The Williams Companies, Inc. Business Information, Profile, and History

Company Perspectives:

We believe in many things--and they're not just related to the bottom line. We believe in giving employees the freedom and initiative to do their jobs. In taking chances. Celebrating diversity. Holding true to a set of solid, respectable values. And we strongly believe in being an active member of the communities in which we live. We're proud of our employees and their substantial volunteer work, and we do all we can to support and extend their efforts to make a difference.

History of The Williams Companies, Inc.

The Williams Companies, Inc., is the largest interstate natural gas supplier in the United States. Rivaling its pipeline network in importance is its communications network: The Williams Communications Group, 86 percent owned by the parent company, offers wholesale long distance service. Its subsidiaries include Global Access, an audio- and videoconferencing service, and Vyvx, a transmission service for broadcast and cable networks. With the purchase of MAPCO in 1998, Williams also entered the refining business and the convenience store market.

Company Origins

Williams traces its history to 1908, when brothers S. Miller Williams, Jr. and David R. Williams were working for a construction contractor who had an order to pave sidewalks in Fort Smith, Arkansas. The contractor pulled out when funding for the project was delayed, but the Williams brothers decided to take care of the job themselves. They stayed in the construction business after the Fort Smith job, making their headquarters in that city and working under the name The Williams Brothers Corporation. Eventually, they established steel pipeline construction as their specialty, and in 1924 they moved to Tulsa, Oklahoma, in the heart of oil and gas country.

Williams Brothers remained a family-run business, small and privately held, for the next 25 years. Although the company maintained its headquarters in Tulsa, the petroleum and natural gas industries were not its only customers. When Miller and David's nephew, John H. Williams, joined the firm just after the bombing of Pearl Harbor, his first job was to help lay a water line for the U.S. Navy between Homestead and Key West in Florida.

In 1949 the Williams brothers decided to sell the company to their nephew John and his brother Charles, David Williams, Jr., David's son, and six middle managers. The new owners reincorporated under the name Williams Brothers Company, with initial capitalization of $25,000, and bought the old Williams Brothers's construction equipment for $3 million in debt. John Williams, who put up $5,000, was named president and CEO. Although only 30 years old, he had led an unusual and varied life. Born and raised in Havana, where his father was a distributor for a number of U.S. companies, he did not learn English until he was five years old. His uncles paid his expenses at Yale, from which he received a degree in engineering in 1940. In 1942, during World War II, he left Williams Brothers to join the navy. He returned to the family firm in 1946.

The new Williams Brothers' first job ended with unfortunate results. The company had received a $7.5 million contract to build a pipeline from Baton Rouge, Louisiana to Greensboro, North Carolina, but flooding caused by unusually heavy rains damaged the company's equipment, and the company actually lost $800,000 on the job. Within five years, however, it had made enough money to pay off its initial debt. In 1957, with a net worth of $8 million, it went public.

By the early 1960s Williams Brothers had established itself as a leader in its field, but a severe slump in the demand for new pipelines threatened its profitability. In 1963 the company lost $4 million on its domestic operations, and only strong overseas business limited its overall net loss to $500,000.

Diversification and Expansion in the 1960s and 1970s

John Williams saw his first big opportunity to diversify in 1965, when he spotted an article in the Wall Street Journal, announcing that Great Lakes Pipe Line Company was for sale. Great Lakes Pipe Line had been founded in 1930 by a consortium of eight U.S. oil companies--Continental Oil Company, Sunray DX Oil Company, Skelly Oil Company, Texaco, Union Oil Company of California, Sinclair Oil, Cities Service, and Phillips Petroleum&mdashø service the Midwest. A recent federal consent decree limiting Great Lakes's profit to seven percent convinced the owners that their resources were better spent elsewhere. The Williamses, for their part, believed that they could run the pipeline better than the oil companies, and Williams Brothers was one of the first parties to offer a bid. It was the only one left standing when the dust settled.

The Great Lakes pipeline network was the longest in the United States, consisting of 6,228 miles of pipe and 20 terminals. Its purchase price was $287.6 million. Williams Brothers' net worth in 1965 was $27 million. In lining up the financing for the deal, the company had to borrow almost the entire amount, making it a leveraged buyout (LBO) that would be audacious even by the standards of the LBO mania that would grip Wall Street 20 years later. Williams Brothers paid only $1.6 million of its own cash for Great Lakes Pipe Line.

The Great Lakes Pipe Line deal left Williams Brothers with a high debt-equity ratio, 89 percent (it would shoot up to 160 percent by 1970), but this did not deter John Williams from seeking new avenues for growth and diversification. In 1969, in a stock swap, the company acquired Edgcomb Steel Company, which processed and distributed metal products in the East and Midwest. At the same time, Williams Brothers began to look into the fertilizer business as another possibility. Fertilizer manufacturers were then suffering from low demand and oversupply, and the Williamses wanted to buy into the business while such companies were cheap.

In 1971 the company acquired The Suburban Companies, a liquid propane gas retailer. It also bought Colonial Insurance Company, a move that John Williams would later call his worst acquisition; uncharacteristically, the company had not secured a competent insurance executive ahead of time to take charge of Colonial, and it floundered as a result. It was sold off in 1974. Williams Brothers had become a diversified enterprise, and in May 1971 it recognized that fact by changing its name to Williams Companies.

In 1971 the company finally bagged a fertilizer company when it acquired Gulf Oil Corporation's agrichemical operations for $60 million. The next year, it added Agrico Chemical Company, Continental Oil Company's fertilizer subsidiary, for $140 million and merged the two operations under the Agrico name. John Williams then brought in his friend Kenneth Lundberg, CEO of major farm cooperative CF Industries, to head Agrico. The timing of these two acquisitions could scarcely have been better. Fertilizer prices turned up almost immediately. In 1974 Williams as a whole posted $950 million in sales--up from $235 million in 1970--and more than half of that figure was supplied by Agrico.

The company formed a new subsidiary in 1974, Williams Exploration Company, and branched out into the business of drilling for and producing oil and natural gas. Such operations were meant not only to generate profits for the parent company, but also feedstock for Agrico's manufacturing activity. In 1976 Williams joined with Newmont Mining Corporation, Bechtel Group, Boeing Company, Fluor Corporation, and Equitable Life Assurance Society to buy Peabody Coal from Kennecott Corporation, coming away with a 27.5 percent share. Also that year, the company sold its Williams International Group subsidiary, which had been formed in 1972 to take charge of its original pipeline construction operations. It was sold to an employee group, thus cutting Williams's tie to its old core business.

New Leadership in the Late 1970s

Signs of trouble began appearing at about this time as fertilizer prices dropped. Williams's earnings plunged as a result. Nonetheless, the company acquired Rainbow Resources in 1977, a Wyoming oil and gas exploration concern, for $40 million, and spent another $40 million expanding its pipeline network. When John Williams retired as chairman and CEO in 1978 at the age of 59, he left the relatively small family business that he had founded in 1949 as a conglomerate with sales of more than $1 billion and assets of almost $2 billion.

He was succeeded by Joseph Williams, David Williams, Jr.'s 45-year-old brother. Williams became a more conservative company, concentrating on the steady profits generated by its pipeline operations and shedding less dependable businesses. In 1979 it sold its Williams Energy subsidiary, which consisted of what used to be The Suburban Companies, to Penn Central Corporation for $57 million.

At about the same time, Agrico's financial performance was mercurial. The subsidiary posted a record profit of $175.5 million in 1980 only to plummet to a loss of $30.3 million in 1982, following a sharp drop in the demand for fertilizer. As a result, Williams's profits dropped from $57 million in 1981 to $34 million in 1982. In 1983 Agrico sold its entire retail operation to a management group for $51.7 million and a 40 percent stake in the new company, Crop Production Services, Inc. The relatively stable pipeline business looked more attractive, and that same year Williams acquired two natural gas pipelines: Northwest Pipeline, which served the West Coast, and Northwest Central, which was located in the Midwest.

By the middle of the decade, Joe Williams had concluded that his company needed a major restructuring to cut its dependence on commodity-based operations whose revenues were as unstable as the prices of those commodities. In 1984 Williams divested Edgcomb Metals, selling it to a management group. The next year, it embarked on a new venture. It established a subsidiary, Williams Telecommunications (WilTel), to run a fiber-optic cable network that would be installed inside abandoned steel pipelines.

The restructuring continued in 1986 when Williams sold all of Williams Exploration's assets to the U.S. subsidiaries of two Belgian oil companies, Petrofina and Cometra Oil. The reorganization ended in 1987, when the company sold its stake in Peabody Coal to consortium partner Newmont Mining for $320 million and divested Agrico by selling it to Freeport-McMoRan Resource Partners for $350 million. Also in 1987, Joe Williams added 'The' to the company's name.

At the same time, The Williams Companies, Inc. showed that it was serious about the telecommunications business. In 1987 Williams acquired LDX NET, Inc., which owned a 1,295-mile-long fiber-optic network. In 1989 WilTel became the fourth largest fiber-optic telecommunications company in the United States when it acquired another fiber-optics concern, LIGHTNET, and added 4,500 miles to its system. This gave Williams a total of more than 11,000 miles over fiber-optic cable, transmitting signals from New England to the Pacific coast.

Wall Street approved of the new, leaner version of The Williams Companies and its name surfaced more than once in the late 1980s as an attractive takeover candidate. No takeover bid ever surfaced, however.

Throughout the middle to late 1980s, Williams had been building on to its natural gas pipelines. In a joint venture with Tenneco, the company created the Kern River Pipeline, significantly adding to its network of pipelines. In 1991 Williams completed the project. Other ventures in the early 1990s included the creation of WilTech, a digital video business that used WilTel's fiber-optic network to transmit video.

In 1994 Joseph Williams retired and Keith Bailey was named chairman. Bailey's first big move was to accept an offer from LDDS Communications to buy WilTel for $2.5 billion. The all-cash sale, which was completed early in 1995, gave the Williams Companies ample return on the $700 million it had invested to develop WilTel.

Expansion in Communications and Pipelines in the Mid-1990s

The sale of WilTel did not indicate the company's abandonment of the communications industry. Williams retained possession of one of the 12 strands of fiber in the pipe, over which it continued to develop WilTech, its digital video venture. Also in 1995, Williams acquired ICG Wireless Services, which gave a boost to WilTech by allowing it to connect satellite transmission of video with its fiber-optic network. The move quickly paid off: In 1996, WilTech won a multimillion contract from Time Warner to interconnect its cable and broadcasting companies.

Williams used the cash from the WilTel deal to purchase Transcontinental Gas Pipe Line Corp. (Transco) in 1995. The $3 billion deal added 16,000 miles of natural gas pipeline to Williams' network and made Williams the nation's largest interstate natural gas supplier. The following year, the company spent $205 million to buy out Tenneco's 50 percent share of the Kern River pipeline. At a time when many companies were selling their government-regulated pipelines and diversifying, Williams was expanding its pipeline network, betting that the trend toward less utility regulation would soon reach the pipeline business.

The Williams Companies made several other purchases in 1995 and 1996, including Pekin Energy, the nation's second largest ethanol manufacturer, and Cycle-Sat, Winnebago Industries' telecommunications services company. The following year, Williams Communications Group joined with Northern Telecom to create Williams Communications Solutions, a provider of voice, data, and video equipment.

By the late 1990s Williams was well into rebuilding its telecommunications business, which it had organized into the Williams Communications Group. In addition to Williams Communications Solutions, the group included WilTech, the video transmission service, which had been renamed Vyvx and was thriving on its contracts with major broadcast and cable networks. Williams squeezed more use out of its one fiber-optic strand from the WilTel network by creating Global Access, which furnished video- and audioconferencing to businesses.

Perhaps the most important development for the Williams Communications Group was the termination in 1998 of Williams' noncompetition agreement with WorldCom (signed at the sale of WilTel). Now free to reenter the long distance telephone service business, Williams began rebuilding its fiber-optic network and signed a deal with U.S. West Communications. By 1999, the network had grown to 19,500 miles in service, with an additional 13,500 expected to round out connections to 125 cities by the end of 2000.

Williams entered additional new markets in 1998 with its purchase of MAPCO, a leading U.S. propane seller. The $3 billion purchase not only expanded Williams' pipeline network, it added two refineries, 250 convenience stores, and two data and information management companies to Williams' stable of businesses.

In October 1999, Williams sent its Communications Group public, offering 29.6 million shares over the New York Stock Exchange. Williams held on to 86 percent of the business, with seven percent going in the IPO and seven percent being sold to SBC Communications, Intel Corporation, and Telefonos de Mexico (TELMEX). The private placements assured Williams Communications Group of business: SCG invested $425 million and agreed to use WCG as its preferred provider for long distance and data; Intel invested $200 million and chose WCG to provide transport for Web-hosting service centers; TELMEX invested $100 million and agreed to connect its long distance fiber-optic network with WCG.

Principal Subsidiaries: Thermogas; Mid-America Pipeline Company; MAPCO Express; Williams Express; Northwest Pipeline Corp.; Williams Production Co.; Williams Field Services Co.; Williams Western Pipeline Co.; Williams Natural Gas Co.; Williams Energy Co.; Williams Pipe Line Co.

Principal Operating Units: Williams Communications; Energy Services; Gas Pipeline.

Principal Competitors: Enron Corp.; El Paso Energy; AT & T; MCI Worldcom, Inc.

Chronology

• Key Dates:

• 1908: Brothers S. Miller Williams, Jr. and David R. Williams begin their construction business with an order to pave sidewalks.
• 1924: Williams Brothers Corporation moves to Tulsa, Oklahoma.
• 1949: The Williams brothers sell the company to a group led by their nephew John Williams.
• 1965: Williams purchases the Great Lakes Pipe Line Company for $287.6 million.
• 1971: The company acquires Gulf Oil Corporation's agrichemical operations.
• 1972: The company buys Agrico Chemical Company.
• 1994: Williams sells its subsidiary WilTel for $2.5 billion.
• 1999: Subsidiary Williams Communications Group goes public.