Williams expects large second quarter loss

Posted: Monday, July 22, 2002

TULSA, Okla. (AP) -- Shares of Williams Cos. plunged Monday after the credit-crunched energy company said it expects a large second quarter loss and would slash its stock dividend by 95 percent to save cash.

The Tulsa-based company said it would lose 63 cents to 73 cents per share in the second quarter, largely because of constraints its credit problems have placed on its energy trading business.

Excluding a one-time pretax charge of $210 million to $240 million, Williams said it would report an operating loss of 35 to 40 cents per share, in contrast to earlier projected earnings of 20 to 25 cents.

Williams announced last month that it was putting its Alaska assets up for sale in an effort to raise $1 billion to shore up its balance sheet. Those assets include its North Pole refinery, gas stations and stake in the trans-Alaska oil pipeline. The company has about 500 employees in Alaska.

The company, which prides itself on providing generous dividends, also said it was slashing its common stock dividend to 1 cent from 20 cents, reflecting its emphasis on increasing cash flows and reserves.

Williams shares dropped $2.71 to $2.45 in midday trading on the New York Stock Exchange. The stock has a 52-week high of $34.41.

Williams executives, who have been seeking a partner for the scaled-back energy marketing and trading division, did not rule out selling the once-profitable unit.

''We believe continuing to pursue the joint venture makes the most sense near term, but we're not committed to that approach forever,'' said Steve Malcolm, chairman, president and chief executive officer. ''We are very clearly looking at other options that could include the simple sale of our portfolio.''

Williams said it has spoken about a partnership to 31 companies, with 29 more on a prospect list, and expects to close a deal within 90 days.

Williams has been trying to improve its balance sheet by about $8 billion through asset sales, spending cuts and equity issues after the collapse of Enron Corp. highlighted debt loads of other companies in the sector.

Moody's Investors Service and Standard & Poor's each have lowered Williams' $16 billion debt to their lowest investment grade rating. Malcolm was in New York meeting with credit agencies Monday and Tuesday.

Merrill Lynch, which lowered Williams' stock rating to neutral Monday, warned investors that credit agencies are likely to drop the company's debt to junk.

If that happens, the company would need to raise an additional $400 million to $600 million cash, said treasurer Jim Ivey.

The credit crunch has prevented Williams, whose energy trading activities focus on long-term risk management contracts in deregulated markets, from making new deals because it has to pay cash upfront.

''For all practical purposes, there is no origination business to speak of,'' said Bill Hobbs, president of the energy trading division. ''That is certainly not going to change until we resolve our credit situation.''

The pretax charge reflects a decline in the value of Williams' long-term energy trading and risk management contracts, a writedown of its anticipated claim in its bankrupt former telecommunications subsidiary, asset sales and other factors, the company said.

Williams, the nation's second-largest natural gas pipeline firm, said its other businesses -- pipelines, refining and oil and natural gas production and exploration -- continued to meet performance expectations.

Williams has said it will sell its 6,000-mile Central pipeline system for an undisclosed price and its Kansas Hugoton natural gas gathering system for $100 million cash. In June, it said it hoped to raise more than $1 billion by selling refineries in Tennessee and Alaska.

The company also has laid off 120 energy trading workers after cutting its capital commitment to that once-profitable business from $1.5 billion to $1 billion.

Malcolm said the company expects to close the refinery sales by the third quarter and the pipeline sale by the end of the year.

''We are evaluating and considering the sale of other assets that weren't formally on our list,'' Malcolm told analysts. ''That's clearly an option.''

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