Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
We are an energy infrastructure company focused on connecting North America’s significant hydrocarbon resource plays to growing markets for natural gas and NGLs through our gas pipeline and midstream business. Our operations are located in the United States.
Our interstate natural gas pipeline strategy is to create value by maximizing the utilization of our pipeline capacity by providing high quality, low cost transportation of natural gas to large and growing markets. Our gas pipeline businesses’ interstate transmission and storage activities are subject to regulation by the FERC and as such, our rates and charges for the transportation of natural gas in interstate commerce, and the extension, expansion or abandonment of jurisdictional facilities and accounting, among other things, are subject to regulation. Rates are established in accordance with the FERC’s ratemaking process. Changes in commodity prices and volumes transported have limited near-term impact on these revenues because the majority of cost of service is recovered through firm capacity reservation charges in transportation rates.
The ongoing strategy of our midstream operations is to safely and reliably operate large-scale midstream infrastructure where our assets can be fully utilized and drive low per-unit costs. We focus on consistently attracting new business by providing highly reliable service to our customers. These services include natural gas gathering, processing, treating, and compression, NGL fractionation and transportation, crude oil production handling and transportation, marketing services for NGL, crude oil and natural gas, as well as storage facilities.
Consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources, our operations are conducted, managed, and presented within the following reportable segments: Transmission & Gulf of Mexico, Northeast G&P, and West. All remaining business activities as well as corporate activities are included in Other. Our reportable segments are comprised of the following businesses:
•Transmission & Gulf of Mexico is comprised of our interstate natural gas pipelines, Transco and 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 (a consolidated variable interest entity), which is a proprietary floating production system, a 50 percent equity-method investment in Gulfstream, and a 60 percent equity-method investment in 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 our Northeast JV (a consolidated variable interest entity) which operates in West Virginia, Ohio, and Pennsylvania, a 66 percent interest in Cardinal (a consolidated variable interest entity) which operates in Ohio, a 69 percent equity-method investment in Laurel Mountain, a 99 percent interest in Caiman II (a former equity-method investment which is a consolidated entity following our November 2020 acquisition of an additional ownership interest) which owns a 50 percent equity-method investment in Blue Racer, and Appalachia Midstream Investments, 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.
•West is comprised of our gas gathering, processing, and treating operations in the Rocky Mountain region of Colorado and Wyoming, the Barnett Shale region of north-central Texas, the Eagle Ford Shale region of south Texas, the Haynesville Shale region of northwest Louisiana, and the Mid-Continent region which includes the Anadarko, Arkoma, and Permian basins. This segment also includes our NGL and natural gas marketing business, storage facilities, an undivided 50 percent interest in an NGL fractionator near Conway, Kansas, a 50 percent equity-method investment in OPPL, a 50 percent equity-method investment in RMM, a 20 percent equity-method investment in Targa Train 7, and a 15 percent interest in Brazos Permian II, LLC (Brazos Permian II).
•Other includes certain previously owned operations, minor business activities that are not reportable segments, as well as corporate operations.
Unless indicated otherwise, the following discussion and analysis of results of operations and financial condition and liquidity relates to our current continuing operations and should be read in conjunction with the consolidated financial statements and notes thereto included in Part II, Item 8 of this report.
Dividends
In December 2020, we paid a regular quarterly dividend of $0.40 per share. On January 26, 2021, our board of directors approved a regular quarterly dividend of $0.41 per share payable on March 29, 2021.
Overview
Net income (loss) attributable to The Williams Companies, Inc., for the year ended December 31, 2020, decreased $639 million compared to the year ended December 31, 2019, reflecting:
•An $860 million increase in Impairment of equity-method investments;
•A $187 million Impairment of goodwill in 2020;
•A $123 million unfavorable change in Net income (loss) attributable to noncontrolling interests primarily driven by a reduced share of certain impairment charges attributable to noncontrolling interests;
•The absence of a $122 million gain recognized on the sale of our interest in an equity-method investment in 2019;
•A $76 million unfavorable change in Other income (expense) – net.
These unfavorable changes were partially offset by:
•A $282 million decrease in Impairment of certain assets;
•A $234 million favorable change in Operating and maintenance expenses and Selling, general, and administrative expenses, driven by lower employee-related expenses, including the absence of 2019 severance and related costs and the associated reduced costs in 2020 as well as the benefit of a change in an employee benefit policy;
•A $256 million favorable change in Provision (benefit) for income taxes.
Acquisition of Caiman II (Blue Racer)
As of December 31, 2019, we effectively owned a 29 percent indirect interest in Blue Racer through our 58 percent interest in Caiman II, whose primary asset is a 50 percent interest in Blue Racer. On November 18, 2020, we paid $157 million, net of cash acquired, to acquire an additional 41 percent ownership interest in Caiman II. We now control and consolidate Caiman II, reporting the 50 percent interest in Blue Racer as an equity-method investment.
Expansion Project Updates
Significant expansion project updates for the period, including projects placed into service are described below. Ongoing major expansion projects are discussed later in Company Outlook.
Transmission & Gulf of Mexico
Hillabee
In February 2016, the FERC issued a certificate order for the initial phases of Transco’s Hillabee Expansion Project. The project involves an expansion of Transco’s existing natural gas transmission system from Station 85 in west central Alabama to an interconnection with the Sabal Trail pipeline in east central Alabama. The project is being constructed in phases, and all of the project expansion capacity is dedicated to Sabal Trail pursuant to a capacity lease agreement. Phase I was completed in 2017 and it increased capacity by
818 Mdth/d. We placed Phase II into service on May 1, 2020. Together, the first two phases of the project increased capacity by 1,025 Mdth/d.
Southeastern Trail
In October 2019, we received approval from the FERC to expand Transco’s existing natural gas transmission system to provide incremental firm transportation capacity from the Pleasant Valley interconnect with Dominion’s Cove Point Pipeline in Virginia to the Station 65 pooling point in Louisiana. We placed 230 Mdth/d of capacity under the project into service in the fourth quarter of 2020, and the project was fully in service on January 1, 2021. In total, the project increased capacity by 296 Mdth/d.
West
Project Bluestem
We expanded our presence in the Mid-Continent region through building a 189-mile NGL pipeline from our fractionator and NGL storage facilities near Conway, Kansas, to an interconnection with a third-party NGL pipeline system in Oklahoma, providing us with firm access to Mt. Belvieu pricing. As part of the project, the third party constructed a 110-mile pipeline extension of its existing NGL pipeline system that will have an initial capacity of 120 Mbbls/d. The pipeline and extension projects were placed into service on December 1, 2020. Further, during the first quarter of 2019, we exercised an option to purchase a 20 percent equity interest in Targa Train 7, a Mt. Belvieu fractionation train developed by the third party, which was placed into service in the first quarter of 2020.
COVID-19
The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. We are monitoring the COVID-19 pandemic and have taken steps intended to protect the safety of our customers, employees, and communities, and to support the continued delivery of safe and reliable service to our customers and the communities we serve. We are continuing to monitor developments with respect to the outbreak and note the following:
•Our financial condition, results of operations, and liquidity have not been materially impacted by direct effects of COVID-19.
•We believe we have the ability to access the debt market, if necessary, as evidenced by the successful completion of debt offerings during second-quarter 2020, and continue to have significant levels of unused capacity on our revolving credit facility.
•We continue to monitor and adapt our remote working arrangements and limit business-related travel. Implementation of these measures has not required material expenditures or significantly impacted our ability to operate our business.
•Our remote working arrangements have not significantly impacted our internal controls over financial reporting and disclosure controls and procedures.
Customer Bankruptcy
In June 2020, our customer, Chesapeake Energy Corporation (Chesapeake), announced that it had voluntarily filed for relief under Chapter 11 of the U.S. Bankruptcy Code. We provide midstream services, including wellhead gathering, for the natural gas that Chesapeake and its joint interest owners produce, primarily in the Eagle Ford Shale, Haynesville Shale, and Marcellus Shale regions (through Appalachia Midstream Investments).
In November 2020, we reached a global resolution with Chesapeake as part of Chesapeake’s restructuring process. The resolution was approved by the bankruptcy court in December 2020 and per the terms, Chesapeake paid all outstanding pre-petition amounts due to us. Additional terms include reduced gathering fees in the Haynesville Shale region, continuation of the gathering agreements in the Eagle Ford Shale and Marcellus Shale
regions, a long-term gas supply commitment for Transco’s Regional Energy Access pipeline currently under development, and transferring certain natural gas properties in Louisiana to us.
Company Outlook
Our strategy is to provide large-scale energy infrastructure designed to maximize the opportunities created by the vast supply of natural gas and natural gas products that exists in the United States. We accomplish this by connecting the growing demand for cleaner fuels and feedstocks with our major positions in the premier natural gas and natural gas products supply basins. We continue to maintain a strong commitment to safety, environmental stewardship, operational excellence, and customer satisfaction. We believe that accomplishing these goals will position us to deliver safe and reliable service to our customers and an attractive return to our shareholders. Our business plan for 2021 includes a continued focus on earnings and cash flow growth, while continuing to improve leverage metrics and control operating costs.
The credit profiles of certain of our producer customers continue to be challenged, including some that have filed for bankruptcy protection. However, we note that the physical nature of services we provide supports the success of these customers. In many cases, we have long-term acreage dedications with strong historical contractual conveyances that create real estate interests in unproduced gas. 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.
In 2021, our operating results are expected to benefit from growth in our Northeast G&P gathering and processing volumes. We also anticipate increases from Transco expansion projects and higher Gulf of Mexico results primarily due to lower anticipated hurricane impacts. These increases will be partially offset by a decrease in West results, including a reduction in NGL transportation volumes on OPPL and certain fee reductions in the Haynesville area in exchange for upstream value in natural gas properties. We also expect a modest increase in expenses, including higher operating taxes.
Our growth capital and investment expenditures in 2021 are expected to be in a range from $1.0 billion to $1.2 billion. Growth capital spending in 2021 primarily includes Transco expansions, all of which are fully contracted with firm transportation agreements, and projects supporting the Northeast G&P business and opportunities in the Haynesville area. In addition to growth capital and investment expenditures, we also remain committed to projects that maintain our assets for safe and reliable operations, as well as projects that meet legal, regulatory, and/or contractual commitments.
Potential risks and obstacles that could impact the execution of our plan include:
•Continued negative impacts of COVID-19 driving a global recession, which could result in further downturns in financial markets and commodity prices, as well as impact demand for natural gas and related products;
•Opposition to, and legal regulations affecting, our infrastructure projects, including the risk of delay or denial in permits and approvals needed for our projects;
•Counterparty credit and performance risk, including unexpected developments in customer bankruptcy proceedings;
•Unexpected significant increases in capital expenditures or delays in capital project execution;
•Unexpected changes in customer drilling and production activities, which could negatively impact gathering and processing volumes;
•Lower than anticipated demand for natural gas and natural gas products which could result in lower than expected volumes, energy commodity prices, and margins;
•General economic, financial markets, or further industry downturns, including increased interest rates;
•Physical damages to facilities, including damage to offshore facilities by weather-related events;
•Other risks set forth under Part I, Item 1A. Risk Factors in this report.
We seek to maintain a strong financial position and liquidity, as well as manage a diversified portfolio of energy infrastructure assets that continue to serve key growth markets and supply basins in the United States.
Expansion Projects
Our ongoing major expansion projects include the following:
Transmission & Gulf of Mexico
Northeast Supply Enhancement
In May 2019, we received approval from the FERC to expand Transco’s existing natural gas transmission system to provide incremental firm transportation capacity from Station 195 in Pennsylvania to the Rockaway Delivery Lateral transfer point in New York. However, approvals required for the project from the New York State Department of Environmental Conservation and the New Jersey Department of Environmental Protection were denied in May 2020. We have not refiled our applications for those approvals. Considering that the customer precedent agreements and FERC certificate for the project remain in effect, we had previously concluded that the probability of completing the project was sufficient to not require impairment. However, recent developments in the political and regulatory environments have caused us to slightly lower that assessed probability such that the capitalized project costs now require impairment. See further discussion in Critical Accounting Estimates.
Leidy South
In July 2020, we received approval from the FERC for the project to expand Transco’s existing natural gas transmission system and also extend its system through a capacity lease with National Fuel Gas Supply Corporation that will enable us to provide incremental firm transportation from Clermont, Pennsylvania and from the Zick interconnection on Transco’s Leidy Line to the River Road regulating station in Lancaster County, Pennsylvania. We placed 125 Mdth/d of capacity under the project into service in the fourth quarter of 2020, and we plan to place the remainder of the project into service as early as the fourth quarter of 2021, assuming timely receipt of all necessary regulatory approvals. The project is expected to increase capacity by 582 Mdth/d.
Critical Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. We believe that the nature of these estimates and assumptions is material due to the subjectivity and judgment necessary, or the susceptibility of such matters to change, and the impact of these on our financial condition or results of operations.
Pension and Postretirement Obligations
We have employee benefit plans that include pension and other postretirement benefits. Net periodic benefit cost and obligations for these plans are impacted by various estimates and assumptions. These estimates and assumptions include the expected long-term rates of return on plan assets, discount rates, cash balance interest crediting rate, and employee demographics, including retirement age and mortality. These assumptions are reviewed annually and adjustments are made as needed. The assumptions utilized to compute cost and the benefit obligations are shown in Note 10 – Employee Benefit Plans of Notes to Consolidated Financial Statements.
The following table presents the estimated increase (decrease) in net periodic benefit cost and obligations resulting from a one-percentage-point change in the specific assumption.
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|
Benefit Cost
|
|
Benefit Obligation
|
|
One-
Percentage-
Point
Increase
|
|
One-
Percentage-
Point
Decrease
|
|
One-
Percentage-
Point
Increase
|
|
One-
Percentage-
Point
Decrease
|
|
(Millions)
|
Pension benefits:
|
|
|
|
|
|
|
|
Discount rate
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
(101)
|
|
|
$
|
119
|
|
Expected long-term rate of return on plan assets
|
(12)
|
|
|
12
|
|
|
—
|
|
|
—
|
|
Cash balance interest crediting rate
|
9
|
|
|
(4)
|
|
|
67
|
|
|
(57)
|
|
Other postretirement benefits:
|
|
|
|
|
|
|
|
Discount rate
|
—
|
|
|
1
|
|
|
(24)
|
|
|
30
|
|
Expected long-term rate of return on plan assets
|
(3)
|
|
|
3
|
|
|
—
|
|
|
—
|
|
Our expected long-term rates of return on plan assets, as determined at the beginning of each fiscal year, are based on the average rate of return expected on the funds invested in the plans. We determine our long-term expected rates of return on plan assets using our expectations of capital market results, which include an analysis of historical results as well as forward-looking projections. These capital market expectations are based on a period of at least 10 years and take into account our investment strategy and mix of assets. We develop our expectations using input from our third-party independent investment consultant. The forward-looking capital market projections start with current conditions of interest rates, equity pricing, economic growth, and inflation and those are overlaid with forward looking projections of normal inflation, growth, and interest rates to determine expected returns. The capital market return projections for specific asset classes in the investment portfolio are then applied to the relative weightings of the asset classes in the investment portfolio. The resulting rates are an estimate of future results and, thus, likely to be different than actual results.
Our expected long-term rate of return on plan assets used for our pension plans was 4.67 percent in 2020. The 2020 actual return on plan assets for our pension plans was approximately 17.9 percent. The 10-year average rate of return on pension plan assets through December 2020 was approximately 8.6 percent. The expected rates of return on plan assets are long-term in nature and are not significantly impacted by short-term market performance. Changes to our asset allocation also impact the expected rates of return.
The discount rates are used to measure the benefit obligations of our pension and other postretirement benefit plans. The objective of the discount rates is to determine the amount, if invested at the December 31 measurement date in a portfolio of high-quality debt securities, that will provide the necessary cash flows when benefit payments are due. Increases in the discount rates decrease the obligation and, generally, decrease the related cost. The discount rates for our pension and other postretirement benefit plans are determined separately based on an approach specific to our plans and their respective expected benefit cash flows as described in Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies and Note 10 – Employee Benefit Plans of Notes to Consolidated Financial Statements. Our discount rate assumptions are impacted by changes in general economic and market conditions that affect interest rates on long-term, high-quality debt securities as well as by the duration of our plans’ liabilities.
The cash balance interest crediting rate assumption represents the average long-term rate by which the pension plans’ cash balance accounts are expected to grow. Interest on the cash balance accounts is based on the 30-year U.S. Treasury securities rate and is credited to the accounts quarterly. An increase in this rate causes the pension obligation and cost to increase.
Equity-Method Investments
We monitor our equity-method investments for any indications that the carrying value may have experienced an other-than-temporary decline in value.
In the first quarter of 2020, we observed a significant decline in the publicly traded price of our common stock (NYSE: WMB) as well as other industry peers and increases in equity yields within the midstream and overall energy industry, which served to increase our estimates of discount rates and weighted-average cost of capital. These changes were attributed to the swift, world-wide economic declines associated with actions to address the spread of COVID-19, coupled with the energy industry impact of significantly reduced energy commodity prices, which were further impacted by crude oil price declines associated with geopolitical actions during the quarter. These significant macroeconomic changes served as indications that the carrying amount of certain of our equity-method investments may have experienced an other-than temporary decline in fair value, determined in accordance with Accounting Standards Codification (ASC) Topic 323, “Investments - Equity Method and Joint Ventures.”
As a result, we estimated the fair value of these equity-method investments in accordance with ASC Topic 820, “Fair Value Measurement,” as of the March 31, 2020, measurement date. In assessing the fair value, 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. As a result, we determined that there were other-than-temporary declines in the fair value of certain of our equity-method investments, resulting in recognized impairments during the first quarter of 2020 totaling $938 million. (See Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk of Notes to Consolidated Financial Statements.) This included impairments of certain of our equity-method investments in our Northeast G&P segment totaling $405 million, primarily associated with operations in wet-gas areas where producer drilling activities are influenced by NGL prices, which historically trend with crude oil prices. This total was primarily comprised of impairments of our investment in Caiman II and predominantly wet-gas gathering systems that are part of Appalachia Midstream Investments. We also recognized an impairment of $97 million related to Discovery within the Transmission & Gulf of Mexico segment. We estimated the fair value of these investments as of the March 31, 2020, measurement date utilizing income and market approaches, which were impacted by assumptions reflecting the significant recent market declines previously discussed, such as higher discount rates, ranging from 9.7 percent to 13.5 percent, and lower EBITDA multiples ranging from 5.0x to 6.2x. We also considered any debt held at the investee level, and its impact to fair value. At that time we estimated that a one percentage point increase or decrease in the discount rates used would increase these recognized impairments by approximately $197 million or decrease the level of these recognized impairments by approximately $121 million and a 0.5x increase or decrease in the EBITDA multiples assumed would decrease or increase the level of impairments recognized by approximately $48 million.
During the first quarter of 2020 we also recognized $436 million of impairments within our West segment related to our investments in RMM and Brazos Permian II, measured using an income approach. Both investees operate in primarily crude oil-driven basins where our gathering volumes are driven by crude oil drilling. Our expectation of continued lower crude oil prices and related expectation of significant reductions in current and future producer activities in these areas led to reduced estimates of expected future cash flows. Our fair value estimates also reflected increases in the discount rates to approximately 17 percent for these investments. We also considered any debt held at the investee level, and its impact to fair value. At that time we estimated that a one percentage point increase in the discount rate would increase these recognized impairments by approximately $32 million, while a one percentage point decrease would decrease these impairments by approximately $43 million.
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 recognized an additional $108 million impairment of our investment in RMM, measured using an income approach. Our estimate of fair value reflects a discount rate of 18 percent. We estimate that a one percentage point increase in the discount rate would increase the recognized impairment by approximately $24 million, while a one percentage point decrease would decrease these impairments by approximately $26 million.
Judgments and assumptions are inherent in our estimates of future cash flows, discount rates, and market measures utilized. The use of alternate judgments and assumptions could result in a different calculation of fair value, which could ultimately result in the recognition of a different impairment charge in the consolidated financial statements, potentially including impairments for investments that were evaluated but for which no impairments were recognized.
Property, Plant, and Equipment and Other Identifiable Intangible Assets
As a result of the previously described significant macroeconomic changes during the first quarter of 2020, we also evaluated certain of our property, plant, and equipment and other identifiable intangible assets for indicators of impairment as of March 31, 2020. In our assessments, we considered the impact of the then current market conditions on certain of our assets and did not identify any indicators that the carrying amounts of those assets may not be recoverable. The use of alternate judgments or changes in future conditions could result in a different conclusion regarding the occurrence and measurement of impairments affecting the consolidated financial statements.
We also evaluated $212 million of capitalized project development costs for the Northeast Supply Enhancement project for impairment as of December 31, 2020. As previously discussed, approvals required for the project from the New York State Department of Environmental Conservation and the New Jersey Department of Environmental Protection have been denied and we have not refiled at this time. Beginning in May 2020, we discontinued capitalization of costs related to this project.
Considering that the customer precedent agreements and FERC certificate for the project remain in effect, we had previously concluded that the probability of completing the project was sufficient to not require impairment. However, recent developments in the political and regulatory environments have caused us to slightly lower that assessed probability such that the capitalized project costs now require impairment. The estimated fair value of the materials within capitalized project costs was determined to be $42 million and considered other internal uses and estimated salvage values. The remaining capitalized costs were determined to have no fair value. As a result, we recognized an impairment charge of $170 million within our Transmission & Gulf of Mexico segment during the fourth quarter of 2020. Our assumption regarding the probability of completing the project is subjective and required management to exercise significant judgment. The use of an alternate judgment could have resulted in a different conclusion regarding the need to evaluate the project for impairment.
Results of Operations
Consolidated Overview
The following table and discussion is a summary of our consolidated results of operations for the three years ended December 31, 2020. The results of operations by segment are discussed in further detail following this consolidated overview discussion.
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|
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|
|
|
Year Ended December 31,
|
|
2020
|
|
$ Change
from
2019*
|
|
% Change
from
2019*
|
|
2019
|
|
$ Change
from
2018*
|
|
% Change
from
2018*
|
|
2018
|
|
(Millions)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
$
|
5,924
|
|
|
-9
|
|
|
—
|
%
|
|
$
|
5,933
|
|
|
+431
|
|
|
+8
|
%
|
|
$
|
5,502
|
|
Service revenues – commodity consideration
|
129
|
|
|
-74
|
|
|
-36
|
%
|
|
203
|
|
|
-197
|
|
|
-49
|
%
|
|
400
|
|
Product sales
|
1,666
|
|
|
-399
|
|
|
-19
|
%
|
|
2,065
|
|
|
-719
|
|
|
-26
|
%
|
|
2,784
|
|
Total revenues
|
7,719
|
|
|
|
|
|
|
8,201
|
|
|
|
|
|
|
8,686
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product costs
|
1,545
|
|
|
+416
|
|
|
+21
|
%
|
|
1,961
|
|
|
+746
|
|
|
+28
|
%
|
|
2,707
|
|
Processing commodity expenses
|
68
|
|
|
+37
|
|
|
+35
|
%
|
|
105
|
|
|
+32
|
|
|
+23
|
%
|
|
137
|
|
Operating and maintenance expenses
|
1,326
|
|
|
+142
|
|
|
+10
|
%
|
|
1,468
|
|
|
+39
|
|
|
+3
|
%
|
|
1,507
|
|
Depreciation and amortization expenses
|
1,721
|
|
|
-7
|
|
|
—
|
%
|
|
1,714
|
|
|
+11
|
|
|
+1
|
%
|
|
1,725
|
|
Selling, general, and administrative expenses
|
466
|
|
|
+92
|
|
|
+16
|
%
|
|
558
|
|
|
+11
|
|
|
+2
|
%
|
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of certain assets
|
182
|
|
|
+282
|
|
|
+61
|
%
|
|
464
|
|
|
+1,451
|
|
|
+76
|
%
|
|
1,915
|
|
Impairment of goodwill
|
187
|
|
|
-187
|
|
|
NM
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Gain on sale of certain assets and businesses
|
—
|
|
|
+2
|
|
|
+100
|
%
|
|
2
|
|
|
-694
|
|
|
NM
|
|
(692)
|
|
Other (income) expense – net
|
22
|
|
|
-14
|
|
|
-175
|
%
|
|
8
|
|
|
+42
|
|
|
+84
|
%
|
|
50
|
|
Total costs and expenses
|
5,517
|
|
|
|
|
|
|
6,280
|
|
|
|
|
|
|
7,918
|
|
Operating income (loss)
|
2,202
|
|
|
|
|
|
|
1,921
|
|
|
|
|
|
|
768
|
|
Equity earnings (losses)
|
328
|
|
|
-47
|
|
|
-13
|
%
|
|
375
|
|
|
-21
|
|
|
-5
|
%
|
|
396
|
|
Impairment of equity-method investments
|
(1,046)
|
|
|
-860
|
|
|
NM
|
|
(186)
|
|
|
-154
|
|
|
NM
|
|
(32)
|
|
Other investing income (loss) – net
|
8
|
|
|
-99
|
|
|
-93
|
%
|
|
107
|
|
|
-112
|
|
|
-51
|
%
|
|
219
|
|
Interest expense
|
(1,172)
|
|
|
+14
|
|
|
+1
|
%
|
|
(1,186)
|
|
|
-74
|
|
|
-7
|
%
|
|
(1,112)
|
|
Other income (expense) – net
|
(43)
|
|
|
-76
|
|
|
NM
|
|
33
|
|
|
-59
|
|
|
-64
|
%
|
|
92
|
|
Income (loss) from continuing operations before income taxes
|
277
|
|
|
|
|
|
|
1,064
|
|
|
|
|
|
|
331
|
|
Less: Provision (benefit) for income taxes
|
79
|
|
|
+256
|
|
|
+76
|
%
|
|
335
|
|
|
-197
|
|
|
-143
|
%
|
|
138
|
|
Income (loss) from continuing operations
|
198
|
|
|
|
|
|
|
729
|
|
|
|
|
|
|
193
|
|
Income (loss) from discontinued operations
|
—
|
|
|
+15
|
|
|
+100
|
%
|
|
(15)
|
|
|
-15
|
|
|
NM
|
|
—
|
|
Net income (loss)
|
198
|
|
|
|
|
|
|
714
|
|
|
|
|
|
|
193
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
(13)
|
|
|
-123
|
|
|
-90
|
%
|
|
(136)
|
|
|
+484
|
|
|
NM
|
|
348
|
|
Net income (loss) attributable to The Williams Companies, Inc.
|
$
|
211
|
|
|
|
|
|
|
$
|
850
|
|
|
|
|
|
|
$
|
(155)
|
|
_______
* + = Favorable change; - = Unfavorable change; NM = A percentage calculation is not meaningful due to a change in signs, a zero-value denominator, or a percentage change greater than 200.
2020 vs. 2019
Service revenues decreased primarily due to lower volumes in our West segment, lower deferred revenue amortization at Gulfstar One, the expiration of an MVC agreement in the Barnett Shale region, and temporary shut-ins at certain offshore Gulf of Mexico operations. This decrease was partially offset by higher Northeast G&P revenues driven by higher volumes and the March 2019 consolidation of UEOM (see Note 3 – Acquisitions and Divestitures of Notes to Consolidated Financial Statements), higher MVC revenue in our West segment, as well as higher transportation fee revenues at Transco and Northwest Pipeline associated with expansion projects placed in service in 2019 and 2020, increased volumes in the Eastern Gulf region, and higher deficiency fee revenue associated with lower volumes at OPPL.
Service revenues – commodity consideration decreased due to lower commodity prices, as well as lower equity NGL processing volumes due to less producer drilling activity. These revenues represent consideration we receive in the form of commodities as full or partial payment for processing services provided. Most of these NGL volumes are sold within the month processed and therefore are offset within Product costs below.
Product sales decreased primarily due to lower NGL and natural gas prices associated with our marketing and equity NGL sales activities, as well as lower volumes associated with our equity NGL sales activities, partially offset by higher marketing volumes. This decrease also includes lower system management gas sales. Marketing sales and system management gas sales are substantially offset within Product costs.
Product costs decreased primarily due to lower NGL and natural gas prices associated with our marketing and equity NGL production activities. This decrease also includes lower volumes acquired as commodity consideration for NGL processing services and lower system management gas purchases, partially offset by higher volumes for marketing activities.
Processing commodity expenses decreased primarily due to lower natural gas purchases associated with equity NGL production primarily due to lower natural gas prices and lower volumes.
Operating and maintenance expenses decreased primarily due to lower employee-related expenses, including the absence of 2019 severance and related costs and the associated reduced costs in 2020, as well as the favorable impact of a change in an employee benefit policy (see Note 6 – Other Income and Expenses of Notes to Consolidated Financial Statements), and lower maintenance and operating costs primarily due to timing and scope of activities. These decreases are partially offset by higher expenses related to the consolidation of UEOM.
Depreciation and amortization expenses increased primarily due to new assets placed in service and the March 2019 consolidation of UEOM, partially offset by lower expense related to assets that became fully depreciated in the fourth quarter of 2019.
Selling, general, and administrative expenses decreased primarily due to lower employee-related expenses, including the absence of 2019 severance and related costs and the associated reduced costs in 2020, as well as the favorable impact of a change in an employee benefit policy (see Note 6 – Other Income and Expenses of Notes to Consolidated Financial Statements), and the absence of transaction costs associated with our 2019 acquisition of UEOM and the formation of the Northeast JV.
Impairment of certain assets includes the 2019 impairments of our Constitution development project, certain Eagle Ford Shale gathering assets, and certain idle gathering assets. The asset impairments in 2020 included our Northeast Supply Enhancement development project and certain gathering assets in the Marcellus Shale region (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk of Notes to Consolidated Financial Statements).
Impairment of goodwill reflects the goodwill impairment charge at the Northeast reporting unit in 2020 (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk of Notes to Consolidated Financial Statements).
Equity earnings (losses) changed unfavorably primarily due to our share of 2020 impairments at equity-method investments (see Note 7 – Investing Activities of Notes to Consolidated Financial Statements), and lower volumes at OPPL and Discovery. These decreases were partially offset by favorable amortization of basis differences related to impairments of several of our equity-method investments which were recognized in first quarter 2020, as well as higher volumes at Appalachia Midstream Investments, increased results at Blue Racer/Caiman II driven by higher volumes and a higher ownership interest, and the absence of 2019 losses at Brazos Permian II.
Impairment of equity-method investments includes impairments of various equity-method investments in 2020 and 2019 (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk of Notes to Consolidated Financial Statements).
The unfavorable change in Other investing income (loss) – net is primarily due to the absence of a 2019 gain on the sale of our equity-method investment in Jackalope, partially offset by the absence of a 2019 loss on the deconsolidation of Constitution (see Note 7 – Investing Activities of Notes to Consolidated Financial Statements).
The unfavorable change in Other income (expense) – net below Operating income (loss) includes a charge in the fourth quarter 2020 for a legal settlement associated with former olefins operations, lower equity allowance for funds used during construction (AFUDC), and 2020 write-offs of certain regulatory assets related to cancelled projects.
Provision (benefit) for income taxes changed favorably primarily due to lower pre-tax income. See Note 8 – Provision (Benefit) for Income Taxes of Notes to Consolidated Financial Statements for a discussion of the effective tax rate compared to the federal statutory rate for both periods.
The unfavorable change in Net income (loss) attributable to noncontrolling interests is primarily due to the absence of the 2019 impairment of our Constitution development project and the impact from the formation of the Northeast JV in June 2019, partially offset by the first-quarter 2020 goodwill impairment charge at the Northeast reporting unit, and lower Gulfstar One results.
2019 vs. 2018
Service revenues increased primarily due to higher transportation fee revenues at Transco associated with expansion projects placed in service in 2018 and 2019, as well as the impact of the consolidation of UEOM, higher Northeast volumes at the Susquehanna Supply Hub and Ohio Valley Midstream regions, and higher gathering rates and volumes at the Utica Shale region. These increases are partially offset by the absence of revenues associated with asset divestitures and deconsolidations during 2018, including our former Four Corners area operations (see Note 3 – Acquisitions and Divestitures of Notes to Consolidated Financial Statements), as well as lower revenue in the Barnett Shale associated with the end of a contractual MVC period and lower revenue at Gulfstar One primarily associated with producer operational issues.
Service revenues – commodity consideration decreased due to lower NGL prices and lower volumes primarily due to the absence of our former Four Corners area operations. These revenues represent consideration we receive in the form of commodities as full or partial payment for processing services provided. Most of these NGL volumes are sold within the month processed and therefore are offset in Product costs below.
Product sales decreased primarily due to lower NGL and natural gas prices associated with our marketing and equity NGL sales activities, lower volumes from our equity NGL sales primarily reflecting the absence of our former Four Corners area operations, and lower system management gas sales, partially offset by higher marketing volumes. Marketing sales and system management gas sales are substantially offset in Product costs.
Product costs decreased primarily due to lower NGL and natural gas prices associated with our marketing and equity NGL production activities. This decrease also includes lower volumes acquired as commodity consideration for NGL processing services reflecting the absence of our former Four Corners area operations and lower system management gas purchases, partially offset by higher volumes for marketing activities.
Processing commodity expenses decreased primarily due to lower production of equity NGLs primarily related to ethane rejection and the absence of our former Four Corners area operations, and lower prices for natural gas purchases associated with our NGL production.
Operating and maintenance expenses decreased primarily due to the absence of our former Four Corners area operations and lower contracted services at Transco primarily due to the timing of required engine overhauls and integrity testing. These decreases are partially offset by the impact of the consolidation of UEOM and by a $32 million charge for severance and related costs primarily associated with a voluntary separation program (VSP) in 2019.
Depreciation and amortization expenses decreased primarily due to the 2018 impairment of certain assets in the Barnett Shale region, which serves to reduce depreciation prospectively, and the absence of assets disposed including our former Four Corners area operations, partially offset by new assets placed in service and by the impact of the consolidation of UEOM.
Selling, general, and administrative expenses decreased primarily due to the absences of a charitable contribution of preferred stock to the Williams Foundation, Inc. (see Note 16 – Stockholders' Equity of Notes to Consolidated Financial Statements) and fees associated with the WPZ Merger, partially offset by a $25 million charge for severance and related costs primarily associated with our 2019 VSP, and transaction expenses associated with the acquisition of UEOM and the formation of the Northeast JV.
Impairment of certain assets includes 2019 impairments of our Constitution development project, certain Eagle Ford Shale gathering assets, and certain idle gathering assets. Asset impairments in 2018 included certain assets in the Barnett Shale region and certain idle pipelines (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk of Notes to Consolidated Financial Statements).
Gain on sale of certain assets and businesses includes gains recognized on the sales of our Four Corners area and our Gulf Coast pipeline systems in 2018 (see Note 3 – Acquisitions and Divestitures of Notes to Consolidated Financial Statements).
The favorable change in Other (income) expense – net within Operating income (loss) includes net favorable changes to charges and credits to regulatory assets and liabilities, partially offset by the absence of a 2018 gain on asset retirement.
The unfavorable change in Equity earnings (losses) is primarily due to 2019 losses from our Brazos Permian II investment acquired in December 2018 of $14 million, the impact of the consolidation of UEOM during the first quarter of 2019 which reduced equity earnings by $9 million, and a $7 million unfavorable impact related to the April 2019 sale of our Jackalope investment. Additionally, equity earnings at Aux Sable decreased $9 million related to lower rates reflecting lower NGL prices. These decreases are partially offset by improved results at our Appalachia Midstream Investments of $20 million.
The unfavorable change in Impairment of equity-method investments includes 2019 noncash impairments, partially offset by the absence of a 2018 impairment of UEOM (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk of Notes to Consolidated Financial Statements).
The unfavorable change in Other investing income (loss) – net includes the absence of 2018 gains on the deconsolidations of our Delaware basin assets and Jackalope, and a 2019 loss on the deconsolidation of Constitution. These were partially offset by a 2019 gain on the disposition of Jackalope (see Note 7 – Investing Activities of Notes to Consolidated Financial Statements).
Interest expense increased primarily due to an increase in financing obligations associated with Transco’s Atlantic Sunrise project and lower Interest capitalized related to construction projects that have been placed into service.
The unfavorable change in Other income (expense) – net below Operating income (loss) is primarily due to a decrease in equity AFUDC associated with reduced capital expenditures on projects (see Note 6 – Other Income and
Expenses of Notes to Consolidated Financial Statements), partially offset by the absence of 2018 unfavorable settlement charges from our pension early payout program.
Provision (benefit) for income taxes changed unfavorably primarily due to higher pre-tax income attributable to The Williams Companies, Inc, partially offset by the absence of a charge to establish $105 million valuation allowance, recorded in 2018, on certain deferred tax assets that may not be realized following the WPZ merger. See Note 8 – Provision (Benefit) for Income Taxes of Notes to Consolidated Financial Statements for a discussion of the effective tax rate compared to the federal statutory rate for both periods.
The favorable change in Net income (loss) attributable to noncontrolling interests is primarily due to our third- quarter 2018 acquisition of the publicly held interests in WPZ associated with the WPZ Merger, the impairment of Constitution project costs, and lower results at Gulfstar One.
Year-Over-Year Operating Results – Segments
We evaluate segment operating performance based upon Modified EBITDA. Note 20 – Segment Disclosures of Notes to Consolidated Financial Statements includes a reconciliation of this non-GAAP measure to Net income (loss). Management uses Modified EBITDA because it is an accepted financial indicator used by investors to compare company performance. In addition, management believes that this measure provides investors an enhanced perspective of the operating performance of our assets. Modified EBITDA should not be considered in isolation or as a substitute for a measure of performance prepared in accordance with GAAP.
Transmission & Gulf of Mexico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(Millions)
|
Service revenues
|
$
|
3,257
|
|
|
$
|
3,311
|
|
|
$
|
2,953
|
|
Service revenues – commodity consideration
|
21
|
|
|
41
|
|
|
59
|
|
Product sales
|
191
|
|
|
288
|
|
|
435
|
|
Segment revenues
|
3,469
|
|
|
3,640
|
|
|
3,447
|
|
|
|
|
|
|
|
Product costs
|
(193)
|
|
|
(288)
|
|
|
(438)
|
|
Processing commodity expenses
|
(7)
|
|
|
(16)
|
|
|
(16)
|
|
Other segment costs and expenses
|
(886)
|
|
|
(984)
|
|
|
(964)
|
|
Impairment of certain assets
|
(170)
|
|
|
(354)
|
|
|
—
|
|
Gain on sale of certain assets and businesses
|
—
|
|
|
—
|
|
|
81
|
|
|
|
|
|
|
|
Proportional Modified EBITDA of equity-method investments
|
166
|
|
|
177
|
|
|
183
|
|
Transmission & Gulf of Mexico Modified EBITDA
|
$
|
2,379
|
|
|
$
|
2,175
|
|
|
$
|
2,293
|
|
|
|
|
|
|
|
Commodity margins
|
$
|
12
|
|
|
$
|
25
|
|
|
$
|
40
|
|
2020 vs. 2019
Transmission & Gulf of Mexico Modified EBITDA increased primarily due to lower Impairment of certain assets and favorable changes to Other segment costs and expenses, partially offset by decreased Service revenues.
Service revenues decreased primarily due to:
•A $115 million decrease due to lower deferred revenue amortization associated with the end of the exclusive use period at Gulfstar One for the Tubular Bells field;
•A $42 million decrease due to temporary shut-ins primarily at Perdido and Gulfstar One related to Gulf of Mexico weather-related events, pricing, and scheduled maintenance;
•A $32 million decrease due to lower volumes at Gulfstar One in the Gunflint field due to ongoing operational issues; partially offset by
•A $65 million increase in Transco’s and Northwest Pipeline’s natural gas transportation revenues associated with expansion projects placed in service in 2019 and 2020;
•A $44 million increase at Gulfstar One associated with higher volumes in the Tubular Bells field due to a new well and higher production;
•A $24 million increase associated with volumes from Norphlet placed in service in June 2019.
The net sum of Service revenues – commodity consideration, Product sales, Product costs, and Processing commodity expenses comprise our commodity margins. Our commodity margins associated with our equity NGLs decreased $11 million driven by lower commodity prices and volumes. Additionally, the decrease in Product sales includes a $47 million decrease in commodity marketing sales due to lower NGL prices and volumes and $27 million lower system management gas sales. Marketing sales and system management gas sales are substantially offset in Product costs and therefore have little impact to Modified EBITDA.
Other segment costs and expenses decreased primarily due to lower employee-related expenses, including the absence of 2019 severance and related costs and the associated reduced costs in 2020, as well as the favorable impact of a change in an employee benefit policy (see Note 6 – Other Income and Expenses of Notes to Consolidated Financial Statements), lower maintenance costs primarily due to a decrease in contracted services related to general maintenance and other testing at Transco, the absence of a 2019 charge for reversal of costs capitalized in previous periods and net favorable changes to charges and credits associated with a regulatory asset related to Transco’s asset retirement obligations, partially offset by lower equity AFUDC and higher operating taxes.
Impairment of certain assets includes the absence of the impairment of our Constitution development project in 2019, partially offset by the impairment of our Northeast Supply Enhancement development project in 2020 (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk of Notes to Consolidated Financial Statements).
Proportional Modified EBITDA of equity-method investments decreased at Discovery driven by lower volumes due to scheduled maintenance and temporary shut-ins related to Gulf of Mexico weather-related events and pricing.
2019 vs. 2018
Transmission & Gulf of Mexico Modified EBITDA decreased primarily due to the impairment of Constitution, the absence of a 2018 Gain on sale of certain assets and businesses, and higher Other segment costs and expenses, partially offset by increased Service revenues related to expansion projects placed into service during 2018 and 2019.
Service revenues increased primarily due to a $403 million increase in Transco’s natural gas transportation revenues primarily driven by a $358 million increase related to expansion projects placed in service in 2018 and 2019, as well as higher revenue associated with Transco’s general rate case settlement and increased amounts for reimbursable power and storage expenses. Partially offsetting these increases were lower fee revenues of $62 million primarily due to producer operational issues and lower deferred revenue amortization at Gulfstar One, as well as the sale of certain Gulf Coast pipeline assets in fourth-quarter 2018.
The net sum of Service revenues – commodity consideration, Product sales, Product costs, and Processing commodity expenses comprise our commodity margins. Our commodity margins associated with our equity NGLs decreased $16 million, consisting of a $26 million decrease associated with unfavorable net realized NGL sales prices, partially offset by a $10 million increase associated with higher sales volumes. The higher NGL volumes were primarily related to the absence of 2018 downtime to modify the Mobile Bay processing plant for the Norphlet project. Additionally, the decrease in Product sales includes a $93 million decrease in commodity marketing sales due to lower NGL prices and volumes and a $39 million decrease in system management gas sales. Marketing sales
and system management gas sales are substantially offset in Product costs and therefore have little impact to Modified EBITDA.
Other segment costs and expenses increased primarily due a $56 million unfavorable change in Transco’s equity AFUDC due to lower construction activity, a $39 million charge in 2019 for severance and related costs primarily associated with our 2019 VSP, a $21 million increase in reimbursable power and storage expenses, $16 million of expense in 2019 related to the reversal of expenditures previously capitalized, and the absence of a $12 million 2018 gain on asset retirements. These unfavorable changes were partially offset by $77 million of net favorable changes to charges and credits associated with regulatory assets and liabilities, which were significantly driven by the previously mentioned settlement in Transco’s general rate case, a $46 million decrease in Transco’s contracted services compared to 2018 mainly due to the timing of required engine overhauls and integrity testing, and the absence of a 2018 unfavorable charge of $12 million for a regulatory liability associated with a decrease in Northwest Pipeline’s estimated deferred state income tax rate following the WPZ Merger.
Impairment of certain assets includes the 2019 impairment of our Constitution development project (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk of Notes to Consolidated Financial Statements).
Gain on sale of certain assets and businesses reflects an $81 million gain from the sale of our Gulf Coast pipeline system assets in fourth-quarter 2018 (see Note 3 – Acquisitions and Divestitures of Notes to Consolidated Financial Statements).
Northeast G&P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(Millions)
|
Service revenues
|
$
|
1,465
|
|
|
$
|
1,338
|
|
|
$
|
976
|
|
Service revenues – commodity consideration
|
7
|
|
|
12
|
|
|
20
|
|
Product sales
|
57
|
|
|
150
|
|
|
287
|
|
Segment revenues
|
1,529
|
|
|
1,500
|
|
|
1,283
|
|
|
|
|
|
|
|
Product costs
|
(57)
|
|
|
(152)
|
|
|
(289)
|
|
Processing commodity expenses
|
(3)
|
|
|
(8)
|
|
|
(9)
|
|
Other segment costs and expenses
|
(441)
|
|
|
(470)
|
|
|
(392)
|
|
Impairment of certain assets
|
(12)
|
|
|
(10)
|
|
|
—
|
|
Proportional Modified EBITDA of equity-method investments
|
473
|
|
|
454
|
|
|
493
|
|
Northeast G&P Modified EBITDA
|
$
|
1,489
|
|
|
$
|
1,314
|
|
|
$
|
1,086
|
|
|
|
|
|
|
|
Commodity margins
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
9
|
|
2020 vs. 2019
Northeast G&P Modified EBITDA increased primarily due to higher Service revenues, lower Other segment costs and expenses, and increased Proportional Modified EBITDA of equity-method investments, in addition to the favorable impact of acquiring the additional interest in UEOM, which is a consolidated entity after the remaining ownership interest was purchased in March 2019.
Service revenues increased primarily due to:
•A $94 million increase at the Northeast JV, including $62 million higher processing, fractionation, transportation, and gathering revenues primarily due to higher volumes and a $32 million increase associated with the consolidation of UEOM, as previously discussed;
•A $20 million increase in gathering revenues associated with higher volumes in the Utica Shale region;
•A $13 million increase in revenues associated with reimbursable electricity expenses, which is offset by similar changes in electricity charges, reflected in Other segment costs and expenses.
Product sales decreased primarily due to lower NGL volumes and prices within our marketing activities, and lower system management gas sales. Marketing sales and system management gas sales are offset by similar changes in marketing purchases and system management gas purchases, reflected above as Product costs, and therefore have little impact to Modified EBITDA.
Other segment costs and expenses decreased due to lower employee-related expenses, including the absence of 2019 severance and related costs and the associated reduced costs in 2020, as well as the favorable impact of a change in an employee benefit policy (see Note 6 – Other Income and Expenses of Notes to Consolidated Financial Statements), and lower maintenance and operating expenses primarily due to timing and scope of activities. Additionally, expenses changed favorably due to the absence of transaction costs associated with our 2019 acquisition of UEOM and the formation of the Northeast JV. These decreases were partially offset by higher reimbursable electricity expenses, increased expenses associated with the consolidation of UEOM, and the absence of a favorable customer settlement in 2019.
Impairment of certain assets includes a $12 million impairment of certain gathering assets in the Marcellus Shale region in 2020 and a $10 million write-down of other certain assets that were no longer in use or were surplus in nature in 2019 (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk of Notes to Consolidated Financial Statements).
Proportional Modified EBITDA of equity-method investments increased at Appalachia Midstream Investments driven by higher volumes, partially offset by a $26 million decrease for our share of an impairment of certain assets. Additionally, there was an increase at Blue Racer/Caiman II primarily due to higher volumes and the favorable impact of increased ownership, partially offset by a $10 million decrease for our share of an impairment of certain assets. These increases were partially offset by a $16 million decrease as a result of the consolidation of UEOM in 2019, as previously discussed, as well as a decrease at Laurel Mountain primarily due to $11 million for our share of an impairment of certain assets that were subsequently sold, partially offset by higher volumes, and a decrease at Aux Sable.
2019 vs. 2018
Northeast G&P Modified EBITDA increased primarily due to higher Service revenues due to increased gathering volumes, as well as the $38 million favorable impact of acquiring the additional interest in UEOM, partially offset by 2019 impairments.
Service revenues increased primarily due to:
•A $158 million increase associated with the consolidation of UEOM, as previously discussed;
•A $102 million increase associated with higher gathering revenues at Susquehanna Supply Hub reflecting 18 percent higher gathering volumes due to increased production from customers and higher rates;
•A $49 million increase at Ohio Valley Midstream primarily due to higher gathering, processing, and transportation volumes;
•A $36 million increase in gathering revenues in the Utica Shale region due to higher rates and volumes from new wells;
•A $14 million increase in compression revenues for services charged to an affiliate driven by higher volumes.
Product sales decreased primarily due to lower non-ethane volumes and prices within our marketing activities. The changes in marketing revenues are offset by similar changes in marketing purchases, reflected above as Product costs.
Other segment costs and expenses increased primarily due to:
•A $53 million increase associated with the consolidation of UEOM;
•A $10 million increase related to transaction expenses associated with the acquisition of UEOM and the formation of the Northeast JV;
•A $7 million charge in 2019 for severance and related costs primarily associated with our VSP.
Impairment of certain assets increased due to a $10 million write-down of other certain assets that are no longer in use or are surplus in nature in 2019 (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk of Notes to Consolidated Financial Statements).
Proportional Modified EBITDA of equity-method investments decreased $59 million as a result of the consolidation of UEOM and $10 million due to unfavorable rates reflecting lower NGL prices at Aux Sable. This decrease was partially offset by a $29 million increase at Appalachia Midstream Investments, reflecting higher volumes due to increased customer production.
West
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(Millions)
|
Service revenues
|
$
|
1,280
|
|
|
$
|
1,364
|
|
|
$
|
1,641
|
|
Service revenues – commodity consideration
|
101
|
|
|
150
|
|
|
321
|
|
Product sales
|
1,562
|
|
|
1,797
|
|
|
2,448
|
|
Segment revenues
|
2,943
|
|
|
3,311
|
|
|
4,410
|
|
|
|
|
|
|
|
Product costs
|
(1,520)
|
|
|
(1,774)
|
|
|
(2,448)
|
|
Processing commodity expenses
|
(58)
|
|
|
(79)
|
|
|
(116)
|
|
Other segment costs and expenses
|
(477)
|
|
|
(519)
|
|
|
(644)
|
|
Impairment of certain assets
|
—
|
|
|
(100)
|
|
|
(1,849)
|
|
Gain on sale of certain assets and businesses
|
—
|
|
|
(2)
|
|
|
591
|
|
Proportional Modified EBITDA of equity-method investments
|
110
|
|
|
115
|
|
|
94
|
|
West Modified EBITDA
|
$
|
998
|
|
|
$
|
952
|
|
|
$
|
38
|
|
|
|
|
|
|
|
Commodity margins
|
$
|
85
|
|
|
$
|
94
|
|
|
$
|
205
|
|
2020 vs. 2019
West Modified EBITDA increased primarily due to the absence of Impairment of certain assets and lower Other segment costs and expenses, partially offset by lower Service revenues.
Service revenues decreased primarily due to:
•An $83 million decrease associated with lower volumes, excluding the Eagle Ford Shale region;
•A $72 million decrease driven by lower deferred revenue amortization and MVC deficiency fee revenues associated with the second-quarter 2019 expiration of the MVC agreement in the Barnett Shale region;
•A $47 million decrease associated with lower rates, excluding the Eagle Ford Shale region, driven by lower commodity pricing in the Barnett Shale region and the expiration of a cost-of-service period on a contract in the Mid-Continent region;
•An $11 million decrease associated with lower fractionation fees driven by lower volumes;
•An $8 million decrease driven by the absence of a favorable 2019 cost-of-service agreement adjustment in the Mid-Continent region; partially offset by
•A $91 million increase in the Eagle Ford Shale region due to higher MVC revenue and higher rates, partially offset by lower volumes primarily due to decreased producer activity, including temporary shut-ins on certain gathering systems;
•A $29 million increase associated with a temporary volume deficiency fee associated with reduced volumes from a shipper on OPPL;
•A $26 million increase in the Wamsutter region associated with higher MVC revenue.
The net sum of Service revenues – commodity consideration, Product sales, Product costs, and Processing commodity expenses comprise our commodity margins, which we further segregate into product margins associated with our equity NGLs and marketing margins. Product margins from our equity NGLs decreased $29 million primarily due to:
•A $35 million decrease associated with lower sales prices primarily due to 25 percent lower average net realized per-unit non-ethane sales prices;
•A $15 million decrease primarily associated with 14 percent lower non-ethane sales volumes driven by less producer drilling activity; partially offset by
•A $21 million increase related to a decline in natural gas purchases associated with equity NGL production due to lower natural gas prices and lower equity non-ethane production volumes.
Additionally, marketing margins increased by $23 million primarily due to favorable changes in net commodity prices. The decrease in Product sales includes a $168 million decrease in marketing sales, which is due to lower sales prices, partially offset by higher marketing sales volumes. An $18 million decrease in other product sales also contributed to the overall decrease. These decreases are substantially offset in Product costs.
Other segment costs and expenses decreased primarily due to lower employee-related expenses driven by the absence of 2019 severance and related costs and the associated reduced costs in 2020, and the favorable impact of a change in an employee benefit policy (see Note 6 – Other Income and Expenses of Notes to Consolidated Financial Statements), as well as lower operating costs due to fewer leased compressors and lower maintenance costs primarily due to timing and scope of activities. These favorable changes are partially offset by the absence of $12 million in favorable settlements in 2019.
Impairment of certain assets decreased primarily due to the absence of a $79 million impairment of certain Eagle Ford Shale gathering assets and a $12 million impairment of certain idle gathering assets in 2019 (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk of Notes to Consolidated Financial Statements).
Proportional Modified EBITDA of equity-method investments decreased primarily due to lower volumes at OPPL and the absence of the Jackalope equity-method investment sold in April 2019, partially offset by growth at the RMM, Brazos Permian II, and Targa Train 7 equity-method investments.
2019 vs. 2018
West Modified EBITDA increased primarily due to lower Impairment of certain assets and lower Other segment costs and expenses, partially offset by a lower gain on sale of certain assets in 2019, lower Service revenues, and lower commodity margins.
Service revenues decreased primarily due to:
•A $218 million decrease associated with asset divestitures and deconsolidations during 2018 and 2019, including our former Four Corners area assets, certain Delaware basin assets that were contributed to our
Brazos Permian II equity-method investment, and our Jackalope assets which were deconsolidated in second-quarter 2018 and subsequently sold in second-quarter 2019;
•A $57 million decrease driven by lower deferred revenue amortization and MVC deficiency fee revenues in the Barnett Shale region primarily associated with the expiration of a certain MVC agreement;
•A $17 million decrease driven by lower gathering volumes primarily in the Mid-Continent, Barnett Shale, and Wamsutter regions, partially offset by higher gathering volumes primarily in the Haynesville Shale and Eagle Ford regions;
•A $15 million decrease associated with lower processing rates primarily driven by lower commodity pricing in the Piceance region;
•A $15 million decrease associated with lower gathering rates primarily in the Mid-Continent and Haynesville Shale regions; partially offset by
•A $17 million increase related to other MVC deficiency fee revenues;
•A $13 million increase related to higher fractionation and storage fees;
•An $8 million increase associated with the resolution of a prior period performance obligation.
The net sum of Service revenues – commodity consideration, Product sales, Product costs, and Processing commodity expenses comprise our commodity margins. Our commodity margins associated with our equity NGLs decreased by $127 million primarily due to:
•A $98 million decrease associated with lower sales volumes, consisting of $54 million related to the absence of our former Four Corners area assets and $44 million due to 12 percent lower non-ethane volumes and 33 percent lower ethane sales volumes primarily due to higher ethane rejection in 2019, natural declines, less producer drilling activity, and more severe weather conditions in first-quarter 2019;
•A $66 million decrease associated with lower sales prices primarily due to 29 percent and 48 percent lower average net realized per-unit non-ethane and ethane sales prices, respectively; partially offset by
•A $37 million increase related to lower natural gas purchases associated with lower equity NGL production volumes and lower natural gas prices, including $9 million related to the absence of our former Four Corners area assets.
Additionally, the decrease in Product sales includes a $447 million decrease in marketing sales, which is due to lower sales prices, partially offset by higher sales volumes, and a $36 million decrease related to the sale of other products. These decreases are substantially offset in Product costs. Marketing margins increased by $27 million primarily due to favorable changes in prices.
Other segment costs and expenses decreased primarily due to a $127 million reduction associated with the absence of our former Four Corners area assets and from the Jackalope deconsolidation in second-quarter 2018, $12 million favorable settlements in 2019, as well as $7 million lower ad valorem taxes. These decreases were partially offset by an unfavorable charge in 2019 for severance and related costs primarily associated with our VSP of $10 million.
Impairment of certain assets decreased primarily due to the absence of the $1.849 billion Barnett impairment in in 2018, partially offset by small impairment charges in 2019 (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk of Notes to Consolidated Financial Statements).
The decrease in Gain on sale of certain assets and businesses reflects the absence of the gain from the sale of our Four Corners area assets recorded in the fourth quarter of 2018 (see Note 3 – Acquisitions and Divestitures of Notes to the Consolidated Financial Statements).
Proportional Modified EBITDA of equity-method investments increased primarily due to the additions of the RMM and Brazos Permian II equity-method investments in the second half of 2018, partially offset by the sale of our Jackalope investment in second-quarter 2019.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(Millions)
|
Other Modified EBITDA
|
$
|
(15)
|
|
|
$
|
6
|
|
|
$
|
(29)
|
|
2020 vs. 2019
Other Modified EBITDA decreased primarily due to:
•A $24 million charge in fourth quarter of 2020 related to a legal settlement associated with former olefins operations;
•A charge of $15 million related to the write-offs of certain regulatory assets associated with cancelled projects in 2020; partially offset by
•The absence of a $12 million unfavorable adjustment to a regulatory asset associated with an increase in Transco’s estimated deferred state income tax rate following the WPZ Merger.
2019 vs. 2018
Other Modified EBITDA increased primarily due to:
•The absence of the $66 million impairment of certain idle pipelines in the second quarter of 2018 (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk of Notes to Consolidated Financial Statements);
•The absence of a $35 million charge in 2018 associated with a charitable contribution of preferred stock to The Williams Companies Foundation, Inc. (a not-for-profit corporation) (see Note 16 – Stockholders' Equity of Notes to Consolidated Financial Statements);
•The absence of $20 million in costs in 2018 associated with the WPZ Merger (see Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements);
•An $8 million increase related to the absence of 2018 unfavorable Modified EBITDA associated with the results of certain of our former Gulf Coast area operations sold in 2018;
•The absence of a $7 million loss on early retirement of debt in 2018.
These increases were partially offset by:
•The absence of a $37 million benefit of establishing a regulatory asset associated with an increase in Transco’s estimated deferred state income tax rate following the WPZ Merger in 2018 and a subsequent unfavorable $12 million adjustment in the first quarter of 2019;
•A $26 million decrease in income associated with a regulatory asset related to deferred taxes on equity funds used during construction;
•The absence of a $20 million gain on the sale of certain assets and operations located in the Gulf Coast area in 2018 (see Note 3 – Acquisitions and Divestitures of Notes to Consolidated Financial Statements).
Management’s Discussion and Analysis of Financial Condition and Liquidity
Overview
As previously discussed, we have continued to focus on earnings and cash flow growth, while continuing to improve leverage metrics and control operating costs. During 2020, we retired approximately $2.1 billion of long-term debt and issued approximately $2.2 billion of new long-term debt. In July 2020, we paid $284 million for rate refunds related to Transco’s increased rates collected since the new rates became effective in March 2019. In 2020, we acquired substantially all of the remaining outstanding ownership interests in Caiman II for approximately $157 million, net of cash acquired. See also the section titled Sources (Uses) of Cash.
Outlook
As previously discussed in Company Outlook, our growth capital and investment expenditures in 2021 are currently expected to be in a range from $1.0 billion to $1.2 billion. Growth capital spending in 2021 primarily includes Transco expansions, all of which are fully contracted with firm transportation agreements, and projects supporting the Northeast G&P business and opportunities in the Haynesville area. In addition to growth capital and investment expenditures, we also remain committed to projects that maintain our assets for safe and reliable operations, as well as projects that meet legal, regulatory, and/or contractual commitments. We intend to fund substantially all of our planned 2021 capital spending with cash available after paying dividends. We retain the flexibility to adjust planned levels of growth capital and investment expenditures in response to changes in economic conditions or business opportunities.
As of December 31, 2020, we have $893 million of long-term debt due within one year. Our potential sources of liquidity available to address these maturities include proceeds from refinancing at attractive long-term rates or from our credit facility, as well as proceeds from asset monetizations.
Liquidity
Based on our forecasted levels of cash flow from operations and other sources of liquidity, we expect to have sufficient liquidity to manage our businesses in 2021. Our potential material internal and external sources and uses of liquidity are as follows:
|
|
|
|
|
|
Sources:
|
|
|
Cash and cash equivalents on hand
|
|
Cash generated from operations
|
|
Distributions from our equity-method investees
|
|
Utilization of our credit facility and/or commercial paper program
|
|
Cash proceeds from issuance of debt and/or equity securities
|
|
Proceeds from asset monetizations
|
|
|
Uses:
|
|
|
Working capital requirements
|
|
Capital and investment expenditures
|
|
Product costs
|
|
Other operating costs including human capital expenses
|
|
Quarterly dividends to our shareholders
|
|
Debt service payments, including payments of long-term debt
|
|
Distributions to noncontrolling interests
|
As of December 31, 2020, we have approximately $21.5 billion of long-term debt due after one year. See Note 14 – Debt and Banking Arrangements of Notes to Consolidated Financial Statements for the aggregate maturities over the next five years. Our potential sources of liquidity available to address these maturities include cash generated from operations, proceeds from refinancing at attractive long-term rates or from our credit facility, as well as proceeds from asset monetizations.
Potential risks associated with our planned levels of liquidity discussed above include those previously discussed in Company Outlook.
As of December 31, 2020, we had a working capital deficit of $890 million, including cash and cash equivalents and long-term debt due within one year. Our available liquidity is as follows:
|
|
|
|
|
|
|
|
|
Available Liquidity
|
|
December 31, 2020
|
|
|
(Millions)
|
Cash and cash equivalents
|
|
$
|
142
|
|
Capacity available under our $4.5 billion credit facility, less amounts outstanding under our $4 billion commercial paper program (1)
|
|
4,500
|
|
|
|
$
|
4,642
|
|
__________
(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. We had no commercial paper outstanding as of December 31, 2020. The highest amount outstanding under our commercial paper program and credit facility during 2020 was $1.7 billion. At December 31, 2020, we were in compliance with the financial covenants associated with our credit facility. See Note 14 – Debt and Banking Arrangements of Notes to Consolidated Financial Statements for additional information on our credit facility and commercial paper program.
Dividends
We increased our regular quarterly cash dividend to common stockholders by approximately 5 percent from the $0.38 per share paid in each quarter of 2019, to $0.40 per share paid in each quarter of 2020.
Registrations
To replace our recently expired shelf registration statement, we anticipate filing a new shelf registration statement as a well-known seasoned issuer.
Distributions from Equity-Method Investees
The organizational documents of entities in which we have an equity-method investment generally require periodic distributions of their available cash to their members. In each case, available cash is reduced, in part, by reserves appropriate for operating their respective businesses. See Note 7 – Investing Activities of Notes to Consolidated Financial Statements for our more significant equity-method investees.
Credit Ratings
The interest rates at which we are able to borrow money are impacted by our credit ratings. The current ratings are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rating Agency
|
|
Outlook
|
|
Senior Unsecured
Debt Rating
|
S&P Global Ratings
|
|
Stable
|
|
BBB
|
Moody’s Investors Service
|
|
Positive
|
|
Baa3
|
Fitch Ratings
|
|
Stable
|
|
BBB
|
In November 2020, Fitch Ratings upgraded our credit rating from BBB- to BBB. In January 2021, Moody’s changed our Outlook from Stable to Positive.
These credit ratings are included for informational purposes and are not recommendations to buy, sell, or hold our securities, and each rating should be evaluated independently of any other rating. No assurance can be given that the credit rating agencies will continue to assign us investment-grade ratings even if we meet or exceed their current
criteria for investment-grade ratios. A downgrade of our credit ratings might increase our future cost of borrowing and would require us to provide additional collateral to third parties, negatively impacting our available liquidity.
Sources (Uses) of Cash
The following table summarizes the sources (uses) of cash and cash equivalents for each of the periods presented (see Notes to Consolidated Financial Statements for the Notes referenced in the table):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
|
|
Year Ended December 31,
|
|
Category
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
(Millions)
|
Sources of cash and cash equivalents:
|
|
|
|
|
|
|
|
Operating activities – net
|
Operating
|
|
$
|
3,496
|
|
|
$
|
3,693
|
|
|
$
|
3,293
|
|
Proceeds from long-term debt (see Note 14)
|
Financing
|
|
2,199
|
|
|
67
|
|
|
2,086
|
|
Proceeds from credit-facility borrowings
|
Financing
|
|
1,700
|
|
|
700
|
|
|
1,840
|
|
Contributions in aid of construction
|
Investing
|
|
37
|
|
|
52
|
|
|
411
|
|
Proceeds from sale of partial interest in consolidated subsidiary (see Note 3)
|
Financing
|
|
—
|
|
|
1,334
|
|
|
—
|
|
Proceeds from dispositions of equity-method investments (see Note 7)
|
Investing
|
|
—
|
|
|
485
|
|
|
—
|
|
Proceeds from sale of businesses, net of cash divested (see Note 3)
|
Investing
|
|
—
|
|
|
(2)
|
|
|
1,296
|
|
|
|
|
|
|
|
|
|
Uses of cash and cash equivalents:
|
|
|
|
|
|
|
|
Payments of long-term debt (see Note 14)
|
Financing
|
|
(2,141)
|
|
|
(49)
|
|
|
(1,254)
|
|
Common dividends paid
|
Financing
|
|
(1,941)
|
|
|
(1,842)
|
|
|
(1,386)
|
|
Payments on credit-facility borrowings
|
Financing
|
|
(1,700)
|
|
|
(860)
|
|
|
(1,950)
|
|
Capital expenditures
|
Investing
|
|
(1,239)
|
|
|
(2,109)
|
|
|
(3,256)
|
|
Purchases of and contributions to equity-method investments (see Note 7)
|
Investing
|
|
(325)
|
|
|
(453)
|
|
|
(1,132)
|
|
Dividends and distributions paid to noncontrolling interests
|
Financing
|
|
(185)
|
|
|
(124)
|
|
|
(591)
|
|
Purchases of businesses, net of cash acquired (see Note 3)
|
Investing
|
|
—
|
|
|
(728)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other sources / (uses) – net
|
Financing and Investing
|
|
(48)
|
|
|
(43)
|
|
|
(88)
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
$
|
(147)
|
|
|
$
|
121
|
|
|
$
|
(731)
|
|
Operating activities
The factors that determine operating activities are largely the same as those that affect Net income (loss), with the exception of noncash items such as Depreciation and amortization, Provision (benefit) for deferred income taxes, Equity (earnings) losses, Gain on disposition of equity-method investments, (Gain) on sale of certain assets and businesses, (Gain) loss on deconsolidation of businesses, Impairment of goodwill, Impairment of equity-method investments, and Impairment of certain assets.
Our Net cash provided (used) by operating activities in 2020 decreased from 2019 primarily due to the net unfavorable changes in net operating working capital in 2020, including the payment of Transco’s rate refunds in 2020 and the decrease in the income tax refund that was received in 2020 compared to that received in 2019, partially offset by higher operating income (excluding noncash items as previously discussed) in 2020.
Our Net cash provided (used) by operating activities in 2019 increased from 2018 primarily due to the net favorable changes in operating working capital in 2019, including the collection of Transco’s filed rates subject to refund and the receipt of an income tax refund, as well as higher operating income (excluding noncash items as previously discussed) in 2019, partially offset by the impact of decreased distributions from unconsolidated affiliates in 2019.
Environmental
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 (see Note 19 – Contingent Liabilities and Commitments of Notes to Consolidated Financial Statements). We are monitoring these sites in a coordinated effort with other potentially responsible parties, the 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. Current estimates of the most likely costs of such activities are approximately $33 million, all of which are included in Accrued liabilities and Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet at December 31, 2020. We will seek recovery of the accrued costs related to remediation activities by our interstate gas pipelines totaling approximately $4 million through future natural gas transmission rates. The remainder of these costs will be funded from operations. During 2020, we paid approximately $3 million for cleanup and/or remediation and monitoring activities. We expect to pay approximately $11 million in 2021 for these activities. 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, 2020, certain assessment studies were still in process for which the ultimate outcome may yield different estimates of most likely costs. Therefore, the actual costs incurred will depend on the final amount, type, and extent of contamination discovered at these sites, the final cleanup standards mandated by the EPA or other governmental authorities, and other factors.
The EPA and various state regulatory agencies routinely promulgate and propose new rules and issue updated guidance to existing rules. These rulemakings include, but are not limited to, rules for reciprocating internal combustion engine and combustion turbine maximum achievable control technology, air quality standards for one-hour nitrogen dioxide emissions, and volatile organic compound and methane new source performance standards impacting design and operation of storage vessels, pressure valves, and compressors. The EPA previously issued its rule regarding National Ambient Air Quality Standards for ground-level ozone. We are monitoring the rule's implementation as it will trigger additional federal and state regulatory actions that may impact our operations. Implementation of the regulations is expected to result in impacts to our operations and increase the cost of additions to Property, plant, and equipment – net in the Consolidated Balance Sheet for both new and existing facilities in affected areas. We are unable to reasonably estimate the cost of additions that may be required to meet the regulations at this time due to uncertainty created by various legal challenges to these regulations and the need for further specific regulatory guidance.
Our interstate natural gas pipelines consider prudently incurred environmental assessment and remediation costs and the costs associated with compliance with environmental standards to be recoverable through rates.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Stockholders and the Board of Directors of
The Williams Companies, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of The Williams Companies, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, based on our audits and the report of other auditors, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We did not audit the financial statements of Gulfstream Natural Gas System, L.L.C. (Gulfstream), a limited liability corporation in which the Company has a 50 percent interest. In the consolidated financial statements, the Company’s investment in Gulfstream was $204 million and $217 million as of December 31, 2020 and 2019, respectively, and the Company’s equity earnings in the net income of Gulfstream were $77 million in 2020, $74 million in 2019 and $75 million in 2018. Gulfstream’s financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Gulfstream, is based solely on the report of other auditors.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical Audit Matters
|
|
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
|
|
|
|
Pension and Other Postretirement Benefit Obligations
|
Description of the Matter
|
|
|
At December 31, 2020, the Company’s aggregate pension and other postretirement benefit obligations were $1,403 million and were exceeded by the fair value of pension and other postretirement plan assets of $1,635 million, resulting in overfunded pension and other postretirement benefit obligations of $232 million. As explained in Note 10 to the consolidated financial statements, the Company utilized key assumptions to determine the pension and other postretirement benefit obligations.
Auditing the pension and other postretirement benefit obligations is complex and required the involvement of specialists due to the judgmental nature of the actuarial assumptions (e.g., discount rates and cash balance interest crediting rate) used in the measurement process. These assumptions have a significant effect on the projected benefit obligations.
|
How We Addressed the Matter in Our Audit
|
|
|
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls relating to the measurement and valuation of the pension and other postretirement benefit obligations, including controls over management’s review of the pension and other postretirement obligations, the significant actuarial assumptions, and the data inputs.
To test the pension and other postretirement benefit obligations, our audit procedures included, among others, evaluating the methodologies used, the significant actuarial assumptions discussed above, and the underlying data used by the Company. We compared the actuarial assumptions used by management to historical trends and evaluated the changes in the funded status from prior year. In addition, we involved our actuarial specialists to assist with our procedures. For example, we evaluated management’s methodology for determining the discount rates that reflect the maturity and duration of the benefit payments and are used to measure the pension and other postretirement benefit obligations. As part of this assessment, we independently developed a range of yield curves, we compared the projected cash flows to prior year, and compared the current year benefits paid to the prior year projected cash flows. To test the cash balance interest crediting rate, we independently calculated a range of rates and compared them to the rate used by management. We also tested the completeness and accuracy of the underlying data, including the participant data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment Review of Equity-Method Investments
|
Description of the Matter
|
|
|
As discussed in Note 7 to the consolidated financial statements, the Company has investments in nonconsolidated entities accounted for using the equity-method, totaling $5,159 million as of December 31, 2020, and recorded impairments of equity-method investments of $1,046 million during 2020. The carrying value of each equity-method investment is evaluated for impairment when events or changes in circumstances indicate that the carrying value of the investment may have experienced an other-than-temporary decline in value. When there are indicators of impairment, the fair value of the equity-method investment is estimated. Fair value is estimated using various methods, including income and market approaches. When the estimated fair value is lower than the carrying value, the Company determines whether the impairment is other-than-temporary.
Auditing the Company’s impairment assessments was complex and judgmental due to the estimation required in the determination of fair value of the investments for which evidence of loss in value has occurred.
|
How We Addressed the Matter in Our Audit
|
|
|
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s equity-method impairment review process, including controls over the determination of fair value.
For the equity-method investments with evidence of loss in value, we performed audit procedures that included, among others, assessing the methodologies used by management to determine fair value, evaluating the significant assumptions, and testing the underlying data used by the Company in its analyses. For example, we compared the estimated cash flows used within the assessments to current operating results and future expected economic trends, and obtained third-party support, where available, to evaluate significant assumptions. We also recalculated management’s estimate. We involved our valuation specialists to assist with our evaluation of the methodologies used by the Company and significant assumptions included in the fair value estimates.
|
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1962.
Tulsa, Oklahoma
February 24, 2021
Report of Independent Registered Public Accounting Firm
To the Management Committee and Members of Gulfstream Natural Gas System, L.L.C.:
Opinion on the Financial Statements
We have audited the statements of financial position of Gulfstream Natural Gas System, L.L.C. (the “Company”) as of December 31, 2020 and 2019, and the related statements of earnings, comprehensive income, changes in members’ equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “financial statements”) (not presented herein). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to those charged with governance and that (i) relate to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments. We determined there are no critical audit matters.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
February 24, 2021
We have served as the Company’s auditor since 2018.
The Williams Companies, Inc.
Consolidated Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
(Millions, except per-share amounts)
|
Revenues:
|
|
|
|
|
|
|
Service revenues
|
|
$
|
5,924
|
|
|
$
|
5,933
|
|
|
$
|
5,502
|
|
Service revenues – commodity consideration
|
|
129
|
|
|
203
|
|
|
400
|
|
Product sales
|
|
1,666
|
|
|
2,065
|
|
|
2,784
|
|
Total revenues
|
|
7,719
|
|
|
8,201
|
|
|
8,686
|
|
Costs and expenses:
|
|
|
|
|
|
|
Product costs
|
|
1,545
|
|
|
1,961
|
|
|
2,707
|
|
Processing commodity expenses
|
|
68
|
|
|
105
|
|
|
137
|
|
Operating and maintenance expenses
|
|
1,326
|
|
|
1,468
|
|
|
1,507
|
|
Depreciation and amortization expenses
|
|
1,721
|
|
|
1,714
|
|
|
1,725
|
|
Selling, general, and administrative expenses
|
|
466
|
|
|
558
|
|
|
569
|
|
Impairment of certain assets (Note 18)
|
|
182
|
|
|
464
|
|
|
1,915
|
|
Impairment of goodwill (Note 18)
|
|
187
|
|
|
—
|
|
|
—
|
|
Gain on sale of certain assets and businesses (Note 3)
|
|
—
|
|
|
2
|
|
|
(692)
|
|
Other (income) expense – net
|
|
22
|
|
|
8
|
|
|
50
|
|
Total costs and expenses
|
|
5,517
|
|
|
6,280
|
|
|
7,918
|
|
Operating income (loss)
|
|
2,202
|
|
|
1,921
|
|
|
768
|
|
Equity earnings (losses) (Note 7)
|
|
328
|
|
|
375
|
|
|
396
|
|
Impairment of equity-method investments (Note 18)
|
|
(1,046)
|
|
|
(186)
|
|
|
(32)
|
|
Other investing income (loss) – net (Note 7)
|
|
8
|
|
|
107
|
|
|
219
|
|
Interest incurred
|
|
(1,192)
|
|
|
(1,218)
|
|
|
(1,160)
|
|
Interest capitalized
|
|
20
|
|
|
32
|
|
|
48
|
|
Other income (expense) – net
|
|
(43)
|
|
|
33
|
|
|
92
|
|
Income (loss) from continuing operations before income taxes
|
|
277
|
|
|
1,064
|
|
|
331
|
|
Less: Provision (benefit) for income taxes
|
|
79
|
|
|
335
|
|
|
138
|
|
Income (loss) from continuing operations
|
|
198
|
|
|
729
|
|
|
193
|
|
Income (loss) from discontinued operations
|
|
—
|
|
|
(15)
|
|
|
—
|
|
Net income (loss)
|
|
198
|
|
|
714
|
|
|
193
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
|
(13)
|
|
|
(136)
|
|
|
348
|
|
Net income (loss) attributable to The Williams Companies, Inc.
|
|
211
|
|
|
850
|
|
|
(155)
|
|
Less: Preferred stock dividends (Note 16)
|
|
3
|
|
|
3
|
|
|
1
|
|
Net income (loss) available to common stockholders
|
|
$
|
208
|
|
|
$
|
847
|
|
|
$
|
(156)
|
|
Amounts attributable to The Williams Companies, Inc. available to common stockholders:
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
208
|
|
|
$
|
862
|
|
|
$
|
(156)
|
|
Income (loss) from discontinued operations
|
|
—
|
|
|
(15)
|
|
|
—
|
|
Net income (loss)
|
|
$
|
208
|
|
|
$
|
847
|
|
|
$
|
(156)
|
|
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
.17
|
|
|
$
|
.71
|
|
|
$
|
(.16)
|
|
Income (loss) from discontinued operations
|
|
—
|
|
|
(.01)
|
|
|
—
|
|
Net income (loss)
|
|
$
|
.17
|
|
|
$
|
.70
|
|
|
$
|
(.16)
|
|
Weighted-average shares (thousands)
|
|
1,213,631
|
|
|
1,212,037
|
|
|
973,626
|
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
.17
|
|
|
$
|
.71
|
|
|
$
|
(.16)
|
|
Income (loss) from discontinued operations
|
|
—
|
|
|
(.01)
|
|
|
—
|
|
Net income (loss)
|
|
$
|
.17
|
|
|
$
|
.70
|
|
|
$
|
(.16)
|
|
Weighted-average shares (thousands)
|
|
1,215,165
|
|
|
1,214,011
|
|
|
973,626
|
|
See accompanying notes.
The Williams Companies, Inc.
Consolidated Statement of Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Millions)
|
Net income (loss)
|
|
$
|
198
|
|
|
$
|
714
|
|
|
$
|
193
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
Cash flow hedging activities:
|
|
|
|
|
|
|
Net unrealized gain (loss) from derivative instruments, net of taxes of $—, $—, and $1 in 2020, 2019, and 2018, respectively
|
|
(2)
|
|
|
—
|
|
|
(7)
|
|
Reclassifications into earnings of net derivative instruments (gain) loss, net of taxes of $—, $—, and ($1) in 2020, 2019, and 2018, respectively
|
|
1
|
|
|
—
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss) arising during the year, net of taxes of ($27), ($20), and $3 in 2020, 2019, and 2018, respectively
|
|
81
|
|
|
59
|
|
|
(6)
|
|
Amortization of actuarial (gain) loss and net actuarial loss from settlements included in net periodic benefit cost (credit), net of taxes of ($7), ($4), and ($11) in 2020, 2019, and 2018, respectively
|
|
23
|
|
|
12
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
103
|
|
|
71
|
|
|
30
|
|
Comprehensive income (loss)
|
|
301
|
|
|
785
|
|
|
223
|
|
Less: Comprehensive income (loss) attributable to noncontrolling interests
|
|
(13)
|
|
|
(136)
|
|
|
346
|
|
Comprehensive income (loss) attributable to The Williams Companies, Inc.
|
|
$
|
314
|
|
|
$
|
921
|
|
|
$
|
(123)
|
|
See accompanying notes.
The Williams Companies, Inc.
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
(Millions, except per-share amounts)
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
142
|
|
|
$
|
289
|
|
Trade accounts and other receivables
|
|
1,000
|
|
|
1,002
|
|
Allowance for doubtful accounts
|
|
(1)
|
|
|
(6)
|
|
Trade accounts and other receivables - net
|
|
999
|
|
|
996
|
|
Inventories
|
|
136
|
|
|
125
|
|
Other current assets and deferred charges
|
|
152
|
|
|
170
|
|
Total current assets
|
|
1,429
|
|
|
1,580
|
|
|
|
|
|
|
Investments
|
|
5,159
|
|
|
6,235
|
|
Property, plant, and equipment – net
|
|
28,929
|
|
|
29,200
|
|
Intangible assets – net of accumulated amortization
|
|
7,444
|
|
|
7,959
|
|
Regulatory assets, deferred charges, and other
|
|
1,204
|
|
|
1,066
|
|
Total assets
|
|
$
|
44,165
|
|
|
$
|
46,040
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
|
$
|
482
|
|
|
$
|
552
|
|
Accrued liabilities
|
|
944
|
|
|
1,276
|
|
Long-term debt due within one year
|
|
893
|
|
|
2,140
|
|
Total current liabilities
|
|
2,319
|
|
|
3,968
|
|
|
|
|
|
|
Long-term debt
|
|
21,451
|
|
|
20,148
|
|
Deferred income tax liabilities
|
|
1,923
|
|
|
1,782
|
|
Regulatory liabilities, deferred income, and other
|
|
3,889
|
|
|
3,778
|
|
Contingent liabilities and commitments (Note 19)
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
Preferred stock
|
|
35
|
|
|
35
|
|
Common stock ($1 par value; 1,470 million shares authorized at December 31, 2020 and December 31, 2019; 1,248 million shares issued at December 31, 2020 and 1,247 million shares issued at December 31, 2019)
|
|
1,248
|
|
|
1,247
|
|
Capital in excess of par value
|
|
24,371
|
|
|
24,323
|
|
Retained deficit
|
|
(12,748)
|
|
|
(11,002)
|
|
Accumulated other comprehensive income (loss)
|
|
(96)
|
|
|
(199)
|
|
Treasury stock, at cost (35 million shares of common stock)
|
|
(1,041)
|
|
|
(1,041)
|
|
Total stockholders’ equity
|
|
11,769
|
|
|
13,363
|
|
Noncontrolling interests in consolidated subsidiaries
|
|
2,814
|
|
|
3,001
|
|
Total equity
|
|
14,583
|
|
|
16,364
|
|
Total liabilities and equity
|
|
$
|
44,165
|
|
|
$
|
46,040
|
|
See accompanying notes.
The Williams Companies, Inc.
Consolidated Statement of Changes in Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc. Stockholders
|
|
|
|
|
|
Preferred Stock
|
|
Common
Stock
|
|
Capital in
Excess of
Par Value
|
|
Retained
Deficit
|
|
AOCI*
|
|
Treasury
Stock
|
|
Total
Stockholders’
Equity
|
|
Noncontrolling
Interests
|
|
Total Equity
|
|
(Millions)
|
Balance at December 31, 2017
|
$
|
—
|
|
|
$
|
861
|
|
|
$
|
18,508
|
|
|
$
|
(8,434)
|
|
|
$
|
(238)
|
|
|
$
|
(1,041)
|
|
|
$
|
9,656
|
|
|
$
|
6,519
|
|
|
$
|
16,175
|
|
Adoption of new accounting standards
|
—
|
|
|
—
|
|
|
—
|
|
|
(23)
|
|
|
(61)
|
|
|
—
|
|
|
(84)
|
|
|
(37)
|
|
|
(121)
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(155)
|
|
|
—
|
|
|
—
|
|
|
(155)
|
|
|
348
|
|
|
193
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
—
|
|
|
32
|
|
|
(2)
|
|
|
30
|
|
WPZ Merger (Note 1)
|
—
|
|
|
382
|
|
|
6,112
|
|
|
—
|
|
|
(3)
|
|
|
—
|
|
|
6,491
|
|
|
(4,629)
|
|
|
1,862
|
|
Issuance of preferred stock (Note 16)
|
35
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends – common stock ($1.36 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,386)
|
|
|
—
|
|
|
—
|
|
|
(1,386)
|
|
|
—
|
|
|
(1,386)
|
|
Dividends and distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(637)
|
|
|
(637)
|
|
Stock-based compensation and related common stock issuances, net of tax
|
—
|
|
|
1
|
|
|
60
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
61
|
|
|
—
|
|
|
61
|
|
Sales of limited partner units of Williams Partners L.P.
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46
|
|
|
46
|
|
Changes in ownership of consolidated subsidiaries, net
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
(18)
|
|
|
(4)
|
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
15
|
|
Deconsolidation of subsidiary (Note 7)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(267)
|
|
|
(267)
|
|
Other
|
—
|
|
|
1
|
|
|
(1)
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
(4)
|
|
|
(1)
|
|
|
(5)
|
|
Net increase (decrease) in equity
|
35
|
|
|
384
|
|
|
6,185
|
|
|
(1,568)
|
|
|
(32)
|
|
|
—
|
|
|
5,004
|
|
|
(5,182)
|
|
|
(178)
|
|
Balance at December 31, 2018
|
35
|
|
|
1,245
|
|
|
24,693
|
|
|
(10,002)
|
|
|
(270)
|
|
|
(1,041)
|
|
|
14,660
|
|
|
1,337
|
|
|
15,997
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
850
|
|
|
—
|
|
|
—
|
|
|
850
|
|
|
(136)
|
|
|
714
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
71
|
|
|
—
|
|
|
71
|
|
|
—
|
|
|
71
|
|
Cash dividends – common stock ($1.52 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,842)
|
|
|
—
|
|
|
—
|
|
|
(1,842)
|
|
|
—
|
|
|
(1,842)
|
|
Dividends and distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(124)
|
|
|
(124)
|
|
Stock-based compensation and related common stock issuances, net of tax
|
—
|
|
|
2
|
|
|
56
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
58
|
|
|
—
|
|
|
58
|
|
Sale of partial interest in consolidated subsidiary (Note 3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,334
|
|
|
1,334
|
|
Change in ownership of consolidated subsidiaries, net (Note 3)
|
—
|
|
|
—
|
|
|
(426)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(426)
|
|
|
567
|
|
|
141
|
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36
|
|
|
36
|
|
Deconsolidation of subsidiary (Note 7)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13)
|
|
|
(13)
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
(8)
|
|
|
—
|
|
|
—
|
|
|
(8)
|
|
|
—
|
|
|
(8)
|
|
Net increase (decrease) in equity
|
—
|
|
|
2
|
|
|
(370)
|
|
|
(1,000)
|
|
|
71
|
|
|
—
|
|
|
(1,297)
|
|
|
1,664
|
|
|
367
|
|
Balance at December 31, 2019
|
35
|
|
|
1,247
|
|
|
24,323
|
|
|
(11,002)
|
|
|
(199)
|
|
|
(1,041)
|
|
|
13,363
|
|
|
3,001
|
|
|
16,364
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
211
|
|
|
—
|
|
|
—
|
|
|
211
|
|
|
(13)
|
|
|
198
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
103
|
|
|
—
|
|
|
103
|
|
|
—
|
|
|
103
|
|
Cash dividends – common stock ($1.60 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,941)
|
|
|
—
|
|
|
—
|
|
|
(1,941)
|
|
|
—
|
|
|
(1,941)
|
|
Dividends and distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(185)
|
|
|
(185)
|
|
Stock-based compensation and related common stock issuances, net of tax
|
—
|
|
|
1
|
|
|
50
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51
|
|
|
—
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
—
|
|
|
—
|
|
|
(2)
|
|
|
(16)
|
|
|
—
|
|
|
—
|
|
|
(18)
|
|
|
4
|
|
|
(14)
|
|
Net increase (decrease) in equity
|
—
|
|
|
1
|
|
|
48
|
|
|
(1,746)
|
|
|
103
|
|
|
—
|
|
|
(1,594)
|
|
|
(187)
|
|
|
(1,781)
|
|
Balance at December 31, 2020
|
$
|
35
|
|
|
$
|
1,248
|
|
|
$
|
24,371
|
|
|
$
|
(12,748)
|
|
|
$
|
(96)
|
|
|
$
|
(1,041)
|
|
|
$
|
11,769
|
|
|
$
|
2,814
|
|
|
$
|
14,583
|
|
*Accumulated Other Comprehensive Income (Loss)
See accompanying notes.
The Williams Companies, Inc.
Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Millions)
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
198
|
|
|
$
|
714
|
|
|
$
|
193
|
|
Adjustments to reconcile to net cash provided (used) by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
1,721
|
|
|
1,714
|
|
|
1,725
|
|
Provision (benefit) for deferred income taxes
|
|
108
|
|
|
376
|
|
|
220
|
|
Equity (earnings) losses
|
|
(328)
|
|
|
(375)
|
|
|
(396)
|
|
Distributions from unconsolidated affiliates
|
|
653
|
|
|
657
|
|
|
693
|
|
Gain on disposition of equity-method investments (Note 7)
|
|
—
|
|
|
(122)
|
|
|
—
|
|
|
|
|
|
|
|
|
(Gain) on sale of certain assets and businesses (Note 3)
|
|
—
|
|
|
2
|
|
|
(692)
|
|
(Gain) loss on deconsolidation of businesses (Note 7)
|
|
—
|
|
|
29
|
|
|
(203)
|
|
Impairment of goodwill (Note 18)
|
|
187
|
|
|
—
|
|
|
—
|
|
Impairment of equity-method investments (Note 18)
|
|
1,046
|
|
|
186
|
|
|
32
|
|
Impairment of certain assets (Note 18)
|
|
182
|
|
|
464
|
|
|
1,915
|
|
Amortization of stock-based awards
|
|
52
|
|
|
57
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by changes in current assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
(2)
|
|
|
34
|
|
|
(36)
|
|
Inventories
|
|
(11)
|
|
|
5
|
|
|
(16)
|
|
Other current assets and deferred charges
|
|
11
|
|
|
21
|
|
|
17
|
|
Accounts payable
|
|
(7)
|
|
|
(46)
|
|
|
(93)
|
|
Accrued liabilities
|
|
(309)
|
|
|
153
|
|
|
23
|
|
Other, including changes in noncurrent assets and liabilities
|
|
(5)
|
|
|
(176)
|
|
|
(144)
|
|
Net cash provided (used) by operating activities
|
|
3,496
|
|
|
3,693
|
|
|
3,293
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
3,899
|
|
|
767
|
|
|
3,926
|
|
Payments of long-term debt
|
|
(3,841)
|
|
|
(909)
|
|
|
(3,204)
|
|
Proceeds from issuance of common stock
|
|
9
|
|
|
10
|
|
|
15
|
|
Proceeds from sale of partial interest in consolidated subsidiary (Note 3)
|
|
—
|
|
|
1,334
|
|
|
—
|
|
Common dividends paid
|
|
(1,941)
|
|
|
(1,842)
|
|
|
(1,386)
|
|
Dividends and distributions paid to noncontrolling interests
|
|
(185)
|
|
|
(124)
|
|
|
(591)
|
|
Contributions from noncontrolling interests
|
|
7
|
|
|
36
|
|
|
15
|
|
|
|
|
|
|
|
|
Payments for debt issuance costs
|
|
(20)
|
|
|
—
|
|
|
(26)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other – net
|
|
(13)
|
|
|
(17)
|
|
|
(48)
|
|
Net cash provided (used) by financing activities
|
|
(2,085)
|
|
|
(745)
|
|
|
(1,299)
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Property, plant, and equipment:
|
|
|
|
|
|
|
Capital expenditures (1)
|
|
(1,239)
|
|
|
(2,109)
|
|
|
(3,256)
|
|
Dispositions – net
|
|
(36)
|
|
|
(40)
|
|
|
(7)
|
|
Contributions in aid of construction
|
|
37
|
|
|
52
|
|
|
411
|
|
Proceeds from sale of businesses, net of cash divested (Note 3)
|
|
—
|
|
|
(2)
|
|
|
1,296
|
|
Purchases of businesses, net of cash acquired (Note 3)
|
|
—
|
|
|
(728)
|
|
|
—
|
|
Proceeds from dispositions of equity-method investments (Note 7)
|
|
—
|
|
|
485
|
|
|
—
|
|
Purchases of and contributions to equity-method investments (Note 7)
|
|
(325)
|
|
|
(453)
|
|
|
(1,132)
|
|
|
|
|
|
|
|
|
Other – net
|
|
5
|
|
|
(32)
|
|
|
(37)
|
|
Net cash provided (used) by investing activities
|
|
(1,558)
|
|
|
(2,827)
|
|
|
(2,725)
|
|
Increase (decrease) in cash and cash equivalents
|
|
(147)
|
|
|
121
|
|
|
(731)
|
|
Cash and cash equivalents at beginning of year
|
|
289
|
|
|
168
|
|
|
899
|
|
Cash and cash equivalents at end of year
|
|
$
|
142
|
|
|
$
|
289
|
|
|
$
|
168
|
|
_________
|
|
|
|
|
|
|
(1) Increases to property, plant, and equipment
|
|
$
|
(1,160)
|
|
|
$
|
(2,023)
|
|
|
$
|
(3,021)
|
|
Changes in related accounts payable and accrued liabilities
|
|
(79)
|
|
|
(86)
|
|
|
(235)
|
|
Capital expenditures
|
|
$
|
(1,239)
|
|
|
$
|
(2,109)
|
|
|
$
|
(3,256)
|
|
See accompanying notes.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements
|
|
Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies
General
Unless the context clearly indicates otherwise, references in this report to “Williams,” “we,” “our,” “us,” or like terms refer to The Williams Companies, Inc. and its subsidiaries. Unless the context clearly indicates otherwise, references to “Williams,” “we,” “our,” and “us” include the operations in which we own interests accounted for as equity-method investments that are not consolidated in our financial statements. When we refer to our equity investees by name, we are referring exclusively to their businesses and operations.
WPZ Merger
On August 10, 2018, we completed our merger with Williams Partners L.P. (WPZ), our previously consolidated master limited partnership, pursuant to which we acquired all of the approximately 256 million publicly held outstanding common units of WPZ in exchange for 382 million shares of our common stock (WPZ Merger). Williams continued as the surviving entity. The WPZ Merger was accounted for as a noncash equity transaction resulting in increases to Common stock of $382 million, Capital in excess of par value of $6.112 billion, and Regulatory assets, deferred charges, and other of $33 million and decreases to Accumulated other comprehensive income (loss) (AOCI) of $3 million, Noncontrolling interests in consolidated subsidiaries of $4.629 billion, and Deferred income tax liabilities of $1.829 billion in the Consolidated Balance Sheet. Prior to the completion of the WPZ Merger and pursuant to its distribution reinvestment program, WPZ had issued common units to the public in 2018 associated with reinvested distributions of $46 million.
Description of Business
We are a Delaware corporation whose common stock is listed and traded on the New York Stock Exchange. Our operations are located in the United States. Our operations are presented within the following reportable segments: Transmission & Gulf of Mexico, Northeast G&P, and West, consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources. All remaining business activities as well as corporate activities are included in Other.
Transmission & Gulf of Mexico is comprised of our interstate natural gas pipelines, Transcontinental Gas Pipe Line Company, LLC (Transco) and Northwest Pipeline LLC (Northwest Pipeline), as well as natural gas gathering and processing and crude oil production handling and transportation assets in the Gulf Coast region, including a 51 percent interest in Gulfstar One LLC (Gulfstar One) (a consolidated variable interest entity, or VIE), which is a proprietary floating production system, a 50 percent equity-method investment in Gulfstream Natural Gas System, L.L.C. (Gulfstream), and a 60 percent equity-method investment in Discovery Producer Services LLC (Discovery).
Northeast G&P is comprised of our midstream gathering, processing, and fractionation businesses in the Marcellus Shale region primarily in Pennsylvania and New York, and the Utica Shale region of eastern Ohio, as well as a 65 percent interest in Ohio Valley Midstream LLC (Northeast JV) (a consolidated VIE) which operates in West Virginia, Ohio, and Pennsylvania, a 66 percent interest in Cardinal Gas Services, L.L.C. (Cardinal) (a consolidated VIE) which operates in Ohio, a 69 percent equity-method investment in Laurel Mountain Midstream, LLC (Laurel Mountain), a 99 percent interest in Caiman Energy II, LLC (Caiman II) (a former equity-method investment which is a consolidated entity following our November 2020 acquisition of an additional ownership interest and was subsequently renamed Blue Racer Midstream Holdings, LLC) which owns a 50 percent equity-method investment in Blue Racer Midstream LLC (Blue Racer) (see Note 7 – Investing Activities), and Appalachia Midstream Services, LLC, a wholly owned subsidiary that owns equity-method investments with an approximate average 66 percent interest in multiple gas gathering systems in the Marcellus Shale region (Appalachia Midstream Investments).
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
West is comprised of our gas gathering, processing, and treating operations in the Rocky Mountain region of Colorado and Wyoming, the Barnett Shale region of north-central Texas, the Eagle Ford Shale region of south Texas, the Haynesville Shale region of northwest Louisiana, and the Mid-Continent region which includes the Anadarko, Arkoma, and Permian basins. This segment also includes our natural gas liquid (NGL) and natural gas marketing business, storage facilities, an undivided 50 percent interest in an NGL fractionator near Conway, Kansas, a 50 percent equity-method investment in Overland Pass Pipeline Company LLC (OPPL), a 50 percent equity-method investment in Rocky Mountain Midstream Holdings LLC (RMM), a 20 percent equity-method investment in Targa Train 7 LLC (Targa Train 7) (a nonconsolidated VIE), and a 15 percent interest in Brazos Permian II, LLC (Brazos Permian II) (a nonconsolidated VIE).
Basis of Presentation
Discontinued operations
Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates to our continuing operations.
Significant risks and uncertainties
We believe that the carrying value of certain of our property, plant, and equipment and other identifiable intangible assets, notably certain acquired assets accounted for as business combinations between 2012 and 2014, may be in excess of current fair value. However, the carrying value of these assets, in our judgment, continues to be recoverable. It is reasonably possible that future strategic decisions, including transactions such as monetizing non-core assets or contributing assets to new ventures with third parties, as well as unfavorable changes in expected producer activities, including effects of financial distress caused by financial and commodity market declines, could impact our assumptions and ultimately result in impairments of these assets. Such transactions or developments may also indicate that certain of our equity-method investments have experienced other-than-temporary declines in value, which could result in impairment.
Customer bankruptcy
In June 2020, our customer, Chesapeake Energy Corporation (Chesapeake), announced that it had voluntarily filed for relief under Chapter 11 of the U.S. Bankruptcy Code. We provide midstream services, including wellhead gathering, for the natural gas that Chesapeake and its joint interest owners produce, primarily in the Eagle Ford Shale, Haynesville Shale, and Marcellus Shale regions (through Appalachia Midstream Investments).
In November 2020, we reached a global resolution with Chesapeake as part of Chesapeake’s restructuring process. The resolution was approved by the bankruptcy court in December 2020 and per the terms, Chesapeake paid all outstanding pre-petition amounts due to us. Additional terms include reduced gathering fees in the Haynesville Shale region, continuation of the gathering agreements in the Eagle Ford Shale and Marcellus Shale regions, a long-term gas supply commitment for Transco’s Regional Energy Access pipeline currently under development, and transferring certain natural gas properties in Louisiana to us. As a result of this resolution, we recorded increases to our other nonregulated property, plant, and equipment of $98 million, contract liabilities of $67 million (see Note 5 – Revenue Recognition), and asset retirement obligations (AROs) of $31 million (see Note 11 – Property, Plant, and Equipment).
Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of all entities that we control and our proportionate interest in the accounts of certain ventures in which we own an undivided interest. Our judgment is required to evaluate whether we control an entity. Key areas of that evaluation include:
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
•Determining whether an entity is a VIE;
•Determining whether we are the primary beneficiary of a VIE, including evaluating which activities of the VIE most significantly impact its economic performance and the degree of power that we and our related parties have over those activities through our variable interests;
•Identifying events that require reconsideration of whether an entity is a VIE and continuously evaluating whether we are a VIE’s primary beneficiary;
•Evaluating whether other owners in entities that are not VIEs are able to effectively participate in significant decisions that would be expected to be made in the ordinary course of business such that we do not have the power to control such entities.
We apply the equity method of accounting to investments over which we exercise significant influence but do not control. Distributions received from equity-method investees are presented in the Consolidated Statement of Cash Flows according to the nature of the distributions approach, which classifies distributions received from equity-method investees as either returns on investment (cash inflows from operating activities) or returns of investment (cash inflows from investing activities) based on the nature of the activities of the equity-method investee that generated the distribution.
Equity-method investment basis differences
Differences between the cost of our equity-method investments and our underlying equity in the net assets of investees are accounted for as if the investees were consolidated subsidiaries. Equity earnings (losses) in the Consolidated Statement of Operations includes our allocable share of net income (loss) of investees adjusted for any depreciation and amortization, as applicable, associated with basis differences.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Significant estimates and assumptions include:
•Impairment assessments of investments, property, plant, and equipment, goodwill, and other identifiable intangible assets;
•Litigation-related contingencies;
•Environmental remediation obligations;
•Depreciation and/or amortization of long-lived assets;
•Depreciation and/or amortization of equity-method investment basis differences;
•AROs;
•Pension and postretirement valuation variables;
•Measurement of regulatory liabilities;
•Measurement of deferred income tax assets and liabilities, including assumptions related to the realization of deferred income tax assets;
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The Williams Companies, Inc.
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Notes to Consolidated Financial Statements – (Continued)
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•Revenue recognition, including estimates utilized in recognition of deferred revenue;
•Purchase price accounting.
These estimates are discussed further throughout these notes.
Regulatory accounting
Transco and Northwest Pipeline are regulated by the Federal Energy Regulatory Commission (FERC), and their rates are established by the FERC. Therefore, we have determined that it is appropriate under Accounting Standards Codification (ASC) Topic 980, “Regulated Operations,” (ASC 980) that certain costs that would otherwise be charged to expense should be deferred as regulatory assets, based on the expected recovery from customers in future rates. Likewise, certain actual or anticipated credits that would otherwise reduce expense should be deferred as regulatory liabilities, based on the expected return to customers in future rates. Management’s expected recovery of deferred costs and return of deferred credits generally results from specific decisions by regulators granting such ratemaking treatment. We record certain incurred costs and obligations as regulatory assets or liabilities if, based on regulatory orders or other available evidence, it is probable that the costs or obligations will be included in amounts allowable for recovery or refunded in future rates. Accounting for these operations that are regulated can differ from the accounting requirements for nonregulated operations. For example, for regulated operations, allowance for funds used during construction (AFUDC) represents the estimated cost of debt and equity funds applicable to utility plant in the process of construction and is capitalized as a cost of property, plant, and equipment because it constitutes an actual cost of construction under established regulatory practices; nonregulated operations are only allowed to capitalize the cost of debt funds related to construction activities, while a component for equity is prohibited. The components of our regulatory assets and liabilities relate to the effects of deferred taxes on equity funds used during construction, AROs, shipper imbalance activity, fuel and power cost differentials, levelized incremental depreciation, negative salvage, pension and other postretirement benefits, customer tax refunds, and rate allowances for deferred income taxes at a historically higher federal income tax rate.
Our current and noncurrent regulatory asset and liability balances for the years ended December 31, 2020 and 2019 are as follows:
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December 31,
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2020
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2019
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(Millions)
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Current assets reported within Other current assets and deferred charges
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$
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64
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$
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72
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Noncurrent assets reported within Regulatory assets, deferred charges, and other
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442
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466
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Total regulated assets
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$
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506
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$
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538
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Current liabilities reported within Accrued liabilities
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$
|
59
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|
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$
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60
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|
Noncurrent liabilities reported within Regulatory liabilities, deferred income, and other
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1,314
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1,277
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Total regulated liabilities
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$
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1,373
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$
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1,337
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Cash and cash equivalents
Cash and cash equivalents in the Consolidated Balance Sheet consist of highly liquid investments with original maturities of three months or less when acquired.
Accounts receivable
Accounts receivable are carried on a gross basis, with no discounting, less an allowance for doubtful accounts. We estimate the allowance for doubtful accounts, considering current expected credit losses (as discussed below in Accounting standards issued and adopted), the financial condition of our customers, and age of past due accounts. We do not offer extended payment terms and typically receive payment within one month. We consider receivables
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The Williams Companies, Inc.
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Notes to Consolidated Financial Statements – (Continued)
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past due if full payment is not received by the contractual due date. Interest income related to past due accounts receivable is generally recognized at the time full payment is received or collectability is assured. Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been exhausted.
Inventories
Inventories in the Consolidated Balance Sheet primarily consist of NGLs, natural gas in underground storage, and materials and supplies and are stated at the lower of cost or net realizable value. The cost of inventories is primarily determined using the average-cost method.
Property, plant, and equipment
Property, plant, and equipment is initially recorded at cost. We base the carrying value of these assets on estimates, assumptions, and judgments relative to capitalized costs, useful lives, and salvage values.
As regulated entities, Northwest Pipeline and Transco provide for depreciation using the straight-line method at FERC-prescribed rates. Depreciation for nonregulated entities is provided primarily on the straight-line method over estimated useful lives, except for certain offshore facilities that apply an accelerated depreciation method.
Gains or losses from the ordinary sale or retirement of property, plant, and equipment for regulated pipelines are credited or charged to accumulated depreciation. Other gains or losses are recorded in Other (income) expense – net included in Operating income (loss) in the Consolidated Statement of Operations.
Ordinary maintenance and repair costs are generally expensed as incurred. Costs of major renewals and replacements are capitalized as property, plant, and equipment.
We record a liability and increase the basis in the underlying asset for the present value of each expected future ARO at the time the liability is initially incurred, typically when the asset is acquired or constructed. As regulated entities, Northwest Pipeline and Transco offset the depreciation of the underlying asset that is attributable to capitalized ARO cost to a regulatory asset as we expect to recover these amounts in future rates. We measure changes in the liability due to passage of time by applying an interest rate to the liability balance. This amount is recognized as an increase in the carrying amount of the liability and as a corresponding accretion expense included in Operating and maintenance expenses in the Consolidated Statement of Operations, except for regulated entities, for which the liability is offset by a regulatory asset. The regulatory asset is amortized commensurate with our collection of those costs in rates.
Measurements of AROs include, as a component of future expected costs, an estimate of the price that a third party would demand, and could expect to receive, for bearing the uncertainties inherent in the obligations, sometimes referred to as a market-risk premium.
Goodwill
Goodwill included within Intangible assets – net of accumulated amortization in the Consolidated Balance Sheet, as of December 31, 2019, represents the excess of the consideration, plus the fair value of any noncontrolling interest or any previously held equity interest, over the fair value of the net assets acquired. It is not subject to amortization but is evaluated annually as of October 1 for impairment or more frequently if impairment indicators are present that would indicate it is more likely than not that the fair value of the reporting unit is less than its carrying amount. As part of the evaluation, we compare our estimate of the fair value of the reporting unit with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, an impairment charge is recorded for the difference (not to exceed the carrying value of goodwill). Judgments and assumptions are inherent in our management’s estimates of fair value.
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The Williams Companies, Inc.
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Notes to Consolidated Financial Statements – (Continued)
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Other identifiable intangible assets
Our other identifiable intangible assets included within Intangible assets – net of accumulated amortization in the Consolidated Balance Sheet are primarily related to gas gathering, processing, and fractionation contractual customer relationships. Our other identifiable intangible assets are amortized on a straight-line basis over the period in which these assets contribute to our cash flows. We evaluate these assets for changes in the expected remaining useful lives and would reflect any changes prospectively through amortization over the revised remaining useful life.
Impairment of property, plant, and equipment, other identifiable intangible assets, and investments
We evaluate our property, plant, and equipment and other identifiable intangible assets for impairment when, in our judgment, events or circumstances, including probable abandonment, indicate that the carrying value of such assets may not be recoverable. When an indicator of impairment has occurred, we compare our estimate of undiscounted future cash flows attributable to the assets to the carrying value of the assets to determine whether an impairment has occurred and we may apply a probability-weighted approach to consider the likelihood of different cash flow assumptions and possible outcomes including selling in the near term or holding for the remaining estimated useful life. If an impairment of the carrying value has occurred, we determine the amount of the impairment recognized in the financial statements by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value. This evaluation is performed at the lowest level for which separately identifiable cash flows exist.
For assets identified to be disposed of in the future and considered held for sale, we compare the carrying value to the estimated fair value less the cost to sell to determine if recognition of an impairment is required. Until the assets are disposed of, the estimated fair value, which includes estimated cash flows from operations until the assumed date of sale, is recalculated when related events or circumstances change.
We evaluate our investments for impairment when, in our judgment, events or circumstances indicate that the carrying value of such investments may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, we compare our estimate of fair value of the investment to the carrying value of the investment to determine whether an impairment has occurred. If the estimated fair value is less than the carrying value and we consider the decline in value to be other-than-temporary, the excess of the carrying value over the fair value is recognized in the consolidated financial statements as an impairment charge.
Judgments and assumptions are inherent in our estimate of undiscounted future cash flows and an asset’s or investment’s fair value. Additionally, judgment is used to determine the probability of sale with respect to assets considered for disposal.
Contingent liabilities
We record liabilities for estimated loss contingencies, including environmental matters, when we assess that a loss is probable, and the amount of the loss can be reasonably estimated. These liabilities are calculated based upon our assumptions and estimates with respect to the likelihood or amount of loss and upon advice of legal counsel, engineers, or other third parties regarding the probable outcomes of the matters. These calculations are made without consideration of any potential recovery from third parties. We recognize insurance recoveries or reimbursements from others when realizable. Revisions to these liabilities are generally reflected in income when new or different facts or information become known or circumstances change that affect the previous assumptions or estimates.
Cash flows from revolving credit facilities and commercial paper program
Proceeds and payments related to borrowings under our credit facilities are reflected in the financing activities in the Consolidated Statement of Cash Flows on a gross basis. Proceeds and payments related to borrowings under our commercial paper program are reflected in the financing activities in the Consolidated Statement of Cash Flows on a net basis, as the outstanding notes generally have maturity dates less than three months from the date of issuance. (See Note 14 – Debt and Banking Arrangements.)
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The Williams Companies, Inc.
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Notes to Consolidated Financial Statements – (Continued)
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Treasury stock
Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as Treasury stock, at cost in the Consolidated Balance Sheet. Gains and losses on the subsequent reissuance of shares are credited or charged to Capital in excess of par value in the Consolidated Balance Sheet using the average-cost method.
Derivative instruments and hedging activities
We may utilize derivatives to manage a portion of our commodity price risk. These instruments consist primarily of swaps, futures, and forward contracts involving short- and long-term purchases and sales of energy commodities. We report the fair value of derivatives, except those for which the normal purchases and normal sales exception has been elected, in Other current assets and deferred charges; Regulatory assets, deferred charges, and other; Accrued liabilities; or Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet. We determine the current and noncurrent classification based on the timing of expected future cash flows of individual trades. We report these amounts on a gross basis. Additionally, we report cash collateral receivables and payables with our counterparties on a gross basis.
The accounting for the changes in fair value of a commodity derivative can be summarized as follows:
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Derivative Treatment
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Accounting Method
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Normal purchases and normal sales exception
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Accrual accounting
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Designated in a qualifying hedging relationship
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Hedge accounting
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All other derivatives
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Mark-to-market accounting
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We may elect the normal purchases and normal sales exception for certain short- and long-term purchases and sales of physical energy commodities. Under accrual accounting, any change in the fair value of these derivatives is not reflected on the balance sheet after the initial election of the exception.
We may also designate a hedging relationship for certain commodity derivatives. For a derivative to qualify for designation in a hedging relationship, it must meet specific criteria and we must maintain appropriate documentation. We establish hedging relationships pursuant to our risk management policies. We evaluate the hedging relationships at the inception of the hedge and on an ongoing basis to determine whether the hedging relationship is, and is expected to remain, highly effective in achieving offsetting changes in fair value or cash flows attributable to the underlying risk being hedged. We also regularly assess whether the hedged forecasted transaction is probable of occurring. If a derivative ceases to be or is no longer expected to be highly effective, or if we believe the likelihood of occurrence of the hedged forecasted transaction is no longer probable, hedge accounting is discontinued prospectively, and future changes in the fair value of the derivative are recognized currently in Product sales or Product costs in the Consolidated Statement of Operations.
For commodity derivatives designated as a cash flow hedge, the change in fair value of the derivative is reported in AOCI in the Consolidated Balance Sheet and reclassified into earnings in the period in which the hedged item affects earnings. Gains or losses deferred in AOCI associated with terminated derivatives, derivatives that cease to be highly effective hedges, derivatives for which the forecasted transaction is reasonably possible but no longer probable of occurring, and cash flow hedges that have been otherwise discontinued remain in AOCI until the hedged item affects earnings. If it becomes probable that the forecasted transaction designated as the hedged item in a cash flow hedge will not occur, any gain or loss deferred in AOCI is recognized in Product sales or Product costs in the Consolidated Statement of Operations at that time. The change in likelihood of a forecasted transaction is a judgmental decision that includes qualitative assessments made by us.
For commodity derivatives that are not designated in a hedging relationship, and for which we have not elected the normal purchases and normal sales exception, we report changes in fair value currently in Product sales or Product costs in the Consolidated Statement of Operations.
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The Williams Companies, Inc.
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Notes to Consolidated Financial Statements – (Continued)
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Certain gains and losses on derivative instruments included in the Consolidated Statement of Operations are netted together to a single net gain or loss, while other gains and losses are reported on a gross basis. Gains and losses recorded on a net basis include unrealized gains and losses on all derivatives that are not designated as hedges and for which we have not elected the normal purchases and normal sales exception.
Realized gains and losses on derivatives that (1) require physical delivery, (2) are used for managing commodity risk on NGL processing or natural gas production activities, and (3) are not held for trading purposes nor were entered into as a pre-contemplated buy/sell arrangement, are recorded on a gross basis.
Revenue recognition
Customers in our gas pipeline businesses are comprised of public utilities, municipalities, gas marketers and producers, intrastate pipelines, direct industrial users, and electrical power generators. Customers in our midstream businesses are comprised of oil and natural gas producer counterparties. Customers for our product sales are comprised of public utilities, gas marketers, and direct industrial users.
Service revenue contracts from our gas pipeline and midstream businesses contain a series of distinct services, with the majority of our contracts having a single performance obligation that is satisfied over time as the customer simultaneously receives and consumes the benefits provided by our performance. Most of our product sales contracts have a single performance obligation with revenue recognized at a point in time when the products have been sold and delivered to the customer.
Certain customers reimburse us for costs we incur associated with construction of property, plant, and equipment utilized in our operations. For our rate-regulated gas pipeline businesses that apply ASC 980, we follow FERC guidelines with respect to reimbursement of construction costs. FERC tariffs only allow for cost reimbursement and are non-negotiable in nature; thus, in our judgment, the construction activities do not represent an ongoing major and central operation of our gas pipeline businesses and are not within the scope of ASC Topic 606, “Revenue from Contracts with Customers” (ASC 606). Accordingly, cost reimbursements are treated as a reduction to the cost of the constructed asset. For our midstream businesses, reimbursement and service contracts with customers are viewed together as providing the same commercial objective, as we have the ability to negotiate the mix of consideration between reimbursements and amounts billed over time. Accordingly, we generally recognize reimbursements of construction costs from customers on a gross basis as a contract liability separate from the associated costs included within property, plant, and equipment. The contract liability is recognized into service revenues as the underlying performance obligations are satisfied.
Service Revenues
Gas pipeline businesses: Revenues from our regulated interstate natural gas pipeline businesses, which are subject to regulation by certain state and federal authorities, including the FERC, include both firm and interruptible transportation and storage contracts. Firm transportation and storage agreements provide for a fixed reservation charge based on the pipeline or storage capacity reserved, and a commodity charge based on the volume of natural gas delivered/stored, each at rates specified in our FERC tariffs or based on negotiated contractual rates, with contract terms that are generally long-term in nature. Most of our long-term contracts contain an evergreen provision, which allows the contracts to be extended for periods primarily up to one year in length an indefinite number of times following the specified contract term and until terminated generally by either us or the customer. Interruptible transportation and storage agreements provide for a volumetric charge based on actual commodity transportation or storage utilized in the period in which those services are provided, and the contracts are generally limited to one-month periods or less. Our performance obligations related to our interstate natural gas pipeline businesses include the following:
•Firm transportation or storage under firm transportation and storage contracts—an integrated package of services typically constituting a single performance obligation, which includes standing ready to provide such services and receiving, transporting or storing (as applicable), and redelivering commodities;
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The Williams Companies, Inc.
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Notes to Consolidated Financial Statements – (Continued)
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•Interruptible transportation or storage under interruptible transportation and storage contracts—an integrated package of services typically constituting a single performance obligation once scheduled, which includes receiving, transporting or storing (as applicable), and redelivering commodities.
In situations where, in our judgment, we consider the integrated package of services as a single performance obligation, which represents a majority of our interstate natural gas pipeline contracts with customers, we do not consider there to be multiple performance obligations because the nature of the overall promise in the contract is to stand ready (with regard to firm transportation and storage contracts), receive, transport or store, and redeliver natural gas to the customer; therefore, revenue is recognized over time upon satisfaction of our daily stand ready performance obligation.
We recognize revenues for reservation charges over the performance obligation period, which is the contract term, regardless of the volume of natural gas that is transported or stored. Revenues for commodity charges from both firm and interruptible transportation services and storage services are recognized when natural gas is delivered at the agreed upon delivery point or when natural gas is injected or withdrawn from the storage facility because they specifically relate to our efforts to provide these distinct services. Generally, reservation charges and commodity charges in our interstate natural gas pipeline businesses are recognized as revenue in the same period they are invoiced to our customers. As a result of the ratemaking process, certain amounts collected by us may be subject to refund upon the issuance of final orders by the FERC in pending rate proceedings. We use judgment to record estimates of rate refund liabilities considering our and other third-party regulatory proceedings, advice of counsel, and other risks.
Midstream businesses: Revenues from our non-regulated gathering, processing, transportation, and storage midstream businesses include contracts for natural gas gathering, processing, treating, compression, transportation, and other related services with contract terms that are generally long-term in nature and may extend up to the production life of the associated reservoir. Additionally, our midstream businesses generate revenues from fees charged for storing customers’ natural gas and NGLs, generally under prepaid contracted storage capacity contracts. In situations where, in our judgment, we provide an integrated package of services combined into a single performance obligation, which represents a majority of this class of contracts with customers, we do not consider there to be multiple performance obligations because the nature of the overall promise in the contract is to provide gathering, processing, transportation, storage, and related services resulting in the delivery, or redelivery in the context of storage services, of pipeline-quality natural gas and NGLs to the customer. As such, revenue is recognized at the daily completion of the integrated package of services as the integrated package represents a single performance obligation. Additionally, certain contracts in our midstream businesses contain fixed or upfront payment terms that result in the deferral of revenues until such services have been performed or such capacity has been made available.
We also earn revenues from offshore crude oil and natural gas gathering and transportation and offshore production handling. These services represent an integrated package of services and are considered a single distinct performance obligation for which we recognize revenues as the services are provided to the customer.
We generally earn a contractually stated fee per unit for the volume of product transported, gathered, processed, or stored. The rate is generally fixed; however, certain contracts contain variable rates that are subject to change based on commodity prices, levels of throughput, or an annual adjustment based on a formulaic cost of service calculation. In addition, we have contracts with contractually stated fees that decline over the contract term, such as declines based on the passage of time periods or achievement of cumulative throughput amounts. For all of our contracts, we allocate the transaction price to each performance obligation based on the judgmentally determined relative standalone selling price. The excess of consideration received over revenue recognized results in the deferral of those amounts until future periods based on a units of production or straight-line methodology as these methods appropriately match the consumption of services provided to the customer. The units of production methodology requires the use of production estimates that are uncertain and the use of judgment when developing estimates of future production volumes, thus impacting the rate of revenue recognition. Production estimates are monitored as circumstances and events warrant. Certain
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The Williams Companies, Inc.
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Notes to Consolidated Financial Statements – (Continued)
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of our gas gathering and processing agreements have minimum volume commitments (MVC). If a customer under such an agreement fails to meet its MVC for a specified period (thus not exercising all the contractual rights to gathering and processing services within the specified period, herein referred to as “breakage”), it is obligated to pay a contractually determined fee based upon the shortfall between the actual gathered or processed volumes and the MVC for the period contained in the contract. When we conclude, based on management’s judgment, it is probable that the customer will not exercise all or a portion of its remaining rights, we recognize revenue associated with such breakage amount in proportion to the pattern of exercised rights within the respective MVC period.
Under keep-whole and percent-of-liquids processing contracts, we receive commodity consideration in the form of NGLs and take title to the NGLs at the tailgate of the plant. We recognize such commodity consideration as service revenue based on the market value of the NGLs retained at the time the processing is provided. The current market value, as opposed to the market value at the contract inception date, is used due to a combination of factors, including the fact that the volume, mix, and market price of NGL consideration to be received is unknown at the time of contract execution and is not specified in our contracts with customers. Additionally, product sales revenue (discussed below) is recognized upon the sale of the NGLs to a third party based on the sales price at the time of sale. As a result, revenue is recognized in the Consolidated Statement of Operations both at the time the processing service is provided in Service revenues – commodity consideration and at the time the NGLs retained as part of the processing service are sold in Product sales. The recognition of revenue related to commodity consideration has the impact of increasing the book value of NGL inventory, resulting in higher cost of goods sold at the time of sale. Given that most inventory is sold in the same period that it is generated, the impact of these transactions is expected to have little impact to operating income.
Product Sales
In the course of providing transportation services to customers of our gas pipeline businesses and gathering and processing services to customers of our midstream businesses, we may receive different quantities of natural gas from customers than the quantities delivered on behalf of those customers. The resulting imbalances are primarily settled through the purchase or sale of natural gas with each customer under terms provided for in our FERC tariffs or gathering and processing agreements, respectively. Revenue is recognized from the sale of natural gas upon settlement of imbalances.
In certain instances, we purchase NGLs, crude oil, and natural gas from our oil and natural gas producer customers which we remarket. In addition, we retain NGLs as consideration in certain processing arrangements, as discussed above in the Service Revenues - Midstream businesses section. We recognize revenue from the sale of these commodities when the products have been sold and delivered. Our product sales contracts are primarily short-term contracts based on prevailing market rates at the time of the transaction.
Contract Assets
Our contract assets primarily consist of revenue recognized under contracts containing MVC features whereby management has concluded it is probable there will be a short-fall payment at the end of the current MVC period, which typically follows the calendar year, and that a significant reversal of revenue recognized currently for the future MVC payment will not occur. As a result, our contract assets related to our future MVC payments are generally expected to be collected within the next 12 months and are included within Other current assets and deferred charges in the Consolidated Balance Sheet until such time as the MVC short-fall payments are invoiced to the customer.
Contract Liabilities
Our contract liabilities consist of advance payments primarily from midstream business customers which include construction reimbursements, prepayments, and other billings and transactions for which future services are to be provided under the contract. These amounts are deferred until recognized in revenue when the
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The Williams Companies, Inc.
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Notes to Consolidated Financial Statements – (Continued)
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associated performance obligation has been satisfied, which is primarily based on a units of production methodology over the remaining contractual service periods, and are classified as current or noncurrent according to when such amounts are expected to be recognized. Current and noncurrent contract liabilities are included within Accrued liabilities and Regulatory liabilities, deferred income, and other, respectively, in the Consolidated Balance Sheet.
Contracts requiring advance payments and the recognition of contract liabilities are evaluated to determine whether the advance payments provide us with a significant financing benefit. This determination is based on the combined effect of the expected length of time between when we transfer the promised good or service to the customer, when the customer pays for those goods or services, and the prevailing interest rates. We have assessed our contracts for significant financing components and determined, in our judgment, that one group of contracts entered into in contemplation of one another for certain capital reimbursements contains a significant financing component. As a result, we recognize noncash interest expense based on the effective interest method and revenue (noncash) is recognized when the underlying asset is placed into service utilizing a units of production or straight-line methodology over the life of the corresponding customer contract.
Leases
We recognize a lease liability with an offsetting right-of-use asset in the Consolidated Balance Sheet for operating leases based on the present value of the future lease payments. We have elected to combine lease and nonlease components for all classes of leased assets in our calculation of the lease liability and the offsetting right-of-use asset.
Our lease agreements require both fixed and variable periodic payments, with initial terms typically ranging from one year to 20 years, but a certain land lease has a term of 108 years. Payment provisions in certain of our lease agreements contain escalation factors which may be based on stated rates or a change in a published index at a future time. The amount by which a lease escalates based on the change in a published index, which is not known at lease commencement, is considered a variable payment and is not included in the present value of the future lease payments, which only includes those that are stated or can be calculated based on the lease agreement at lease commencement. In addition to the noncancellable periods, many of our lease agreements provide for one or more extensions of the lease agreement for periods ranging from one year in length to an indefinite number of times following the specified contract term. Other lease agreements provide for extension terms that allow us to utilize the identified leased asset for an indefinite period of time so long as the asset continues to be utilized in our operations. In consideration of these renewal features, we assess the term of the lease agreements, which includes using judgment in the determination of which renewal periods and termination provisions, when at our sole election, will be reasonably certain of being exercised. Periods after the initial term or extension terms that allow for either party to the lease to cancel the lease are not considered in the assessment of the lease term. Additionally, we have elected to exclude leases with an original term of one year or less, including renewal periods, from the calculation of the lease liability and the offsetting right-of-use asset.
We use judgment in determining the discount rate upon which the present value of the future lease payments is determined. This rate is based on a collateralized interest rate corresponding to the term of the lease agreement using company, industry, and market information available.
When permitted under our lease agreements, we may sublease certain unused office space for fixed periods that could extend up to the length of the original lease agreement.
Interest capitalized
We capitalize interest during construction on major projects with construction periods of at least 3 months and a total project cost in excess of $1 million. Interest is capitalized on borrowed funds and, where regulation by the FERC exists, on internally generated funds (equity AFUDC). The latter is included in Other income (expense) – net below Operating income (loss) in the Consolidated Statement of Operations. The rates used by regulated companies
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The Williams Companies, Inc.
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Notes to Consolidated Financial Statements – (Continued)
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are calculated in accordance with FERC rules. Rates used by nonregulated companies are based on our average interest rate on debt.
Employee stock-based awards
We recognize compensation expense on employee stock-based awards on a straight-line basis; forfeitures are recognized when they occur.
Pension and other postretirement benefits
The funded status of each of the pension and other postretirement benefit plans is recognized separately in the Consolidated Balance Sheet as either an asset or liability. The funded status is the difference between the fair value of plan assets and the plan’s benefit obligation. The plans’ benefit obligations and net periodic benefit costs (credits) are actuarially determined and impacted by various assumptions and estimates.
The discount rates are determined separately for each of our pension and other postretirement benefit plans based on an approach specific to our plans. The year-end discount rates are determined considering a yield curve comprised of high-quality corporate bonds and the timing of the expected benefit cash flows of each plan.
The expected long-term rates of return on plan assets are determined by combining a review of the historical returns within the portfolio, the investment strategy included in the plans’ investment policy statement, and capital market projections for the asset classes in which the portfolio is invested, as well as the weighting of each asset class.
Unrecognized actuarial gains and losses and unrecognized prior service costs and credits are deferred and recorded in AOCI or, for Transco and Northwest Pipeline, as a regulatory asset or liability, until amortized as a component of net periodic benefit cost (credit). Unrecognized actuarial gains and losses in excess of 10 percent of the greater of the benefit obligation or the market-related value of plan assets are amortized over the participants’ average remaining future years of service, which is approximately 10 years for our pension plans and approximately 6 years for our other postretirement benefit plan.
The expected return on plan assets component of net periodic benefit cost (credit) is calculated using the market-related value of plan assets. For our pension plans, the market-related value of plan assets is equal to the fair value of plan assets adjusted to reflect the amortization of gains or losses associated with the difference between the expected and actual return on plan assets over a 5-year period. Additionally, the market-related value of assets may be no more than 110 percent or less than 90 percent of the fair value of plan assets at the beginning of the year. The market-related value of plan assets for our other postretirement benefit plan is equal to the unadjusted fair value of plan assets at the beginning of the year.
Income taxes
We include the operations of our domestic corporate subsidiaries and income from our subsidiary partnerships in our consolidated federal income tax return and also file tax returns in various foreign and state jurisdictions as required. Deferred income taxes are computed using the liability method and are provided on all temporary differences between the financial basis and the tax basis of our assets and liabilities. Our judgment and income tax assumptions are used to determine the levels, if any, of valuation allowances associated with deferred tax assets.
Earnings (loss) per common share
Basic earnings (loss) per common share in the Consolidated Statement of Operations is based on the sum of the weighted-average number of common shares outstanding and vested restricted stock units. Diluted earnings (loss) per common share in the Consolidated Statement of Operations includes any dilutive effect of nonvested restricted stock units, stock options, and convertible instruments, unless otherwise noted. Diluted earnings (loss) per common share is calculated using the treasury-stock method.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Accounting standards issued and adopted
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13). ASU 2016-13 changed the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities are required to use a forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. We adopted ASU 2016-13 effective January 1, 2020, which primarily applied to our short-term trade receivables. There was no cumulative effect adjustment to retained earnings upon adoption.
The majority of our trade receivable balances are due within 30 days. We monitor the credit quality of our counterparties through review of collection trends, credit ratings, and other analyses, such as bankruptcy monitoring. Financial assets from our natural gas transmission business and gathering and transportation business are segregated into separate pools for evaluation due to different counterparty risks inherent in each business. Changes in counterparty risk factors could lead to reassessment of the composition of our financial assets as separate pools or the need for additional pools. We calculate our allowance for credit losses incorporating an aging method. In estimating our expected credit losses, we utilized historical loss rates over many years, which included periods of both high and low commodity prices. Commodity prices could have a significant impact on a portion of our gathering and processing counterparties’ financial health and ability to satisfy current liabilities. Our expected credit loss estimate considered both internal and external forward-looking commodity price expectations, as well as counterparty credit ratings, and factors impacting their near-term liquidity. In addition, our expected credit loss estimate considered potential contractual, physical, and commercial protections and outcomes in the case of a counterparty bankruptcy. The physical location and nature of our services help to mitigate collectability concerns of our gathering and processing producer customers. Our gathering lines in many cases are physically connected to the customers’ wellheads and pads, and there may not be alternative gathering lines nearby. The construction of gathering systems is capital intensive and it would be costly for others to replicate, especially considering the depletion to date of the associated reserves. As a result, we play a critical role in getting customers’ production from the wellhead to a marketable condition and location. This tends to reduce collectability risk as our services enable producers to generate operating cash flows. Commodity price movements generally do not impact the majority of our natural gas transmission businesses customers’ financial condition.
Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been exhausted. We do not have a material amount of significantly aged receivables at December 31, 2020.
Note 2 – Variable Interest Entities
Consolidated VIEs
As of December 31, 2020, we consolidate the following VIEs:
Northeast JV
We own a 65 percent interest in the Northeast JV, a subsidiary that is a VIE due to certain of our voting rights being disproportionate to our obligation to absorb losses and substantially all of the Northeast JV’s activities being performed on our behalf. We are the primary beneficiary because we have the power to direct the activities that most significantly impact the Northeast JV’s economic performance. The Northeast JV provides midstream services for producers in the Marcellus Shale and Utica Shale regions. Future expansion activity is expected to be funded with capital contributions from us and the other equity partner on a proportional basis.
Gulfstar One
We own a 51 percent interest in Gulfstar One, a subsidiary that, due to certain risk-sharing provisions in its customer contracts, is a VIE. Gulfstar One includes a proprietary floating-production system, Gulfstar FPS, and
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
associated pipelines that provide production handling and gathering services in the eastern deepwater Gulf of Mexico. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Gulfstar One’s economic performance.
Cardinal
We own a 66 percent interest in Cardinal, a subsidiary that provides gathering services for the Utica Shale region and is a VIE due to certain risks shared with customers. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Cardinal’s economic performance. Future expansion activity is expected to be funded with capital contributions from us and the other equity partner on a proportional basis.
The following table presents amounts included in the Consolidated Balance Sheet that are only for the use or obligation of our consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
(Millions)
|
Assets (liabilities):
|
|
|
|
Cash and cash equivalents
|
$
|
107
|
|
|
$
|
102
|
|
Trade accounts and other receivables – net
|
148
|
|
|
167
|
|
Other current assets and deferred charges
|
7
|
|
|
5
|
|
Property, plant, and equipment – net
|
5,514
|
|
|
5,745
|
|
Intangible assets – net of accumulated amortization
|
2,376
|
|
|
2,669
|
|
Regulatory assets, deferred charges, and other
|
15
|
|
|
13
|
|
Accounts payable
|
(42)
|
|
|
(58)
|
|
Accrued liabilities
|
(34)
|
|
|
(66)
|
|
|
|
|
|
Regulatory liabilities, deferred income, and other
|
(289)
|
|
|
(283)
|
|
Nonconsolidated VIEs
Targa Train 7
We own a 20 percent interest in Targa Train 7, which provides fractionation services at Mt. Belvieu and is a VIE due primarily to our limited participating rights as the minority equity holder. At December 31, 2020, the carrying value of our investment in Targa Train 7 was $51 million. Our maximum exposure to loss is limited to the carrying value of our investment.
Brazos Permian II
We own a 15 percent interest in Brazos Permian II (see Note 7 – Investing Activities), which provides gathering and processing services in the Delaware basin and is a VIE due primarily to our limited participating rights as the minority equity holder. During the first quarter of 2020 we recorded an impairment of our equity-method investment in Brazos Permian II (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk). Our maximum exposure to loss is limited to the carrying value of our investment.
Note 3 – Acquisitions and Divestitures
UEOM
As of December 31, 2018, we owned a 62 percent interest in Utica East Ohio Midstream LLC (UEOM) which we accounted for as an equity-method investment. On March 18, 2019, we signed and closed the acquisition of the
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
remaining 38 percent interest in UEOM. Total consideration paid, including post-closing adjustments, was $741 million in cash funded through credit facility borrowings and cash on hand, net of $13 million cash acquired. As a result of acquiring this additional interest, we obtained control of and consolidated UEOM.
UEOM is involved primarily in the processing and fractionation of natural gas and natural gas liquids in the Utica Shale play in eastern Ohio. The purpose of the acquisition was to enhance our position in the region. We expect synergies through common ownership of UEOM and our Ohio Valley midstream systems to create a more efficient platform for capital spending in the region, resulting in reduced operating and maintenance expenses and creating enhanced capabilities and benefits for producers in the area.
The acquisition of UEOM was accounted for as a business combination, which requires, among other things, that identifiable assets acquired and liabilities assumed be recognized at their acquisition date fair values. In March 2019, based on the transaction price for our purchase of the remaining interest in UEOM as finalized just prior to the acquisition, we recognized a $74 million noncash impairment loss related to our existing 62 percent interest (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk). Thus, there was no gain or loss on remeasuring our existing equity-method investment to fair value due to the impairment recognized just prior to closing the acquisition of the additional interest.
The valuation techniques used to measure the acquisition date fair value of the UEOM acquisition consisted of the market approach for our previous equity-method investment in UEOM and the income approach (excess earnings method) for valuation of intangible assets and depreciated replacement costs for property, plant, and equipment.
The following table presents the allocation of the acquisition date fair value of the major classes of the assets acquired, which are presented in the Northeast G&P segment, and liabilities assumed, including post closing purchase price adjustments. The net assets acquired reflect the sum of the consideration transferred and the noncash elimination of the fair value of our existing equity-method investment upon our acquisition of the additional interest. The fair value of accounts receivable acquired, presented in current assets in the table, equals contractual amounts receivable.
|
|
|
|
|
|
|
(Millions)
|
Current assets, including $13 million cash acquired
|
$
|
56
|
|
Property, plant, and equipment
|
1,387
|
|
Other intangible assets
|
328
|
|
Total identifiable assets acquired
|
1,771
|
|
|
|
Current liabilities
|
7
|
|
Total liabilities assumed
|
7
|
|
|
|
Net identifiable assets acquired
|
1,764
|
|
|
|
Goodwill
|
187
|
|
Net assets acquired
|
$
|
1,951
|
|
The goodwill recognized in the acquisition related primarily to enhancing and diversifying our basin positions and is reported within the Northeast G&P segment. Substantially all of the goodwill is expected to be deductible for tax purposes. As of December 31, 2019, goodwill was included within Intangible assets – net of accumulated amortization in the Consolidated Balance Sheet and represented the excess of the consideration, plus the fair value of any previously held equity interest, over the fair value of the net assets acquired.
The goodwill recognized in the UEOM acquisition of $187 million, which includes a $1 million adjustment recorded in the first quarter of 2020, was impaired during first quarter of 2020. Our partner’s $65 million share of
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
this impairment is reflected within Net income (loss) attributable to noncontrolling interests in the Consolidated Statement of Operations (see Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk).
Other intangible assets recognized in the acquisition are related to contractual customer relationships from gas gathering, processing, and fractionation agreements with our customers. The basis for determining the value of these intangible assets is estimated future net cash flows to be derived from acquired contractual customer relationships discounted using a risk-adjusted discount rate. These intangible assets are being amortized on a straight-line basis over a period of 20 years which represents the term over which the contractual customer relationships are expected to contribute to our cash flows. Approximately 49 percent of the expected future revenues from these contractual customer relationships are impacted by our ability and intent to renew or renegotiate existing customer contracts. We expense costs incurred to renew or extend the terms of our gas gathering, processing, and fractionation contracts with customers. Based on the estimated future revenues during the current contract periods (as estimated at the time of the acquisition), the weighted-average period prior to the next renewal or extension of the existing contractual customer relationships was approximately 10 years.
The following unaudited pro forma Revenues and Net income (loss) attributable to The Williams Companies, Inc. for the years ended December 31, 2019 and 2018, respectively, are presented as if the UEOM acquisition had been completed on January 1, 2018. These pro forma amounts are not necessarily indicative of what the actual results would have been if the acquisition had in fact occurred on the date or for the periods indicated, nor do they purport to project Revenues or Net income (loss) attributable to The Williams Companies, Inc. for any future periods or as of any date. These amounts do not give effect to any potential cost savings, operating synergies, or revenue enhancements to result from the transaction or the potential costs to achieve these cost savings, operating synergies, and revenue enhancements.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
(Millions)
|
Revenues
|
$
|
8,233
|
|
|
$
|
8,836
|
|
Net income (loss) attributable to The Williams Companies, Inc.
|
928
|
|
|
(128)
|
|
Adjustments to pro forma Net income (loss) attributable to The Williams Companies, Inc. include the removal of the previously described $74 million impairment loss recognized in March 2019 just prior to the acquisition.
During the period from the acquisition date of March 18, 2019 to December 31, 2019, UEOM contributed Revenues of $179 million and Net income (loss) attributable to The Williams Companies, Inc. of $53 million.
Costs related to this acquisition are $4 million and are reported within our Northeast G&P segment and included in Selling, general, and administrative expenses in the Consolidated Statement of Operations for the year ended December 31, 2019.
Northeast JV
Concurrent with the UEOM acquisition, we executed an agreement whereby we contributed our consolidated interests in UEOM and our Ohio Valley midstream business to a newly formed partnership. In June 2019, our partner invested approximately $1.33 billion for a 35 percent ownership interest, and we retained 65 percent ownership of, as well as operate and consolidate, the Northeast JV business. The change in ownership due to this transaction increased Noncontrolling interests in consolidated subsidiaries by $567 million, and decreased Capital in excess of par value by $426 million and Deferred income tax liabilities by $141 million in the Consolidated Balance Sheet as of December 31, 2019. Costs related to this transaction are $6 million and are reported within our Northeast G&P segment and included in Selling, general, and administrative expenses in the Consolidated Statement of Operations for the year ended December 31, 2019.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Sale of Gulf Coast Pipeline Systems
In November 2018, we completed the sale of certain assets and operations located in the Gulf Coast area for $177 million in cash. As a result of this sale, we recorded a gain of approximately $101 million in the fourth quarter of 2018, consisting of $81 million in our Transmission & Gulf of Mexico segment and $20 million in Other.
Previous impairments made to a portion of these assets and operations include $66 million related to certain idle pipelines in the second quarter of 2018. The impairment is reflected in Impairment of certain assets in the Consolidated Statement of Operations. (See Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk.) The results of operations for this disposal group, excluding the impairments and gains noted, were not significant for the reporting period.
Sale of Four Corners Assets
In October 2018, we completed the sale of our natural gas gathering and processing assets in the Four Corners area of New Mexico and Colorado for total consideration of $1.125 billion. As a result of this sale, we recorded a gain of approximately $591 million within the West segment in the fourth quarter of 2018.
The following table presents the results of operations for the Four Corners area, excluding the gain noted above:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
|
|
(Millions)
|
Income (loss) before income taxes of Four Corners area
|
$
|
52
|
|
|
|
Income (loss) before income taxes of Four Corners area attributable to The Williams Companies, Inc.
|
43
|
|
|
|
Note 4 – Related Party Transactions
Transactions with Equity-Method Investees
We have purchases from our equity-method investees included in Product costs in the Consolidated Statement of Operations of $348 million, $304 million, and $236 million for the years ended 2020, 2019, and 2018, respectively. We have $50 million and $36 million included in Accounts payable in the Consolidated Balance Sheet with our equity-method investees at December 31, 2020 and 2019, respectively.
We have operating agreements with certain equity-method investees. These operating agreements typically provide for reimbursement or payment to us for certain direct operational payroll and employee benefit costs, materials, supplies, and other charges and also for management services. The total charges to equity-method investees for these fees are $79 million, $103 million, and $75 million for the years ended 2020, 2019, and 2018, respectively.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Note 5 – Revenue Recognition
Revenue by Category
The following table presents our revenue disaggregated by major service line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transco
|
|
Northwest Pipeline
|
|
Gulf of Mexico Midstream
|
|
Northeast
Midstream
|
|
West Midstream
|
|
Other
|
|
Eliminations
|
|
Total
|
|
(Millions)
|
2020
|
|
|
Revenues from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated interstate natural gas transportation and storage
|
$
|
2,404
|
|
|
$
|
449
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(7)
|
|
|
$
|
2,846
|
|
Gathering, processing, transportation, fractionation, and storage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monetary consideration
|
—
|
|
|
—
|
|
|
348
|
|
|
1,279
|
|
|
1,204
|
|
|
—
|
|
|
(75)
|
|
|
2,756
|
|
Commodity consideration
|
—
|
|
|
—
|
|
|
21
|
|
|
7
|
|
|
101
|
|
|
—
|
|
|
—
|
|
|
129
|
|
Other
|
10
|
|
|
—
|
|
|
27
|
|
|
164
|
|
|
65
|
|
|
1
|
|
|
(14)
|
|
|
253
|
|
Total service revenues
|
2,414
|
|
|
449
|
|
|
396
|
|
|
1,450
|
|
|
1,370
|
|
|
1
|
|
|
(96)
|
|
|
5,984
|
|
Product sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL and natural gas
|
80
|
|
|
—
|
|
|
114
|
|
|
57
|
|
|
1,565
|
|
|
—
|
|
|
(147)
|
|
|
1,669
|
|
Total revenues from contracts with customers
|
2,494
|
|
|
449
|
|
|
510
|
|
|
1,507
|
|
|
2,935
|
|
|
1
|
|
|
(243)
|
|
|
7,653
|
|
Other revenues (1)
|
10
|
|
|
—
|
|
|
9
|
|
|
22
|
|
|
8
|
|
|
33
|
|
|
(16)
|
|
|
66
|
|
Total revenues
|
$
|
2,504
|
|
|
$
|
449
|
|
|
$
|
519
|
|
|
$
|
1,529
|
|
|
$
|
2,943
|
|
|
$
|
34
|
|
|
$
|
(259)
|
|
|
$
|
7,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
Revenues from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated interstate natural gas transportation and storage
|
$
|
2,336
|
|
|
$
|
450
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6)
|
|
|
$
|
2,780
|
|
Gathering, processing, transportation, fractionation, and storage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monetary consideration
|
—
|
|
|
—
|
|
|
479
|
|
|
1,171
|
|
|
1,309
|
|
|
—
|
|
|
(75)
|
|
|
2,884
|
|
Commodity consideration
|
—
|
|
|
—
|
|
|
41
|
|
|
12
|
|
|
150
|
|
|
—
|
|
|
—
|
|
|
203
|
|
Other
|
11
|
|
|
—
|
|
|
26
|
|
|
147
|
|
|
42
|
|
|
—
|
|
|
(16)
|
|
|
210
|
|
Total service revenues
|
2,347
|
|
|
450
|
|
|
546
|
|
|
1,330
|
|
|
1,501
|
|
|
—
|
|
|
(97)
|
|
|
6,077
|
|
Product sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL and natural gas
|
106
|
|
|
—
|
|
|
185
|
|
|
150
|
|
|
1,795
|
|
|
—
|
|
|
(173)
|
|
|
2,063
|
|
Total revenues from contracts with customers
|
2,453
|
|
|
450
|
|
|
731
|
|
|
1,480
|
|
|
3,296
|
|
|
—
|
|
|
(270)
|
|
|
8,140
|
|
Other revenues (1)
|
1
|
|
|
—
|
|
|
8
|
|
|
20
|
|
|
14
|
|
|
30
|
|
|
(12)
|
|
|
61
|
|
Total revenues
|
$
|
2,454
|
|
|
$
|
450
|
|
|
$
|
739
|
|
|
$
|
1,500
|
|
|
$
|
3,310
|
|
|
$
|
30
|
|
|
$
|
(282)
|
|
|
$
|
8,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transco
|
|
Northwest Pipeline
|
|
Gulf of Mexico Midstream
|
|
Northeast
Midstream
|
|
West Midstream
|
|
Other
|
|
Eliminations
|
|
Total
|
|
(Millions)
|
2018
|
|
|
Revenues from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated interstate natural gas transportation and storage
|
$
|
1,921
|
|
|
$
|
443
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2)
|
|
|
$
|
2,362
|
|
Gathering, processing, transportation, fractionation, and storage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monetary consideration
|
—
|
|
|
—
|
|
|
541
|
|
|
861
|
|
|
1,590
|
|
|
2
|
|
|
(73)
|
|
|
2,921
|
|
Commodity consideration
|
—
|
|
|
—
|
|
|
59
|
|
|
20
|
|
|
321
|
|
|
—
|
|
|
—
|
|
|
400
|
|
Other
|
2
|
|
|
—
|
|
|
17
|
|
|
94
|
|
|
46
|
|
|
—
|
|
|
(15)
|
|
|
144
|
|
Total service revenues
|
1,923
|
|
|
443
|
|
|
617
|
|
|
975
|
|
|
1,957
|
|
|
2
|
|
|
(90)
|
|
|
5,827
|
|
Product sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL and natural gas
|
127
|
|
|
—
|
|
|
307
|
|
|
287
|
|
|
2,421
|
|
|
—
|
|
|
(382)
|
|
|
2,760
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
(4)
|
|
|
17
|
|
Total product sales
|
127
|
|
|
—
|
|
|
307
|
|
|
287
|
|
|
2,442
|
|
|
—
|
|
|
(386)
|
|
|
2,777
|
|
Total revenues from contracts with customers
|
2,050
|
|
|
443
|
|
|
924
|
|
|
1,262
|
|
|
4,399
|
|
|
2
|
|
|
(476)
|
|
|
8,604
|
|
Other revenues (1)
|
11
|
|
|
—
|
|
|
18
|
|
|
21
|
|
|
12
|
|
|
32
|
|
|
(12)
|
|
|
82
|
|
Total revenues
|
$
|
2,061
|
|
|
$
|
443
|
|
|
$
|
942
|
|
|
$
|
1,283
|
|
|
$
|
4,411
|
|
|
$
|
34
|
|
|
$
|
(488)
|
|
|
$
|
8,686
|
|
______________________________
(1)Revenues not within the scope of ASC 606, “Revenue from Contracts with Customers,” consist of leasing revenues associated with our headquarters building and management fees that we receive for certain services we provide to operated equity-method investments, which are reported in Service revenues in the Consolidated Statement of Operations, and amounts associated with our derivative contracts, which are reported in Product sales in the Consolidated Statement of Operations.
Contract Assets
The following table presents a reconciliation of our contract assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
(Millions)
|
Balance at beginning of year
|
$
|
8
|
|
|
$
|
4
|
|
Revenue recognized in excess of amounts invoiced
|
145
|
|
|
62
|
|
Minimum volume commitments invoiced
|
(141)
|
|
|
(58)
|
|
Balance at end of year
|
$
|
12
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Contract Liabilities
The following table presents a reconciliation of our contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
(Millions)
|
Balance at beginning of year
|
$
|
1,215
|
|
|
$
|
1,397
|
|
Payments received and deferred
|
140
|
|
|
157
|
|
Significant financing component
|
11
|
|
|
13
|
|
Chesapeake global resolution (Note 1)
|
67
|
|
|
—
|
|
Recognized in revenue
|
(224)
|
|
|
(352)
|
|
Balance at end of year
|
$
|
1,209
|
|
|
$
|
1,215
|
|
Remaining Performance Obligations
Remaining performance obligations primarily include reservation charges on contracted capacity for our gas pipeline firm transportation contracts with customers, storage capacity contracts, long-term contracts containing minimum volume commitments associated with our midstream businesses, and fixed payments associated with offshore production handling. For our interstate natural gas pipeline businesses, remaining performance obligations reflect the rates for such services in our current FERC tariffs for the life of the related contracts; however, these rates may change based on future tariffs approved by the FERC and the amount and timing of these changes are not currently known.
Our remaining performance obligations exclude variable consideration, including contracts with variable consideration for which we have elected the practical expedient for consideration recognized in revenue as billed. Certain of our contracts contain evergreen and other renewal provisions for periods beyond the initial term of the contract. The remaining performance obligation amounts as of December 31, 2020, do not consider potential future performance obligations for which the renewal has not been exercised and exclude contracts with customers for which the underlying facilities have not received FERC authorization to be placed into service. Consideration received prior to December 31, 2020, that will be recognized in future periods is also excluded from our remaining performance obligations and is instead reflected in contract liabilities.
The following table presents the amount of the contract liabilities balance expected to be recognized as revenue when performance obligations are satisfied and the transaction price allocated to the remaining performance obligations under certain contracts as of December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Liabilities
|
|
Remaining Performance Obligations
|
|
(Millions)
|
2021
|
$
|
129
|
|
|
$
|
3,537
|
|
2022
|
113
|
|
|
3,329
|
|
2023
|
118
|
|
|
3,076
|
|
2024
|
98
|
|
|
2,443
|
|
2025
|
92
|
|
|
2,310
|
|
Thereafter
|
659
|
|
|
17,760
|
|
Total
|
$
|
1,209
|
|
|
$
|
32,455
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Note 6 – Other Income and Expenses
The following table presents by segment, certain items within Operating and maintenance expenses and Selling, general, and administrative expenses in the Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission & Gulf of Mexico
|
|
Northeast G&P
|
|
West
|
|
Other
|
|
(Millions)
|
2020
|
|
|
|
|
|
|
|
Income related to benefit policy change
|
$
|
(22)
|
|
|
$
|
(9)
|
|
|
$
|
(9)
|
|
|
$
|
—
|
|
2019
|
|
|
|
|
|
|
|
Severance and related costs
|
39
|
|
|
7
|
|
|
10
|
|
|
1
|
|
2018
|
|
|
|
|
|
|
|
Expense from charitable contribution of preferred stock to the Williams Companies Foundation, Inc. (Note 16)
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
WPZ Merger related costs
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Additional Items
Other income (expense) – net below Operating income (loss) includes $15 million, $32 million, and $89 million of income for equity AFUDC within the Transmission & Gulf of Mexico segment for the years ended December 31, 2020, 2019, and 2018, respectively. Other income (expense) – net below Operating income (loss) also includes $(13) million of loss and $9 million and $35 million of income, for the years ended December 31, 2020, 2019, and 2018, respectively, associated with regulatory assets related to the effects of deferred taxes on equity funds used during construction primarily within the Other segment.
Note 7 – Investing Activities
Acquisition of Additional Interests in Caiman II
As of December 31, 2019, we effectively owned a 29 percent indirect interest in Blue Racer through our 58 percent interest in Caiman II, whose primary asset is a 50 percent interest in Blue Racer. On November 18, 2020, we paid $157 million, net of cash acquired, to acquire an additional 41 percent ownership interest in Caiman II. We now control and consolidate Caiman II, reporting the 50 percent interest in Blue Racer as an equity-method investment. Since substantially all of the fair value of the Caiman II assets acquired is concentrated in a single asset, the investment in Blue Racer, and we previously held a noncontrolling interest in Caiman II, we recorded the November 18, 2020, additional purchase of interests as an asset acquisition.
Equity Earnings (Losses)
Equity earnings (losses) in 2020 includes a $78 million loss associated with the first-quarter full impairment of goodwill recognized by our investee RMM, which was allocated entirely to our member interest per the terms of the membership agreement. Also included in 2020 are losses of $11 million, $26 million, and $10 million for our share of asset impairments at Laurel Mountain, Appalachia Midstream Investments, and Blue Racer, respectively.
Impairments of Equity-Method Investments
See Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk for information regarding impairments of our equity-method investments of $1,046 million, $186 million, and $32 million for 2020, 2019, and 2018, respectively.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Other Investing Income (Loss) – Net
The following table presents certain items reflected in Other investing income (loss) – net in the Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(Millions)
|
|
|
|
|
|
|
Gain (loss) on deconsolidation of businesses
|
$
|
—
|
|
|
$
|
(29)
|
|
|
$
|
203
|
|
Gain on disposition of Jackalope
|
—
|
|
|
122
|
|
|
—
|
|
Other
|
8
|
|
|
14
|
|
|
16
|
|
Other investing income (loss) – net
|
$
|
8
|
|
|
$
|
107
|
|
|
$
|
219
|
|
Constitution deconsolidation
Upon determination that we were no longer the primary beneficiary, we deconsolidated our interest in Constitution Pipeline Company, LLC (Constitution) as of December 31, 2019, recognizing a loss on deconsolidation of $27 million.
Delaware basin asset deconsolidation and Brazos Permian II equity-method investment
During the fourth quarter of 2018, we contributed the majority of our existing Delaware basin assets and $27 million in cash in exchange for a 15 percent interest in the Brazos Permian II, which consists of gas and crude oil gathering pipelines, natural gas processing, and oil storage facilities. We recorded a deconsolidation gain of $141 million reflecting the excess of the fair value of our acquired interest over the carrying value of the assets contributed. We estimated the fair value of our interest to be $192 million primarily using a market approach (a Level 3 measurement within the fair value hierarchy). This approach involved the observation of recent transaction multiples in the Permian basin, including recent acquisitions consummated during 2018. Our interest in Brazos Permian II is considered an equity-method investment due to the fact that we are able to exert significant influence over its operating and financial policies.
Jackalope deconsolidation
During the second quarter of 2018, we deconsolidated our 50 percent interest in Jackalope Gas Gathering Services, L.L.C. (Jackalope). We recorded our interest in Jackalope as an equity-method investment at its estimated fair value, resulting in a deconsolidation gain of $62 million. We estimated the fair value of our interest to be $310 million using an income approach based on expected future cash flows and an appropriate discount rate (a Level 3 measurement within the fair value hierarchy). The determination of expected future cash flows involved significant assumptions regarding gathering and processing volumes and related capital spending. A 10.9 percent discount rate was utilized and reflected our estimate of the cost of capital as impacted by market conditions and risks associated with the underlying business. The deconsolidated carrying value of the net assets of Jackalope included $47 million of goodwill.
Gain on disposition of Jackalope
In April 2019, we sold our 50 percent equity-method interest in Jackalope for $485 million in cash, resulting in a gain on the disposition of $122 million.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Equity-Method Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership Interest at December 31, 2020
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
|
(Millions)
|
Appalachia Midstream Investments
|
(1)
|
|
$
|
3,087
|
|
|
$
|
3,236
|
|
RMM
|
50%
|
|
421
|
|
|
881
|
|
OPPL
|
50%
|
|
395
|
|
|
403
|
|
Blue Racer/Caiman II (2)
|
50%
|
|
357
|
|
|
428
|
|
Discovery
|
60%
|
|
352
|
|
|
472
|
|
Laurel Mountain
|
69%
|
|
219
|
|
|
249
|
|
Gulfstream
|
50%
|
|
204
|
|
|
217
|
|
Brazos Permian II
|
15%
|
|
—
|
|
|
194
|
|
Other
|
Various
|
|
124
|
|
|
155
|
|
|
|
|
$
|
5,159
|
|
|
$
|
6,235
|
|
___________
(1)Includes equity-method investments in multiple gathering systems in the Marcellus Shale with an approximate average 66 percent interest.
(2)See previous discussion in the section Acquisition of Additional Interests in Caiman II above.
The carrying value of our Appalachia Midstream Investments exceeds our portion of the underlying net assets by approximately $1.2 billion and $1.4 billion at December 31, 2020 and 2019, respectively. These differences were assigned at the acquisition date to property, plant, and equipment and customer relationship intangible assets. Certain of our other equity-method investments have a carrying value less than our portion of the underlying net assets primarily due to other than temporary impairments that we have recognized but that were not required to be recognized in the investees’ financial statements. These differences total approximately $1.3 billion and $360 million at December 31, 2020 and 2019, respectively, and were assigned to property, plant, and equipment and customer relationship intangible assets. Differences in the carrying value of our equity-method investments and our portion of the underlying net assets are generally amortized over the remaining useful lives of the associated underlying assets and included in Equity earnings (losses) within the Consolidated Statement of Operations.
Purchases of and contributions to equity-method investments
We generally fund our portion of significant expansion or development projects of these investees through additional capital contributions. These transactions increased the carrying value of our investments and included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(Millions)
|
Blue Racer/Caiman II (1)
|
$
|
157
|
|
|
$
|
28
|
|
|
$
|
—
|
|
Appalachia Midstream Investments
|
116
|
|
|
140
|
|
|
246
|
|
Targa Train 7
|
6
|
|
|
43
|
|
|
—
|
|
Laurel Mountain
|
5
|
|
|
36
|
|
|
16
|
|
RMM
|
—
|
|
|
145
|
|
|
795
|
|
Jackalope
|
—
|
|
|
24
|
|
|
42
|
|
Brazos Permian II
|
—
|
|
|
18
|
|
|
27
|
|
Discovery
|
—
|
|
|
—
|
|
|
5
|
|
Other
|
41
|
|
|
19
|
|
|
1
|
|
|
$
|
325
|
|
|
$
|
453
|
|
|
$
|
1,132
|
|
___________
(1)See previous discussion in the section Acquisition of Additional Interests in Caiman II above.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Dividends and distributions
The organizational documents of entities in which we have an equity-method investment generally require distribution of available cash to members on at least a quarterly basis. These transactions reduced the carrying value of our investments and included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(Millions)
|
Appalachia Midstream Investments
|
$
|
357
|
|
|
$
|
293
|
|
|
$
|
297
|
|
Gulfstream
|
93
|
|
|
86
|
|
|
93
|
|
OPPL
|
50
|
|
|
77
|
|
|
73
|
|
Blue Racer/Caiman II (1)
|
47
|
|
|
42
|
|
|
46
|
|
RMM
|
39
|
|
|
38
|
|
|
—
|
|
Laurel Mountain
|
31
|
|
|
30
|
|
|
23
|
|
Discovery
|
21
|
|
|
41
|
|
|
45
|
|
UEOM
|
—
|
|
|
13
|
|
|
70
|
|
Other
|
15
|
|
|
37
|
|
|
46
|
|
|
$
|
653
|
|
|
$
|
657
|
|
|
$
|
693
|
|
___________
(1)See previous discussion in the section Acquisition of Additional Interests in Caiman II above.
Summarized Financial Position and Results of Operations of All Equity-Method Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
(Millions)
|
Assets (liabilities):
|
|
|
|
Current assets
|
$
|
630
|
|
|
$
|
581
|
|
Noncurrent assets
|
13,424
|
|
|
11,966
|
|
Current liabilities
|
(312)
|
|
|
(341)
|
|
Noncurrent liabilities
|
(3,884)
|
|
|
(2,532)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(Millions)
|
Gross revenue
|
$
|
2,625
|
|
|
$
|
2,490
|
|
|
$
|
2,411
|
|
Operating income
|
508
|
|
|
685
|
|
|
804
|
|
Net income
|
459
|
|
|
598
|
|
|
795
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Note 8 – Provision (Benefit) for Income Taxes
The Provision (benefit) for income taxes includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(Millions)
|
Current:
|
|
|
|
|
|
Federal
|
$
|
(29)
|
|
|
$
|
(41)
|
|
|
$
|
(83)
|
|
State
|
—
|
|
|
(5)
|
|
|
1
|
|
Foreign
|
—
|
|
|
2
|
|
|
—
|
|
|
(29)
|
|
|
(44)
|
|
|
(82)
|
|
Deferred:
|
|
|
|
|
|
Federal
|
98
|
|
|
280
|
|
|
183
|
|
State
|
10
|
|
|
99
|
|
|
37
|
|
|
|
|
|
|
|
|
108
|
|
|
379
|
|
|
220
|
|
Provision (benefit) for income taxes
|
$
|
79
|
|
|
$
|
335
|
|
|
$
|
138
|
|
Reconciliations from the Provision (benefit) at statutory rate to recorded Provision (benefit) for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(Millions)
|
Provision (benefit) at statutory rate
|
$
|
58
|
|
|
$
|
224
|
|
|
$
|
69
|
|
Increases (decreases) in taxes resulting from:
|
|
|
|
|
|
Impact of nontaxable noncontrolling interests
|
3
|
|
|
29
|
|
|
(73)
|
|
State income taxes (net of federal benefit)
|
6
|
|
|
74
|
|
|
(10)
|
|
State deferred income tax rate change
|
—
|
|
|
—
|
|
|
38
|
|
Federal valuation allowance
|
1
|
|
|
3
|
|
|
105
|
|
Other – net
|
11
|
|
|
5
|
|
|
9
|
|
Provision (benefit) for income taxes
|
$
|
79
|
|
|
$
|
335
|
|
|
$
|
138
|
|
Income (loss) from continuing operations before income taxes includes $1 million, $6 million, and $3 million of foreign loss in 2020, 2019, and 2018, respectively.
During the course of audits of our business by domestic and foreign tax authorities, we frequently face challenges regarding the amount of taxes due. These challenges include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the liability associated with our various filing positions, we apply the two-step process of recognition and measurement. In association with this liability, we record an estimate of related interest and tax exposure as a component of our tax provision. The impact of this accrual is included within Other – net in our reconciliation of the Provision (benefit) at statutory rate to recorded Provision (benefit) for income taxes.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Significant components of Deferred income tax liabilities and Deferred income tax assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
(Millions)
|
Deferred income tax liabilities:
|
|
|
|
Property, plant and equipment
|
$
|
2,320
|
|
|
$
|
1,921
|
|
Investments
|
1,515
|
|
|
1,411
|
|
Other
|
140
|
|
|
82
|
|
Total deferred income tax liabilities
|
3,975
|
|
|
3,414
|
|
Deferred income tax assets:
|
|
|
|
Accrued liabilities
|
747
|
|
|
729
|
|
Minimum tax credit
|
—
|
|
|
29
|
|
Foreign tax credit
|
140
|
|
|
140
|
|
Federal loss carryovers
|
905
|
|
|
544
|
|
State losses and credits
|
445
|
|
|
362
|
|
Other
|
140
|
|
|
147
|
|
Total deferred income tax assets
|
2,377
|
|
|
1,951
|
|
Less valuation allowance
|
325
|
|
|
319
|
|
Net deferred income tax assets
|
2,052
|
|
|
1,632
|
|
Overall net deferred income tax liabilities
|
$
|
1,923
|
|
|
$
|
1,782
|
|
The valuation allowance at December 31, 2020 and 2019 serves to reduce the available deferred income tax assets to an amount that will, more likely than not, be realized. We considered all available positive and negative evidence, which incorporates available tax planning strategies, and management’s estimate of future reversals of existing taxable temporary differences, and have determined that a portion of our deferred income tax assets related to the Foreign tax credit and State losses and credits may not be realized. The amounts presented in the table above are, with respect to state items, before any federal benefit. The change from prior year for the State losses and credits reflects increases in losses and credits generated in the current and prior years less losses and/or credits utilized in the current year. We have loss and credit carryovers in multiple state taxing jurisdictions. These attributes generally expire between 2021 and 2039 with some carryovers having indefinite carryforward periods.
Federal loss carryovers include deferred tax assets on loss carryovers of $905 million which have no expiration date.
Cash refunds for income taxes (net of payments) were $40 million and $86 million in 2020 and 2019, respectively. Cash payments for income taxes (net of refunds) were $11 million in 2018.
As of December 31, 2020, we had approximately $51 million of unrecognized tax benefits. No change occurred to the amount of unrecognized tax benefits in each of the years 2020 and 2019. If recognized, income tax expense would be reduced by $51 million for each of the years 2020 and 2019, including the effect of these changes on other tax attributes, with state income tax amounts included net of federal tax effect.
We recognize related interest and penalties as a component of Provision (benefit) for income taxes. Total interest and penalties recognized as part of income tax provision were a benefit of $900 thousand in 2020 and expenses of $500 thousand and $800 thousand for 2019 and 2018, respectively. Approximately $4 million and $3 million of interest and penalties primarily relating to uncertain tax positions have been accrued as of December 31, 2020 and 2019, respectively.
During the next 12 months, we do not expect ultimate resolution of any unrecognized tax benefit associated with domestic or international matters to have a material impact on our unrecognized tax benefit position.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Consolidated U.S. Federal income tax returns are open to Internal Revenue Service (IRS) examination for years after 2010, excluding 2015 and 2016, for which the statutes have expired. As of December 31, 2020, examinations of tax returns for 2011 through 2014 are currently in appeals. We do not expect material changes in our financial position resulting from these examinations. The statute of limitations for most states expires one year after expiration of the IRS statute. Generally, tax returns for our previously owned Canadian entities are open to audit for tax years after 2012. Tax years 2013 and 2014 are currently under income tax examination. In September 2016, we sold the majority of our Canadian operations and, as part of the sale, indemnified the purchaser for any increases in Canadian tax due to an audit of any tax periods prior to the sale.
Note 9 – Earnings (Loss) Per Common Share from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(Dollars in millions, except per-share
amounts; shares in thousands)
|
Income (loss) from continuing operations available to common stockholders
|
$
|
208
|
|
|
$
|
862
|
|
|
$
|
(156)
|
|
Basic weighted-average shares
|
1,213,631
|
|
|
1,212,037
|
|
|
973,626
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Nonvested restricted stock units
|
1,531
|
|
|
1,811
|
|
|
—
|
|
Stock options
|
3
|
|
|
163
|
|
|
—
|
|
Diluted weighted-average shares (1)
|
1,215,165
|
|
|
1,214,011
|
|
|
973,626
|
|
Earnings (loss) per common share from continuing operations:
|
|
|
|
|
|
Basic
|
$
|
.17
|
|
|
$
|
.71
|
|
|
$
|
(.16)
|
|
Diluted
|
$
|
.17
|
|
|
$
|
.71
|
|
|
$
|
(.16)
|
|
________________
(1) For the year ended December 31, 2018, 2.0 million weighted-average nonvested restricted stock units and 0.5 million weighted-average stock options have been excluded from the computation of diluted earnings (loss) per common share as their inclusion would be antidilutive due to our loss from continuing operations attributable to The Williams Companies, Inc.
Note 10 – Employee Benefit Plans
Pension Plans
We have noncontributory defined benefit pension plans for eligible employees hired prior to January 1, 2019. Eligible employees earn compensation credits based on a cash balance formula. As of January 1, 2020, certain active employees are no longer eligible to receive compensation credits. At the time of retirement, participants may elect, to the extent they are eligible for the various options, to receive annuity payments, a lump-sum payment, or a combination of annuity and lump-sum payments.
We recognized a pre-tax, noncash settlement charge of $23 million in 2018, which is substantially reported in Other income (expense) – net below Operating income (loss) in the Consolidated Statement of Operations. This amount is included within the subsequent tables of net periodic benefit cost (credit) and other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) before taxes.
Other Postretirement Benefits
We currently provide subsidized retiree medical and life insurance benefits to certain eligible participants. Generally, employees hired after December 31, 1991, are not eligible for the subsidized retiree medical benefits, except for participants that were employees or retirees of Transco Energy Company on December 31, 1995. Subsidized retiree medical benefits for eligible participants age 65 and older are paid through contributions to health reimbursement accounts. Subsidized retiree medical benefits for eligible participants under age 65 are provided through a self-insured medical plan sponsored by us. The self-insured retiree medical plan provides for retiree
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
contributions and contains other cost-sharing features such as deductibles, co-payments, and co-insurance. The accounting for this plan anticipates estimated future increases to our contribution levels to the health reimbursement accounts for participants age 65 and older, as well as future cost-sharing that is consistent with our expressed intent to increase the retiree contribution level generally in line with health care cost increases for participants under age 65.
Defined Contribution Plan
We have a defined contribution plan for the benefit of substantially all employees. Plan participants may contribute a portion of their compensation on a pre-tax or after-tax basis. Generally, we match employee contributions up to 6 percent of eligible compensation. Additionally, eligible active employees that are not eligible to receive compensation credits under the defined benefit pension plan are eligible for a fixed annual contribution made by us to the defined contribution plan. Our contributions charged to expense were $42 million in 2020, $36 million in 2019, and $35 million in 2018.
Funded Status
The following table presents the changes in benefit obligations and plan assets for pension benefits and other postretirement benefits for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other
Postretirement
Benefits
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(Millions)
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
1,237
|
|
|
$
|
1,187
|
|
|
$
|
215
|
|
|
$
|
186
|
|
Service cost
|
31
|
|
|
45
|
|
|
1
|
|
|
1
|
|
Interest cost
|
36
|
|
|
50
|
|
|
7
|
|
|
8
|
|
Plan participants’ contributions
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
Benefits paid
|
(41)
|
|
|
(111)
|
|
|
(14)
|
|
|
(12)
|
|
Net actuarial loss (gain)
|
47
|
|
|
69
|
|
|
9
|
|
|
30
|
|
Settlements
|
(127)
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
Net increase (decrease) in benefit obligation
|
(54)
|
|
|
50
|
|
|
5
|
|
|
29
|
|
Benefit obligation at end of year
|
1,183
|
|
|
1,237
|
|
|
220
|
|
|
215
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
1,299
|
|
|
1,132
|
|
|
247
|
|
|
214
|
|
Actual return on plan assets
|
212
|
|
|
218
|
|
|
37
|
|
|
38
|
|
Employer contributions
|
14
|
|
|
63
|
|
|
6
|
|
|
5
|
|
Plan participants’ contributions
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
Benefits paid
|
(41)
|
|
|
(111)
|
|
|
(14)
|
|
|
(12)
|
|
Settlements
|
(127)
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
Net increase (decrease) in fair value of plan assets
|
58
|
|
|
167
|
|
|
31
|
|
|
33
|
|
Fair value of plan assets at end of year
|
1,357
|
|
|
1,299
|
|
|
278
|
|
|
247
|
|
Funded status — overfunded (underfunded)
|
$
|
174
|
|
|
$
|
62
|
|
|
$
|
58
|
|
|
$
|
32
|
|
Accumulated benefit obligation
|
$
|
1,167
|
|
|
$
|
1,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
The overfunded (underfunded) status of our pension plans and other postretirement benefit plan presented in the previous table are recognized in the Consolidated Balance Sheet within the following accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
(Millions)
|
Overfunded (underfunded) pension plans:
|
|
|
|
Noncurrent assets
|
$
|
203
|
|
|
$
|
92
|
|
Current liabilities
|
(3)
|
|
|
(3)
|
|
Noncurrent liabilities
|
(26)
|
|
|
(27)
|
|
|
|
|
|
Overfunded (underfunded) other postretirement benefit plan:
|
|
|
|
Noncurrent assets
|
64
|
|
|
38
|
|
Current liabilities
|
(6)
|
|
|
(6)
|
|
The plan assets within our other postretirement benefit plan are intended to be used for the payment of benefits for certain groups of participants. The Current liabilities for the other postretirement benefit plan represent the current portion of benefits expected to be payable in the subsequent year for the groups of participants whose benefits are not expected to be paid from plan assets.
The pension plans’ benefit obligation Net actuarial loss (gain) of $47 million in 2020 and $69 million in 2019 are primarily due to the impact of decreases in the discount rates utilized to calculate the benefit obligation, partially offset by the impact of decreases in the cash balance interest crediting rate assumption.
The 2020 benefit obligation Net actuarial loss (gain) of $9 million for our other postretirement benefit plan is primarily due to a decrease in the discount rate used to calculate the benefit obligation, partially offset by the net impact of experience related items. The 2019 benefit obligation Net actuarial loss (gain) of $30 million for our other postretirement benefit plan is primarily due to a decrease in the discount rate used to calculate the benefit obligation and other assumption changes, partially offset by the impact of benefit payment experience and tax law changes.
The following table summarizes information for pension plans with obligations in excess of plan assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
(Millions)
|
Plans with a projected benefit obligation in excess of plan assets:
|
|
|
|
Projected benefit obligation
|
$
|
29
|
|
|
$
|
29
|
|
Fair value of plan assets
|
—
|
|
|
—
|
|
|
|
|
|
Plans with an accumulated benefit obligation in excess of plan assets:
|
|
|
|
Accumulated benefit obligation
|
25
|
|
|
26
|
|
Fair value of plan assets
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Pre-tax amounts not yet recognized in Net periodic benefit cost (credit) at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other
Postretirement
Benefits
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(Millions)
|
Amounts included in Accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
Net actuarial loss
|
$
|
(101)
|
|
|
$
|
(243)
|
|
|
$
|
(25)
|
|
|
$
|
(21)
|
|
Amounts included in regulatory liabilities associated with Transco and Northwest Pipeline:
|
|
|
|
|
|
|
|
Net actuarial gain
|
N/A
|
|
N/A
|
|
$
|
32
|
|
|
$
|
11
|
|
In addition to the regulatory liabilities included in the previous table, differences in the amount of actuarially determined Net periodic benefit cost (credit) for our other postretirement benefit plan and the other postretirement benefit costs recovered in rates for Transco and Northwest Pipeline are deferred as a regulatory asset or liability. We have regulatory liabilities of $100 million at December 31, 2020 and $106 million at December 31, 2019, related to these deferrals. Additionally, Transco recognizes a regulatory liability for rate collections in excess of its amount funded to the tax-qualified pension plans. At December 31, 2020 and 2019, these regulatory liabilities were $39 million and $43 million, respectively. These pension and other postretirement plans amounts will be reflected in rates based on the rate structures of these gas pipelines.
Net Periodic Benefit Cost (Credit)
Net periodic benefit cost (credit) for the years ended December 31 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other
Postretirement Benefits
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
(Millions)
|
Components of net periodic benefit cost (credit):
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
31
|
|
|
$
|
45
|
|
|
$
|
50
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
36
|
|
|
50
|
|
|
46
|
|
|
7
|
|
|
8
|
|
|
7
|
|
Expected return on plan assets
|
(53)
|
|
|
(61)
|
|
|
(63)
|
|
|
(11)
|
|
|
(10)
|
|
|
(11)
|
|
Amortization of prior service credit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
Amortization of net actuarial loss
|
21
|
|
|
15
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net actuarial loss from settlements
|
9
|
|
|
1
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Reclassification to regulatory liability
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
1
|
|
|
2
|
|
Net periodic benefit cost (credit)
|
$
|
44
|
|
|
$
|
50
|
|
|
$
|
79
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
(3)
|
|
The components of Net periodic benefit cost (credit) other than the service cost component are included in Other income (expense) – net below Operating income (loss) in the Consolidated Statement of Operations.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Items Recognized in Other Comprehensive Income (Loss) and Regulatory Assets and Liabilities
Other changes in plan assets and benefit obligations recognized in Other comprehensive income (loss) before taxes for the years ended December 31 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other
Postretirement Benefits
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
(Millions)
|
Other changes in plan assets and benefit obligations recognized in Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss)
|
$
|
112
|
|
|
$
|
88
|
|
|
$
|
(18)
|
|
|
$
|
(4)
|
|
|
$
|
(9)
|
|
|
$
|
9
|
|
Amortization of net actuarial loss
|
21
|
|
|
15
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net actuarial loss from settlements
|
9
|
|
|
1
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other changes in plan assets and benefit obligations recognized in Other comprehensive income (loss)
|
$
|
142
|
|
|
$
|
104
|
|
|
$
|
28
|
|
|
$
|
(4)
|
|
|
$
|
(9)
|
|
|
$
|
9
|
|
Other changes in plan assets and benefit obligations for our other postretirement benefit plan associated with Transco and Northwest Pipeline are recognized in regulatory assets and liabilities. Amounts recognized in regulatory assets and liabilities for the years ended December 31 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(Millions)
|
Other changes in plan assets and benefit obligations recognized in regulatory (assets) and liabilities:
|
|
|
|
|
|
|
Net actuarial gain (loss)
|
|
$
|
21
|
|
|
$
|
7
|
|
|
$
|
(10)
|
|
Amortization of prior service credit
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
|
|
|
|
|
|
Key Assumptions
The weighted-average assumptions utilized to determine benefit obligations as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other
Postretirement
Benefits
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Discount rate
|
2.45
|
%
|
|
3.19
|
%
|
|
2.59
|
%
|
|
3.27
|
%
|
Rate of compensation increase
|
3.76
|
|
|
3.68
|
|
|
N/A
|
|
N/A
|
Cash balance interest crediting rate
|
3.00
|
|
|
3.50
|
|
|
N/A
|
|
N/A
|
The weighted-average assumptions utilized to determine Net periodic benefit cost (credit) for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other
Postretirement Benefits
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Discount rate
|
3.08
|
%
|
|
4.33
|
%
|
|
3.67
|
%
|
|
3.27
|
%
|
|
4.39
|
%
|
|
3.71
|
%
|
Expected long-term rate of return on plan assets
|
4.67
|
|
|
5.26
|
|
|
5.34
|
|
|
4.39
|
|
|
5.01
|
|
|
4.95
|
|
Rate of compensation increase
|
3.68
|
|
|
4.83
|
|
|
4.93
|
|
|
N/A
|
|
N/A
|
|
N/A
|
Cash balance interest crediting rate
|
3.50
|
|
|
4.25
|
|
|
4.25
|
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
The mortality assumptions used to determine the benefit obligations for our pension and other postretirement benefit plans reflect generational projection mortality tables.
The assumed health care cost trend rate for 2021 is 7.0 percent. This rate decreases to 4.5 percent by 2027.
Plan Assets
Plan assets for our pension and other postretirement benefit plans consist primarily of equity and fixed income securities including mutual funds and commingled investment funds invested in equity and fixed income securities. The plans’ investment policy provides for a strategy in accordance with the Employee Retirement Income Security Act (ERISA), which governs the investment of the assets in a diversified portfolio. The plans follow a policy of diversifying the investments across various asset classes and investment managers.
The investment policy for the pension plans includes a general target asset allocation at December 31, 2020, of 25 percent equity securities and 75 percent fixed income securities. The target allocation includes the investments in equity and fixed income mutual and commingled investment funds.
Equity securities may include U.S. equities and non-U.S. equities. Investment in Williams’ securities or an entity in which Williams has a majority ownership is prohibited except where these securities may be owned in a commingled investment fund in which the plans’ trusts invest. No more than 5 percent of the total stock portfolio valued at market may be invested in the common stock of any one corporation.
Fixed income securities may consist of U.S. as well as international instruments, including emerging markets. The fixed income strategies may invest in U.S. and sovereign government, corporate, asset-backed securities, and mortgage-backed obligations. The weighted-average credit rating of the fixed income strategies must be at least “investment grade” including ratings by Moody’s and/or Standard & Poor’s. No more than 5 percent of the total fixed income portfolio may be invested in the fixed income securities of any one issuer with the exception of bond index funds and U.S. government guaranteed and agency securities.
The following securities and transactions are not authorized: unregistered securities, commodities or commodity contracts, short sales or margin transactions, or other leveraging strategies. Additionally, real estate equity, natural resource property, venture capital, leveraged buyouts, and other high-return, high-risk investments are generally restricted. Use of derivative securities in mutual funds and commingled investment funds held by the plans’ trusts is allowed. However, direct investment in derivative securities requires approval. Currently, investment managers are approved to enter into U.S. Treasury futures contracts on behalf of the plans to implement and manage duration and yield curve strategy in the fixed income portfolio.
There are no significant concentrations of risk within the plans’ investment securities because of the diversity of the types of investments, diversity of the various industries, and the diversity of the fund managers and investment strategies. Generally, the investments held in the plans are publicly traded, therefore, minimizing liquidity risk in the portfolio.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
The fair values of our pension plan assets at December 31, 2020 and 2019 by asset class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
(Millions)
|
Pension assets:
|
|
|
|
|
|
|
|
Cash management fund
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21
|
|
Equity securities
|
39
|
|
|
22
|
|
|
—
|
|
|
61
|
|
Fixed income securities (1):
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
110
|
|
|
—
|
|
|
—
|
|
|
110
|
|
Government and municipal bonds
|
—
|
|
|
32
|
|
|
—
|
|
|
32
|
|
Mortgage and asset-backed securities
|
—
|
|
|
19
|
|
|
—
|
|
|
19
|
|
Corporate bonds
|
—
|
|
|
342
|
|
|
—
|
|
|
342
|
|
Other
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
$
|
170
|
|
|
$
|
419
|
|
|
$
|
—
|
|
|
589
|
|
Commingled investment funds measured at net asset value practical expedient (2):
|
|
|
|
|
|
|
|
Equities — U.S. large cap
|
|
|
|
|
|
|
137
|
|
Equities — Global large and mid cap
|
|
|
|
|
|
|
121
|
|
Equities — International emerging markets
|
|
|
|
|
|
|
30
|
|
Fixed income — U.S. long and intermediate duration
|
|
|
|
|
|
|
346
|
|
Fixed income — Corporate bonds
|
|
|
|
|
|
|
134
|
|
Total assets at fair value at December 31, 2020
|
|
|
|
|
|
|
$
|
1,357
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
(Millions)
|
Pension assets:
|
|
|
|
|
|
|
|
Cash management fund
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11
|
|
Equity securities
|
41
|
|
|
22
|
|
|
—
|
|
|
63
|
|
Fixed income securities (1):
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
62
|
|
|
—
|
|
|
—
|
|
|
62
|
|
Government and municipal bonds
|
—
|
|
|
35
|
|
|
—
|
|
|
35
|
|
Mortgage and asset-backed securities
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Corporate bonds
|
—
|
|
|
360
|
|
|
—
|
|
|
360
|
|
Other
|
5
|
|
|
4
|
|
|
—
|
|
|
9
|
|
|
$
|
119
|
|
|
$
|
432
|
|
|
$
|
—
|
|
|
551
|
|
Commingled investment funds measured at net asset value practical expedient (2):
|
|
|
|
|
|
|
|
Equities — U.S. large cap
|
|
|
|
|
|
|
133
|
|
Equities — Global large and mid cap
|
|
|
|
|
|
|
100
|
|
Equities — International emerging markets
|
|
|
|
|
|
|
26
|
|
Fixed income — U.S. long and intermediate duration
|
|
|
|
|
|
|
380
|
|
Fixed income — Corporate bonds
|
|
|
|
|
|
|
109
|
|
Total assets at fair value at December 31, 2019
|
|
|
|
|
|
|
$
|
1,299
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
The fair values of our other postretirement benefits plan assets at December 31, 2020 and 2019 by asset class are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
(Millions)
|
Other postretirement benefit assets:
|
|
|
|
|
|
|
|
Cash management funds
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12
|
|
Equity securities
|
38
|
|
|
10
|
|
|
—
|
|
|
48
|
|
Fixed income securities (1):
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
14
|
|
|
—
|
|
|
—
|
|
|
14
|
|
Government and municipal bonds
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Mortgage and asset-backed securities
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Corporate bonds
|
—
|
|
|
45
|
|
|
—
|
|
|
45
|
|
Mutual fund — Municipal bonds
|
52
|
|
|
—
|
|
|
—
|
|
|
52
|
|
|
$
|
116
|
|
|
$
|
62
|
|
|
$
|
—
|
|
|
178
|
|
Commingled investment funds measured at net asset value practical expedient (2):
|
|
|
|
|
|
|
|
Equities — U.S. large cap
|
|
|
|
|
|
|
18
|
|
Equities — Global large and mid cap
|
|
|
|
|
|
|
16
|
|
Equities — International emerging markets
|
|
|
|
|
|
|
4
|
|
Fixed income — U.S. long and intermediate duration
|
|
|
|
|
|
|
45
|
|
Fixed income — Corporate bonds
|
|
|
|
|
|
|
17
|
|
Total assets at fair value at December 31, 2020
|
|
|
|
|
|
|
$
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
(Millions)
|
Other postretirement benefit assets:
|
|
|
|
|
|
|
|
Cash management funds
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11
|
|
Equity securities
|
35
|
|
|
9
|
|
|
—
|
|
|
44
|
|
Fixed income securities (1):
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
Government and municipal bonds
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Mortgage and asset-backed securities
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Corporate bonds
|
—
|
|
|
43
|
|
|
—
|
|
|
43
|
|
Mutual fund — Municipal bonds
|
46
|
|
|
—
|
|
|
—
|
|
|
46
|
|
|
$
|
100
|
|
|
$
|
57
|
|
|
$
|
—
|
|
|
157
|
|
Commingled investment funds measured at net asset value practical expedient (2):
|
|
|
|
|
|
|
|
Equities — U.S. large cap
|
|
|
|
|
|
|
16
|
|
Equities — Global large and mid cap
|
|
|
|
|
|
|
12
|
|
Equities — International emerging markets
|
|
|
|
|
|
|
3
|
|
Fixed income — U.S. long and intermediate duration
|
|
|
|
|
|
|
46
|
|
Fixed income — Corporate bonds
|
|
|
|
|
|
|
13
|
|
Total assets at fair value at December 31, 2019
|
|
|
|
|
|
|
$
|
247
|
|
____________
(1)The weighted-average credit quality rating of the fixed income security portfolio is investment grade with a weighted-average duration of approximately 16 years for 2020 and 14 years for 2019.
(2) The stated intents of the funds vary based on each commingled fund’s investment objective. These objectives generally include strategies to replicate or outperform various market indices. Certain standard withdrawal restrictions generally apply, which may include redemption notification period restrictions ranging from 1 day to 30 days. Additionally, the fund managers retain the right to restrict withdrawals from and/or purchases into the funds so as not to disadvantage other investors in the funds. Generally, the funds also reserve the right to make all or a portion of the redemption in-kind rather than in cash or a combination of cash and in-kind.
The fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement of an asset.
Shares of the cash management and mutual funds are valued at fair value based on published market prices as of the close of business on the last business day of the year, which represents the net asset values of the shares held.
The fair values of equity securities traded on U.S. exchanges are derived from quoted market prices as of the close of business on the last business day of the year. The fair values of equity securities traded on foreign exchanges are also derived from quoted market prices as of the close of business on an active foreign exchange on the last business day of the year. However, the valuation requires translation of the foreign currency to U.S. dollars and this translation is considered an observable input to the valuation.
The fair values of all commingled investment funds are determined based on the net asset values per unit of each of the funds. The net asset values per unit represent the aggregate values of the funds’ assets at fair value less liabilities, divided by the number of units outstanding.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
The fair values of fixed income securities, except U.S. Treasury securities, are determined using pricing models. These pricing models incorporate observable inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads for similar securities to determine fair value. The U.S. Treasury securities are valued at fair value based on closing prices on the last business day of the year reported in the active market in which the security is traded.
Plan Benefit Payments and Employer Contributions
Following are the expected benefits to be paid by the plans. These estimates are based on the same assumptions previously discussed and reflect future service as appropriate. The actuarial assumptions are based on long-term expectations and include, but are not limited to, assumptions as to average expected retirement age and form of benefit payment. Actual benefit payments could differ significantly from expected benefit payments if near-term participant behaviors differ significantly from the actuarial assumptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
Other
Postretirement
Benefits
|
|
(Millions)
|
2021
|
$
|
96
|
|
|
$
|
14
|
|
2022
|
91
|
|
|
14
|
|
2023
|
86
|
|
|
14
|
|
2024
|
82
|
|
|
13
|
|
2025
|
82
|
|
|
13
|
|
2026-2030
|
378
|
|
|
57
|
|
In 2021, we do not expect to contribute to our tax-qualified pension plans. We expect to contribute approximately $2 million to our nonqualified pension plans and approximately $6 million to our other postretirement benefit plan.
Note 11 – Property, Plant, and Equipment
The following table presents nonregulated and regulated Property, plant, and equipment – net as presented on the Consolidated Balance Sheet for the years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Useful Life (1)
(Years)
|
|
Depreciation
Rates (1)
(%)
|
|
December 31,
|
2020
|
|
2019
|
|
|
|
|
|
(Millions)
|
Nonregulated:
|
|
|
|
|
|
|
|
Natural gas gathering and processing facilities
|
5 - 40
|
|
|
|
$
|
17,813
|
|
|
$
|
17,593
|
|
Construction in progress
|
Not applicable
|
|
|
|
289
|
|
|
354
|
|
Other
|
2 - 45
|
|
|
|
2,658
|
|
|
2,519
|
|
Regulated:
|
|
|
|
|
|
|
|
Natural gas transmission facilities
|
|
|
1.25 - 7.13
|
|
18,688
|
|
|
18,076
|
|
Construction in progress
|
Not applicable
|
|
Not applicable
|
|
382
|
|
|
586
|
|
Other
|
5 - 45
|
|
0.00 - 33.33
|
|
2,659
|
|
|
2,382
|
|
Total property, plant, and equipment, at cost
|
|
|
|
|
42,489
|
|
|
41,510
|
|
Accumulated depreciation and amortization
|
|
|
|
|
(13,560)
|
|
|
(12,310)
|
|
Property, plant, and equipment — net
|
|
|
|
|
$
|
28,929
|
|
|
$
|
29,200
|
|
__________
(1) Estimated useful life and depreciation rates are presented as of December 31, 2020. Depreciation rates and estimated useful lives for regulated assets are prescribed by the FERC.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Depreciation and amortization expense for Property, plant, and equipment – net was $1.393 billion, $1.390 billion, and $1.392 billion in 2020, 2019, and 2018, respectively.
Regulated Property, plant, and equipment – net includes approximately $507 million and $547 million at December 31, 2020 and 2019, respectively, related to amounts in excess of the original cost of the regulated facilities within our gas pipeline businesses as a result of our prior acquisitions. This amount is being amortized over 40 years using the straight-line amortization method. Current FERC policy does not permit recovery through rates for amounts in excess of original cost of construction.
Asset Retirement Obligations
Our accrued obligations primarily relate to offshore platforms and pipelines, gas transmission pipelines and facilities, gas processing, fractionation, and compression facilities, gas gathering well connections and pipelines, underground storage caverns, and producing wells. At the end of the useful life of each respective asset, we are legally obligated to dismantle offshore platforms and appropriately abandon offshore pipelines, to remove certain components of gas transmission facilities from the ground, to restore land and remove surface equipment at gas processing, fractionation, and compression facilities, to cap certain gathering pipelines at the wellhead connection and remove any related surface equipment, to plug storage caverns and remove any related surface equipment, and to plug producing wells and remove any related surface equipment.
The following table presents the significant changes to our ARO, of which $1.159 billion and $1.117 billion are included in Regulatory liabilities, deferred income, and other with the remaining current portion in Accrued liabilities at December 31, 2020 and 2019, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
(Millions)
|
Balance at beginning of year
|
$
|
1,165
|
|
|
$
|
1,032
|
|
Liabilities incurred (1)
|
37
|
|
|
15
|
|
Liabilities settled
|
(19)
|
|
|
(8)
|
|
Accretion expense
|
65
|
|
|
59
|
|
Revisions (2)
|
(26)
|
|
|
67
|
|
Balance at end of year
|
$
|
1,222
|
|
|
$
|
1,165
|
|
___________
(1)As a result of the global resolution with Chesapeake in 2020, we recorded $31 million of ARO related to natural gas properties transferred to us. (See Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies.)
(2)Several factors are considered in the annual review process, including inflation rates, current estimates for removal cost, market risk premiums, discount rates, and the estimated remaining useful life of the assets. The 2020 revisions reflect changes in removal cost estimates, increases in the estimated remaining useful life of certain assets, decreases in inflation rates, and decreases in the discount rates used in the annual review process. The 2019 revisions reflect changes in removal cost estimates, decreases in the estimated remaining useful life of certain assets, increases in inflation rates, and decreases in the discount rates used in the annual review process.
The funds Transco collects through a portion of its rates to fund its ARO are deposited into an external trust account dedicated to funding its ARO (ARO Trust). (See Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk.) Under its current rate settlement, Transco’s annual funding obligation is approximately $16 million, with installments to be deposited monthly.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Note 12 – Goodwill and Other Intangible Assets
Goodwill
Changes in the carrying amount of goodwill, included in Intangible assets – net of accumulated amortization in the Consolidated Balance Sheet, by reportable segment for the periods indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast G&P
|
|
|
|
|
|
(Millions)
|
December 31, 2018
|
$
|
—
|
|
|
|
|
|
UEOM Acquisition (Note 3)
|
188
|
|
|
|
|
|
December 31, 2019
|
188
|
|
|
|
|
|
Impairment of goodwill (Note 18)
|
(187)
|
|
|
|
|
|
Other (Note 3)
|
(1)
|
|
|
|
|
|
December 31, 2020
|
$
|
—
|
|
|
|
|
|
Goodwill is not subject to amortization, but is evaluated at least annually for impairment or more frequently if impairment indicators are present. We did not identify or recognize any impairments to goodwill in connection with our evaluation of goodwill for impairment during the years ended December 31, 2019, and 2018, respectively.
Other Intangible Assets
The gross carrying amount and accumulated amortization of other intangible assets, included in Intangible assets – net of accumulated amortization in the Consolidated Balance Sheet, at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
(Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets
|
$
|
9,561
|
|
|
$
|
(2,117)
|
|
|
$
|
9,560
|
|
|
$
|
(1,789)
|
|
Other intangible assets primarily relate to gas gathering, processing, and fractionation contractual customer relationships recognized in acquisitions. Contractual customer relationships are being amortized on a straight-line basis over a period of 20 years for the acquisition of UEOM and 30 years for other acquisitions, which represents a portion of the term over which the contractual customer relationships are expected to contribute to our cash flows.
We expense costs incurred to renew or extend the terms of our gas gathering, processing, and fractionation contracts with customers. Based on the estimated future revenues during the contract periods (as estimated at the time of the acquisition), the weighted-average period prior to the next renewal or extension of the contractual customer relationships associated with the UEOM acquisition was approximately 10 years. Although a significant portion of the expected future cash flows associated with these contractual customer relationships are dependent on our ability to renew or extend the arrangements beyond the initial contract periods, these expected future cash flows are significantly influenced by the scope and pace of our producer customers’ drilling programs. Once producer customers’ wells are connected to our gathering infrastructure, their likelihood of switching to another provider before the wells are abandoned is reduced due to the significant capital investment required.
The amortization expense related to other intangible assets was $328 million, $324 million, and $333 million in 2020, 2019, and 2018, respectively. The estimated amortization expense for each of the next five succeeding fiscal years is approximately $328 million.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Note 13 – Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
(Millions)
|
Interest on debt
|
$
|
271
|
|
|
$
|
288
|
|
Employee costs
|
149
|
|
|
226
|
|
Estimated rate refund liabilities
|
—
|
|
|
189
|
|
Contract liabilities (Note 5)
|
129
|
|
|
158
|
|
Asset retirement obligation (Note 11)
|
63
|
|
|
48
|
|
Operating lease liabilities (Note 15)
|
28
|
|
|
21
|
|
Other, including accrued loss contingencies
|
304
|
|
|
346
|
|
|
$
|
944
|
|
|
$
|
1,276
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Note 14 – Debt and Banking Arrangements
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
(Millions)
|
Transco:
|
|
|
|
7.08% Debentures due 2026
|
$
|
8
|
|
|
$
|
8
|
|
7.25% Debentures due 2026
|
200
|
|
|
200
|
|
7.85% Notes due 2026
|
1,000
|
|
|
1,000
|
|
4% Notes due 2028
|
400
|
|
|
400
|
|
3.25% Notes due 2030
|
700
|
|
|
—
|
|
5.4% Notes due 2041
|
375
|
|
|
375
|
|
4.45% Notes due 2042
|
400
|
|
|
400
|
|
4.6% Notes due 2048
|
600
|
|
|
600
|
|
3.95% Notes due 2050
|
500
|
|
|
—
|
|
Other financing obligation - Atlantic Sunrise
|
847
|
|
|
857
|
|
Other financing obligation - Dalton
|
257
|
|
|
259
|
|
Northwest Pipeline:
|
|
|
|
7.125% Debentures due 2025
|
85
|
|
|
85
|
|
4% Notes due 2027
|
500
|
|
|
500
|
|
Williams:
|
|
|
|
4.125% Notes due 2020
|
—
|
|
|
600
|
|
5.25% Notes due 2020
|
—
|
|
|
1,500
|
|
4% Notes due 2021
|
500
|
|
|
500
|
|
7.875% Notes due 2021
|
371
|
|
|
371
|
|
3.35% Notes due 2022
|
750
|
|
|
750
|
|
3.6% Notes due 2022
|
1,250
|
|
|
1,250
|
|
3.7% Notes due 2023
|
850
|
|
|
850
|
|
4.5% Notes due 2023
|
600
|
|
|
600
|
|
4.3% Notes due 2024
|
1,000
|
|
|
1,000
|
|
4.55% Notes due 2024
|
1,250
|
|
|
1,250
|
|
3.9% Notes due 2025
|
750
|
|
|
750
|
|
4% Notes due 2025
|
750
|
|
|
750
|
|
3.75% Notes due 2027
|
1,450
|
|
|
1,450
|
|
3.5% Notes due 2030
|
1,000
|
|
|
—
|
|
7.5% Debentures due 2031
|
339
|
|
|
339
|
|
7.75% Notes due 2031
|
252
|
|
|
252
|
|
8.75% Notes due 2032
|
445
|
|
|
445
|
|
6.3% Notes due 2040
|
1,250
|
|
|
1,250
|
|
5.8% Notes due 2043
|
400
|
|
|
400
|
|
5.4% Notes due 2044
|
500
|
|
|
500
|
|
5.75% Notes due 2044
|
650
|
|
|
650
|
|
4.9% Notes due 2045
|
500
|
|
|
500
|
|
5.1% Notes due 2045
|
1,000
|
|
|
1,000
|
|
4.85% Notes due 2048
|
800
|
|
|
800
|
|
Various — 7.7% to 10.25% Notes and Debentures due 2020 to 2027
|
3
|
|
|
24
|
|
Credit facility loans
|
—
|
|
|
—
|
|
Unamortized debt issuance costs
|
(125)
|
|
|
(119)
|
|
Net unamortized debt premium (discount)
|
(63)
|
|
|
(58)
|
|
Total long-term debt, including current portion
|
22,344
|
|
|
22,288
|
|
Long-term debt due within one year
|
(893)
|
|
|
(2,140)
|
|
Long-term debt
|
$
|
21,451
|
|
|
$
|
20,148
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Certain of our debt agreements contain covenants that restrict or limit, among other things, our ability to create liens supporting indebtedness, sell assets, and incur additional debt. Default of these agreements could also restrict our ability to make certain distributions or repurchase equity.
The following table presents aggregate minimum maturities of long-term debt and other financing obligations, excluding net unamortized debt premium (discount) and debt issuance costs, for each of the next five years:
|
|
|
|
|
|
|
December 31, 2020
|
|
(Millions)
|
2021
|
$
|
894
|
|
2022
|
2,025
|
|
2023
|
1,477
|
|
2024
|
2,280
|
|
2025
|
1,617
|
|
Issuances and retirements
On August 17, 2020, we retired $600 million of 4.125 percent senior unsecured notes that were due November 15, 2020.
On May 14, 2020, we completed a public offering of $1 billion of 3.5 percent senior unsecured notes due 2030.
On May 8, 2020, Transco issued $700 million of 3.25 percent senior unsecured notes due 2030 and $500 million of 3.95 percent senior unsecured notes due 2050 to investors in a private debt placement. As part of the issuance, Transco entered into a registration rights agreement with the initial purchasers of the unsecured notes. Under the terms of the agreement, Transco was obligated to file and consummate a registration statement for an offer to exchange the notes for a new issue of substantially identical notes registered under the Securities Act of 1933, as amended, within 365 days from closing and to use commercially reasonable efforts to complete the exchange offer. In the fourth quarter of 2020, Transco filed the registration statement and completed the exchange offer.
We retired $1.5 billion of 5.25 percent senior unsecured notes that matured on March 15, 2020.
We retired $14 million of 8.75 percent senior unsecured notes that matured on January 15, 2020.
We retired $32 million of 7.625 percent senior unsecured notes that matured on July 15, 2019.
Other financing obligations
During the construction of the Atlantic Sunrise and Dalton projects, Transco received funding from its partners for their proportionate share of construction costs. Amounts received were recorded within noncurrent liabilities and the costs associated with construction were capitalized in the Consolidated Balance Sheet. Upon placing these projects into service Transco began utilizing the partners’ undivided interest in the assets, including the associated pipeline capacity, and reclassified the funding previously received from its partners from noncurrent liabilities to debt. The obligations, which mature in 2038 and 2052, respectively, require monthly interest and principal payments and both bear an interest rate of approximately 9 percent.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Credit Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Stated Capacity
|
|
Outstanding
|
|
(Millions)
|
Long-term credit facility (1)
|
$
|
4,500
|
|
|
$
|
—
|
|
Letters of credit under certain bilateral bank agreements
|
|
|
15
|
|
________________
(1) In managing our available liquidity, we do not expect a maximum outstanding amount in excess of the capacity of our credit facility inclusive of any outstanding amounts under our commercial paper program.
Revolving credit facility
In 2018, we along with Transco and Northwest Pipeline, the lenders named therein, and an administrative agent entered into a credit agreement (Credit Agreement) with aggregate commitments available of $4.5 billion, with up to an additional $500 million increase in aggregate commitments available under certain circumstances. The maturity date of the credit facility is August 10, 2023. However, the co-borrowers may request up to two extensions of the maturity date each for an additional one-year period to allow a maturity date as late as August 10, 2025, under certain circumstances. The Credit Agreement allows for swing line loans up to an aggregate of $200 million, subject to available capacity under the credit facility, and letters of credit commitments of $1 billion. Transco and Northwest Pipeline are each able to borrow up to $500 million under this credit facility to the extent not otherwise utilized by the other co-borrowers.
The Credit Agreement contains the following terms and conditions:
•Various covenants may limit, among other things, a borrower’s and its material subsidiaries’ ability to grant certain liens supporting indebtedness, merge or consolidate, sell all or substantially all of its assets, make certain distributions during an event of default, and enter into certain restrictive agreements.
•If an event of default with respect to a borrower occurs under the credit facility, the lenders will be able to terminate the commitments and accelerate the maturity of the loans and exercise other rights and remedies.
•Other than swing line loans, each time funds are borrowed, the applicable borrower may choose from two methods of calculating interest: a fluctuating base rate equal to Citibank N.A.'s alternate base rate plus an applicable margin or a periodic fixed rate equal to the London Interbank Offered Rate plus an applicable margin. We are required to pay a commitment fee based on the unused portion of the credit facility. The applicable margin and the commitment fee are determined by reference to a pricing schedule based on the applicable borrower’s senior unsecured long-term debt ratings.
Significant financial covenants under the Credit Agreement require the ratio of debt to EBITDA (earnings before interest, taxes, depreciation, and amortization), each as defined in the credit facility, to be no greater than 5.0 to 1, except for the fiscal quarter and the two following fiscal quarters in which one or more acquisitions with a total aggregate purchase price of $25 million or more has been executed, in which case the ratio of debt to EBITDA is to be no greater than 5.5 to 1.
The ratio of debt to capitalization (defined as net worth plus debt) must be no greater than 65 percent for each of Transco and Northwest Pipeline.
At December 31, 2020, we are in compliance with these covenants.
Commercial Paper Program
In 2018, we entered into a $4 billion commercial paper program. The maturities of the commercial paper notes vary but may not exceed 397 days from the date of issuance. The commercial paper notes are sold under customary
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
terms in the commercial paper market and are issued at a discount from par, or, alternatively, are sold at par and bear varying interest rates on a fixed or floating basis. The net proceeds of issuances of the commercial paper notes are expected to be used to fund planned capital expenditures and for other general corporate purposes. At December 31, 2020 and 2019, no commercial paper was outstanding.
Cash Payments for Interest (Net of Amounts Capitalized)
Cash payments for interest (net of amounts capitalized) were $1.149 billion in 2020, $1.153 billion in 2019, and $1.064 billion in 2018.
Note 15 – Leases
We are a lessee through noncancellable lease agreements for property and equipment consisting primarily of buildings, land, vehicles, and equipment used in both our operations and administrative functions.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
(Millions)
|
Lease Cost:
|
|
|
|
Operating lease cost
|
$
|
37
|
|
|
$
|
40
|
|
|
|
|
|
Variable lease cost
|
19
|
|
|
27
|
|
Sublease income
|
(1)
|
|
|
(2)
|
|
Total lease cost
|
$
|
55
|
|
|
$
|
65
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
$
|
30
|
|
|
$
|
39
|
|
|
December 31,
|
|
2020
|
|
2019
|
|
(Millions)
|
Other Information:
|
|
|
|
Right-of-use asset (included in Regulatory assets, deferred charges, and other in the Consolidated Balance Sheet)
|
$
|
182
|
|
|
$
|
207
|
|
Operating lease liabilities:
|
|
|
|
Current (included in Accrued liabilities in the Consolidated Balance Sheet)
|
$
|
28
|
|
|
$
|
21
|
|
Noncurrent (included in Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet)
|
$
|
161
|
|
|
$
|
188
|
|
Weighted-average remaining lease term – operating leases (years)
|
13
|
|
13
|
Weighted-average discount rate – operating leases
|
4.60%
|
|
4.61%
|
Prior to adopting ASU 2016-02 “Leases (Topic 842)”, which was effective January 1, 2019, total rent expense was $73 million in 2018 and primarily included in Operating and maintenance expenses and Selling, general, and administrative expenses in the Consolidated Statement of Operations.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
As of December 31, 2020, the following table represents our operating lease maturities, including renewal provisions that we have assessed as being reasonably certain of exercise, for each of the years ended December 31:
|
|
|
|
|
|
|
(Millions)
|
2021
|
$
|
34
|
|
2022
|
28
|
|
2023
|
23
|
|
2024
|
19
|
|
2025
|
17
|
|
Thereafter
|
140
|
|
Total future lease payments
|
261
|
|
Less amount representing interest
|
72
|
|
Total obligations under operating leases
|
$
|
189
|
|
We are the lessor to certain lease agreements for office space in our headquarters building, which are insignificant to our financial statements.
Note 16 – Stockholders' Equity
On January 26, 2021, our board of directors approved a regular quarterly dividend to common stockholders of $0.41 per share payable on March 29, 2021.
Stockholder Rights Agreement
On March 19, 2020, our board of directors approved the adoption of a limited duration stockholder rights agreements (Rights Agreement) and declared a distribution of one preferred stock purchase right for each outstanding share of common stock. The Rights Agreement is intended to protect the interests of us and our stockholders by reducing the likelihood of another party gaining control of or significant influence over us without paying an appropriate premium considering recent volatile markets. Each preferred stock purchase right represents the right to purchase, upon certain terms and conditions, one one-thousandths (.001) of a share of Series C Participating Cumulative Preferred Stock, $1.00 par value per share. Each one-thousandth (.001) of a share of Series C Participating Cumulative Preferred Stock, if issued, would have rights similar to one share of our common stock. The distribution of preferred stock purchase rights occurred on March 30, 2020, to holders of record as of the close of business on that date. The Rights Agreement expires on March 20, 2021. Please see our Current Report on Form 8-K dated March 20, 2020, for additional details of the Rights Agreement.
On August 27, 2020, a purported shareholder filed a putative class action lawsuit in the Delaware Court of Chancery challenging the Rights Agreement. The plaintiff alleges that the individual members of our board of directors breached their fiduciary duties by adopting the Rights Agreement. On September 3, 2020, a purported shareholder filed a separate putative class action lawsuit in the Delaware Court of Chancery, asserting identical claims to the August 27, 2020, lawsuit. Both complaints seek declaratory relief, an injunction against the agreement, and an award of attorneys’ fees and costs, which are not expected to be material. The court consolidated the lawsuits. The trial occurred January 12 through January 14, 2021, and we are awaiting the court’s decision.
Issuance of Preferred Stock
In July 2018, through a wholly owned subsidiary, we contributed 35,000 shares of newly issued Series B Non-Voting Perpetual Preferred Stock (Preferred Stock) to The Williams Companies Foundation, Inc. (a not-for-profit corporation) for use in future charitable and nonprofit causes. The charitable contribution of Preferred Stock was recorded as an expense in the third quarter of 2018. The Preferred Stock was issued for an aggregate value of $35 million and pays non-cumulative quarterly cash dividends when, as and if declared, at a rate of 7.25 percent per year. Our certificate of incorporation authorizes 30 million shares of Preferred Stock, $1 par value per share.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
AOCI
The following table presents the changes in AOCI by component, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow
Hedges
|
|
Foreign
Currency
Translation
|
|
Pension and
Other Post
Retirement
Benefits
|
|
Total
|
|
(Millions)
|
Balance at December 31, 2019
|
$
|
(2)
|
|
|
$
|
(1)
|
|
|
$
|
(196)
|
|
|
$
|
(199)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
(2)
|
|
|
—
|
|
|
81
|
|
|
79
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
1
|
|
|
—
|
|
|
23
|
|
|
24
|
|
Other comprehensive income (loss)
|
(1)
|
|
|
—
|
|
|
104
|
|
|
103
|
|
Balance at December 31, 2020
|
$
|
(3)
|
|
|
$
|
(1)
|
|
|
$
|
(92)
|
|
|
$
|
(96)
|
|
Reclassifications out of AOCI are presented in the following table by component for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Component
|
|
Reclassifications
|
|
Classification
|
|
|
(Millions)
|
|
|
Cash flow hedges:
|
|
|
|
|
Energy commodity contracts
|
|
$
|
1
|
|
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefits:
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial (gain) loss and net actuarial loss from settlements included in net periodic benefit cost (credit)
|
|
30
|
|
|
Other income (expense) – net below Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
(7)
|
|
|
Provision (benefit) for income taxes
|
|
|
|
|
|
|
|
|
|
|
Reclassifications during the period
|
|
$
|
24
|
|
|
|
Note 17 – Equity-Based Compensation
Williams’ Plan Information
The Williams Companies, Inc. 2007 Incentive Plan (the Plan) provides common-stock-based awards to both employees and nonmanagement directors. To date, 50 million new shares have been authorized for making awards under the Plan, including 10 million shares added on April 28, 2020. The Plan permits the granting of various types of awards including, but not limited to, restricted stock units and stock options. At December 31, 2020, 31 million shares of our common stock were reserved for issuance pursuant to existing and future stock awards, of which 19 million shares were available for future grants.
Additionally, up to 5.2 million new shares of our common stock have been authorized to date to be available for sale under our Employee Stock Purchase Plan (ESPP), including 1.6 million shares added on April 28, 2020. Employees purchased 347 thousand shares at a weighted-average price of $16.07 per share during 2020. Approximately 1.7 million shares were available for purchase under the ESPP at December 31, 2020.
Operating and maintenance expenses and Selling, general, and administrative expenses in the Consolidated Statement of Operations include equity-based compensation expense for the years ended December 31, 2020, 2019, and 2018 of $52 million, $57 million, and $54 million, respectively. Income tax benefit recognized related to the stock-based compensation expense for the years ended December 31, 2020, 2019, and 2018 was $13 million, $14 million, and $14 million, respectively. Measured but unrecognized stock-based compensation expense at December 31, 2020, was $57 million, substantially all of which related to restricted stock units. These amounts are expected to be recognized over a weighted-average period of 1.7 years.
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Nonvested Restricted Stock Units
The following summary reflects nonvested restricted stock unit activity and related information for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units Outstanding
|
Shares
|
|
Weighted-
Average
Fair Value (1)
|
|
(Millions)
|
|
|
Nonvested at December 31, 2019
|
5.4
|
|
|
$
|
28.11
|
|
Granted
|
2.8
|
|
|
$
|
18.32
|
|
Forfeited
|
(0.5)
|
|
|
$
|
27.90
|
|
Vested
|
(1.5)
|
|
|
$
|
29.04
|
|
Nonvested at December 31, 2020
|
6.2
|
|
|
$
|
23.53
|
|
______________
(1)Performance-based restricted stock units are valued considering measures of total shareholder return utilizing a Monte Carlo valuation method, as well as return on capital employed and a ratio of debt to EBITDA. All other restricted stock units are valued at the grant-date market price. Restricted stock units generally vest after three years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Restricted Stock Units
|
2020
|
|
2019
|
|
2018
|
Weighted-average grant date fair value of restricted stock units granted during the year, per share
|
$
|
18.32
|
|
|
$
|
25.87
|
|
|
$
|
30.48
|
|
Total fair value of restricted stock units vested during the year (in millions)
|
$
|
43
|
|
|
$
|
29
|
|
|
$
|
35
|
|
Performance-based restricted stock units granted under the Plan represent 41 percent of nonvested restricted stock units outstanding at December 31, 2020. These grants may be earned at the end of the vesting period based on actual performance against a performance target. Based on the extent to which certain financial targets are achieved, vested shares may range from zero percent to 200 percent of the original grant amount.
Stock Options
The following summary reflects stock option activity and related information for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
|
|
(Millions)
|
|
|
|
(Millions)
|
Outstanding at December 31, 2019
|
6.8
|
|
|
$
|
32.64
|
|
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
|
Exercised
|
(0.3)
|
|
|
$
|
17.28
|
|
|
|
Cancelled
|
(0.5)
|
|
|
$
|
34.04
|
|
|
|
Outstanding at December 31, 2020
|
6.0
|
|
|
$
|
33.18
|
|
|
$
|
—
|
|
Exercisable at December 31, 2020
|
5.7
|
|
|
$
|
33.41
|
|
|
$
|
—
|
|
The following table summarizes additional information related to stock option activity during each of the last three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(Millions)
|
Total intrinsic value of options exercised
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
3
|
|
Tax benefits realized on options exercised
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
Cash received from the exercise of options
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
The weighted-average remaining contractual lives for stock options outstanding and exercisable at December 31, 2020, were 3.5 years and 3.3 years, respectively.
The estimated fair value at date of grant of options for our common stock granted in each respective year, using the Black-Scholes option pricing model, is as follows:
|
|
|
|
|
|
|
2018
|
Weighted-average grant date fair value of options for our common stock granted during the year, per share
|
$
|
5.49
|
|
Weighted-average assumptions:
|
|
Dividend yield
|
4.7
|
%
|
Volatility
|
30.1
|
%
|
Risk-free interest rate
|
2.7
|
%
|
Expected life (years)
|
6.0
|
There were no stock options granted in 2020 or 2019. The expected dividend yield for each respective year is based on the dividend forecast for that year and the grant-date market price of our stock. Our expected future volatility is determined using the historical volatility of our stock and implied volatility on our traded options. Historical volatility is based on the blended 10-year historical volatility of our stock and certain peer companies. The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option is based on historical exercise behavior and expected future experience.
Note 18 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk
The following table presents, by level within the fair value hierarchy, certain of our significant financial assets and liabilities. The carrying values of cash and cash equivalents, accounts receivable, margin deposits, and accounts payable approximate fair value because of the short-term nature of these instruments. Therefore, these assets and liabilities are not presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Quoted
Prices In
Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(Millions)
|
Assets (liabilities) at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
Measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
ARO Trust investments
|
$
|
235
|
|
|
$
|
235
|
|
|
$
|
235
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current portion
|
(22,344)
|
|
|
(27,043)
|
|
|
—
|
|
|
(27,043)
|
|
|
—
|
|
Guarantees
|
(40)
|
|
|
(27)
|
|
|
—
|
|
|
(11)
|
|
|
(16)
|
|
|
|
|
|
|
|
|
|
|
|
Assets (liabilities) at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
Measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
ARO Trust investments
|
$
|
201
|
|
|
$
|
201
|
|
|
$
|
201
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current portion
|
(22,288)
|
|
|
(25,319)
|
|
|
—
|
|
|
(25,319)
|
|
|
—
|
|
Guarantees
|
(41)
|
|
|
(27)
|
|
|
—
|
|
|
(11)
|
|
|
(16)
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
Fair Value Methods
We use the following methods and assumptions in estimating the fair value of our financial instruments:
Assets measured at fair value on a recurring basis
ARO Trust investments: Transco deposits a portion of its collected rates, pursuant to its rate case settlement, into an external trust that is specifically designated to fund future ARO’s. The ARO Trust invests in a portfolio of actively traded mutual funds that are measured at fair value on a recurring basis based on quoted prices in an active market and is reported in Regulatory assets, deferred charges, and other in the Consolidated Balance Sheet. Both realized and unrealized gains and losses are ultimately recorded as regulatory assets or liabilities.
Additional fair value disclosures
Long-term debt, including current portion: The disclosed fair value of our long-term debt is determined primarily by a market approach using broker quoted indicative period-end bond prices. The quoted prices are based on observable transactions in less active markets for our debt or similar instruments. The fair values of the financing obligations associated with our Dalton lateral and Atlantic Sunrise projects, which are included within long-term debt, were determined using an income approach (see Note 14 – Debt and Banking Arrangements).
Guarantees: Guarantees primarily consist of a guarantee we have provided in the event of nonpayment by our previously owned communications subsidiary, Williams Communications Group (WilTel), on a lease performance obligation that extends through 2042. Guarantees also include an indemnification related to a disposed operation.
To estimate the fair value of the WilTel guarantee, an estimated default rate is applied to the sum of the future contractual lease payments using an income approach. The estimated default rate is determined by obtaining the average cumulative issuer-weighted corporate default rate based on the credit rating of WilTel’s current owner and the term of the underlying obligation. The default rate is published by Moody’s Investors Service. The carrying value of the WilTel guarantee is reported in Accrued liabilities in the Consolidated Balance Sheet. The maximum potential undiscounted exposure is approximately $27 million at December 31, 2020. Our exposure declines systematically through the remaining term of WilTel’s obligation.
The fair value of the guarantee associated with the indemnification related to a disposed operation was estimated using an income approach that considered probability-weighted scenarios of potential levels of future performance. The terms of the indemnification do not limit the maximum potential future payments associated with the guarantee. The carrying value of this guarantee is reported in Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet.
We are required by our revolving credit agreement to indemnify lenders for certain taxes required to be withheld from payments due to the lenders and for certain tax payments made by the lenders. The maximum potential amount of future payments under these indemnifications is based on the related borrowings and such future payments cannot currently be determined. These indemnifications generally continue indefinitely unless limited by the underlying tax regulations and have no carrying value. We have never been called upon to perform under these indemnifications and have no current expectation of a future claim.
Nonrecurring fair value measurements
During the first quarter of 2020, we observed a significant decline in the publicly traded price of our common stock (NYSE: WMB), which declined 40 percent during the quarter, including a 26 percent decline in the month of March. These changes were generally attributed to macroeconomic and geopolitical conditions, including significant declines in crude oil prices driven by both surplus supply and a decrease in demand caused by the coronavirus (COVID-19) pandemic. As a result of these conditions, we performed an interim assessment of the goodwill
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
associated with our Northeast G&P reporting unit as of March 31, 2020. This goodwill resulted from the March 2019 acquisition of UEOM (see Note 3 – Acquisitions and Divestitures).
The assessment considered the total fair value of the businesses within the Northeast G&P reporting unit, which was determined using income and market approaches. We utilized internally developed industry weighted-average discount rates and estimates of valuation multiples of comparable publicly traded gathering and processing companies. In assessing the fair value as of the March 31, 2020, measurement date, we were required to consider recent publicly available indications of value, which included lower observed publicly traded EBITDA market multiples as compared with recent history and significantly higher industry weighted-average discount rates. The fair value of the reporting unit was further reconciled to our estimated total enterprise value as of March 31, 2020, which considered observable valuation multiples of comparable publicly traded companies applied to each distinct business including the Northeast G&P reporting unit. This assessment indicated that the estimated fair value of the Northeast G&P reporting unit was below its carrying value, including goodwill. As a result of this Level 3 measurement, we recognized a full impairment charge of $187 million as of March 31, 2020, in Impairment of goodwill in the Consolidated Statement of Operations. Our partner’s $65 million share of this impairment is reflected within Net income (loss) attributable to noncontrolling interests in the Consolidated Statement of Operations (see Note 3 – Acquisitions and Divestitures).
The following table presents impairments of assets and equity-method investments associated with certain nonrecurring fair value measurements within Level 3 of the fair value hierarchy, except as specifically noted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Segment
|
|
Date of Measurement
|
|
Fair Value
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
(Millions)
|
Impairment of certain assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain capitalized project costs (1)
|
|
Transmission & Gulf of Mexico
|
|
December 31, 2020
|
|
$
|
42
|
|
|
$
|
170
|
|
|
|
|
|
Certain gathering assets (2)
|
|
Northeast G&P
|
|
December 31, 2020
|
|
5
|
|
|
12
|
|
|
|
|
|
Certain pipeline project (3)
|
|
Transmission & Gulf of Mexico
|
|
December 31, 2019
|
|
22
|
|
|
|
|
$
|
354
|
|
|
|
Certain gathering assets (4)
|
|
West
|
|
December 31, 2019
|
|
25
|
|
|
|
|
20
|
|
|
|
Certain gathering assets (4)
|
|
West
|
|
June 30, 2019
|
|
40
|
|
|
|
|
59
|
|
|
|
Certain idle gathering assets (5)
|
|
West
|
|
March 31, 2019
|
|
—
|
|
|
|
|
12
|
|
|
|
Certain gathering assets (6)
|
|
West
|
|
December 31, 2018
|
|
470
|
|
|
|
|
|
|
$
|
1,849
|
|
Certain idle pipeline assets (7)
|
|
Other
|
|
June 30, 2018
|
|
25
|
|
|
|
|
|
|
66
|
|
Other impairments and write-downs (8)
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
Impairment of certain assets
|
|
|
|
|
|
|
|
$
|
182
|
|
|
$
|
464
|
|
|
$
|
1,915
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Segment
|
|
Date of Measurement
|
|
Fair Value
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
(Millions)
|
Impairment of equity-method investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
RMM (9)
|
|
West
|
|
December 31, 2020
|
|
$
|
421
|
|
|
$
|
108
|
|
|
|
|
|
RMM (10)
|
|
West
|
|
March 31, 2020
|
|
557
|
|
|
243
|
|
|
|
|
|
Brazos Permian II (10)
|
|
West
|
|
March 31, 2020
|
|
—
|
|
|
193
|
|
|
|
|
|
Caiman II (11)
|
|
Northeast G&P
|
|
March 31, 2020
|
|
191
|
|
|
229
|
|
|
|
|
|
Appalachia Midstream Investments (11)
|
|
Northeast G&P
|
|
March 31, 2020
|
|
2,700
|
|
|
127
|
|
|
|
|
|
Aux Sable (11)
|
|
Northeast G&P
|
|
March 31, 2020
|
|
7
|
|
|
39
|
|
|
|
|
|
Laurel Mountain (11)
|
|
Northeast G&P
|
|
March 31, 2020
|
|
236
|
|
|
10
|
|
|
|
|
|
Discovery (11)
|
|
Transmission & Gulf of Mexico
|
|
March 31, 2020
|
|
367
|
|
|
97
|
|
|
|
|
|
Laurel Mountain (12)
|
|
Northeast G&P
|
|
September 30, 2019
|
|
242
|
|
|
|
|
$
|
79
|
|
|
|
Appalachia Midstream Investments (13)
|
|
Northeast G&P
|
|
September 30, 2019
|
|
102
|
|
|
|
|
17
|
|
|
|
Pennant (14)
|
|
Northeast G&P
|
|
August 31, 2019
|
|
11
|
|
|
|
|
17
|
|
|
|
UEOM (15)
|
|
Northeast G&P
|
|
March 17, 2019
|
|
1,210
|
|
|
|
|
74
|
|
|
|
UEOM (15)
|
|
Northeast G&P
|
|
December 31, 2018
|
|
1,293
|
|
|
|
|
|
|
$
|
32
|
|
Other
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
|
Impairment of equity-method investments
|
|
|
|
|
|
|
|
$
|
1,046
|
|
|
$
|
186
|
|
|
$
|
32
|
|
______________
(1)Relates to capitalized project development costs for the Northeast Supply Enhancement project. As previously disclosed, approvals required for the project from the New York State Department of Environmental Conservation and the New Jersey Department of Environmental Protection have been denied and we have not refiled at this time. Beginning in May 2020, we discontinued capitalization of costs related to this project. Considering that the customer precedent agreements and FERC certificate for the project remain in effect, we had previously concluded that the probability of completing the project was sufficient to not require impairment. However, recent developments in the political and regulatory environments have caused us to slightly lower that assessed probability such that the capitalized project costs now required impairment. The estimated fair value of the materials within the capitalized project costs considered other internal uses and salvage values for the Property, plant, and equipment – net. The remaining capitalized costs were determined to have no fair value.
(2)Relates to a gathering system in the Marcellus Shale region, that is more likely than not to be sold in the short term. The estimated fair value of the Property, plant, and equipment – net and Intangible assets – net of accumulated amortization was determined using a market approach, which incorporated an indication of interest by a third party. These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy.
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The Williams Companies, Inc.
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Notes to Consolidated Financial Statements – (Continued)
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(3)Relates to the Constitution proposed pipeline project extending from Susquehanna County, Pennsylvania, to the Iroquois Gas Transmission and the Tennessee Gas Pipeline systems in New York. Although Constitution received a certificate of public convenience and necessity from the FERC to construct and operate the proposed pipeline and obtained, among other approvals, a waiver of the water quality certification under Section 401 of the Clean Water Act for the New York portion of the project, the members of Constitution, following extensive evaluation and discussion, determined that the underlying risk-adjusted return for this greenfield pipeline project had diminished in such a way that further development was no longer supported. The estimated fair value of the Property, plant, and equipment – net was based on probability-weighted third-party quotes. Our partners’ $209 million share of this impairment is reflected within Net income (loss) attributable to noncontrolling interests in the Consolidated Statement of Operations.
(4)Relates to a gas gathering system in the Eagle Ford Shale region with expected declines in asset utilization and possible idling of the gathering system. We designated these operations as held for sale, included in Other current assets and deferred charges, as of December 31, 2019. As a result, we measured the fair value of the disposal group using the expected sales price under a contract with a third party. These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy. The estimated fair value of the Property, plant, and equipment – net at June 30, 2019, was determined using a market approach, which incorporated indications of interest from third parties.
(5)Reflects impairment of Property, plant, and equipment – net that is no longer in use for which the fair value was determined to be lower than the carrying value.
(6)Relates to our gathering operations in the Barnett Shale region. Certain of our contractual gathering rates, primarily those in the Barnett Shale region, are based on a percentage of the New York Mercantile Exchange (NYMEX) natural gas prices. During the fourth quarter of 2018, we determined there was a sustained decline in the forward price curves for natural gas. During this same period, a large producer customer in the Barnett Shale region removed their remaining drilling rig. These factors gave rise to an impairment evaluation of these assets, which incorporated management’s projections of future drilling activity and gathering rates, taking into consideration the information previously noted as well as recently available information regarding producer drilling cost assumptions in the basin. The resulting estimate of future undiscounted cash flows was less than our carrying value, necessitating the estimation of the fair value of the Property, plant, and equipment – net and Intangible assets – net of accumulated amortization. To arrive at the fair value, we utilized an income approach with a discount rate of 8.5 percent, reflecting an estimated cost of capital and risks associated with the underlying assets.
(7)Relates to certain idle pipelines. The estimated fair value of the Property, plant, and equipment – net was determined by a market approach incorporating information derived from bids received for these assets, which we marketed for sale together with certain other assets. These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy. We sold these assets in the fourth quarter of 2018. (See Note 3 – Acquisitions and Divestitures.)
(8)Reflects multiple individually insignificant impairments and write-downs of other certain assets that may no longer be in use or are surplus in nature for which the fair value was determined to be lower than the carrying value.
(9)During the fourth quarter of 2020, RMM renegotiated service contracts with a significant customer in connection with the customer’s Chapter 11 bankruptcy proceedings. The renegotiated contracts result in lower service rates and lower projected future cash flows. As a result, we evaluated this investment for other-than-temporary impairment. The fair value was measured using an income approach. We utilized a discount rate of 18 percent in our analysis.
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The Williams Companies, Inc.
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Notes to Consolidated Financial Statements – (Continued)
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(10)Following the previously described declining market conditions during the first quarter of 2020, we evaluated these investments for other-than-temporary impairment. The fair value was measured using an income approach. Both investees operate in primarily oil-driven basins where significant expected reductions in producer activities led to reduced estimates of expected future cash flows. Our fair value estimates also reflected discount rates of approximately 17 percent for these investments. We also considered any debt held at the investee level, and its impact to fair value. The industry weighted-average discount rates utilized were significantly influenced by the recent market declines previously discussed.
(11)Following the previously described declining market conditions during the first quarter of 2020, we evaluated these investments for other-than-temporary impairment. The impairments within our Northeast G&P segment are primarily associated with operations in wet-gas areas where producer drilling activities are influenced by NGL prices which historically trend with crude oil prices. The fair values of our investments in Caiman II and Aux Sable Liquid Products LP (Aux Sable) were estimated using a market approach, reflecting valuation multiples ranging from 5.0x to 6.2x EBITDA (weighted-average 6.0x). The fair values of the other investments, including gathering systems that are part of Appalachia Midstream Investments, were estimated using an income approach, with discount rates ranging from 9.7 percent to 13.5 percent (weighted-average 12.6 percent). We also considered any debt held at the investee level, and its impact to fair value. The assumed valuation multiples and industry weighted-average discount rates utilized were both significantly influenced by the recent market declines previously discussed.
(12)Relates to a gas gathering system in the Marcellus Shale region that was adversely impacted by lower sustained forward natural gas price expectations and changes in expected producer activity. The estimated fair value was determined using an income approach. We utilized a discount rate of 10.2 percent in our analysis.
(13)Relates to a certain gathering system held in Appalachia Midstream Investments that was adversely impacted by changes in the timing of expected producer activity. The estimated fair value was determined using an income approach. We utilized a discount rate of 9 percent in our analysis.
(14)The estimated fair value of Pennant Midstream, LLC (Pennant) was determined by a market approach based on recent observable third-party transactions. These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy.
(15)The estimated fair value at March 17, 2019, was determined by a market approach based on the transaction price for the purchase of the remaining interest in UEOM as finalized just prior to the signing and closing of the acquisition in March 2019 (see Note 3 – Acquisitions and Divestitures). These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy. The estimated fair value at December 31, 2018, was determined by a market approach based on our analysis of inputs in the principal market.
Concentration of Credit Risk
The following table summarizes concentration of receivables, net of allowances:
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December 31,
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2020
|
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2019
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(Millions)
|
NGLs, natural gas, and related products and services
|
$
|
638
|
|
|
$
|
613
|
|
Transportation of natural gas and related products
|
254
|
|
|
277
|
|
Accounts Receivable related to revenues from contracts with customers
|
892
|
|
|
890
|
|
Other
|
107
|
|
|
106
|
|
Trade accounts and other receivables - net
|
$
|
999
|
|
|
$
|
996
|
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The Williams Companies, Inc.
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Notes to Consolidated Financial Statements – (Continued)
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Customers include producers, distribution companies, industrial users, gas marketers, and pipelines primarily located in the continental United States. As a general policy, collateral is not required for receivables, but customers’ financial condition and credit worthiness are evaluated regularly. Based upon this evaluation, we may obtain collateral to support receivables.
Note 19 – Contingent Liabilities and Commitments
Reporting of Natural Gas-Related Information to Trade Publications
Direct and indirect purchasers of natural gas in various states filed individual and class actions against us, our former affiliate WPX Energy, Inc. (WPX) and its subsidiaries, and others alleging the manipulation of published gas price indices and seeking unspecified amounts of damages. Such actions were transferred to the Nevada federal district court for consolidation of discovery and pre-trial issues. We have agreed to indemnify WPX and its subsidiaries related to this matter.
In the individual action, filed by Farmland Industries Inc. (Farmland), the court issued an order on May 24, 2016, granting one of our co-defendant’s motion for summary judgment as to Farmland’s claims. On January 5, 2017, the court extended such ruling to us, entering final judgment in our favor. Farmland appealed. On March 27, 2018, the appellate court reversed the district court’s grant of summary judgment, and on April 10, 2018, the defendants filed a petition for rehearing with the appellate court, which was denied on May 9, 2018. The case was remanded to the Nevada federal district court and subsequently remanded to its originally filed court, the Kansas federal district court where we re-urged our motion for summary judgment. The district court denied the motion but granted our request to seek permission for an immediate appeal to the appellate court. Oral argument occurred before the appellate court on January 19, 2021.
In the putative class actions, on March 30, 2017, the court issued an order denying the plaintiffs’ motions for class certification. On June 13, 2017, the United States Court of Appeals for the Ninth Circuit granted the plaintiffs’ petition for permission to appeal the order. On August 6, 2018, the Ninth Circuit reversed the order denying class certification and remanded the case to the Nevada federal district court.
We reached an agreement to settle two of the actions, and on April 22, 2019, the Nevada federal district court preliminarily approved the settlements, which are on behalf of Kansas and Missouri class members. The final fairness hearing on the settlement occurred August 5, 2019, and a final judgment of dismissal with prejudice was entered the same day.
Two putative class actions remain unresolved, and they have been remanded to their originally filed court, the Wisconsin federal district court. Trial is scheduled to begin June 14, 2021.
Because of the uncertainty around the remaining unresolved issues, we cannot reasonably estimate a range of potential exposure at this time. However, it is reasonably possible that the ultimate resolution of these actions and our related indemnification obligation could result in a potential loss that may be material to our results of operations. In connection with this indemnification, we have an accrued liability balance associated with this matter and, as a result, have exposure to future developments.
Alaska Refinery Contamination Litigation
We are involved in litigation arising from our ownership and operation of the North Pole Refinery in North Pole, Alaska, from 1980 until 2004, through our wholly owned subsidiaries Williams Alaska Petroleum Inc. (WAPI) and MAPCO Inc. We sold the refinery to Flint Hills Resources Alaska, LLC (FHRA), a subsidiary of Koch Industries, Inc., in 2004. The litigation involves three cases, with filing dates ranging from 2010 to 2014. The actions primarily arise from sulfolane contamination allegedly emanating from the refinery. A putative class action lawsuit was filed by James West in 2010 naming us, WAPI, and FHRA as defendants. We and FHRA filed claims against each other seeking, among other things, contractual indemnification alleging that the other party caused the sulfolane contamination. In 2011, we and FHRA settled the claim with James West. Certain claims by FHRA
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The Williams Companies, Inc.
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Notes to Consolidated Financial Statements – (Continued)
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against us were resolved by the Alaska Supreme Court in our favor. FHRA’s claims against us for contractual indemnification and statutory claims for damages related to off-site sulfolane were remanded to the Alaska Superior Court. The State of Alaska filed its action in March 2014, seeking damages. The City of North Pole (North Pole) filed its lawsuit in November 2014, seeking past and future damages, as well as punitive damages. Both we and WAPI asserted counterclaims against the State of Alaska and North Pole, and cross-claims against FHRA. FHRA has also filed cross-claims against us.
The underlying factual basis and claims in the cases are similar and may duplicate exposure. As such, in February 2017, the three cases were consolidated into one action in state court containing the remaining claims from the James West case and those of the State of Alaska and North Pole. The State of Alaska later announced the discovery of additional contaminants per- and polyfluoralkyl (PFOS and PFOA) offsite of the refinery, and the court permitted the State of Alaska to amend its complaint to add a claim for offsite PFOS/PFOA contamination. The court subsequently remanded the offsite PFOS/PFOA claims to the Alaska Department of Environmental Conservation for investigation and stayed the claims pending their potential resolution at the administrative agency. Several trial dates encompassing all three cases have been scheduled and stricken. In the summer of 2019, the court deconsolidated the cases for purposes of trial. A bench trial on all claims except North Pole’s claims began in October 2019.
In January 2020, the Alaska Superior Court issued its Memorandum of Decision finding in favor of the State of Alaska and FHRA, with the total incurred and potential future damages estimated to be $86 million. The court found that FHRA is not entitled to contractual indemnification from us because FHRA contributed to the sulfolane contamination. On March 23, 2020, the court entered final judgment in the case. Filing deadlines were stayed until May 1, 2020. However, on April 21, 2020, we filed a Notice of Appeal. We also filed post-judgment motions including a Motion for New Trial and a Motion to Alter or Amend the Judgment. These post-trial motions were resolved with the court’s denial of the last motion on June 11, 2020. Our Statement of Points on Appeal was filed on July 13, 2020. On June 22, 2020, the court stayed the North Pole’s case pending resolution of the appeal in the State of Alaska and FHRA case. On December 23, 2020, we filed our opening brief on appeal. We have recorded an accrued liability in the amount of our estimate of the probable loss. It is reasonably possible that we may not be successful on appeal and could ultimately pay up to the amount of judgment.
Royalty Matters
Certain of our customers, including Chesapeake, have been named in various lawsuits alleging underpayment of royalties and claiming, among other things, violations of anti-trust laws and the Racketeer Influenced and Corrupt Organizations Act. We have also been named as a defendant in certain of these cases filed in Pennsylvania based on allegations that we improperly participated with Chesapeake in causing the alleged royalty underpayments. We believe that the claims asserted are subject to indemnity obligations owed to us by Chesapeake. Chesapeake has reached a tentative settlement to resolve substantially all Pennsylvania royalty cases pending, which settlement would apply to both Chesapeake and us. The settlement as reported would not require any contribution from us.
Litigation Against Energy Transfer and Related Parties
On April 6, 2016, we filed suit in Delaware Chancery Court against Energy Transfer Equity, L.P. (Energy Transfer) and LE GP, LLC (the general partner for Energy Transfer) alleging willful and material breaches of the Agreement and Plan of Merger (ETE Merger Agreement) with Energy Transfer resulting from the private offering by Energy Transfer on March 8, 2016, of Series A Convertible Preferred Units (Special Offering) to certain Energy Transfer insiders and other accredited investors. The suit seeks, among other things, an injunction ordering the defendants to unwind the Special Offering and to specifically perform their obligations under the ETE Merger Agreement. On April 19, 2016, we filed an amended complaint seeking the same relief. On May 3, 2016, Energy Transfer and LE GP, LLC filed an answer and counterclaims.
On May 13, 2016, we filed a separate complaint in Delaware Chancery Court against Energy Transfer, LE GP, LLC and the other Energy Transfer affiliates that are parties to the ETE Merger Agreement, alleging material
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The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
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breaches of the ETE Merger Agreement for failing to cooperate and use necessary efforts to obtain a tax opinion required under the ETE Merger Agreement (Tax Opinion) and for otherwise failing to use necessary efforts to consummate the merger under the ETE Merger Agreement wherein we would be merged with and into the newly formed Energy Transfer Corp LP (ETC) (ETC Merger). The suit sought, among other things, a declaratory judgment and injunction preventing Energy Transfer from terminating or otherwise avoiding its obligations under the ETE Merger Agreement due to any failure to obtain the Tax Opinion.
The Court of Chancery coordinated the Special Offering and Tax Opinion suits. On May 20, 2016, the Energy Transfer defendants filed amended affirmative defenses and verified counterclaims in the Special Offering and Tax Opinion suits, alleging certain breaches of the ETE Merger Agreement by us and seeking, among other things, a declaration that we were not entitled to specific performance, that Energy Transfer could terminate the ETC Merger, and that Energy Transfer is entitled to a $1.48 billion termination fee. On June 24, 2016, following a two-day trial, the court issued a Memorandum Opinion and Order denying our requested relief in the Tax Opinion suit. The court did not rule on the substance of our claims related to the Special Offering or on the substance of Energy Transfer’s counterclaims. On June 27, 2016, we filed an appeal of the court’s decision with the Supreme Court of Delaware, seeking reversal and remand to pursue damages. On March 23, 2017, the Supreme Court of Delaware affirmed the Court of Chancery’s ruling. On March 30, 2017, we filed a motion for reargument with the Supreme Court of Delaware, which was denied on April 5, 2017.
On September 16, 2016, we filed an amended complaint with the Court of Chancery seeking damages for breaches of the ETE Merger Agreement by defendants. On September 23, 2016, Energy Transfer filed a second amended and supplemental affirmative defenses and verified counterclaim with the Court of Chancery seeking, among other things, payment of the $1.48 billion termination fee due to our alleged breaches of the ETE Merger Agreement. On December 1, 2017, the court granted our motion to dismiss certain of Energy Transfer’s counterclaims, including its claim seeking payment of the $1.48 billion termination fee. On December 8, 2017, Energy Transfer filed a motion for reargument, which the Court of Chancery denied on April 16, 2018. The Court of Chancery had scheduled trial for May 20 through May 24, 2019; the court struck this setting and reset the trial for June 8 through June 11, and June 15, 2020. Due to COVID-19, the court struck the June 2020 setting and re-scheduled the trial for August 31 through September 4, 2020; this setting was also struck as a result of COVID-19. The court reset trial for December 14 through December 18, 2020, but also struck this setting as a result of COVID-19. Trial has been reset for May 10 through May 17, 2021.
Former Olefins Business
SABIC Petrochemicals, the other interest owner in our former Geismar, Louisiana, olefins facility we sold in July 2017, sought recovery from us for losses it allegedly suffered, including its share of personal injury settlements in which it was a co-defendant, as well as amounts related to lost income, defense costs, and property damage associated with an explosion and fire at the plant in June 2013. We settled this claim with SABIC Petrochemicals in the fourth quarter 2020. Part of the settlement is covered by our general liability policy and any uninsured losses are immaterial.
Environmental Matters
We are a participant in certain environmental activities in various stages including assessment studies, cleanup operations, and/or remedial processes at certain sites, some of which we currently do not own. We are monitoring these sites in a coordinated effort with other potentially responsible parties, the U.S. Environmental Protection Agency (EPA), or other governmental authorities. We are jointly and severally liable along with unrelated third parties in some of these activities and solely responsible in others. Certain of our subsidiaries have been identified as potentially responsible parties at various Superfund and state waste disposal sites. In addition, these subsidiaries have incurred, or are alleged to have incurred, various other hazardous materials removal or remediation obligations under environmental laws. As of December 31, 2020, we have accrued liabilities totaling $33 million for these matters, as discussed below. Estimates of the most likely costs of cleanup are generally based on completed assessment studies, preliminary results of studies, or our experience with other similar cleanup operations. At
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The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
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|
December 31, 2020, certain assessment studies were still in process for which the ultimate outcome may yield different estimates of most likely costs. Therefore, the actual costs incurred will depend on the final amount, type, and extent of contamination discovered at these sites, the final cleanup standards mandated by the EPA or other governmental authorities, and other factors.
The EPA and various state regulatory agencies routinely promulgate and propose new rules and issue updated guidance to existing rules. These rulemakings include, but are not limited to, rules for reciprocating internal combustion engine and combustion turbine maximum achievable control technology, air quality standards for one-hour nitrogen dioxide emissions, and volatile organic compound and methane new source performance standards impacting design and operation of storage vessels, pressure valves, and compressors. The EPA previously issued its rule regarding National Ambient Air Quality Standards for ground-level ozone. We are monitoring the rule’s implementation as it will trigger additional federal and state regulatory actions that may impact our operations. Implementation of the regulations is expected to result in impacts to our operations and increase the cost of additions to Property, plant, and equipment – net in the Consolidated Balance Sheet for both new and existing facilities in affected areas. We are unable to reasonably estimate the cost of additions that may be required to meet the regulations at this time due to uncertainty created by various legal challenges to these regulations and the need for further specific regulatory guidance.
Continuing operations
Our interstate gas pipelines are involved in remediation activities related to certain facilities and locations for polychlorinated biphenyls, mercury, and other hazardous substances. These activities have involved the EPA and various state environmental authorities, resulting in our identification as a potentially responsible party at various Superfund waste sites. At December 31, 2020, we have accrued liabilities of $4 million for these costs. We expect that these costs will be recoverable through rates.
We also accrue environmental remediation costs for natural gas underground storage facilities, primarily related to soil and groundwater contamination. At December 31, 2020, we have accrued liabilities totaling $8 million for these costs.
Former operations
We have potential obligations in connection with assets and businesses we no longer operate. These potential obligations include remediation activities at the direction of federal and state environmental authorities and the indemnification of the purchasers of certain of these assets and businesses for environmental and other liabilities existing at the time the sale was consummated. Our responsibilities relate to the operations of the assets and businesses described below.
•Former agricultural fertilizer and chemical operations and former retail petroleum and refining operations;
•Former petroleum products and natural gas pipelines;
•Former petroleum refining facilities;
•Former exploration and production and mining operations;
•Former electricity and natural gas marketing and trading operations.
At December 31, 2020, we have accrued environmental liabilities of $21 million related to these matters.
Other Divestiture Indemnifications
Pursuant to various purchase and sale agreements relating to divested businesses and assets, we have indemnified certain purchasers against liabilities that they may incur with respect to the businesses and assets acquired from us. The indemnities provided to the purchasers are customary in sale transactions and are contingent
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The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
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upon the purchasers incurring liabilities that are not otherwise recoverable from third parties. The indemnities generally relate to breach of warranties, tax, historic litigation, personal injury, property damage, environmental matters, right of way, and other representations that we have provided.
At December 31, 2020, other than as previously disclosed, we are not aware of any material claims against us involving the above-described indemnities; thus, we do not expect any of the indemnities provided pursuant to the sales agreements to have a material impact on our future financial position. Any claim for indemnity brought against us in the future may have a material adverse effect on our results of operations in the period in which the claim is made.
In addition to the foregoing, various other proceedings are pending against us that are incidental to our operations, none of which are expected to be material to our expected future annual results of operations, liquidity, and financial position.
Summary
We have disclosed our estimated range of reasonably possible losses for certain matters above, as well as all significant matters for which we are unable to reasonably estimate a range of possible loss. We estimate that for all other matters for which we are able to reasonably estimate a range of loss, our aggregate reasonably possible losses beyond amounts accrued are immaterial to our expected future annual results of operations, liquidity, and financial position. These calculations have been made without consideration of any potential recovery from third parties.
Commitments
Commitments for construction and acquisition of property, plant, and equipment are approximately $262 million at December 31, 2020.
Note 20 – Segment Disclosures
Our reportable segments are Transmission & Gulf of Mexico, Northeast G&P, and West. All remaining business activities are included in Other. (See Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies.)
Performance Measurement
We evaluate segment operating performance based upon Modified EBITDA. This measure represents the basis of our internal financial reporting and is the primary performance measure used by our chief operating decision maker in measuring performance and allocating resources among our reportable segments. Intersegment revenues primarily represent the sale of NGLs from our natural gas processing plants and transportation services provided to our marketing business.
We define Modified EBITDA as follows:
•Net income (loss) before:
◦Income (loss) from discontinued operations;
◦Provision (benefit) for income taxes;
◦Interest incurred, net of interest capitalized;
◦Equity earnings (losses);
◦Impairment of equity-method investments;
◦Other investing income (loss) – net;
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|
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|
|
|
|
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.
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|
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|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
The following table reflects the reconciliation of Segment revenues to Total revenues as reported in the Consolidated Statement of Operations and Other financial information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission &
Gulf of Mexico
|
|
Northeast G&P
|
|
West
|
|
Other
|
|
Eliminations
|
|
Total
|
|
(Millions)
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
|
|
|
|
|
|
|
|
|
|
External
|
$
|
3,207
|
|
|
$
|
1,416
|
|
|
$
|
1,280
|
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
5,924
|
|
Internal
|
50
|
|
|
49
|
|
|
—
|
|
|
13
|
|
|
(112)
|
|
|
—
|
|
Total service revenues
|
3,257
|
|
|
1,465
|
|
|
1,280
|
|
|
34
|
|
|
(112)
|
|
|
5,924
|
|
Total service revenues – commodity consideration
|
21
|
|
|
7
|
|
|
101
|
|
|
—
|
|
|
—
|
|
|
129
|
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
|
External
|
144
|
|
|
16
|
|
|
1,506
|
|
|
—
|
|
|
—
|
|
|
1,666
|
|
Internal
|
47
|
|
|
41
|
|
|
56
|
|
|
—
|
|
|
(144)
|
|
|
—
|
|
Total product sales
|
191
|
|
|
57
|
|
|
1,562
|
|
|
—
|
|
|
(144)
|
|
|
1,666
|
|
Total revenues
|
$
|
3,469
|
|
|
$
|
1,529
|
|
|
$
|
2,943
|
|
|
$
|
34
|
|
|
$
|
(256)
|
|
|
$
|
7,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial information:
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets
|
$
|
706
|
|
|
$
|
137
|
|
|
$
|
318
|
|
|
$
|
122
|
|
|
$
|
—
|
|
|
$
|
1,283
|
|
Proportional Modified EBITDA of equity-method investments
|
166
|
|
|
473
|
|
|
110
|
|
|
—
|
|
|
—
|
|
|
749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
|
|
|
|
|
|
|
|
|
|
External
|
$
|
3,261
|
|
|
$
|
1,291
|
|
|
$
|
1,364
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
5,933
|
|
Internal
|
50
|
|
|
47
|
|
|
—
|
|
|
13
|
|
|
(110)
|
|
|
—
|
|
Total service revenues
|
3,311
|
|
|
1,338
|
|
|
1,364
|
|
|
30
|
|
|
(110)
|
|
|
5,933
|
|
Total service revenues – commodity consideration
|
41
|
|
|
12
|
|
|
150
|
|
|
—
|
|
|
—
|
|
|
203
|
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
|
External
|
217
|
|
|
115
|
|
|
1,733
|
|
|
—
|
|
|
—
|
|
|
2,065
|
|
Internal
|
71
|
|
|
35
|
|
|
64
|
|
|
—
|
|
|
(170)
|
|
|
—
|
|
Total product sales
|
288
|
|
|
150
|
|
|
1,797
|
|
|
—
|
|
|
(170)
|
|
|
2,065
|
|
Total revenues
|
$
|
3,640
|
|
|
$
|
1,500
|
|
|
$
|
3,311
|
|
|
$
|
30
|
|
|
$
|
(280)
|
|
|
$
|
8,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial information:
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets
|
$
|
1,341
|
|
|
$
|
1,245
|
|
|
$
|
304
|
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
2,911
|
|
Proportional Modified EBITDA of equity-method investments
|
177
|
|
|
454
|
|
|
115
|
|
|
—
|
|
|
—
|
|
|
746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transmission &
Gulf of Mexico
|
|
Northeast G&P
|
|
West
|
|
Other
|
|
Eliminations
|
|
Total
|
|
(Millions)
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
|
|
|
|
|
|
|
|
|
|
External
|
$
|
2,904
|
|
|
$
|
935
|
|
|
$
|
1,641
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
5,502
|
|
Internal
|
49
|
|
|
41
|
|
|
—
|
|
|
12
|
|
|
(102)
|
|
|
—
|
|
Total service revenues
|
2,953
|
|
|
976
|
|
|
1,641
|
|
|
34
|
|
|
(102)
|
|
|
5,502
|
|
Total service revenues – commodity consideration
|
59
|
|
|
20
|
|
|
321
|
|
|
—
|
|
|
—
|
|
|
400
|
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
|
External
|
174
|
|
|
245
|
|
|
2,365
|
|
|
—
|
|
|
—
|
|
|
2,784
|
|
Internal
|
261
|
|
|
42
|
|
|
83
|
|
|
—
|
|
|
(386)
|
|
|
—
|
|
Total product sales
|
435
|
|
|
287
|
|
|
2,448
|
|
|
—
|
|
|
(386)
|
|
|
2,784
|
|
Total revenues
|
$
|
3,447
|
|
|
$
|
1,283
|
|
|
$
|
4,410
|
|
|
$
|
34
|
|
|
$
|
(488)
|
|
|
$
|
8,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial information:
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-lived assets
|
$
|
2,379
|
|
|
$
|
477
|
|
|
$
|
279
|
|
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
3,171
|
|
Proportional Modified EBITDA of equity-method investments
|
183
|
|
|
493
|
|
|
94
|
|
|
—
|
|
|
—
|
|
|
770
|
|
The following table reflects the reconciliation of Modified EBITDA to Net income (loss) as reported in the Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
(Millions)
|
Modified EBITDA by segment:
|
|
|
|
|
|
Transmission & Gulf of Mexico
|
$
|
2,379
|
|
|
$
|
2,175
|
|
|
$
|
2,293
|
|
Northeast G&P
|
1,489
|
|
|
1,314
|
|
|
1,086
|
|
West
|
998
|
|
|
952
|
|
|
38
|
|
Other
|
(15)
|
|
|
6
|
|
|
(29)
|
|
|
4,851
|
|
|
4,447
|
|
|
3,388
|
|
Accretion expense associated with asset retirement obligations for nonregulated operations
|
(35)
|
|
|
(33)
|
|
|
(33)
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
(1,721)
|
|
|
(1,714)
|
|
|
(1,725)
|
|
Impairment of goodwill
|
(187)
|
|
|
—
|
|
|
—
|
|
Equity earnings (losses)
|
328
|
|
|
375
|
|
|
396
|
|
Impairment of equity-method investments
|
(1,046)
|
|
|
(186)
|
|
|
(32)
|
|
Other investing income (loss) – net
|
8
|
|
|
107
|
|
|
219
|
|
Proportional Modified EBITDA of equity-method investments
|
(749)
|
|
|
(746)
|
|
|
(770)
|
|
Interest expense
|
(1,172)
|
|
|
(1,186)
|
|
|
(1,112)
|
|
(Provision) benefit for income taxes
|
(79)
|
|
|
(335)
|
|
|
(138)
|
|
Income (loss) from discontinued operations
|
—
|
|
|
(15)
|
|
|
—
|
|
Net income (loss)
|
$
|
198
|
|
|
$
|
714
|
|
|
$
|
193
|
|
|
|
|
|
|
|
|
|
|
The Williams Companies, Inc.
|
Notes to Consolidated Financial Statements – (Continued)
|
|
The following table reflects Total assets and Equity-method investments by reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
Equity-Method Investments
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
(Millions)
|
Transmission & Gulf of Mexico
|
|
$
|
19,110
|
|
|
$
|
18,796
|
|
|
$
|
610
|
|
|
$
|
741
|
|
Northeast G&P
|
|
14,569
|
|
|
15,399
|
|
|
3,682
|
|
|
3,973
|
|
West
|
|
10,558
|
|
|
11,265
|
|
|
867
|
|
|
1,521
|
|
Other
|
|
927
|
|
|
1,151
|
|
|
—
|
|
|
—
|
|
Eliminations (1)
|
|
(999)
|
|
|
(571)
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
44,165
|
|
|
$
|
46,040
|
|
|
$
|
5,159
|
|
|
$
|
6,235
|
|
______________
(1) Eliminations primarily relate to the intercompany notes and accounts receivable generated by our cash management program.
Note 21 – Subsequent Event
In February 2021, we acquired certain oil and gas properties, primarily approximately 2,000 operated wells, in the Wamsutter basin in Wyoming from a supermajor oil and gas company for a total of $79 million paid from cash on hand. We are working to identify an operating partner to optimize development of the properties and enhance the value of our connected midstream infrastructure. We expect to report these operations within our Other segment.