Williams 2002 Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Williams 2002 Case Study Solution

Background:

This case is mainly dealing with the Tulsan based pipeline construction based business, which was incorporated in 1918 by its owners William brothers who kept the name of the business under their names and it became popular with the brand name Williams. Company started to deal in the product line consisting of the activities of energy based products such as transportation, sale, purchase and transmission of liquid, refined oil, crude oil, natural gas and so on.

Company started to grow their business by dealing in refining and exploration business and company was growing internationally as well through its investments in different projects. Product line was diversified by trading and marketing of energy based products’ business through the financial contracts and the company was earning high profits on these products till year 2000. Moreover, company also developed telecommunication business and it started to develop alliances with mobile phone companies.

Key Issues:

The issues started to arise when the company developed its network in the form of group communication and the problems were occurring in these areas of operations because of the downturn in economic conditions and telecom industry was having oversupply and they were striving hard for earning small returns. This issue decreased the investment and the employees were laid off due to the less demand in the market. The firms started to cut their costs and started to finance to carry out its operations. Moreover, company was unable to decide about the least expensive source of funding to meet its obligations and due payments.

Financial performance of the company was becoming poor day by day and the company was in losses because of the lower funding and weak creditworthiness. Other issues include the weak visibility of the company’s future viability and the risks of reduction in the customer’s exposure.

Evaluation of financing terms:

The Williams was striving really hard to meet its obligations and running its operations smoothly so it planned to finance its funding through short term and long term debt financing. The financing is done through two major mediums and lenders which are Lehman and Berkshire. They provided the proposed investment of around 900 million dollars to get rid of the current financial crisis and the loan was given for a time period of around one year from July 2002 to June 2003. The funding was provided by both the parties an equal amount of 450 million dollars to the subsidiary of Williams for securing its credit facility of around 800 million dollars.

The company is required to pay an annual fixed charge of around 5.8% quarterly in total which is followed by interest of around 14% which will be paid along with the principal amount at the time of maturity and the interest would be due on the payment on yearly basis. It has been calculated in excel to find out the values on the 900 million dollars.

The results show that the amount of quarterly fixed charge is around 13 million dollars which would form an amount of around 52 million dollars for the annual fixed charge which has been shown in the forecasted income statement of year 2003 on the basis of taking the average of all the available historical data. Thus, it would lead to the total interest payment of around 126 million dollars for the interest payment which would be paid at the date of maturity. This has been added to the amount of annual interest payment whereas, the fixed charge has been shown separately.

Return to the investment has been calculated separately by fixed charge and interest charge, which will be forming around total interest 178 million dollars. The more information is required for the utilization of amount and the tax rate which would be telling about the exact amount to be paid and returns can be estimated accordingly. Moreover, the term related to fees is not clear and it requires the further information whether the company sold the assets or not..............................

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