10-QPeriod: Q1 FY2002

WILLIAMS COMPANIES, INC. Quarterly Report for Q1 Ended Mar 31, 2002

Filed May 9, 2002For Securities:WMB

Summary

Williams Companies, Inc. (WMB) reported a significant decrease in net income for the first quarter of 2002 compared to the same period in 2001. This decline was largely driven by a substantial estimated loss on the recoverability of receivables from Williams Communications Group, Inc. (WCG), amounting to $232 million. The company also experienced lower revenues across several segments, notably Energy Marketing & Trading and Energy Services, impacted by lower commodity prices and reduced trading revenues. Despite these challenges, Williams completed the sale of its Kern River Gas Transmission segment for $450 million, classifying it as discontinued operations, which is expected to strengthen its balance sheet. The company also took steps to improve liquidity and strengthen its financial position, including reducing planned capital expenditures and issuing new debt securities. However, ongoing legal and regulatory matters, particularly those related to the California energy market and WCG's bankruptcy filing, continue to present risks and uncertainties for the company.

Key Highlights

  • 1Net income decreased significantly from $199.2 million in Q1 2001 to $107.7 million in Q1 2002, heavily impacted by a $232 million estimated loss on recoverability of receivables from Williams Communications Group, Inc. (WCG).
  • 2Total revenues declined by 29% to $2.18 billion in Q1 2002 from $3.06 billion in Q1 2001, primarily due to lower prices in Energy Marketing & Trading and Energy Services segments.
  • 3The company completed the sale of its Kern River Gas Transmission segment for $450 million, reclassifying it as discontinued operations.
  • 4Williams strengthened its balance sheet and liquidity through various actions, including issuing $1.1 billion in FELINE PACS units and $850 million in new notes.
  • 5Despite efforts to strengthen its financial position, the company faces ongoing risks and uncertainties, including a negative outlook from credit rating agencies and significant legal and regulatory challenges, particularly concerning the California energy market.
  • 6The company's debt levels increased, with long-term debt rising to $12.2 billion from $9.0 billion, while cash and cash equivalents increased to $1.7 billion.
  • 7A $69.4 million accounting adjustment related to a preferred security with a beneficial conversion option reduced income applicable to common stock.

Frequently Asked Questions

The primary driver for the substantial decrease in net income was an estimated loss of $232 million recognized in the first quarter of 2002 related to the recoverability of receivables from Williams Communications Group, Inc. (WCG). This write-down reflects the company's assessment of the declining value of these receivables.

Williams completed the sale of its Kern River Gas Transmission segment to MidAmerican Energy Holdings Company (MEHC) for $450 million. This sale has been classified as discontinued operations and is expected to contribute to strengthening the company's balance sheet and reducing its capital expenditure funding requirements.

Williams is actively taking steps to strengthen its balance sheet and improve liquidity. These actions include reducing planned capital expenditures for 2002, completing asset sales (like Kern River), and issuing new debt securities totaling over $1.9 billion ($1.1 billion in FELINE PACS and $850 million in new notes) in the first quarter. The company also issued $275 million in convertible preferred stock.

Williams faces several risks. These include ongoing legal and regulatory challenges, particularly related to the California energy market and past trading practices, and the financial instability and bankruptcy filing of Williams Communications Group (WCG), which has resulted in significant receivable write-downs and ongoing liabilities. Additionally, the company's credit ratings are under review with negative implications, which could impact its energy marketing and trading operations and borrowing costs.