plans’ funded status and minimize future cash contributions. The plans follow a policy of diversifying the investments across various asset classes, strategies, and investment managers. The investment policy for the pension plans includes target asset allocation percentages as well as permitted and prohibited investments designed to mitigate risks associated with investing. The December 31, 2021, target asset allocation was 25 percent equity securities and 75 percent fixed income securities, including investments in equity and fixed income mutual funds, commingled investment funds, and separate accounts. 101 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) The fair values of our pension and other postretirement benefits plan assets by asset class at December 31 are as follows: 2021 Pension Benefits Other Postretirement Benefits Level 1 (1) Level 2 (2) Total Level 1 (1) Level 2 (2) Total (Millions) Cash management funds $ 37 $ — $ 37 $ 14 $ — $ 14 Equity securities 42 19 61 39 10 49 Government debt securities 99 28 127 13 4 17 Corporate debt securities — 350 350 — 47 47 Mutual fund - Municipal bonds — — — 59 — 59 Other ( 3 ) 2 ( 1 ) ( 1 ) — ( 1 ) $ 175 $ 399 574 $ 124 $ 61 185 Commingled investment funds (3): Equities 288 39 Fixed income 474 63 Total assets at fair value $ 1,336 $ 287 2020 Pension Benefits Other Postretirement Benefits Level 1 (1) Level 2 (2) Total Level 1 (1) Level 2 (2) Total (Millions) Cash management funds $ 21 $ — $ 21 $ 12 $ — $ 12 Equity securities 39 22 61 38 10 48 Government debt securities 110 32 142 14 4 18 Corporate debt securities — 361 361 — 48 48 Mutual fund - Municipal bonds — — — 52 — 52 Other — 4 4 — — — $ 170 $ 419 589 $ 116 $ 62 178 Commingled investment funds (3): Equities 288 38 Fixed income 480 62 Total assets at fair value $ 1,357 $ 278 ____________ (1) Level 1 includes assets with fair values based on quoted prices in active markets for identical assets. Cash management funds, equity securities traded on U.S. exchanges, U.S. Treasury securities, and mutual funds are included in this level. (2) Level 2 includes assets with fair values determined by using significant other observable inputs. This level includes equity securities traded on active foreign exchanges and fixed income securities, other than U.S. Treasury securities, that are valued primarily using pricing models which incorporate observable inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. (3) The commingled investment funds are measured at fair value using net asset value (NAV) per share. Certain standard withdrawal restrictions generally apply, which may include redemption notification period restrictions ranging from 1 day to 15 days. 102 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Plan Benefit Payments and Employer Contributions Following are the expected benefit payments, which reflect the same assumptions previously discussed and future service as appropriate. Pension Benefits Other Postretirement Benefits (Millions) 2022 $ 86 $ 14 2023 82 13 2024 81 13 2025 81 12 2026 78 12 2027-2031 378 53 In 2022, we expect to contribute approximately $ 2 million to our pension plans and approximately $ 4 million to our other postretirement benefit plan. Note 9 – Investing Activities Investments Ownership Interest at December 31, 2021 December 31, 2021 2020 (Millions) Equity method: Appalachia Midstream Investments (1) $ 3,056 $ 3,087 RMM 50 % 401 421 OPPL 50 % 388 395 Blue Racer 50 % 377 357 Discovery 60 % 328 352 Laurel Mountain 69 % 226 219 Gulfstream 50 % 215 204 Other Various 130 124 5,121 5,159 Other 6 — $ 5,127 $ 5,159 ___________ (1) Includes equity-method investments in multiple gathering systems in the Marcellus Shale with an approximate average 66 percent interest. Basis differential The carrying value of our Appalachia Midstream Investments exceeds our portion of the underlying net assets by approximately $ 1.2 billion at December 31, 2021 and 2020. 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 $ 1.2 billion and $ 1.3 billion at December 31, 2021 and 2020, 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 103 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) generally amortized over the remaining useful lives of the associated underlying assets and included in Equity earnings (losses) within the Consolidated Statement of Income. Acquisition of additional interests in BRMH As of December 31, 2019, we effectively owned a 29 percent indirect interest in Blue Racer through our 58 percent interest in BRMH, whose primary asset is a 50 percent interest in Blue Racer. In November 2020, we paid $ 157 million, net of cash acquired, to acquire an additional 41 percent ownership interest in BRMH before acquiring the remaining interest of BRMH in September 2021. As such, we control and consolidate BRMH, reporting the 50 percent interest in Blue Racer as an equity-method investment. Since substantially all of the fair value of the BRMH assets acquired is concentrated in a single asset, the investment in Blue Racer, and we previously held a noncontrolling interest in BRMH, we recorded the November 2020 and September 2021 additional purchases of interests as asset acquisitions. 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, 2021 2020 2019 (Millions) Appalachia Midstream Investments $ 84 $ 116 $ 140 Gulfstream 26 3 3 Blue Racer (1) 3 157 28 Laurel Mountain 2 5 36 Targa Train 7 — 6 43 RMM — — 145 Brazos Permian II — — 18 Other — 38 40 $ 115 $ 325 $ 453 ___________ (1) See previous discussion in the section Acquisition of additional interests in BRMH above. 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, 2021 2020 2019 (Millions) Appalachia Midstream Investments $ 433 $ 357 $ 293 Gulfstream 90 93 86 Blue Racer (1) 47 47 42 RMM 45 39 38 Discovery 44 21 41 Laurel Mountain 33 31 30 OPPL 26 50 77 Other 39 15 50 $ 757 $ 653 $ 657 ___________ (1) See previous discussion in the section Acquisition of additional interests in BRMH above. 104 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) 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 17 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk for information regarding impairments of our equity-method investments of $ 1,046 million and $ 186 million for 2020 and 2019, respectively. Other Investing Income (Loss) – Net The following table presents certain items reflected in Other investing income (loss) – net in the Consolidated Statement of Income: Year Ended December 31, 2021 2020 2019 (Millions) Gain (loss) on deconsolidation of businesses $ — $ — $ ( 29 ) Gain on disposition of Jackalope — — 122 Other 7 8 14 Other investing income (loss) – net $ 7 $ 8 $ 107 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. 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. Summarized Financial Position and Results of Operations of All Equity-Method Investments December 31, 2021 2020 (Millions) Assets (liabilities): Current assets $ 743 $ 630 Noncurrent assets 13,211 13,424 Current liabilities ( 435 ) ( 312 ) Noncurrent liabilities ( 3,774 ) ( 3,884 ) 105 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Year Ended December 31, 2021 2020 2019 (Millions) Gross revenue $ 4,688 $ 2,625 $ 2,490 Operating income 1,191 508 685 Net income 1,006 459 598 Transactions with Equity-Method Investees We have purchases from our equity-method investees included in Product costs in the Consolidated Statement of Income of $ 934 million, $ 348 million, and $ 304 million for the years ended 2021, 2020, and 2019, respectively. We have $ 89 million and $ 50 million included in Accounts payable in the Consolidated Balance Sheet with our equity-method investees at December 31, 2021 and 2020, 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 $ 70 million, $ 79 million, and $ 103 million for the years ended 2021, 2020, and 2019, respectively. Note 10 – Property, Plant, and Equipment The following table presents nonregulated and regulated Property, plant, and equipment – net as presented on the Consolidated Balance Sheet for the years ended: Estimated Useful Life (1) (Years) Depreciation Rates (1) (%) December 31, 2021 2020 (Millions) Nonregulated: Natural gas gathering and processing facilities 5 - 40 $ 18,203 $ 17,813 Construction in progress Not applicable 331 289 Oil and gas properties Units of production 572 98 Other 0 - 45 2,649 2,560 Regulated: Natural gas transmission facilities 1.25 - 7.13 19,201 18,688 Construction in progress Not applicable Not applicable 475 382 Other 5 - 45 0.00 - 33.33 2,753 2,659 Total property, plant, and equipment, at cost 44,184 42,489 Accumulated depreciation and amortization ( 14,926 ) ( 13,560 ) Property, plant, and equipment — net $ 29,258 $ 28,929 __________ (1) Estimated useful life and depreciation rates are presented as of December 31, 2021. Depreciation rates and estimated useful lives for regulated assets are prescribed by the FERC. Depreciation and amortization expense for Property, plant, and equipment – net was $ 1.496 billion, $ 1.393 billion, and $ 1.390 billion in 2021, 2020, and 2019, respectively. Regulated Property, plant, and equipment – net includes approximately $ 468 million and $ 507 million at December 31, 2021 and 2020, respectively, related to amounts in excess of the original cost of the regulated facilities within our gas pipeline businesses as a result of our prior acquisitions. This amount is being amortized over 106 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) 40 years using the straight-line amortization method. Current FERC policy does not permit recovery through rates for amounts in excess of original cost of construction. Asset Retirement Obligations Our accrued obligations primarily relate to offshore platforms and pipelines, oil and gas properties, gas transmission pipelines and facilities, gas processing, fractionation, and compression facilities, gas gathering well connections and pipelines, and underground storage caverns. At the end of the useful life of each respective asset, we are legally obligated to dismantle offshore platforms and appropriately abandon offshore pipelines, to remove certain components of gas transmission facilities from the ground, to restore land and remove surface equipment at gas processing, fractionation, and compression facilities, to cap certain gathering pipelines at the wellhead connection and remove any related surface equipment, to plug storage caverns and remove any related surface equipment, and to plug producing wells and remove any related surface equipment. The following table presents the significant changes to our ARO, of which $ 1.59 billion and $ 1.159 billion are included in Regulatory liabilities, deferred income, and other with the remaining current portion in Accrued liabilities at December 31, 2021 and 2020, respectively. December 31, 2021 2020 (Millions) Balance at beginning of year $ 1,222 $ 1,165 Liabilities incurred (1) 336 37 Liabilities settled ( 25 ) ( 19 ) Accretion 73 65 Revisions (2) 59 ( 26 ) Balance at end of year $ 1,665 $ 1,222 ___________ (1) Includes $ 307 million and $ 31 million of ARO in 2021 and 2020, respectively, related to acquired upstream properties. (2) Several factors are considered in the annual review process, including inflation rates, current estimates for removal cost, market risk premiums, discount rates, and the estimated remaining useful life of the assets. The 2021 revisions reflect changes in removal cost estimates, increases in the estimated remaining useful life of certain assets, increases in inflation rates, and new removal estimates. The 2020 revisions reflect changes in removal cost estimates, increases in the estimated remaining useful life of certain assets, decreases in inflation rates, and decreases in the discount rates used in the annual review process. The funds Transco collects through a portion of its rates to fund its ARO are deposited into an external trust account dedicated to funding its ARO (ARO Trust). (See Note 17 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk.) Under its current rate settlement, Transco’s annual funding obligation is approximately $ 16 million, with installments to be deposited monthly. 107 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Note 11 – Intangible Assets The gross carrying amount and accumulated amortization of intangible assets, included in Intangible assets – net of accumulated amortization in the Consolidated Balance Sheet, at December 31 are as follows: 2021 2020 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization (Millions) Customer relationships $ 9,593 $ ( 2,448 ) $ 9,555 $ ( 2,116 ) Transportation and storage capacity contracts 267 ( 14 ) — — Other intangible assets 6 ( 2 ) 6 ( 1 ) $ 9,866 $ ( 2,464 ) $ 9,561 $ ( 2,117 ) Customer Relationships Customer relationships primarily relate to gas gathering, processing, and fractionation contractual customer relationships recognized in acquisitions. Contractual customer relationships are being amortized on a straight-line basis over a period of 20 years for the acquisition of UEOM and 30 years for most other acquisitions, which represents a portion of the term over which the contractual customer relationships are expected to contribute to our cash flows. We expense costs incurred to renew or extend the terms of our gas gathering, processing, and fractionation contracts with customers. Based on the estimated future revenues during the contract periods (as estimated at the time of the acquisition), the weighted-average period prior to the next renewal or extension of the contractual customer relationships associated with the UEOM acquisition was approximately 10 years. Although a significant portion of the expected future cash flows associated with these contractual customer relationships are dependent on our ability to renew or extend the arrangements beyond the initial contract periods, these expected future cash flows are significantly influenced by the scope and pace of our producer customers’ drilling programs. Once producer customers’ wells are connected to our gathering infrastructure, their likelihood of switching to another provider before the wells are abandoned is reduced due to the significant capital investment required. The amortization expense related to customer relationships was $ 332 million, $ 328 million, and $ 324 million in 2021, 2020, and 2019, respectively. The estimated amortization expense for each of the next five succeeding fiscal years is approximately $ 335 million. Transportation and Storage Capacity Contracts Certain transportation and storage capacity contracts were recognized as intangible assets as part of the Sequent Acquisition. (See Note 3 – Acquisitions.) The amortization expense related to transportation and storage capacity contracts was $ 14 million in 2021. The estimated amortization expense for each of the next five succeeding fiscal years is approximately $ 159 million, $ 51 million, $ 21 million, $ 10 million, and $ 7 million. 108 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Note 12 – Accrued Liabilities December 31, 2021 2020 (Millions) Interest on debt $ 277 $ 271 Employee costs 214 149 Derivative liabilities 166 4 Contract liabilities 134 129 Asset retirement obligations (Note 10) 75 63 Operating lease liabilities (Note 14) 23 28 Other, including accrued loss contingencies 312 300 $ 1,201 $ 944 109 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Note 13 – Debt and Banking Arrangements Long-Term Debt December 31, 2021 2020 (Millions) Transco: 7.08 % Debentures due 2026 $ 8 $ 8 7.25 % Debentures due 2026 200 200 7.85 % Notes due 2026 1,000 1,000 4 % Notes due 2028 400 400 3.25 % Notes due 2030 700 700 5.4 % Notes due 2041 375 375 4.45 % Notes due 2042 400 400 4.6 % Notes due 2048 600 600 3.95 % Notes due 2050 500 500 Other financing obligation — Atlantic Sunrise 830 847 Other financing obligation — Leidy South 72 — Other financing obligation — Dalton 254 257 Northwest Pipeline: 7.125 % Debentures due 2025 85 85 4 % Notes due 2027 500 500 Williams: 4 % Notes due 2021 — 500 7.875 % Notes due 2021 — 371 3.35 % Notes due 2022 750 750 3.6 % Notes due 2022 1,250 1,250 3.7 % Notes due 2023 850 850 4.5 % Notes due 2023 600 600 4.3 % Notes due 2024 1,000 1,000 4.55 % Notes due 2024 1,250 1,250 3.9 % Notes due 2025 750 750 4 % Notes due 2025 750 750 3.75 % Notes due 2027 1,450 1,450 3.5 % Notes due 2030 1,000 1,000 2.6 % Notes due 2031 1,500 — 7.5 % Debentures due 2031 339 339 7.75 % Notes due 2031 252 252 8.75 % Notes due 2032 445 445 6.3 % Notes due 2040 1,250 1,250 5.8 % Notes due 2043 400 400 5.4 % Notes due 2044 500 500 5.75 % Notes due 2044 650 650 4.9 % Notes due 2045 500 500 5.1 % Notes due 2045 1,000 1,000 4.85 % Notes due 2048 800 800 3.5 % Notes due 2051 650 — Various — 7.7 % to 9.375 % Notes and Debentures due 2021 to 2027 2 3 Credit facility loans — — Unamortized debt issuance costs ( 131 ) ( 125 ) Net unamortized debt premium (discount) ( 56 ) ( 63 ) Total long-term debt, including current portion 23,675 22,344 Long-term debt due within one year ( 2,025 ) ( 893 ) Long-term debt $ 21,650 $ 21,451 110 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Certain of our debt agreements contain covenants that restrict or limit, among other things, our ability to create liens supporting indebtedness, sell assets, and incur additional debt. Default of these agreements could also restrict our ability to make certain distributions or repurchase equity. The following table presents aggregate minimum maturities of long-term debt and other financing obligations, excluding net unamortized debt premium (discount) and debt issuance costs, for each of the next five years: December 31, 2021 (Millions) 2022 $ 2,026 2023 1,478 2024 2,281 2025 1,619 2026 1,244 Issuances and retirements On January 18, 2022, we early retired $ 1.25 billion of 3.6 percent senior unsecured notes due March 15, 2022. On October 8, 2021, we completed a public offering of $ 600 million of 2.6 percent senior unsecured notes due 2031. The new 2031 notes are an additional issuance of the $ 900 million of 2.6 percent senior unsecured notes due 2031 issued on March 2, 2021, and will trade interchangeably with such notes. Also, on October 8, 2021, we completed a public offering of $ 650 million of 3.5 percent senior unsecured notes due 2051. We retired $ 371 million of 7.875 percent senior unsecured notes that matured on September 1, 2021. On August 16, 2021, we early retired $ 500 million of 4.0 percent senior unsecured notes due November 15, 2021. On August 17, 2020, we early retired $ 600 million of 4.125 percent senior unsecured notes due November 15, 2020. On May 14, 2020, we completed a public offering of $ 1 billion of 3.5 percent senior unsecured notes due 2030. On May 8, 2020, Transco issued $ 700 million of 3.25 percent senior unsecured notes due 2030 and $ 500 million of 3.95 percent senior unsecured notes due 2050 to investors in a private debt placement. In the fourth quarter of 2020, Transco filed a registration statement and completed an exchange of these notes for substantially identical new notes that are registered under the Securities Act of 1933, as amended. We retired $ 1.5 billion of 5.25 percent senior unsecured notes that matured on March 15, 2020. We retired $ 14 million of 8.75 percent senior unsecured notes that matured on January 15, 2020. We retired $ 32 million of 7.625 percent senior unsecured notes that matured on July 15, 2019. Other financing obligations During the construction of the Atlantic Sunrise, Leidy South, and Dalton projects, Transco received funding from co-owners for their proportionate share of construction costs. Amounts received were recorded within noncurrent liabilities and the costs associated with construction were capitalized in the Consolidated Balance Sheet. Upon placing these projects into service Transco began utilizing the co-owners’ undivided interest in the assets, including the associated pipeline capacity, and reclassified the funding previously received from its co-owners from noncurrent liabilities to debt. The obligations, which mature in 2038, 2041, and 2052, respectively, require monthly 111 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) interest and principal payments and bear interest rates of approximately 9 percent, 16 percent, and 9 percent, respectively. Credit Facility December 31, 2021 Stated Capacity Outstanding (Millions) Long-term credit facility (1) $ 3,750 $ — Letters of credit under certain bilateral bank agreements 16 ________________ (1) In managing our available liquidity, we do not expect a maximum outstanding amount in excess of the capacity of our credit facility inclusive of any outstanding amounts under our commercial paper program. Revolving credit facility In October 2021, we along with Transco and Northwest Pipeline, the lenders named therein, and an administrative agent entered into an amended and restated credit agreement (Credit Agreement) that reduced aggregate commitments available from $ 4.5 billion to $ 3.75 billion, with up to an additional $ 500 million increase in aggregate commitments available under certain circumstances. The Credit Agreement was effective on October 8, 2021. The maturity date of the credit facility is October 8, 2026. However, the co-borrowers may request up to two extensions of the maturity date each for an additional one-year period to allow a maturity date as late as October 8, 2028, under certain circumstances. The Credit Agreement allows for swing line loans up to an aggregate of $ 200 million, subject to available capacity under the credit facility, and letters of credit commitments of $ 500 million. Transco and Northwest Pipeline are each able to borrow up to $ 500 million under this credit facility to the extent not otherwise utilized by the other co-borrowers. The Credit Agreement contains the following terms and conditions: • Various covenants may limit, among other things, a borrower’s and its material subsidiaries’ ability to grant certain liens supporting indebtedness, merge or consolidate, sell all or substantially all of its assets in certain circumstances, make certain distributions during an event of default, and each borrower and each borrower’s respective material subsidiaries’ ability to enter into certain restrictive agreements. • If an event of default with respect to a borrower occurs under the credit facility, the lenders will be able to terminate the commitments for the respective borrowers and accelerate the maturity of the loans of the defaulting borrower under the credit facility and exercise other rights and remedies. • Other than swing line loans, each time funds are borrowed, the applicable borrower may choose from two methods of calculating interest: a fluctuating base rate equal to an alternative base rate as defined in the Credit Agreement plus an applicable margin or a periodic fixed rate equal to the London Interbank Offered Rate (LIBOR) plus an applicable margin. We are required to pay a commitment fee based on the unused portion of the credit facility. The applicable margin is determined by reference to a pricing schedule based on the applicable borrower’s senior unsecured long-term debt ratings and the commitment fee is determined by reference to a pricing schedule based on Williams’ senior unsecured long-term debt ratings. The Credit Agreement also includes customary provisions to provide for replacement of LIBOR with an alternative benchmark rate when LIBOR ceases to be available. Significant financial covenants under the Credit Agreement require the ratio of debt to EBITDA (earnings before interest, taxes, depreciation, and amortization), each as defined in the Credit Agreement, to be no greater than 5.0 to 1.0, except that for any fiscal quarter in which the funding of the purchase price for an acquisition (whether effectuated as one or a series of related transactions) with an aggregate purchase price of $ 25 million or more has 112 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) been effected, and the following two fiscal quarters (in each case subject to certain limitations), the ratio of debt to EBITDA is to be no greater than 5.5 to 1. The ratio of debt to capitalization (defined as net worth plus debt), each as defined in the Credit Agreement, must be no greater than 65 percent for each of Transco and Northwest Pipeline. At December 31, 2021, we are in compliance with these covenants. Commercial Paper Program In 2018, we entered into a $ 4 billion commercial paper program that has been reduced to $ 3.5 billion in connection with the October 2021 Credit Agreement. The maturities of the commercial paper notes vary but may not exceed 397 days from the date of issuance. The commercial paper notes are sold under customary terms in the commercial paper market and are issued at a discount from par, or, alternatively, are sold at par and bear varying interest rates on a fixed or floating basis. The net proceeds of issuances of the commercial paper notes are expected to be used to fund planned capital expenditures and for other general corporate purposes. At December 31, 2021 and 2020, no commercial paper was outstanding. Cash Payments for Interest (Net of Amounts Capitalized) Cash payments for interest (net of amounts capitalized) were $ 1.137 billion in 2021, $ 1.149 billion in 2020, and $ 1.153 billion in 2019. Note 14 – Leases We are a lessee through noncancellable lease agreements for property and equipment consisting primarily of buildings, land, vehicles, and equipment used in both our operations and administrative functions. Year Ended December 31, 2021 2020 2019 (Millions) Lease Cost: Operating lease cost $ 35 $ 37 $ 40 Variable lease cost 15 19 27 Sublease income ( 1 ) ( 1 ) ( 2 ) Total lease cost $ 49 $ 55 $ 65 Cash paid for amounts included in the measurement of operating lease liabilities $ 35 $ 30 $ 39 December 31, 2021 2020 (Millions) Other Information: Right-of-use asset (included in Regulatory assets, deferred charges, and other in the Consolidated Balance Sheet) $ 159 $ 182 Operating lease liabilities: Current (included in Accrued liabilities in the Consolidated Balance Sheet) $ 23 $ 28 Noncurrent (included in Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet) $ 141 $ 161 Weighted-average remaining lease term – operating leases (years) 13 13 Weighted-average discount rate – operating leases 4.56 % 4.60 % 113 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) As of December 31, 2021, the following table represents our operating lease maturities, including renewal provisions that we have assessed as being reasonably certain of exercise, for each of the years ended December 31: (Millions) 2022 $ 28 2023 23 2024 19 2025 17 2026 17 Thereafter 122 Total future lease payments 226 Less amount representing interest 62 Total obligations under operating leases $ 164 We are the lessor to certain lease agreements for office space in our headquarters building, which are insignificant to our financial statements. Note 15 – Stockholders' Equity On February 1, 2022, our board of directors approved a regular quarterly dividend to common stockholders of $ 0.425 per share payable on March 28, 2022. Share Repurchase Program In September 2021, our Board of Directors authorized a share repurchase program with a maximum dollar limit of $ 1.5 billion. Repurchases may be made from time to time in the open market, by block purchases, in privately negotiated transactions, or in such other manner as determined by our management. Our management will also determine the timing and amount of any repurchases based on market conditions and other factors. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended or discontinued at any time. This share repurchase program does not have an expiration date. There were no repurchases under the program as of December 31, 2021. AOCI The following table presents the changes in AOCI by component, net of income taxes: Cash Flow Hedges (1) Foreign Currency Translation Pension and Other Postretirement Benefits Total (Millions) Balance at December 31, 2020 $ ( 3 ) $ ( 1 ) $ ( 92 ) $ ( 96 ) Other comprehensive income (loss) before reclassifications ( 40 ) — 51 11 Amounts reclassified from accumulated other comprehensive income (loss) 41 — 11 52 Other comprehensive income (loss) 1 — 62 63 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. 114 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: Component Reclassifications Classification (Millions) Cash flow hedges: Energy commodity contracts $ 55 Net gain (loss) on commodity derivatives Pension and other postretirement benefits: Amortization of actuarial (gain) loss and net actuarial loss from settlements included in net periodic benefit cost (credit) 15 Other income (expense) – net below Operating income (loss) Income tax benefit ( 18 ) Provision (benefit) for income taxes Reclassifications during the period $ 52 Note 16 – Equity-Based Compensation Williams’ Plan Information The Williams Companies, Inc. 2007 Incentive Plan (the Plan) provides common-stock-based awards to both employees and nonmanagement directors. To date, 50 million new shares have been authorized for making awards under the Plan, including 10 million shares added on April 28, 2020. The Plan permits the granting of various types of awards including, but not limited to, restricted stock units and stock options. At December 31, 2021, 30 million shares of our common stock were reserved for issuance pursuant to existing and future stock awards, of which 17 million shares were available for future grants. Additionally, up to 5.2 million new shares of our common stock have been authorized to date to be available for sale under our Employee Stock Purchase Plan (ESPP), including 1.6 million shares added on April 28, 2020. Employees purchased 275 thousand shares at a weighted-average price of $ 19.47 per share during 2021. 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 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, 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. 115 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Nonvested Restricted Stock Units The following summary reflects nonvested restricted stock unit activity and related information for the year ended December 31, 2021: Restricted Stock Units Outstanding Shares Weighted- Average Fair Value (1) (Millions) Nonvested at December 31, 2020 6.2 $ 23.53 Granted 2.7 $ 24.22 Forfeited ( 0.1 ) $ 18.59 Vested ( 1.5 ) $ 30.82 Nonvested at December 31, 2021 7.3 $ 22.35 ______________ (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 . Value of Restricted Stock Units 2021 2020 2019 Weighted-average grant date fair value of restricted stock units granted during the year, per share $ 24.22 $ 18.32 $ 25.87 Total fair value of restricted stock units vested during the year (in millions) $ 46 $ 43 $ 29 Performance-based restricted stock units granted under the Plan represent 39 percent of nonvested restricted stock units outstanding at December 31, 2021. These grants may be earned at the end of the vesting period based on actual performance against a performance target. Based on the extent to which certain financial targets are achieved, vested shares may range from zero percent to 200 percent of the original grant amount. Stock Options 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. 116 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) 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, and accounts payable approximate fair value because of the short-term nature of these instruments. Therefore, these assets and liabilities are not presented in the following table. Fair Value Measurements Using Carrying Amount Fair Value Quoted Prices In Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (Millions) Assets (liabilities) at December 31, 2021: Measured on a recurring basis: 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: Long-term debt, including current portion ( 23,675 ) ( 27,768 ) — ( 27,768 ) — Guarantees ( 39 ) ( 26 ) — ( 10 ) ( 16 ) Assets (liabilities) at December 31, 2020: Measured on a recurring basis: ARO Trust investments $ 235 $ 235 $ 235 $ — $ — Commodity derivative assets 3 3 1 2 — Commodity derivative liabilities ( 6 ) ( 6 ) ( 3 ) ( 1 ) ( 2 ) Additional disclosures: Long-term debt, including current portion ( 22,344 ) ( 27,043 ) — ( 27,043 ) — Guarantees ( 40 ) ( 27 ) — ( 11 ) ( 16 ) (1) Excludes approximately $ 296 million of net cash collateral in Level 1. Fair Value Methods We use the following methods and assumptions in estimating the fair value of our financial instruments: Assets measured at fair value on a recurring basis ARO Trust investments : Transco deposits a portion of its collected rates, pursuant to its rate case settlement, into an external trust that is specifically designated to fund future ARO’s. The ARO Trust invests in a portfolio of actively traded mutual funds that are measured at fair value on a recurring basis based on quoted prices in an active market and is reported in Regulatory assets, deferred charges, and other in our 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. 117 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, 2021 2020 (Millions) 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) 24 — Transfers out of Level 3 12 — Balance at end of period $ ( 15 ) $ ( 2 ) Additional fair value disclosures Long-term debt, including current portion : The disclosed fair value of our long-term debt is determined primarily by a market approach using broker quoted indicative period-end bond prices. The quoted prices are based on observable transactions in less active markets for our debt or similar instruments. The fair values of the financing obligations associated with our Dalton, 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 : Guarantees primarily consist of a guarantee we have provided in the event of nonpayment by our previously owned communications subsidiary, Williams Communications Group (WilTel), on a lease performance obligation that extends through 2042. Guarantees also include an indemnification related to a disposed operation. To estimate the fair value of the WilTel guarantee, an estimated default rate is applied to the sum of the future contractual lease payments using an income approach. The estimated default rate is determined by obtaining the average cumulative issuer-weighted corporate default rate based on the credit rating of WilTel’s current owner and the term of the underlying obligation. The default rate is published by Moody’s Investors Service. The carrying value of the WilTel guarantee is reported in Accrued liabilities in our Consolidated Balance Sheet. The maximum potential undiscounted exposure is approximately $ 25 million at December 31, 2021. Our exposure declines systematically through the remaining term of WilTel’s obligation. The fair value of the guarantee associated with the indemnification related to a disposed operation was estimated using an income approach that considered probability-weighted scenarios of potential levels of future performance. The terms of the indemnification do not limit the maximum potential future payments associated with the guarantee. The carrying value of this guarantee is reported in Regulatory liabilities, deferred income, and other in our Consolidated Balance Sheet. 118 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. The maximum potential amount of future payments under these indemnifications is based on the related borrowings and such future payments cannot currently be determined. These indemnifications generally continue indefinitely unless limited by the underlying tax regulations and have no carrying value. We have never been called upon to perform under these indemnifications and have no current expectation of a future claim. Nonrecurring fair value measurements During the first quarter of 2020, we observed a significant decline in the publicly traded price of our common stock (NYSE: WMB), which declined 40 percent during the quarter, including a 26 percent decline in the month of March. These changes were generally attributed to macroeconomic and geopolitical conditions, including significant declines in crude oil prices driven by both surplus supply and a decrease in demand caused by the coronavirus (COVID-19) pandemic. As a result of these conditions, we performed an interim assessment of the goodwill 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. We utilized internally developed industry weighted-average discount rates and estimates of valuation multiples of comparable publicly traded gathering and processing companies. In assessing the fair value as of the March 31, 2020, measurement date, we were required to consider recent publicly available indications of value, which included lower observed publicly traded EBITDA market multiples as compared with recent history and significantly higher industry weighted-average discount rates. The fair value of the reporting unit was further reconciled to our estimated total enterprise value as of March 31, 2020, which considered observable valuation multiples of comparable publicly traded companies applied to each distinct business including the Northeast G&P reporting unit. This assessment indicated that the estimated fair value of the Northeast G&P reporting unit was below its carrying value, including goodwill. As a result of this Level 3 measurement, we recognized a full impairment charge of $ 187 million as of March 31, 2020, in Impairment of goodwill in our Consolidated Statement of Income. 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 3 – Acquisitions). 119 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. Impairments Year Ended December 31, Segment Date of Measurement Fair Value 2021 2020 2019 (Millions) 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 Certain gathering assets (2) Northeast G&P December 31, 2020 5 12 Certain pipeline project (3) Transmission & Gulf of Mexico December 31, 2019 22 $ 354 Certain gathering assets (4) West December 31, 2019 25 20 Certain gathering assets (4) West June 30, 2019 40 59 Certain idle gathering assets (5) West March 31, 2019 — 12 Other impairments and write-downs (6) 19 Impairment of certain assets $ 2 $ 182 $ 464 Impairment of equity-method investments: RMM (7) West December 31, 2020 $ 421 $ 108 RMM (8) West March 31, 2020 557 243 Brazos Permian II (8) West March 31, 2020 — 193 BRMH (9) Northeast G&P March 31, 2020 191 229 Appalachia Midstream Investments (9) Northeast G&P March 31, 2020 2,700 127 Aux Sable (9) Northeast G&P March 31, 2020 7 39 Laurel Mountain (9) Northeast G&P March 31, 2020 236 10 Discovery (9) Transmission & Gulf of Mexico March 31, 2020 367 97 Laurel Mountain (10) Northeast G&P September 30, 2019 242 $ 79 Appalachia Midstream Investments (11) Northeast G&P September 30, 2019 102 17 Pennant (12) Northeast G&P August 31, 2019 11 17 UEOM (13) Northeast G&P March 17, 2019 1,210 74 Other ( 1 ) Impairment of equity-method investments $ — $ 1,046 $ 186 ______________ (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 120 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, 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. 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. (3) Relates to the Constitution proposed pipeline project extending from Susquehanna County, Pennsylvania, to the Iroquois Gas Transmission and the Tennessee Gas Pipeline systems in New York. Although Constitution received a certificate of public convenience and necessity from the FERC to construct and operate the proposed pipeline and obtained, among other approvals, a waiver of the water quality certification under Section 401 of the Clean Water Act for the New York portion of the project, the members of Constitution, following extensive evaluation and discussion, determined that the underlying risk-adjusted return for this greenfield pipeline project had diminished in such a way that further development was no longer supported. The estimated fair value of the Property, plant, and equipment – net was based on probability-weighted third-party quotes. Our partners’ $ 209 million share of this impairment is reflected within Net income (loss) attributable to noncontrolling interests in 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. The estimated fair value of the Property, plant, and equipment – net at June 30, 2019, was determined using a market approach, which incorporated indications of interest from third parties. (5) Reflects impairment of Property, plant, and equipment – net that is no longer in use for which the fair value was determined to be lower than the carrying value. (6) 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. (7) During the fourth quarter of 2020, RMM renegotiated service contracts with a significant customer in connection with the customer’s Chapter 11 bankruptcy proceedings. The renegotiated contracts result in lower service rates and lower projected future cash flows. As a result, we evaluated this investment for other-than-temporary impairment. The fair value was measured using an income approach. We utilized a discount rate of 18 percent in our analysis . (8) Following the previously described declining market conditions during the first quarter of 2020, we evaluated these investments for other-than-temporary impairment. The fair value was measured using an income approach. Both investees operate in primarily oil-driven basins where significant expected reductions in producer activities led to reduced estimates of expected future cash flows. Our fair value estimates also reflected discount rates of approximately 17 percent for these investments. We also considered any debt held at 121 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 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 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. The estimated fair value was determined using an income approach. We utilized a discount rate of 10.2 percent in our analysis. (11) Relates to a certain gathering system held in Appalachia Midstream Investments that was adversely impacted by changes in the timing of expected producer activity. The estimated fair value was determined using an income approach. We utilized a discount rate of 9 percent in our analysis. (12) The estimated fair value of Pennant Midstream, LLC (Pennant) was determined by a market approach based on recent observable third-party transactions. These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy. (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. Concentration of Credit Risk Accounts receivable The following table summarizes concentration of receivables, net of allowances: December 31, 2021 2020 (Millions) NGLs, natural gas, and related products and services $ 486 $ 470 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 1,451 892 Derivative receivables (2) 462 — Other 65 107 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. 122 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Customers include producers, distribution companies, industrial users, gas marketers, and pipelines primarily located in the continental United States. As a general policy, collateral is not required for receivables 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 . 123 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: December 31, 2021 December 31, 2020 Derivative Category Assets (Liabilities) Assets (Liabilities) (Millions) 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: Gain (Loss) Year Ended December 31, 2021 2020 2019 (Millions) 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 124 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 Reporting of Natural Gas-Related Information to Trade Publications Direct and indirect purchasers of natural gas in various states filed individual and class actions against us, our former affiliate WPX Energy, Inc. (WPX) and its subsidiaries, and others alleging the manipulation of published gas price indices 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. We have agreed to indemnify WPX and its subsidiaries related to this matter. In the individual action, filed by Farmland Industries Inc. (Farmland), the court issued an order on May 24, 2016, granting one of our co-defendant’s motion for summary judgment as to Farmland’s claims. On January 5, 2017, the court extended such ruling to us, entering final judgment in our favor. Farmland appealed. On March 27, 2018, the appellate court reversed the district court’s grant of summary judgment, and on April 10, 2018, the defendants filed a petition for rehearing with the appellate court, which was denied on May 9, 2018. The case was remanded to the Nevada federal district court and subsequently remanded to its originally filed court, the Kansas federal district court where we re-urged our motion for summary judgment. The district court denied the motion but granted our request to seek permission for an immediate appeal to the appellate court. Oral argument occurred before the appellate court on January 19, 2021. 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. On June 13, 2017, the United States Court of Appeals for the Ninth Circuit granted the plaintiffs’ petition for permission to appeal the order. On August 6, 2018, the Ninth Circuit reversed the order denying class certification and remanded the case to the Nevada federal district court. We reached an agreement to settle two of the actions, and on April 22, 2019, the Nevada federal district court preliminarily approved the settlements, which are on behalf of Kansas and Missouri class members. The final fairness hearing on the settlement occurred August 5, 2019, and a final judgment of dismissal with prejudice was entered the same day. Two putative class actions remain unresolved, and they have been remanded to their originally filed court, the Wisconsin federal district court 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 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) 125 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. The litigation involves three cases, with filing dates ranging from 2010 to 2014. The actions primarily arise from sulfolane contamination allegedly emanating from the refinery. A putative class action lawsuit was filed by James West in 2010 naming us, WAPI, and FHRA as defendants. We and FHRA filed claims against each other seeking, among other things, contractual indemnification alleging that the other party caused the sulfolane contamination. In 2011, we and FHRA settled the claim with James West. Certain claims by FHRA against us were resolved by the Alaska Supreme Court in our favor. FHRA’s claims against us for contractual indemnification and statutory claims for damages related to off-site sulfolane were remanded to the Alaska Superior Court. The State of Alaska filed its action in March 2014, seeking damages. The City of North Pole (North Pole) filed its lawsuit in November 2014, seeking past and future damages, as well as punitive damages. Both we and WAPI asserted counterclaims against the State of Alaska and North Pole, and cross-claims against FHRA. FHRA has also filed cross-claims against us. The underlying factual basis and claims in the cases are similar and may duplicate exposure. As such, in February 2017, the three cases were consolidated into one action in state court containing the remaining claims from the James West case and those of the State of Alaska and North Pole. The State of Alaska later announced the discovery of additional contaminants per- and polyfluoralkyl (PFOS and PFOA) offsite of the refinery, and the court permitted the State of Alaska to amend its complaint to add a claim for offsite PFOS/PFOA contamination. The court subsequently remanded the offsite PFOS/PFOA claims to the Alaska Department of Environmental Conservation for investigation and stayed the claims pending their potential resolution at the administrative agency. Several trial dates encompassing all three cases have been scheduled and stricken. In the summer of 2019, the court deconsolidated the cases for purposes of trial. A bench trial on all claims except North Pole’s claims began in October 2019. In January 2020, the Alaska Superior Court issued its Memorandum of Decision finding in favor of the State of Alaska and FHRA, with the total incurred and potential future damages estimated to be $ 86 million. The court found that FHRA is not entitled to contractual indemnification from us because FHRA contributed to the sulfolane contamination. On March 23, 2020, the court entered final judgment in the case. Filing deadlines were stayed until May 1, 2020. However, on April 21, 2020, we filed a Notice of Appeal. We also filed post-judgment motions including a Motion for New Trial and a Motion to Alter or Amend the Judgment. These post-trial motions were resolved with the court’s denial of the last motion on June 11, 2020. Our Statement of Points on Appeal was filed on July 13, 2020. On June 22, 2020, the court stayed the North Pole’s case pending resolution of the appeal in the State of Alaska and FHRA case. On December 23, 2020, we filed our opening brief on appeal. Oral argument was held on December 15, 2021. We have recorded an accrued liability in the amount of our estimate of the probable loss. It is reasonably possible that we may not be successful on appeal and could ultimately pay up to the amount of judgment. Royalty Matters Certain of our customers, including Chesapeake 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 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 126 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. On April 19, 2016, we filed an amended complaint seeking the same relief. On May 3, 2016, Energy Transfer and LE GP, LLC filed an answer and counterclaims. On May 13, 2016, we filed a separate complaint in Delaware Chancery Court against Energy Transfer, LE GP, LLC and the other Energy Transfer affiliates that are parties to the ETE Merger Agreement, alleging material breaches of the ETE Merger Agreement for failing to cooperate and use necessary efforts to obtain a tax opinion required under the ETE Merger Agreement (Tax Opinion) and for otherwise failing to use necessary efforts to consummate the merger under the ETE Merger Agreement wherein we would be merged with and into the newly formed Energy Transfer Corp LP (ETC) (ETC Merger). The suit sought, among other things, a declaratory judgment and injunction preventing Energy Transfer from terminating or otherwise avoiding its obligations under the ETE Merger Agreement due to any failure to obtain the Tax Opinion. The Court of Chancery coordinated the Special Offering and Tax Opinion suits. On May 20, 2016, the Energy Transfer defendants filed amended affirmative defenses and verified counterclaims in the Special Offering and Tax Opinion suits, alleging certain breaches of the ETE Merger Agreement by us and seeking, among other things, a declaration that we were not entitled to specific performance, that Energy Transfer could terminate the ETC Merger, and that Energy Transfer is entitled to a $ 1.48 billion termination fee. On June 24, 2016, following a two-day trial, the court issued a Memorandum Opinion and Order denying our requested relief in the Tax Opinion suit. The court did not rule on the substance of our claims related to the Special Offering or on the substance of Energy Transfer’s counterclaims. On June 27, 2016, we filed an appeal of the court’s decision with the Supreme Court of Delaware, seeking reversal and remand to pursue damages. On March 23, 2017, the Supreme Court of Delaware affirmed the Court of Chancery’s ruling. On March 30, 2017, we filed a motion for reargument with the Supreme Court of Delaware, which was denied on April 5, 2017. On September 16, 2016, we filed an amended complaint with the Court of Chancery seeking damages for breaches of the ETE Merger Agreement by defendants. On September 23, 2016, Energy Transfer filed a second amended and supplemental affirmative defenses and verified counterclaim with the Court of Chancery seeking, among other things, payment of the $ 1.48 billion termination fee due to our alleged breaches of the ETE Merger Agreement. On December 1, 2017, the court granted our motion to dismiss certain of Energy Transfer’s counterclaims, including its claim seeking payment of the $ 1.48 billion termination fee. On December 8, 2017, Energy Transfer filed a motion for reargument, which the Court of Chancery denied on April 16, 2018. The Court of Chancery 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 We are a participant in certain environmental activities in various stages including assessment studies, cleanup operations, and/or remedial processes at certain sites, some of which we currently do not own. We are monitoring these sites in a coordinated effort with other potentially responsible parties, the U.S. Environmental Protection Agency (EPA), or other governmental authorities. We are jointly and severally liable along with unrelated third parties in some of these activities and solely responsible in others. Certain of our subsidiaries have been identified as potentially responsible parties at various Superfund and state waste disposal sites. In addition, these subsidiaries have incurred, or are alleged to have incurred, various other hazardous materials removal or remediation obligations under environmental laws. As of December 31, 2021, we have accrued liabilities totaling $ 31 million for these matters, as discussed below. Estimates of the most likely costs of cleanup are generally based on completed assessment studies, preliminary results of studies, or our experience with other similar cleanup operations. At December 31, 2021, certain assessment studies were still in process for which the ultimate outcome may yield 127 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) 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 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 Our interstate gas pipelines are involved in remediation activities related to certain facilities and locations for polychlorinated biphenyls, mercury, and other hazardous substances. These activities have involved the EPA and various state environmental authorities, resulting in our identification as a potentially responsible party at various Superfund waste sites. At December 31, 2021, we have accrued liabilities of $ 4 million for these costs. We expect that these costs will be recoverable through rates. We also accrue environmental remediation costs for natural gas underground storage facilities, primarily related to soil and groundwater contamination. At December 31, 2021, we have accrued liabilities totaling $ 8 million for these costs. Former operations We have potential obligations in connection with assets and businesses we no longer operate. These potential obligations include remediation activities at the direction of federal and state environmental authorities and the indemnification of the purchasers of certain of these assets and businesses for environmental and other liabilities existing at the time the sale was consummated. Our responsibilities relate to the operations of the assets and businesses described below. • Former agricultural fertilizer and chemical operations and former retail petroleum and refining operations; • Former petroleum products and natural gas pipelines; • Former petroleum refining facilities; • Former exploration and production and mining operations; • Former electricity and natural gas marketing and trading operations. At December 31, 2021, we have accrued environmental liabilities of $ 19 million related to these matters. Other Divestiture Indemnifications Pursuant to various purchase and sale agreements relating to divested businesses and assets, we have indemnified certain purchasers against liabilities that they may incur with respect to the businesses and assets acquired from us. The indemnities provided to the purchasers are customary in sale transactions and are contingent 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. 128 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) At December 31, 2021, other than as previously disclosed, we are not aware of any material claims against us involving the above-described indemnities; thus, we do not expect any of the indemnities provided pursuant to the sales agreements to have a material impact on our future financial position. Any claim for indemnity brought against us in the future may have a material adverse effect on our results of operations in the period in which the claim is made. In addition to the foregoing, various other proceedings are pending against us that are incidental to our operations, none of which are expected to be material to our expected future annual results of operations, liquidity, and financial position. Summary We have disclosed our estimated range of reasonably possible losses for certain matters above, as well as all significant matters for which we are unable to reasonably estimate a range of possible loss. We estimate that for all other matters for which we are able to reasonably estimate a range of loss, our aggregate reasonably possible losses beyond amounts accrued are immaterial to our expected future annual results of operations, liquidity, and financial position. These calculations have been made without consideration of any potential recovery from third parties. Commitments Commitments for construction and acquisition of property, plant, and equipment are approximately $ 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, West, and Sequent. All remaining business activities are included in Other. (See Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies.) Performance Measurement We evaluate segment operating performance based upon Modified EBITDA . This measure represents the basis of our internal financial reporting and is the primary performance measure used by our chief operating decision maker in measuring performance and allocating resources among our reportable segments. Intersegment 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: • Net income (loss) before: ◦ Income (loss) from discontinued operations; ◦ Provision (benefit) for income taxes; ◦ Interest incurred, net of interest capitalized; ◦ Equity earnings (losses); ◦ Impairment of equity-method investments; ◦ Other investing income (loss) – net; 129 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) ◦ Impairment of goodwill; ◦ Depreciation and amortization expenses; ◦ Accretion expense associated with asset retirement obligations for nonregulated operations. • This measure is further adjusted to include our proportionate share (based on ownership interest) of Modified EBITDA from our equity-method investments calculated consistently with the definition described above. The 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 (Millions) 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 $ 714 130 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 Income and Other financial information : Transmission & Gulf of Mexico Northeast G&P West Sequent (1) Other Eliminations Total (Millions) 2021 Segment revenues: Service revenues External $ 3,310 $ 1,490 $ 1,181 $ — $ 20 $ — $ 6,001 Internal 75 38 40 — 12 ( 165 ) — Total service revenues 3,385 1,528 1,221 — 32 ( 165 ) 6,001 Total service revenues – commodity consideration 52 7 179 — — — 238 Product sales External 231 13 4,117 37 138 — 4,536 Internal 118 86 213 ( 80 ) 195 ( 532 ) — 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 Other financial information: Additions to long-lived assets $ 861 $ 164 $ 209 $ 1 $ 620 $ — $ 1,855 Proportional Modified EBITDA of equity-method investments 183 682 105 — — — 970 2020 Segment revenues: Service revenues External $ 3,207 $ 1,416 $ 1,280 $ — $ 21 $ — $ 5,924 Internal 50 49 — — 13 ( 112 ) — Total service revenues 3,257 1,465 1,280 — 34 ( 112 ) 5,924 Total service revenues – commodity consideration 21 7 101 — — — 129 Product sales External 144 16 1,511 — — — 1,671 Internal 47 41 56 — — ( 144 ) — 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 Other financial information: Additions to long-lived assets $ 706 $ 137 $ 318 $ — $ 122 $ — $ 1,283 Proportional Modified EBITDA of equity-method investments 166 473 110 — — — 749 131 The Williams Companies, Inc. Notes to Consolidated Financial Statements – (Continued) Transmission & Gulf of Mexico Northeast G&P West Sequent (1) Other Eliminations Total (Millions) 2019 Segment revenues: Service revenues External $ 3,261 $ 1,291 $ 1,364 $ — $ 17 $ — $ 5,933 Internal 50 47 — — 13 ( 110 ) — Total service revenues 3,311 1,338 1,364 — 30 ( 110 ) 5,933 Total service revenues – commodity consideration 41 12 150 — — — 203 Product sales External 217 115 1,731 — — — 2,063 Internal 71 35 64 — — ( 170 ) — 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 Other financial information: Additions to long-lived assets $ 1,341 $ 1,245 $ 304 $ — $ 21 $ — $ 2,911 Proportional Modified EBITDA of equity-method investments 177 454 115 — — — 746 ______________ (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: Total Assets Equity-Method Investments December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 (Millions) Transmission & Gulf of Mexico $ 20,392 $ 19,110 $ 602 $ 610 Northeast G&P 14,938 14,569 3,681 3,682 West 10,851 10,558 838 867 Sequent 1,592 — — — Other (1) 3,233 927 — — Eliminations (2) ( 3,394 ) ( 999 ) — — 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. 132 The Williams Companies, Inc. Schedule II — Valuation and Qualifying Accounts Additions Beginning Balance Charged (Credited) To Costs and Expenses Other Deductions Ending Balance (Millions) 2021 Deferred tax asset valuation allowance (1) $ 325 $ ( 28 ) $ — $ — $ 297 2020 Deferred tax asset valuation allowance (1) 319 6 — — 325 2019 Deferred tax asset valuation allowance (1) 320 ( 1 ) — — 319 __________ (1) Deducted from related assets. 133 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.