Financial accounting worries and a wave of bad news from several energy companies added to the negative pressure in the larger stock market early Wednesday before investor sentiment took a turn for the better in the late afternoon.

Williams and Anadarko shares were hit particularly hard early on, but other energy companies, such as Mirant and NRG, also took dives because of disclosures they made. Nevertheless, energy shares rebounded with the larger market after Federal Reserve Chairman Alan Greenspan halted a year-long campaign of interest rate cuts and said the outlook for a U.S. economic recovery was improving.

Following a very tough day in the market on Tuesday when its share prices fell 17%, Williams stock was down another 14% by early Wednesday afternoon to $16.14 but managed to climb back above $18/share at the end of trading. The company reassured investors that it “remains fully committed to maintaining its current investment-grade credit rating,” and called the market’s response to its announcement on Tuesday an “overreaction not supported by facts.” The company said Tuesday it would delay its earnings release to assess a possible $2.2 billion liability to Williams Communications Group, which was spun off last year (see Daily GPI, Jan. 30 ). The law firm of Milberg Weiss Bershad Hynes & Lerach LLP on Tuesday filed a class action lawsuit on behalf of stockholders of Williams and/or Williams Communications, alleging the companies made “material misrepresentations to the markets” between July 24, 2000 and Jan. 29, 2002. The actions served to inflate the price of the two companies’ common stock, the attorneys said (see Daily GPI, Jan. 30).

“All relevant facts surrounding Williams’ 2001 spin-off of Williams’ former communications unit, including all items related to contingent financial obligations, have been properly accounted for and disclosed in SEC filings,” said CEO Steve Malcolm. “These issues also have been discussed since their inception with investors, banks, rating agencies and any individual who asked any question about any publicly filed document. Other than our internal assessment of whether we will ever have to perform on our Williams Communications contingent obligations, there are no issues, accounting or otherwise, that prompted the delay of releasing final 2001 earnings on Tuesday.

“As we have said, we are committed to earnings growth, asset sales, capital spending reductions, expense reductions or utilizing any other element within our extensive financial capabilities to maintain or further strengthen our already strong balance sheet. These measures give us the capability, if required, to satisfy our contingent obligations of up to $2.2 billion related to Williams Communications.

“We are constructively addressing the issues related to our former communications business in a manner that we expect will not impact current earnings growth or our ability to achieve all of the recurring earnings growth targets we have established.”

Malcolm noted that on Tuesday, the company estimated that it would have a record $2.7 billion in recurring segment profit. “It is disappointing that the market largely ignored the terrific year we posted in 2001 and the reaffirmation of our 2002 earnings target.” He said in addition to the record earnings that are expected for 2001, Williams currently has $38 billion in assets and significant liquidity, including $1.2 billion cash on hand, $1.1 billion of commercial paper availability, fully backed by banks and $700 million of available multi-year revolving credit facilities.

Williams was not alone in having the rug pulled out from under its stock early Wednesday. Although it also posted higher earnings, independent power producer and marketer NRG said that to improve its capital structure and liquidity it would reduce its 2002 capital expenditure program by $1.1 billion and sell strategic assets expected to raise $350-400 million. That triggered a 6% decline in the value of its shares to $11.55.

Anadarko’s stock was down nearly 5% in early afternoon trade to $45.53 after it revealed a billion dollar error in its third quarter 2001 earnings (see related story). The large independent producer said it somehow missed a $1.7 billion ($1.08 billion after tax) ceiling test write-down charge related to reserves it purchased from Union Pacific Resources. The company said it would have to restate its quarterly and annual earnings, leading to a loss for the year. Its stock price, however managed to rebound after the Fed’s decision and posted only a 1% loss on the day at $46.89.

While Anadarko’s negative news initially dragged down some of its close rivals, including Apache Corp., whose stock was down 2.4% by 2 p.m., and Burlington Resources, which saw a 3% loss in value, many of the producers managed a quick climb back to near flat on the day.

Marketing firm Mirant saw its shares fall 1.5% to $10.16 by Wednesday afternoon after a 13% drop on Tuesday, but it managed to close up 4 cents at $10.05 following an announcement that it would restructure its European operations to improve its balance sheet strength and liquidity. It said it would pursue strategic alternatives to ownership of its current European energy marketing and risk management operations, including selling all or a controlling interest to another party (see related story). It also plans to closing its Berlin office but is committed to moving forward on its European power projects.

“We have a focused, new business plan grounded in current market realities,” said Mirant CEO Marce Fuller. “We have always believed that it is necessary to own or control assets in Europe, as well as have a significant presence in risk management. Despite our hard work in the European market, capital constraints do not make it possible for us to create the portfolio of assets required to justify our presence in risk management. However, we intend to continue development of greenfield projects where we have made commitments and expect to create additional shareholder value.”

Mirant has approximately 150 employees in Europe, 100 of whom are associated with the company’s marketing and risk management operations. The company said the restructuring would save $50 million in annual operating expenses.

The company reaffirmed its liquidity on Tuesday after a recent credit rating downgrade by Moody’s Investors Service. CFO Raymond D. Hill said Mirant has $750 million in available cash and credit lines. “This amount is available even after posting additional collateral required in our risk management business and absorbing more than originally anticipated in a loan refinanced by our Asian business unit.

“We’re seeing normal trading activity, and power and natural gas volumes, in our marketing and risk management business,” he said. “Mirant has posted the collateral required to conduct trading with all its major counterparties. Our business was designed to manage asset risk, and its performance demonstrates that Mirant has sufficient liquidity to manage that risk.”

A lot of investors are “looking to shoot first and ask questions later,” Merrill Lynch analyst Carl Kist said early in the day.

Following the Fed’s announcement, however, investor sentiment turned and the Dow Jones industrial average ended the day up 144.62 points to 9762.86, while the broader Standard & Poor’s 500 Index rose 12.59 to 1113.23. The technology-heavy Nasdaq Composite Index jumped 20.43 to 1913.42.

After the market closed on Wednesday, Mirant announced record earnings from operations for 2001, but a 55% drop in net income for the fourth quarter. Annual earnings from operations were $683 million or $1.95 per diluted share, about 87% more than in 2000, excluding special items, particularly charges resulting from the Enron bankruptcy. Net income for the year, including the impacts of these items, was $568 million, or $1.63 per diluted share, a 58% increase from 2000. Fourth quarter earnings from operations, excluding special charges, totaled $93 million or 27 cents per diluted share, representing a 35% increase over the fourth quarter of 2000. Net income for the quarter was down 55% to $30 million or 9 cents per diluted share, which included $66 million in one-time charges related to Mirant’s exposure to the Enron bankruptcy and a $3 million gain from the sale of Mirant’s Chilean investment, EDELNOR. Net income in 4Q2000 was $67 million.

The company cut its 2002 earnings estimate to a range of $1.60 to $1.70 from a range of $1.90 to $2, citing lower margins and reduced business activity in North America. It said it will further cut its capital budgets for 2002 and 2003 to a combined $2.9 billion from $5.9 billion and cut its expenses by $75 million in 2002 and $150 million in 2003. It also will suspend construction of two power plants and warehouse turbines for two other projects. This is in addition to its plan to defer or cancel about 8,300 MW of power generation in North America.

Mirant forecasts flat earnings per share in 2003, but still expects to grow its earnings per share by 10% to 15% annually over the next five years as long as market conditions improve.

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