<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

<Table>
<S>          <C>
 (MARK ONE)

    [X]             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF 1934
                     FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
                                          OR

    [ ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF 1934
                     FOR THE TRANSITION PERIOD FROM           TO
                            COMMISSION FILE NUMBER 1-15343
</Table>

                             ---------------------
                      WILLIAMS COMMUNICATIONS GROUP, INC.
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                            <C>
                   DELAWARE                                      73-1462856
       (State or other jurisdiction of              (I.R.S. Employer Identification No.)
        incorporation or organization)

    ONE TECHNOLOGY CENTER, TULSA, OKLAHOMA                         74103
   (Address of principal executive offices)                      (Zip Code)
</Table>

              Registrant's Telephone Number, Including Area Code:
                                 (918) 547-6000

          Securities Registered Pursuant to Section 12(b) of the Act:
                                      NONE

          Securities Registered Pursuant to Section 12(g) of the Act:
                      Class A Common Stock, $.01 par value
            6.75% Redeemable Cumulative Convertible Preferred Stock
                        Preferred Stock Purchase Rights

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

     The aggregate market value of the registrant's Class A common stock held by
non-affiliates as of the close of business on February 28, 2002, was
approximately $64 million.

     The number of shares of the registrant's Class A Common Stock outstanding
at February 28, 2002, was 492,993,286.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Not applicable.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                      WILLIAMS COMMUNICATIONS GROUP, INC.

                                   FORM 10-K

                                     PART I

ITEM 1.  BUSINESS

(a) GENERAL DEVELOPMENT OF BUSINESS

     Williams Communications Group, Inc. ("WCG") was incorporated under the laws
of the State of Delaware on December 1, 1994, under the name of WilTel
Technology Ventures, Inc. The name of the corporation was changed to The WilTech
Group, Inc. on September 20, 1995, and to Williams Communications Group, Inc. on
February 11, 1997.

     In 1985, The Williams Companies, Inc. ("TWC") entered the communications
business by pioneering the placement of fiber-optic cables in pipelines no
longer in use. TWC also pioneered the strategy of providing services solely to
other communications providers. By 1989, through a combination of construction
projects and acquisitions, TWC had completed the fourth nationwide digital
fiber-optic network, consisting of approximately 9,700 miles. By 1994, WilTel,
TWC's communications subsidiary, was one of the top four providers of high
capacity data services, one of the top five providers of long distance voice
services, and the first provider to offer nationwide frame relay transmission
capacity. In January 1995, TWC sold the WilTel network business to LDDS
Communications (now WorldCom). TWC excluded from the sale an approximately
9,700-route mile single fiber network comprised of a single fiber-optic strand
and associated equipment along the original nationwide network, WilTel's
telecommunications equipment distribution business, and Vyvx Services. In
January 1998, TWC reentered the communications network business, announcing its
plans to develop the WCG network. In 2001, having completed what was at the time
a 27,000-mile network, WCG sold the 9,700-route mile single fiber network to
WorldCom.

     Until the closing of the initial public offering of a minority interest in
WCG stock on October 6, 1999, WCG was a wholly owned subsidiary of TWC. In its
initial public offering, WCG offered for sale 29,600,000 shares of its Class A
common stock to the public. The underwriters for the initial public offering,
Salomon Smith Barney Inc., Lehman Brothers Inc., and Merrill Lynch & Co.,
exercised their options and purchased 4,440,000 additional shares to cover
over-allotments. In separate private placements, SBC Communications Inc., Intel
Corporation, and Telefonos de Mexico, S.A. de C.V. acquired 20,226,812,
9,225,093, and 4,612,546 shares, respectively, of WCG's Class A common stock.
Immediately following the initial public offering and private placements
described above, TWC owned 100 percent of WCG's outstanding Class B common
stock, which gave TWC approximately 98 percent of the voting power of WCG.
During the following year TWC announced on July 24, 2000, that it was
considering a complete separation of WCG from TWC.

     On January 25, 2001, WCG's board of directors authorized a plan for its
management to divest the Solutions segment that provided professional
communications services and sold and installed communications equipment.
Accordingly, the financial statements prior to 2001 reflect the Solutions
segment as discontinued operations. On January 29, 2001, WCG signed an agreement
to sell the domestic, Mexican, and Canadian professional services operations of
the Solutions segment to Platinum Equity LLC. This sale closed on March 31,
2001, for approximately $100 million in cash and an interest-bearing $75 million
promissory note payable of which $30 million is due on March 31, 2002, and $45
million plus accrued interest is due on September 30, 2002. WCG also entered
into a collection agreement in which Platinum Equity LLC is responsible for the
collection of certain identified retained accounts receivables. WCG is involved
in a dispute with the purchaser regarding the calculation of net working capital
as defined in the sale agreement in which Platinum Equity LLC is claiming WCG
owes approximately $47 million. WCG does not believe it owes the

                                        1
<PAGE>

$47 million and further anticipates full collection of the notes due from the
purchaser. However, the outcome remains uncertain and WCG can provide no
assurances in either case. Pursuant to the provisions of the sale agreement, the
parties will submit the net working capital dispute to an independent public
accounting firm for binding resolution if they are unable to resolve the dispute
by agreement.

     On February 26, 2001, TWC and WCG entered into an agreement that, among
other things, resulted in the transfer of ownership of a building under
construction and other assets from TWC to WCG, the conversion of a note issued
by WCG to TWC into paid-in capital, and the issuance of 24,265,892 shares of
WCG's Class A Common Stock. At that time, TWC owned approximately 86 percent of
the total outstanding Class A and Class B common stock of WCG.

     On March 27, 2001, WCG signed an agreement to sell its remaining Canadian
operations of the Solutions segment to Telus Corporation. The sale closed in
second quarter 2001 for approximately $38 million in cash.

     On April 23, 2001, TWC distributed approximately 95% of the WCG common
stock held by TWC to TWC's stockholders in a tax-free spin-off of WCG. TWC
converted its Class B common stock to Class A common stock in advance of the
spin-off and there are no longer any shares of Class B common stock outstanding.
Following the distribution, TWC retained approximately 5% of WCG's Class A
common stock, which TWC committed to the Internal Revenue Service to sell within
five years of the tax-free spin-off. Under a separation agreement between TWC
and WCG, subject to the receipt of a favorable letter ruling from the IRS, TWC
had agreed not to sell any WCG shares before April 23, 2004. However, WCG has
waived this requirement and TWC has withdrawn its request for a letter ruling
from the IRS. Accordingly, TWC is free to sell its shares of WCG at any time.

     Throughout 2001, general market conditions and conditions within the
telecommunications industry deteriorated. During the third quarter of 2001,
national events such as the September 11 tragedy continued to put pressure on
the economy with particularly negative effects on the telecommunications
industry. In October 2001, in light of WCG's strong cash position and because of
generally depressed capital market conditions, WCG and its bank group agreed to
amend a provision of the bank credit agreement that obligated WCG to raise
additional capital by December 2001. The amendment gives WCG until July 2003 to
obtain such additional capital. In connection with this amendment, WCG agreed to
work with its bank group to undertake a comprehensive review of the bank
facility. It was anticipated that this review would be completed in late January
2002.

     In late January 2002, the administrative agent for the banks informed WCG
that it believed WCG might be in default of the terms of the bank credit
agreement for two reasons: first, the banks believed that the purchase during
2001 by WCG's wholly-owned subsidiary, CG Investments, of $551 million of WCG's
senior redeemable notes on the open market for an average price of 43% of face
value was a violation of the bank credit agreement. Additionally, the banks
believed that, due to negative developments in the telecommunications industry
generally, WCG was unable to make certain representations and warranties
required under the bank credit agreement. WCG disagreed with the banks' views,
but the banks reserved the right to assert that these factors constituted an
event of default.

     Nonetheless, on January 29, 2002, the banks agreed to extend the review
period until February 28, 2002, and it has been subsequently extended to April
26, 2002. In connection with the January 29, 2002 extension, WCG agreed to
develop a comprehensive plan for the restructuring of its balance sheet. WCG
also agreed that it would not purchase any more of its own securities, and that
it would limit transactions through certain of its subsidiaries through
mid-2003. Finally, WCG

                                        2
<PAGE>

confirmed with the banks that it would not draw upon the $525 million revolver
portion of the bank credit facility prior to mid-2003.

     On February 25, 2002, WCG announced that its restructuring alternatives had
been expanded, and that it was evaluating the use of chapter 11 of the U.S.
Bankruptcy Code ("Chapter 11") as a means to implement a pre-negotiated plan of
reorganization that would not affect the continuous operation of WCG's business,
but would allow WCG to effectuate a comprehensive restructuring of its capital
structure.

     As described above and as reflected in WCG's report from its independent
public accountants, certain of WCG's creditors have informed WCG that in their
view, WCG may be in default under the terms of its credit facility. This
condition raises substantial doubt about WCG's ability to continue as a going
concern. Certain of WCG's debt agreements require that its annual financial
statements be accompanied by a report from its independent public accountants
that does not contain a "going concern" explanatory paragraph. Non-compliance
with this term is an event of default. As a result of the inclusion of the going
concern explanatory paragraph in that report, WCG will not be able to satisfy
this term in the agreements. In addition, WCG anticipates that it may be in
default under other covenants in 2002. Consequently, unless WCG is able to
obtain a waiver of or amendment to this and certain other covenants in its
credit facility or refinance the indebtedness under its credit facility by April
30, 2002, an "Event of Default" will occur under the terms of the credit
facility. If an Event of Default occurs, the lenders under the credit facility
would not be obligated to make additional advances under the credit facility;
would be entitled to declare all amounts outstanding under the credit facility,
including accrued interest or other obligations, to be immediately due and
payable; and would be entitled to proceed against the collateral granted to them
to secure the debt under the credit facility. Substantially all of the assets of
WCG's operating subsidiary, WCL, are pledged as collateral under the credit
facility. Unless WCG is able to obtain a waiver of or amendment to certain
covenants in the credit facility, cross-defaults could occur making
substantially all of WCG's other long-term debt due. In addition, WCG
anticipates making use of the 30-day grace period for interest payments that
would be due on certain of its senior redeemable notes on April 1, 2002. If WCG
does not make the required payments within the grace period, cross-defaults may
give senior redeemable noteholders and other creditors the right to seek
remedies. WCG does not have existing liquidity sufficient to pay all amounts
that would become due as a result of defaults under the credit facility or the
senior redeemable notes and, thus, would have to find other means of liquidity,
enter into separate negotiations to restructure its debt agreements, or file a
voluntary petition under Chapter 11 of the bankruptcy code in order to avoid the
material adverse effects associated with an involuntary Chapter 11
reorganization. WCG believes that preserving the value of the enterprise will be
best effected by an expedited resolution to the restructuring process. Although
it is believed that a Chapter 11 reorganization would support the uninterrupted
continuation of the business and minimize damage to customer and vendor
relationships, there are significant risks involved in any bankruptcy
proceeding.

     WCG is currently engaged in discussions with representatives of each of its
three principal creditor groups -- the banks, the holders of WCG's senior
redeemable notes, and TWC -- concerning the terms of a comprehensive debt
restructuring. The particular restructuring options selected by WCG will depend
in part on the outcome of these discussions. While WCG has not finally
determined to utilize the provisions of Chapter 11 to implement its
restructuring, it seems likely that any of the restructuring options now being
actively considered could result in substantial, if not total, shareholder
dilution.

     A successful restructuring of WCG will require the agreement of the banks
to modify the bank credit agreement. WCG also hopes to reach agreement with its
two other major creditor groups, i.e., the redeemable senior noteholders and
TWC. WCG cannot provide assurance that it will be able to

                                        3
<PAGE>

reach such agreements, nor that it will be successful in accomplishing its
restructuring. The following Item 1(c), Narrative Description of Business, does
not attempt to address all of the possible risks or negative impacts that could
result from a bankruptcy filing or any other means to restructure WCG's debt.
Accordingly, that section must be read in conjunction with Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
risk factors under Forward-Looking Information at the end of this Item 1, and
the Financial Statements and notes thereto.

     The principal executive offices of WCG are located at One Technology
Center, Tulsa, Oklahoma 74103 (telephone 918-547-6000).

(b) FINANCIAL INFORMATION ABOUT SEGMENTS

     See Part II, Item 8 -- Financial Statements and Supplementary Data.

(c) NARRATIVE DESCRIPTION OF BUSINESS

     Substantially all operations of WCG are conducted through subsidiaries. The
term "WCG" also includes its operating subsidiaries where the context requires.
WCG's principal sources of cash are from external financings, public debt, and
public equity. WCG may also receive dividends and advances from its
subsidiaries, investments, payments by subsidiaries for services rendered, and
interest payments from subsidiaries on cash advances. The amount of dividends
available to WCG from subsidiaries largely depends upon each subsidiary's
earnings and operating capital requirements and contractual restrictions in each
subsidiary's credit arrangements. Restrictions contained in certain of WCG's
debt agreements limit the ability of WCL to transfer funds to its parent, WCG,
except for regularly scheduled interest payments on WCG's senior redeemable
notes as well as certain other payments outlined in the long-term credit
facility.

     WCG's operating segments include two reportable segments: Network and
Emerging Markets. In the fourth quarter 2001, WCG changed its measure of segment
profit and loss to operating EBITDA. Operating EBITDA, as defined by WCG,
represents earnings before interest, income taxes, depreciation and
amortization, lease costs attributable to WCG's operating lease agreement
covering a portion of WCG's fiber-optic network, and other unusual,
non-recurring or non-cash items, such as asset impairments and restructuring
charges, equity earnings or losses, and minority interest. A reconciliation of
operating EBITDA to loss from operations is presented in the Notes to
Consolidated Financial Statements -- Note 4.

                                    NETWORK

     WCG owns or leases and operates a nationwide inter-city fiber-optic
network, extended locally and globally. Its goals are to make Network the
industry leader in optical networking and set the industry benchmark for cost
structure, service delivery, service quality, and customer support. Network is a
provider of advanced Internet, data, voice, and video services to companies that
use high capacity communications as an integral part of their service offerings.
These companies include long distance carriers, local service providers,
Internet service providers, application service providers, data storage service
providers, managed network service providers, digital subscriber line service
providers, utilities, governmental entities, educational institutions,
international carriers, and others. WCG also offers rights of use in dark fiber,
which is fiber that it installs but for which it does not provide communications
transmission services. Network has built networks and entered into strategic
relationships to provide services in the United States and connectivity to Asia,
Australia, Canada, South America, and Europe. Network has also made investments
in companies that assist

                                        4
<PAGE>

it in improving, or create demand for capacity on, its network. WCG's global
network includes ownership interests in or rights to use:

     - in excess of 30,000 miles of fiber-optic cable currently completed,
       connecting 125 U.S. cities;

     - fiber-optic cable networks within 20 of the largest U.S. cities;

     - 125 network centers located in 112 U.S. cities;

     - 14,000 route kilometers (approximately 8,600 route miles) of dark fiber
       or wavelengths in Europe connecting the UK, France, Germany, Belgium, the
       Netherlands, Norway, Denmark, Finland, and Sweden;

     - operational border crossings between the U.S. and Mexico in California
       and Texas, and between the U.S. and Canada in Washington, Michigan, and
       New York; and

     - in excess of 250 STM-1 equivalent circuits on 7 major undersea cable
       systems connecting the U.S. with Europe, Asia, South America, and
       Australia.

REVENUES

     Network contributed approximately the following percentages to WCG's total
consolidated revenues (excluding revenues from discontinued operations) for the
past three years:

<Table>
<Caption>
                PERCENTAGE OF
               TOTAL REVENUES*                 YEAR
               ---------------                 ----
<S>                                            <C>
91...........................................  2001
84...........................................  2000
73...........................................  1999
</Table>

---------------

* Percentages are derived from gross revenue for the segment including sales
  made from one segment to the other divided by consolidated revenue for the
  company.

STRATEGY

     The strategic objective of Network is to become a leader in optical
networking and to distinguish WCG from its next-generation-network competitors
while closing the service platform gap with the legacy retail service providers.
Through a unique enablement strategy, WCG will provide customers with a
cost-effective foundation from which to build/expand their businesses. WCG's
goal is to set the industry benchmark for cost structure, service delivery,
service quality and customer support. To achieve these objectives, Network plans
to:

     - Become the leading U.S. voice network.  WCG's functional switching
       solutions provide the platform to deliver a broad suite of basic and
       enhanced voice services across its multi-service backbone network. WCG
       intends to leverage its scalable world-class voice network to become the
       provider of first choice for voice services to major service providers
       (e.g., Regional Bell Operating Companies (known as "RBOCs")) and foreign
       governmental or privatized postal, telephone, and telegraph authorities
       (known as "PTTs"). WCG plans to become the "retail-enablement partner" of
       these providers by offering premium quality, state-of-the-art voice
       services with a highly efficient cost structure.

     - Become the leading U.S. enhanced data services network.  WCG's network
       employs optical restorable mesh architecture, rather than the traditional
       SONET ring architecture. WCG believes this unique architecture, combined
       with a comprehensive management system for each of its data products and
       services, makes WCG the network platform of choice for service providers
       and resellers.

                                        5
<PAGE>

     - Become a top-tier Internet infrastructure and service provider.  WCG
       operates one of the few national Tier 1 Internet Protocol backbone
       networks in the U.S. WCG will leverage its OC-48 Packet-over-SONET
       network to allow customer access at more than 120 locations nationwide,
       including access to international connectivity, using the customer's
       choice of Layer 2 technologies including ATM, Frame Relay, Private Line,
       SONET, and Ethernet.

     - Become the leading end-to-end provider of optical transport
       services.  WCG combines advanced optical and electronic transmission and
       switching equipment with its innovative network design to offer highly
       flexible, efficient, and reliable network services to its customers. This
       enables WCG to provide its customers the flexibility to efficiently and
       cost-effectively control their own service on its network rather than
       build these capabilities/networks for themselves.

     - Become a leading provider of international connectivity for global
       customers.  WCG owns capacity in six sub-sea cables connecting its
       domestic network to facilities in the United Kingdom, Europe, South
       America, Australia, New Zealand, and Asia-Pacific. Utilizing its sub-sea
       cable capacity, WCG links its North American network to its international
       facilities and partners. With offices located in Tokyo, Beijing, Sydney,
       and London, WCG offers a full suite of wholesale telecom products and
       services. WCG believes this will permit WCG to increase the utilization
       and profitability of the core U.S. network by providing domestic and
       global connectivity for WCG's U.S. and international customers, as well
       as alliance partners.

     - Become the leading out-source network infrastructure services
       provider.  WCG has more than a decade of experience creating the most
       extensive broadband network infrastructure in the United States. Network
       Managed Services will call upon this experience in an effort to design,
       build, and operate the best customer solutions for network infrastructure
       in the communications industry. WCG believes it can help customers drive
       expansion into new markets by building out infrastructures and
       implementing new network services.

PROPERTIES

  U.S. Inter-City Network

     In late 2000, Network substantially completed its U.S. inter-city core
network build, which connects 125 cities. The following table describes the U.S.
inter-city network infrastructure (numbers are approximate):

<Table>
<Caption>
                                                       PLANNED     MILES IN    AVERAGE NUMBER
THE WCG NETWORK                                      ROUTE MILES   OPERATION     OF FIBERS
---------------                                      -----------   ---------   --------------
<S>                                                  <C>           <C>         <C>
Wholly owned fiber builds..........................    13,300       13,200          109
Fiber builds under Asset Defeasance Program(1).....     3,300        3,300          137
Fiber builds jointly owned(2)......................     1,300        1,300           12
Routes through dark fiber rights(3)................    12,200       10,900           17
Total..............................................    30,100       28,700
                                                       ======       ======
</Table>

---------------

(1) On March 8, 2002, WCG exercised its purchase option under the asset
    defeasance program (the "ADP"). On March 29, 2002, TWC funded the purchase
    price, the ADP assets were transferred to WCG, the ADP was terminated, and
    WCG tendered an unsecured note to TWC. TWC has reserved its rights with
    respect to the transaction.

(2) This category consists of Network's fiber rights in builds that have been
    jointly constructed by FTV Communications, LLC ("FTV"), a limited liability
    company with WCG and two other parties as members, in which WCG shares equal
    ownership and control with the other two parties. FTV constructed the
    portion of the route between Portland and Las Vegas and obtained

                                        6
<PAGE>

    rights in dark fiber in the portion of the route between Las Vegas and Los
    Angeles and in the Detroit-Cleveland route. FTV owns the right of way over
    some of the route it constructed, with each of its members also contributing
    rights of way. FTV granted rights in dark fibers on the completed routes to
    WCG and its other members. This excludes WCG's interest in the single fiber
    network and the related transmission equipment purchased by WorldCom in
    October 2001.

(3) This category consists of rights in dark fiber and conduits that Network has
    obtained. Network has obtained approximately 12,200 route miles, all of
    which have had fiber-optic cable installed. Network manages the transmission
    equipment on the routes it acquired, and it typically pays for the
    maintenance of fiber-optic strands and rights of way.

     In addition, WCG has completed 20 local builds into various cities. While
it had originally planned 50 such builds, WCG's current strategy does not
include capital expenditures or specific plans to complete additional local
builds.

     Network also leases capacity from both long distance and local
telecommunications carriers, including its competitors, in order to meet the
needs of its customers. Leases of capacity are distinguished from rights in dark
fiber in that capacity leases are for only a portion of the fiber capacity and
the lessor supplies and operates the equipment to transmit over the fiber.
Capacity leases are generally for terms of one month to five years, but can be
longer. Network leases less than three percent of its U.S. network capacity
currently in use. However, because it has more capacity available on its network
than it is currently using, the leased capacity it currently uses constitutes
less than one percent of the total capacity currently available on the network.
These leases are for areas where Network does not have on-network capacity, or
such capacity is not currently sufficient to meet the expected near-term demand.

     In September 2001, Network acquired two gateway switches from Ameritech
Global Gateway Services ("AGGS"), an SBC subsidiary, and in turn, WCG assumed
the wholesale international long-distance business currently conducted by AGGS.
The gateways allow the company to offer outbound foreign termination and inbound
domestic termination to other carrier customers.

     In December 2001, Network acquired the assets of Core Express, Inc., which
did not include any real estate assets.

     City-by-city buildout.  The following table sets forth details about
Network's build.

<Table>
<Caption>
                                                     ESTIMATED    APPROXIMATE   APPROXIMATE
                                                     COMPLETION      ROUTE      OPERATIONAL
FIBER BUILD SEGMENT                                     DATE         MILES         MILES
-------------------                                  ----------   -----------   -----------
<S>                                                  <C>          <C>           <C>
Albany - Boston....................................  Complete          183           183
Anaheim - San Diego................................  Complete          125           125
Atlanta - Jacksonville(1)..........................  Complete          357           357
Atlanta - Washington, D.C. ........................  Complete          836           836
Boston - New York(5)...............................  Complete          556           556
China and Japan Cables: West Coast Connections.....  Complete          462           462
Chicago - Atlanta..................................  Complete          985           985
Chicago - Cleveland................................  Complete          386           386
Chicago - Greenwood(2).............................  Complete          188           188
Cleveland - New York...............................  Complete          698           698
Daytona - Orlando - Tampa..........................  Complete          153           153
Dallas - Houston(2)................................  Complete          250           250
Denver - Dallas(2).................................  Complete        1,138         1,138
Denver - Salt Lake City(1).........................  Complete          541           541
Detroit - Cleveland(2).............................  Complete          174           174
</Table>

                                        7
<PAGE>

<Table>
<Caption>
                                                     ESTIMATED    APPROXIMATE   APPROXIMATE
                                                     COMPLETION      ROUTE      OPERATIONAL
FIBER BUILD SEGMENT                                     DATE         MILES         MILES
-------------------                                  ----------   -----------   -----------
<S>                                                  <C>          <C>           <C>
Fresno - Bakersfield and San Luis Obispo Ring......  Complete          315           315
Herndon, VA - Wash. D.C. - New York City(1)........  Complete          349           349
Houston - Atlanta (two diverse routes).............  Complete        2,063         2,063
Houston - McAllen - Laredo - San Antonio(2)........  Complete          705           705
Jacksonville - Miami(1)............................  Complete          364           364
Kansas City - Denver(1)............................  Complete          648           648
Kansas City - Joplin(2)............................  Complete          167           167
L.A. - NYC(2)......................................  Complete        4,370         4,370
L.A. - Phoenix - San Antonio - Austin - Houston....  Complete        1,742         1,742
L.A. - Sacramento(6)...............................  Complete        1,250         1,250
L.A. - Anaheim.....................................  Complete           23            23
L.A. - San Diego(2)................................  Complete          150           150
Miami - Tampa - Tallahassee(1).....................  Complete          566           566
Minneapolis - Kansas City(1).......................  Complete          452           452
New Orleans - Tallahassee..........................  Complete          471           471
Oakland - Fremont(6)...............................  Complete           58            58
Portland - Salt Lake City - Las Vegas(3)...........  Complete        1,316         1,316
ACI(4).............................................  Complete        1,997           772
Houston - Kansas City - St. Louis - Chicago........  Complete        1,452         1,452
Salt Lake City - Sacramento - San Francisco - Santa
  Clara............................................  Complete          837           837
Minneapolis - Milwaukee - Chicago(5)...............  4Q 2002           933           749
Chicago - Detroit(2)...............................  Complete          667           667
Portland - Seattle(7)..............................  Complete          367           367
Riverside - San Diego..............................  Complete          113           113
Sacramento - Portland(6)...........................  Complete        1,354         1,354
Santa Clara - Fremont - Modesto....................  Complete          109           109
TAT 14 Cable East Coast Connections................  Complete          147           147
Union City - Modesto(2)............................  Complete           85            85
</Table>

---------------

(1) These routes were constructed under Network's asset defeasance program.

(2) Network has rights in dark fiber with no spare conduits along these routes.

(3) These routes were jointly constructed or obtained by FTV with no spare
    conduits.

(4) In September 2000, Network acquired the long distance network assets of
    Ameritech Communications, Inc., a subsidiary of SBC. The assets acquired are
    located in the states of Illinois, Indiana, Michigan, Ohio, and Wisconsin,
    and include a 2,000-mile fiber-optic network over four routes, indefeasible
    rights of use in dark fiber, and 15 data centers.

(5) In addition to constructing one route with two spare conduits, Network has
    obtained rights in 12 dark fibers along a different route between these
    cities.

(6) In addition to constructing one route with one spare conduit, Network has
    obtained rights in 12 dark fibers along a different route between these
    cities.

(7) In addition to constructing one route with two spare conduits, Network has
    obtained rights in 12 dark fibers with one spare conduit along a different
    route between these cities.

     Network architecture and technology.  WCG delivers a diverse suite of
communications services over its advanced multi-services network operating
system, including the following:

     - Multi-service networking -- Video, Internet, data, and voice requirements
       demand significant network flexibility, reliability and scalability.
       WCG's network architecture enables

                                        8
<PAGE>

       service bundling and interworking across an integrated network platform
       where most carriers implement unique, disparate networks for each service
       offering.

     - Service enablement architecture -- WCG is evolving a comprehensive
       management system and infrastructure to each of its products and
       services. This system accelerates the customer's ability to provision and
       deliver services over the WCG network while simplifying the overall
       operational support requirements both at the customer and at WCG.

     - Optical switching  -- Newly introduced switched optical systems allow WCG
       to deliver more economical and reliable optical network services with
       differentiated levels of service. Coupled with optical mesh architecture,
       optical switching provides the best benefits of ring, mesh, and linear
       SONET solutions in any combination.

     - Ultra-long haul optics  -- Next-generation optical transmission systems
       enable significantly lower transmission costs, especially for
       long-distance network traffic. With the more advanced service delivery
       and management capabilities of the ultra-long haul platform, operational
       expense and provisioning cycles are minimized.

     - Core IP routing  -- Internet protocol networks provide a simple, robust
       solution for multimedia traffic delivery and management. Traffic destined
       for either the public Internet or internal corporate locations is handled
       in the most efficient, reliable manner across WCG's multiple OC-48 IP
       backbone.

     - Core MPLS networking  -- Multi-protocol label switching is a solution
       that enables more efficient interworking of IP, ATM, and optical systems.
       MPLS facilitates improved management of quality of service, traffic
       administration, and service differentiation across the network,
       especially in the IP domain.

     - Core ATM switching  -- ATM switching is a packet switching and
       transmission technology designed to transmit video, voice, and data in
       fixed-sized cells. Optimized for the delivery of multiple quality of
       service levels, these systems carry voice and data more efficiently than
       traditional networks, with greater predictability and lower cost than
       other networks.

     - Core Voice switching  -- WCG believes it employs the most scalable,
       functional switching solutions to deliver a broad suite of basic and
       enhanced voice services across its multi-service backbone. Highly
       reliable switches enable WCG to scale with extremely rapid traffic
       expansion of WCG's voice traffic.

     - Multiprotocol media transport  -- Media and video services comprise one
       of the most dominant traffic types carried on the network today.
       Broadcast quality video support is provided over both the multi-services
       network infrastructure with customer handoffs enabled in private line,
       ATM, IP, and satellite networks.

     - Flexible metro access services  -- WCG offers access to its
       multi-services network via a broad variety of connectivity mechanisms.
       Supported speeds include OC-3 to OC-192, 10Mbps Ethernet to 1Gbps
       Ethernet, and DS1/T1 to DS3/T3. Each access can be leveraged to deliver
       video, voice, Internet or data services.

     - Nationwide Ethernet services  -- Beyond the metro access areas, WCG
       provides highly flexible, differentiated service Ethernet connectivity on
       both a local and national basis. With full VLAN support, this solution
       offers connectivity ranging from 1Mbps to a full 1Gbps bandwidth in 1Mbps
       increments.

     - Terabit content services  -- WCG believes that distribution and secure
       content management are important components in the media delivery
       capability provided by WCG. WCG

                                        9
<PAGE>

       currently deploys multi-terabit content management capabilities available
       for distribution over the multi-service network.

     - Meshed SONET technology  -- Optically meshed SONET provides more options
       for the management and integration of nationwide network implementations.
       Contrasted with SONET ring architectures deployed by most carriers,
       meshed SONET architectures provide more diverse and efficient reliability
       mechanisms without the excessive consumption of network bandwidth
       inherent in ring designs.

     - DWDM -- Dense wave division multiplexing is a technology that allows
       transmission of multiple waves of light over a single fiber-optic strand,
       thereby increasing network capacity without additional fiber builds. By
       using DWDM with current technology, WCG is able to derive 80
       bi-directional wavelengths, at OC-192 capacity per wavelength (which is a
       capacity of approximately 10 gigabits per second), over a single
       fiber-optic strand.

     - Elimination of digital cross-connect system -- The packet technologies
       that Network employs eliminate the need for a high-cost, high-maintenance
       digital cross-connect system. Circuit-based systems are the predecessor
       to the packet technologies Network employs. The elimination of
       unnecessary equipment also reduces Network's operating and maintenance
       expenses.

     - Closer spacing of transmission electronics -- Network spaces its
       transmission electronics at 40-mile intervals while most other fiber
       networks space their electronics at 60-mile intervals. WCG believes the
       resulting reduction in noise, dispersion, and other factors inherent with
       longer fiber spans provides significant advantage to WCG from a
       reliability, management, and technology adoption perspective.
       Technologies that favor closer spacing include higher density DWDM,
       broader bandwidth wavelength (OC-768), and ultra-long haul technologies.

     - Advanced fiber optic cable -- Newer fiber-optic cable, including
       Corning's Enhanced LEAF(TM) fiber and Lucent's TruWave(TM) fiber, has a
       wider range of spectrum than previously deployed fibers over which to
       send wavelengths of light, enabling a greater number of wavelengths to be
       sent over long distances.

     Network centers.  As of December 31, 2001, Network had 125 network centers
across the U.S. Network centers are environmentally controlled, secure sites
designed to house transmission, routing, and switching equipment, and local
operational staff, as well as space and power for collocation customers. By
collocating their own equipment in Network's facilities, customers are able to
minimize the use of expensive local loops from local telephone companies to
reach Network's backbone. The customer also foregoes the capital and operating
expense required to build and maintain its own facilities. Since the WCG network
includes multiple network centers within select major metropolitan areas,
Network can provide an end-to-end solution for its carrier and other customers.

     Conduit and fiber-optic cable.  The WCG network was built for expandability
and flexibility and contains multiple conduits along more than 90 percent of the
routes it constructed. To construct fiber-optic cable, the manufacturer places
fiber-optic strands inside small plastic tubes, wraps bundles of these tubes
with plastic, and strengthens them with metal. Network then places these bundles
inside the conduit, which is high-density polyethylene hollow tubing 1 1/2 to 2
inches in diameter. The conduit is generally buried approximately 42 inches
underground along pipeline or other rights of way corridors. Network also uses
steel casing in high-risk areas, including railroad crossings and
high-population areas, thereby providing for greater protection. The first
conduit contains a cable generally housing between 96 and 144 fibers, and the
second conduit, or third where constructed, serves as a spare. The spare
conduits allow for future technology upgrades, potential

                                        10
<PAGE>

conduit sales, and expansion of capacity at costs significantly below the cost
of new construction. After existing and anticipated leases of dark fiber,
Network generally plans to retain from 8 to 24 fibers for its own use on the
constructed portions of its network.

     Rights of way.  The WCG network was primarily constructed by digging
trenches along rights of way, or rights to use the property of others, which
Network obtained throughout the United States from various landowners. Where
feasible, Network used the rights of way of pipeline companies. WCG believes
that use of pipeline rights of way gives its network inherent advantages over
other systems built over more public rights of way, such as railroads, highways,
telephone poles, or overhead power transmission lines. These advantages include
greater physical protection of the fiber system and lower construction costs.
Where necessary or economically preferable, Network has other right of way
agreements in place with highway commissions, utilities, political subdivisions
and others. Almost all of its rights of way extend through at least 2018.
Approximately 23 percent of its rights of way are along TWC's pipeline rights of
way and the remainder is along the rights of way of other parties. Rights of way
are generally for terms of at least 20 years, and most cover distances of less
than one mile.

     Monitoring.  Network monitors its network 24 hours a day, seven days a
week, from its network management centers in Tulsa, Oklahoma, and St. Louis,
Missouri. Each network management center provides centralized network
surveillance, troubleshooting, and customer service. The system currently allows
technicians to detect a component malfunction in the WCG network, quickly
reroute the customer's traffic to an available alternate path, and effect an
expedited repair. This will reduce service costs and customer downtime. It has
also implemented a program that encourages people to phone a toll-free number
prior to breaking ground, backed up by a "call before you dig" group to reduce
the risk of damage to its conduit or fiber system. Additionally, Network places
above-ground markers at frequent intervals along the route of its network.

  Local Network

     As of December 31, 2001, Network had in operation on-net local services in
20 U.S. cities. These cities in which Network has completed local builds are:
Anaheim, Atlanta, Baltimore, Boston, Chicago, Dallas, Houston, Los Angeles,
Miami, Minneapolis, New York, Newark, Philadelphia, Phoenix, San Francisco, San
Jose, Santa Clara, Seattle, St. Louis, and Washington, D.C. Network intends to
continue to add fiber and optronic equipment to extend the high capacity
services of its nationwide inter-city network to major carrier hotels and
network peering points within those cities. Network has rights to utilize up to
86,000 dark fiber miles over 3,200 route miles in the U.S. and Europe that it
obtained in a fiber lease agreement with Metromedia Fiber Network in 1999.

  Global Network

     Europe.  During 2001 and early 2002, WCG revised its buy/sell agreements
with Telia, the national communications service provider in Sweden, to obtain
the rights to up to 28,442 kilometers in wavelengths or up to 16,867 kilometers
of dark fibers within Telia's fiber-optic network in Europe and also to reduce
WCG's overall purchase commitment. Network has the right to select either
wavelengths or fiber strands, depending on the route and WCG's needs, across
Telia's network. The Telia network connects 22 of the largest European cities
and consists of installed fiber as well as fiber leased from others.

     Australia.  PowerTel, Ltd., a publicly traded company, has built, owns, and
operates communications networks connecting and serving the three Australian
cities of Brisbane, Melbourne, and Sydney with long distance and local services
in the central business districts of these cities. Each of the three Australian
utilities serving these cities has entered into a 20-year agreement with
PowerTel

                                        11
<PAGE>

that allows PowerTel to use the utilities' ducts and to lay fiber-optic cable
alongside their rights of way between the cities. PowerTel's strategy is to
provide high-quality, low-cost local voice, data, and Internet services to the
commercial and carrier markets. WCG's total investment currently represents a 45
percent economic interest in PowerTel. WCG consolidates PowerTel's results of
operations with its own because it is entitled to appoint a majority of the
members of PowerTel's board of directors, and thereby exercises control over its
operations.

     China-U.S. cable and Japan-U.S. cable.  WCG acquired SBC's interests in
these two cables in June 2000. Both cables and their respective West Coast
interconnection points were operational at the end of 2001. The China-U.S. cable
is a half-circuit 16,000-mile loop system, with capacity of 80 gigabits per
second. The Japan-U.S. cable is operating at 80 gigabits per second. Eventually,
the cable can be expanded to 640 gigabits per second.

     Asia-Pacific Cable Network (APCN-2).  A consortium of carriers has built
APCN-2, an intra-Asia 11,500-mile undersea cable project that will connect
China, Hong Kong, Japan, South Korea, Malaysia, the Philippines, Singapore, and
Taiwan. As an initial participant in the network build, WCG has acquired 42
STM-1s of capacity on APCN-2, which is scheduled to be in operation by first
quarter 2002. The cable is set to operate at 160 gigabits per second and can be
expanded to 2,560 gigabits per second. APCN-2 can be interconnected with the
China-U.S. and Japan-U.S. cables described above.

     TAT-14 cable system.  Under an agreement with Telia, WCG obtained 32 STM-1s
of capacity on the TAT-14 cable system, which connects the United States with
the United Kingdom, The Netherlands, Denmark, Germany, and France. TAT-14 became
operational in the fourth quarter of 2001 and operates at 640 gigabits per
second.

     Southern Cross Cable Network.  WCG acquired capacity on this network in
April 2000. Southern Cross is an undersea cable network linking Australia and
New Zealand with Hawaii and the West Coast of the United States. This cable was
completed in November 2000 and operates at 200 gigabits per second.

     Tycom Atlantic.  WCG acquired in the fourth quarter of 2001, two 10 gigabit
wavelengths on the Tycom Atlantic cable connecting the U.S. and Europe. This
cable system, which connects the U.S. and Europe, was operational at the end of
2001.

PRODUCTS AND SERVICES

  Current Service Categories

     Network's products and services fall into eight categories:

     - packet-based data services;

     - private line services;

     - voice services;

     - optical wave services;

     - backhaul services;

     - dark fiber and conduit rights;

     - collocation services; and

     - managed services.

     Packet-based data services.  These services provide efficient connectivity
for Internet, data, voice, and video networks at variable capacities to connect
two or more points. Specific packet-based

                                        12
<PAGE>

data services include ATM, frame relay, and Internet transport services as well
as the new virtual private network ("VPN") service first introduced in March
2002. These services are provided over the WCG network and enable it to bill
based on service features and usage. Network also intends to develop and provide
additional services such as transparent LAN services via wide-area gigabit
Ethernet services over its network.

     Private line services.  Network provides customers with fixed amounts of
point-to-point capacity. These services are billed on fixed monthly fees,
regardless of usage. In 2001, Williams Communications became the first carrier
to deploy "Private Line QoS" capabilities. This service allows a customer to
choose from four different "quality of service" levels from Network's Private
Line service offerings to fit that customer's applications based on options
related to protection (back-up capacity), service level agreements, pricing, and
outage credits. In comparison, other carriers in the telecommunications industry
have limited their offerings to selling either protected or unprotected
services. Network has launched international private line services over its
TAT-14, Japan/US, China/US, and Southern Cross cable systems, extending the
domestic network to major global demand centers.

     Voice services.  Network provides wholesale origination, transport, and
termination, as well as calling card, directory assistance, operator assistance,
and toll-free services. Network completes telephone calls to more than 200
countries worldwide.

     Optical wave services.  In November 1999, WCG became one of the first
communications providers to begin offering optical wave services to customers.
These services allow a customer exclusive long-term use of a portion of the
transmission capacity of a fiber-optic strand rather than the entire fiber
strand. The capacity WCG uses to provide optical wave services is in addition to
the capacity it uses to provide other services. A purchaser of optical wave
services installs its own electrical interface, switching, and routing
equipment. Optical wave services allow a customer to purchase capacity in
smaller increments while retaining the control advantages of dark fiber.

     Backhaul services.  Network has interconnected five international cable
landing stations on the West and East Coasts with fiber optic rings capable of
terminating cable traffic at specified Network centers. These services are made
available to providers that hold their own respective undersea cable assets and
need domestic interconnection services only.

     Dark fiber and conduit rights.  Network sells rights to use dark fiber and
related services. In addition, from time to time, it sells rights to conduit and
installs conduit for its customers. Purchasers of dark fiber rights typically
install their own electrical and optical transmission equipment. Most of WCG's
builds include two spare conduits and Network may sell rights to use at least
one of them. A purchaser of conduit rights typically installs its own cable
inside the conduit. Related services for both sales of rights for dark fiber and
conduits include collocation of customer equipment at Network's data centers and
other network equipment locations and maintenance of the purchased fiber or
conduit. Payment for dark fiber rights is generally made at the time of delivery
and acceptance of the fiber, although other payment options may be available. In
addition, ongoing payments for maintenance services are required.

     Collocation services.  Network provides its customers with the opportunity
to reserve space in its network centers to install their own equipment necessary
to connect to the WCG network. Customers have a variety of options on a
location-by-location basis, including standard collocation, bulk collocation
(either raw or ready-made), and Internet data center space. WCG believes that
providing collocation services on its network increases the sales of its other
services by attracting traditional carriers (ILECs and CLECs), as well as
Internet service providers (ISPs), data storage service providers, managed
service providers, and other Internet-centric customers. Its collocation
services offer potential customers reduced costs for capacity, reduced expenses
compared to building

                                        13
<PAGE>

and operating their own facilities, rapid turn-up of circuits for additional
capacity, interconnection with its network and other networks, and improved
network performance.

     Managed Services.  Network Managed Services offers customers a single
source provider for end-to-end network solutions through a comprehensive suite
of products and services. With the experience and expertise gained through
construction of the most extensive broadband network infrastructure in the
United States, Network Managed Services is uniquely qualified to provide
customers with a comprehensive array of services including, Lifecycle Program
Management, Network Design, Engineering, Implementation Services, Fiber and
Facility Construction, Vendor Support, Equipment Sales and Installation, IT
Outsourcing, and Network Operations including Field Maintenance. By tailoring to
their specific needs and managing the detail, Network Managed Services allows
customers to concentrate on their core business and accelerate time to market.

CUSTOMERS

     Network's customers currently include regional Bell operating companies,
Internet service providers, application service providers, storage service
providers, managed network service providers, digital subscriber line service
providers, long distance carriers, utilities, governmental entities, educational
institutions, international carriers, and other communications services
providers who desire high-speed connectivity on a carrier services basis. Sales
to SBC accounted for 37 percent of Network's 2001 revenues and sales to
WorldCom, including Intermedia and UUNet, accounted for 11 percent of Network's
2001 revenues.

SALES AND MARKETING

     Network's sales organization strives to develop strategic relationships
with customers to drive both incremental business and maintain current revenue
streams. Network targets a focused list of what it perceives to be quality
customers that require high volumes of bandwidth to operate. Product knowledge,
product application, pricing, delivery, and performance information are readily
available to ensure products and services are configured to meet the unique
needs of each customer. Sales teams function at customer, channel, and
geographic levels that WCG believes allows it to manage the sales cycle
effectively. As new network products and services become available to customers,
the sales organization has been successful in expanding existing commercial
relationships.

     In support of WCG's ongoing strategy to deliver an innovative and
competitive portfolio of products to the marketplace, a centralized Product
Marketing and Development organization has been established to leverage
synergies and drive a company wide approach to product management. Key
responsibilities associated with this organization include advanced market
planning and segmentation, product planning and development, product economics
and pricing, and competitive analysis.

COMPETITION

     The communications industry is highly competitive. Some competitors in the
markets of carrier services and fiber-optic network providers may have
personnel, financial, and other competitive advantages. In the market for
carrier services, Network competes primarily with the three traditional
nationwide carriers, AT&T, WorldCom, and Sprint, and other coast-to-coast and
regional fiber-optic network providers, such as Qwest, Level 3, Global Crossing,
and Broadwing. Other companies may construct significant fiber-optic networks.
Network also competes with numerous other service providers that focus either on
a specific product or set of products or within a geographic region. Network
competes primarily on the basis of network reliability, transmission quality,
customer service and support, and price. Network has only recently begun to
offer some of its services and products and, as a result, it may have fewer and
less well established customer

                                        14
<PAGE>

relationships than some of its competitors. Network's services within local
markets in the United States face additional competitors, including the
traditional regional telephone companies and other local telephone companies.
Its services outside the United States also face additional competitors,
including national telephone companies in foreign countries and carriers that
own capacity on other undersea and regional fiber-optic systems.

     While it is possible that some of Network's competitors will cease
operations in the coming year due to the deterioration of financial markets and
other difficulties that have impacted companies throughout the
telecommunications industry, it is likely that a number of other competitors may
gain competitive advantages by successfully completing their respective
restructuring or bankruptcy reorganization processes.

                                EMERGING MARKETS

     In addition to operating its Network segment, which continues to focus on
enabling bandwidth-centric businesses, WCG recognized the opportunity to expand
its presence in the high-margin growth market of rich media content (audio and
video) services by building upon its core network strengths to more effectively
meet the needs of its diverse customer base. To address the opportunities
presented by these markets, WCG created the Emerging Markets segment.

     The Emerging Markets segment is comprised of the Broadband Media business
unit as well as substantially all of the assets of iBEAM Broadcasting
Corporation acquired in December 2001. Founded as Vyvx in 1989, Emerging Markets
has enabled its customers to move media regardless of format (analog and
digital), quality (narrowband to broadcast quality), method (fiber-optics and
satellite), or geographic reach (domestic and international). In 1990 Vyvx
launched the first-ever video transmission over a terrestrial network service
offering and carried the first of thirteen consecutive Super Bowls for the NFL
and its broadcasters. For the past thirteen years, Vyvx has been the centerpiece
of WCG's participation in the evolution of demand for high quality, reliable,
network-based solutions for aggregating, managing, and distributing
mission-critical content for content owners and rights holders. Over time, Vyvx
made strategic investments and acquisitions to fortify and grow its core
product/service offerings to satisfy customer demand for new and more integrated
services. For example, between 1995 and 1997, Vyvx acquired four teleports and
significant satellite capacity to launch the first-ever fully integrated hybrid
satellite/terrestrial service to support dedicated and occasional requirements
for the distribution of live content for customers like CNN in their coverage of
breaking news events in remote geographies (e.g., the war in Afghanistan).

     Today, the Emerging Markets segment includes a comprehensive set of assets,
capabilities, and expertise in the market for acquiring, managing and
distributing audio, video, and multimedia content. These unique capabilities
reinforce WCG's support of the media industry and extend its reach to include
other mission-critical content industries like financial services, enterprise,
education and government.

REVENUES

     Emerging Markets contributed approximately the following percentages to
WCG's total consolidated revenues (excluding revenues from discontinued
operations) for the past three years:

<Table>
<Caption>
PERCENTAGE OF TOTAL REVENUES*                  YEAR
-----------------------------                  ----
<S>                                            <C>
14..........................................   2001
20..........................................   2000
27..........................................   1999
</Table>

                                        15
<PAGE>

---------------

* Percentages are derived from gross revenue for the segment including sales
  made from one segment to the other over consolidated revenue for the company.

STRATEGY

     Emerging Markets' business strategy is to be the undisputed leader in the
convergence market and to set the benchmark for end-to-end solutions, service
delivery, service quality, and customer support. To achieve this objective,
Emerging Markets intends to:

     - fully integrate the platform for traditional media with the platform for
       new media;

     - leverage this integrated platform to assist our customers by providing
       content owners and rightsholders the ability to acquire, manage and
       distribute media regardless of format, quality, method or geographic
       reach; and

     - continue to innovate with new complementary products and services
       including flexible bandwidth options for its traditional broadcast and
       media customers, new portal-type access software for logging, storing,
       managing and distributing content and virtual private network solutions
       using Internet protocol ("IP").

PRODUCTS AND SERVICES

     Emerging Market's primary products and services fall into the following
categories:

     - content collection, management and distribution services;

     - fiber-optic and satellite video transport services;

     - advertising and syndicated programming distribution services; and

     - business media services.

     Specific products and services include:

  Content Collection, Management and Distribution

     Digital Exchange.  Digital media management (DMM) is a Web portal interface
that incorporates all of the user's applications and content management services
into one interface, managing the entire life cycle of a project, from creation
through editing, approval, distribution, and archiving. Digital Exchange enables
solutions that distribute and track broadcast-quality (MPEG-2) long- and
short-form video content.

     Digital Library.  A Web-based media library service, Digital Library
enables the archiving, management, ingesting, search, retrieval, browsing,
re-purposing, collaboration, and display of digital media, within a master-level
security environment.

     Managed Application Hosting.  Small- to mid-size businesses with data
center and application hosting needs utilize this service to outsource those
requirements. Services include: standard hardware platforms, software packages,
complete system management, 24x7 customer care and secured facilities,
connectivity through the WCG OC-48 IP network and all network infrastructure
connections within the Internet data center, storage and back-up, and standard
activity reporting.

     Managed Web Hosting.  WCG's end-to-end managed Web hosting services enable
quick deployment of Web sites with rich-media content and e-commerce
capabilities and facilitate maximum uptime, providing increased availability to
end users.

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<PAGE>

     Activecast(SM).  This service provides end-user experiences that combine
video and audio presentation slides, dynamic Web links, live chats, and audience
polling in a single, branded user interface.

     ActivecastFS(SM).  This interactive webcasting application was designed
specifically to meet the needs of financial services customers. Activecast FS
provides customers controlled access and security while enabling them to meet
governmental fair disclosure requirements.

     Talkpoint(SM).  An interactive webcasting offering, Talkpoint is a unique,
self-publishing presentation tool that allows the customer to deliver live and
on-demand audio-based interactive webcasts to a dispersed audience using the
Internet. The audience views the presentation through a standard Web browser and
listens to the presenter on their computer or via telephone. Listeners can
interact by submitting questions or replying to audience polls.

     Web Content Publishing.  This service allows customers to publish and
manage streaming and downloadable content from the desktop, build virtual
directories of media content and tailor permissions, sell content via
e-commerce, search an entire library of content (by category, keyword, and other
search criteria), and report on viewership of particular Web site areas or files
accessed.

     Streaming Distribution.  Video and audio content can be delivered live or
on-demand and in multiple formats including Windows Media and RealPlayer G2.

     Dedicated Internet Access.  DIA, or Dedicated Internet Access, is a
high-speed, reliable, continuous connection to the Internet supported by
dedicated point-to-point local access circuits between the customer site and the
WCG IP network.

  Fiber Optic and Satellite Video Transport Services

     International Video Transmission.  By combining the reach and capability of
the WCG fiber optic network, teleports, and satellite transponder inventory,
international video services enable large-capacity and broadcast-quality media
content distribution. Internet distribution is provided via satellite, Internet
peering, local connectivity, and customized telecommunications solutions to
facilitate the expansion of voice and data networks.

     Occasional and Dedicated Fiber MPEG-2 Compressed Video.  MPEG-2 compressed
video services provide multiple bandwidth choices over a single TV-1 local loop
terminating at a WCG video network center or a video-hub facility. The 8 Mbps
service is well suited for news feeds with cameo appearances, while the 18 Mbps
service is more appropriate for feeds containing rich content requiring editing
and further production work.

     Occasional and Dedicated 45 Mbps Video.  This is a 45 Mbps transmission
service between 42 Television Switching Centers ("TSCs") and five Television
Centers ("TCs") in the U.S. The occasional service platform supports news,
sports, and special event broadcasting via connectivity to 47 of the top
designated market areas ("DMAs"), in excess of 40 production facilities, and 100
sports facilities across the nation. The 45 Mbps transmission service includes
the Sports Package and the VenueNet(R) options as well as the First Video(R)
Affiliate program.

     Sports Package.  This service bundles all transmission pieces required by
rightsholders, providing customers with a centralized environment. Service
includes both local access circuits and phone lines and is available at all NFL,
NBA, MLB, and NHL venues.

     VenueNet(R).  An enhanced local access demarcation unit available at sports
venues, VenueNet permits advanced digital video transmission signal
capabilities, dual transmission paths to and from the venue, and diversity out
of the venue to the TSC within each city of origin. This service includes DS-3
and/or TV-1 connectivity and continuous monitoring, on-premises equipment rack,
weatherproof demarcation box, and multiple telephone connections.

                                        17
<PAGE>

     First Video(R) Affiliates ("FVAs").  Members of this affiliate-marketing
program are full-service production facilities (production, post, and graphics)
that maintain full-time connectivity to the WCG network. Serving as access
points to the WCG network, FVAs use a combination of Vyvx(R) Broadband Media
services such as 45 Mbps video, Fiber MPEG-2 Compressed Video, Business Media
Services, satellite, and teleport to serve customers including national news
organizations, film production studios, and others requiring multimedia
production and distribution.

     Teleport and Transponder.  WCG owns and operates four teleports located in
Atlanta, Denver, Los Angeles, and New York. Transponder services include an
in-house inventory as well as commercial relationships with PanAmSat, Loral, and
other providers or resellers of satellite capacity. The WCG Teleport and
Transponder Services deliver cost-efficient, custom-engineered solutions for
Internet, video, and data transmissions via satellite.

  Advertising and Syndicated Programming Distribution

     Audio Distribution.  WCG sends over 470,000 radio spots to stations
annually via electronic and physical distribution. Spots are distributed to over
7,500 stations in North America via the Internet using no proprietary hardware.
Electronically-distributed radio spots use a Secure Sockets Layer that ensures a
protected environment for spot transport, preview, and download.

     Video Distribution.  Through the combination of electronic and physical
distribution, WCG is the industry leader in advertising distribution by
delivering 2.8 million video spots in 2001.

     Electronic Distribution.  Using dedicated satellite and IP technologies,
WCG delivers studio-quality television spots to The Catch Server(TM) units,
located at more than 642 television stations across the U.S. The files are
encoded and transmitted as MPEG-2, 4:2:2 format, at what is currently the
highest bit rate in commercial use in the industry.

     Physical Distribution.  The WCG facility located in Memphis, Tennessee, is
situated within minutes of the FedEx(R) distribution hub, allowing the company
to offer late cut-off options for last-minute distribution.

  Business Media Services

     Streaming and Webcasting.  The WCG streaming and webcasting solutions blend
high-quality video and audio streaming with an interactive user interface.
Streaming applications can be bridged and incorporated into videoconferencing
solutions to extend the reach of event participation. Live video can be
transmitted via fiber, satellite, microwave, ISDN, and/or streaming to connect
webcasting participants worldwide. Webcasting solutions range from streaming
only applications to media-rich, synchronized presentations.

     Total Event Management.  Utilizing the exclusive "event bridge," total
event management services offer customers a full range of comprehensive,
personalized services including: expert project management, large-room
scheduling, uplink, and downlink service. This service also includes project
planning and consulting with detailed project plans, dedicated conference
technicians, vendor management, and contingency planning.

     Videoconferencing and Bridging.  WCG coordinates and manages the
transmission portion of videoconferencing, bridging, and streaming. Live video
is transmitted via fiber, satellite, microwave, ISDN, and/or streaming to
connect meeting participants in an unlimited number of videoconferencing sites
worldwide.

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<PAGE>

CUSTOMERS

     Emerging Markets sells to media content service providers and businesses
that use media content as a component of their business. It does not compete
with its media customers for retail end-users. It has over 2,500 customers,
including major broadcast and cable television networks, news services,
professional and collegiate sports organizations, advertising agencies,
television companies, movie production companies, financial services
institutions, enterprise businesses, and governmental agencies. Approximately
50% of Emerging Markets' total revenue for 2001 was derived from its top 10
customers. Emerging Markets' largest customer accounted for approximately 18
percent of Emerging Markets' total revenues in 2001. Contracts with the largest
customers are for terms that extend up to 10 years. Most contracts with smaller
customers are for one-year terms.

SALES AND MARKETING

     Emerging Markets has sales personnel located in offices in 14 cities
throughout the United States. Its office in Miami serves markets in South
America. It also has offices in Singapore, Japan, and London that serve markets
in Asia and Europe.

COMPETITION

     No single competitor currently exists with the comprehensive set of
services being offered by Emerging Markets. Niche competitors for various
services include the following: Globecast for standard 45 MB/second service and
Sonic Telecom for compressed services. Streaming media competitors include
Akami, Real Networks, and Digital Island/Cable & Wireless. Managed web hosting
competitors include Digex and Loudcloud. Digital media management competitors
include eMotion, Pathfire, Wham!Net, and Liberty Livewire. Ads distribution
competitors include DG Systems, Inc.

                               OTHER INFORMATION

INVESTMENTS

     WCG believes that its investments in and work with technology companies in
their developmental stages facilitate improvements in its network through the
rapid adoption and deployment of those technologies that offer the ability to
lower costs and substantially increase transmission speeds and capacity.
Accordingly, WCG has invested in companies that it believes can facilitate its
ability to offer complementary products or services to its customers, including
new products and services utilizing broadband media technology. It also has
invested in communications companies in order to solidify commercial
relationships, which may increase business on the WCG network. During 2000, WCG
recognized net income from investments of $294.1 million. In 2001 WCG recognized
net losses from investments of $95.7 million including write-downs of $207.6
million related to certain investments resulting from management's determination
that the decline in the value of these investments was other than temporary.

     WCG has investments, none of which exceed five percent of outstanding
common stock, in several public companies, including the following:

     Accelerated Networks.  Accelerated Networks, Inc. focuses on developing
integrated access devices. Its products support network carriers in efficiently
connecting many different types of customer services ranging from Internet
access, voice over Internet protocol, corporate remote access, virtual private
networks, and telephone service.

     Ariba.  Ariba, Inc., is an enterprise "spend management" (procurement
systems) solution provider.

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<PAGE>

     Avici Systems.  Avici Systems, Inc., is a manufacturer of terabit routers.

     Breakaway.  Breakaway Solutions, Inc., is a provider of e-business
solutions.

     Corvis.  Corvis Corporation is a manufacturer of long-haul optical
transmission equipment.

     Pinnacle.  Pinnacle Data Systems, Inc., is a supplier of video authoring,
storage, distribution, and Internet streaming solutions.

     GoConnect.  GoConnect Australia Pty Ltd. is an Australian-based Internet
media company with a core business focused on interactive video advertising
using proprietary technology with free Internet service to gain an audience.

     WCG also has investments in several private companies, including
Centerpoint, Inc.; Charlotte's Networks, Inc.; Epoch Internet; Hostcentric,
Inc.; Ignite Sports; Mahi Networks, Inc.; MariTEL; Sportvision, Inc.; Storigen
Systems, Inc.; Telica, Inc.; Tenor Networks, Inc.; UtiliCom Networks, LLC;
Xstream Sports, Inc.; Yotta Networks; and Zaffire, Inc.

  Foreign Investments

     Manquehue Net.  Manquehue Net, S.A. (formerly Telefonica Manquehue, S.A.),
is a high-capacity communications services provider within the Santiago, Chile
metropolitan area. It provides Internet, data, and voice services for its
approximately 100,000 business and residential customers as of December 31,
2001. Manquehue Net was formed as a result of the merger of Metrocom S.A. with
Telefonica Manquehue in January 2000. Manquehue Net is installing an extensive
telecommunications duct infrastructure throughout Santiago, which had reached
more than 250,000 homes and businesses by the end of 2001. WCG owned a 19.9
percent equity interest in Metrocom S.A. until the merger. As a result of the
merger and subsequent investments by other shareholders, WCG now owns 16.5
percent of Manquehue Net.

     Silica Networks.  In May 2000, WCG acquired a 19.9 percent direct interest
in Silica Networks S.A. (formerly Southern Cone Communications Company, S.A.).
Manquehue Net also acquired a 30.1 percent interest in Silica Networks. The
4,300-kilometer (2,660-mile) Silica Networks network links the major Argentine
cities of Buenos Aires, Rosario, Cordoba, Mendoza, and Neuquen with the Chilean
city of Santiago. Development efforts were put on hold in the third quarter of
2001 as a result of the economic problems in Argentina. WCG has treated its
investment in Silica Networks, including certain amounts carried by Manquehue
Net, as fully impaired.

     In the third quarter of 2001, WCG sold its remaining interest in ATL-Algar
Telecom Leste S.A to America Movil S.A. de C.V., pursuant to an option granted
earlier in 2001 to Telecom Americas, Ltd., a joint venture among SBC, America
Movil, and Bell Canada International.

STRATEGIC ALLIANCES AND RELATIONSHIPS

     WCG enters into strategic alliances with communications companies to secure
long-term, high-capacity commitments for traffic on the WCG network and to
enhance its service offerings. It currently has strategic relationships with
SBC, Telefonos de Mexico, and KDDI. WCG intends to continue to pursue additional
strategic alliances. The most significant of these alliances are described
below.

     SBC Communications Inc.  SBC is a major communications provider in the
United States. SBC currently provides local services in the south central and
Midwest regions of the United States and in California, Nevada, and Connecticut.
Concurrently with the WCG initial public offering, on October 6, 1999, SBC
acquired 20,226,812 shares of WCG Class A common stock, which represents
approximately 4.1 percent of the shares of capital stock outstanding as of
December 31, 2001. In connection with its purchase of WCG common stock at the
time of the initial public

                                        20
<PAGE>

offering, SBC agreed to certain restrictions and will receive certain
privileges, including the following:

     - SBC has a right to acquire additional shares of WCG Class A common stock
       which cannot exceed a total ownership interest of 10 percent of all
       classes of WCG common stock outstanding on a combined basis until at
       least 2009.

     - SBC has agreed not to transfer to anyone except affiliates any of its
       shares of WCG common stock until April 2003, unless WCG has a change of
       control.

     - SBC has the right to nominate a member of the WCG board of directors at
       such time as SBC has more than a 5 percent equity interest in WCG and is
       allowed to offer long distance services in a state in its traditional
       exchange service area. Although SBC currently is not entitled to exercise
       this right, a director designated by SBC had been elected to, and until
       February 5, 2002, served as a member of, the WCG board of directors.

     - SBC has a right to maintain its equity interest in the WCG common stock,
       which will be forfeited if SBC fails to exercise this right twice.
       Following a second failure to exercise, SBC has a right to maintain its
       newly diluted position so long as it maintains at least a 3 percent
       equity interest.

     - SBC has the right to require WCG to register under the Securities Act its
       shares of WCG Class A common stock.

     WCG has an option to purchase all the shares of Class A common stock
acquired by SBC in the event of the termination of certain agreements with SBC.
WCG also has a right of first purchase with respect to any shares that SBC
should decide to offer.

     WCG has entered into agreements with SBC that provide that:

     - until 2019, SBC must first seek to obtain from WCG domestic voice and
       data long distance services and select international wholesale services;

     - until 2019, WCG must first seek to obtain from SBC select international
       wholesale services and various other services, including switched voice
       services such as toll-free, operator, calling card, and directory
       assistance services; and

     - SBC and WCG will sell each other's products to their respective customers
       and provide installation and maintenance of communications equipment and
       other services.

     For the services each must seek to obtain from the other, the prices
generally will be equal to the cost of the product or service plus a specified
rate of return. However, these prices cannot be higher than prices charged to
other customers and in some circumstances cannot be higher than specific rates.
If either party can secure lower prices for comparable services that the other
party will not match, then that party is free to utilize the lowest cost
provider.

     Both WCG and SBC can provide services or products to other persons. Each
party may also sell or utilize the products or services purchased from the other
to provide products or services to other persons. However, if SBC establishes a
wholesale distribution channel to resell the network capacity purchased from WCG
to another provider of carrier services, WCG has the right to increase the price
it charges SBC for the services SBC resells in this manner. While the terms of
these agreements with SBC are intended to comply with restrictions on SBC's
provision of long distance services, various aspects of these arrangements have
not been tested under the Telecommunications Act.

     WCG and SBC have agreed to a mechanism for the development of projects that
would allow the interconnection of the SBC network with the WCG network based on
the unanimous decision of

                                        21
<PAGE>

committees composed of an equal number of representatives from WCG and SBC. If a
committee does not approve a project, both WCG and SBC have the right, subject
to certain exceptions, to require the other party to develop a project in
exchange for payment of the direct costs and cost of capital required to
complete the project or pursue it on its own. In addition, upon SBC receiving
authorization from the FCC to provide long distance services in any state in its
traditional telephone exchange service region, SBC has the option to purchase
from WCG at net book value all voice or data switching assets that are
physically located in that state and of which SBC has been the primary user. The
option must be exercised within one year of the receipt of authorization. WCG
then has one year after SBC's exercise of the option to migrate traffic, install
replacement assets, and complete other transition activities. This purchase
option would not permit SBC to acquire any rights of way that WCG uses for its
network or other transport facilities that it maintains. Upon termination of the
alliance agreements with SBC, SBC has the right in certain circumstances to
purchase voice or data switching assets, including transport facilities, of
which SBC's usage represents 75 percent or more of the total usage of these
assets.

     SBC may terminate the provider agreements if any of the following occurs:

     - WCG begins to offer retail long distance voice transport or local
       exchange services on its network except in limited circumstances;

     - WCG materially breaches its agreements with SBC causing a material
       adverse effect on the commercial value of the relationship to SBC; or

     - WCG has a change of control without SBC's consent (regarding which, SBC
       has notified WCG that it reserves its right to claim that the spin-off of
       WCG from TWC constituted a change of control).

     WCG may terminate the provider agreements if any of the following occurs:

     - SBC has a change of control; or

     - there is a material breach by SBC of the agreements, causing a material
       adverse effect on the commercial value of the relationship to WCG.

     Either party may terminate a particular provider agreement if the action or
failure to act of any regulatory authority materially frustrates or hinders the
purpose of that agreement. There is no monetary remedy for such a termination.

     In the event of termination due to its actions, WCG could be required to
pay SBC's transition costs of up to $200 million. Similarly, in the event of
termination due to SBC's actions, SBC could be required to pay WCG's transition
costs of up to $200 million, even though WCG's costs may be higher.

     In June 2000, the FCC authorized SBC to provide long distance service in
Texas. Under the terms of the strategic alliance with SBC, WCG is the preferred
provider of SBC's nationwide long distance voice and data services. WCG began
providing services in Texas in July 2000. More recently, the FCC authorized SBC
to provide long distance services in Kansas and Oklahoma beginning on March 7,
2001; in Arkansas on November 26, 2001; and in Missouri on December 7, 2001,
although certain long distance competitors are challenging this order in the
federal courts.

     In June 2000, WCG acquired SBC's initial party interests in two undersea
communications cables between the United States and China and Japan,
respectively. In September 2000, WCG acquired the long distance network assets
of Ameritech Communications, Inc., a subsidiary of SBC. The assets are located
in the states of Illinois, Indiana, Michigan, Ohio, and Wisconsin, and include a
fiber-optic network, network centers, indefeasible rights of use in dark fiber,
and switches. In

                                        22
<PAGE>

connection with this purchase of the Ameritech assets, the services agreement
with SBC was amended to require Ameritech to buy services from WCG.

     In August 2001, WCG signed a preferred provider status agreement with the
long-distance telephone affiliate of SBC Communications Inc., SBC Long Distance.
WCG will become the preferred provider for SBC-LD's U.S.-originated
international long-distance traffic. In September 2001, WCG acquired two gateway
switches from another SBC subsidiary, AGGS, and in turn, WCG assumed the
wholesale international long-distance business currently conducted by AGGS. The
gateways allow the company to offer outbound foreign termination and inbound
domestic termination to other carrier customers.

     WCG has entered into a services agreement with SBC by which WCG will
provide local transport services to SBC in six markets: New York, Boston,
Seattle, Phoenix, Atlanta, and Denver. This agreement provides for expansion of
the services in these markets and further expansion into additional markets.

     Telefonos de Mexico, S.A. de C.V.  Telefonos de Mexico, S.A. de C.V., the
largest communications provider in Mexico, currently provides long distance and
local services primarily in Mexico. At the time of the WCG initial public
offering, on October 6, 1999, Telefonos de Mexico acquired 4,612,546 shares of
WCG Class A common stock, which represents approximately one percent of the
shares of capital stock outstanding as of December 31, 2001. In connection with
its purchase of WCG common stock, Telefonos de Mexico has agreed to certain
restrictions and will receive certain privileges, including the following:

     - Telefonos de Mexico has a right to be notified and given an opportunity
       to acquire additional shares of WCG common stock which cannot exceed a
       total ownership interest of 10 percent of all classes of WCG common stock
       outstanding on a combined basis until at least 2009;

     - Telefonos de Mexico has agreed not to transfer to anyone, except
       affiliates, any of its shares of WCG common stock until April 2003,
       unless WCG has a change of control;

     - Telefonos de Mexico has agreed that WCG has the right, until April 2003,
       to repurchase WCG stock at market value less the underwriter's discount
       if the alliance agreement is terminated for any reason other than a
       breach by WCG; and

     - Telefonos de Mexico also has the right to require WCG to register its
       shares of WCG common stock under the Securities Act.

     On May 25, 1999, WCG entered into an alliance agreement with Telefonos de
Mexico under which, subject to any necessary U.S. and Mexican regulatory
requirements:

     - until 2019, Telefonos de Mexico must first seek to obtain select
       international wholesale services and various other services from WCG;

     - until 2019, WCG must first seek to obtain select international wholesale
       services and various other services from Telefonos de Mexico; and

     - WCG and Telefonos de Mexico will sell each other's products to their
       respective customers and will negotiate the terms under which both
       parties will provide installation and maintenance of communications
       equipment and other services for the other.

     For the services each must seek to obtain from the other, the prices
generally will be established to reflect the strategic relationship and
commitments made to each other, subject to any applicable law or regulations
establishing the prices. If either party can secure lower prices for comparable
services that the other party will not match, then that party is free to utilize
the lowest cost provider. Both WCG and Telefonos de Mexico can provide services
or products to other

                                        23
<PAGE>

persons. Each party may also sell or utilize the products or services purchased
from the other to provide products or services to other persons.

     Certain of the provisions relating to the preferred provider relationship
and competitive pricing requirements will not be implemented until changes to
the international settlement system currently in place pursuant to U.S. and
Mexican regulations occur. Due to Telefonos de Mexico's dominant position in
Mexico, the international settlement system requires that Telefonos de Mexico
split its switched traffic terminating in the United States on a basis
proportionate to that of U.S. carriers terminating switched traffic in Mexico.

     WCG and Telefonos de Mexico have agreed on a mechanism for the development
of mutually beneficial projects intended to interconnect the WCG network with
the Telefonos de Mexico network to provide seamless voice and data on both a
nationwide and international basis. Project decisions will be based on the
unanimous decision of committees composed of an equal number of representatives
from WCG and Telefonos de Mexico.

     Either party may terminate the alliance agreement if any of the following
occurs:

     - the action, or failure to act, of any regulatory authority or the passage
       of a law or regulation materially frustrates or hinders the purpose of
       any of the agreements; or

     - either party experiences a change of control.

     One party may terminate the agreement if the other party materially
breaches its obligation or is no longer able to deliver the products and
services for a period of 30 days.

     In addition, WCG has entered into an interconnection agreement and a voice
settlement agreement with Telefonos de Mexico and an agreement under which a
subsidiary of Telefonos de Mexico will purchase Internet transit services from
WCG. WCG further intends to negotiate broader services and marketing agreements.

     KDDI America.  KDDI Corporation ("KDDI Japan"), and KDDI America, Inc.
("KDDI"), are each wholly owned subsidiaries of DDI Corporation, the largest
international telecommunications company in Japan. In July 2001, WCG's Japanese
subsidiary entered into a comprehensive services agreement under which it will
interconnect its Japanese network with KDDI Japan. In addition, KDDI Japan will
first seek to obtain U.S.-terminating telecommunications services from WCG's
Japanese subsidiary, and WCG's Japanese subsidiary will first seek to obtain
Japan-terminating telecommunications services from KDDI Japan or DDI
Corporation, subject to certain exceptions. WCG's Japanese subsidiary also
agreed to collaborate with KDDI Japan on a number of other matters, including
collocation services, e-business applications, and customer solutions, data
center/hosting, and integration solutions. This July 2001 agreement between KDDI
Japan and WCG's Japanese subsidiary is substantively similar to the June 2000
agreement between WCG and KDDI America, under which KDDI America agreed to
connect with WCG's U.S. network on similar terms to those described above.

EMPLOYEES

     As of December 31, 2001, WCG had a total of approximately 3,887 employees,
one of whom was covered by a collective bargaining agreement. As part of WCG's
announced cost-cutting initiative, by March 22, 2002, WCG had reduced its
workforce to a total of approximately 3,167 employees.

                                        24
<PAGE>

REGULATION

  General Regulatory Environment

     WCG is subject to federal, state, local, and foreign regulations that
affect its product offerings, competition, demand, costs, and other aspects of
its operations. U.S. federal laws and regulations generally apply to interstate
telecommunications, including international telecommunications that originate or
terminate in the United States, while state laws and regulations apply to
telecommunications terminating within the state of origination. A foreign
country's laws and regulations apply to telecommunications that originate or
terminate in that country. The regulation of the telecommunications industry is
changing rapidly and varies from state to state and from country to country.
WCG's operations are also subject to a variety of environmental, safety, health,
and other governmental regulations. WCG cannot guarantee that future regulatory,
judicial, or legislative activities will not have a material adverse effect on
it, or that domestic or international regulators or third parties will not raise
material issues with regard to its compliance or noncompliance with applicable
regulations.

     The Telecommunications Act of 1996 seeks to promote competition in local
and long distance telecommunications services, including by allowing entities
affiliated with power utilities entry into providing telecommunications services
and by allowing, subject to specified limitations and conditions, the regional
Bell operating companies to enter the long distance market. WCG believes that
the regional Bell operating companies' and other companies' entry into this
market will provide opportunities for it to sell dark fiber or lease high-volume
long distance capacity.

     The Telecommunications Act allows a regional Bell operating company to
provide long distance services originating outside its traditional exchange
service area or from mobile services and to own 10 percent or less of the equity
of a long distance carrier operating in its traditional service area. In
addition, Section 271 of the Telecommunications Act allows a regional Bell
operating company to provide long distance services originating in a state in
its traditional exchange service area if it satisfies several procedural and
substantive requirements. These include obtaining FCC approval upon a showing
that the regional Bell operating company has entered into, or under some
circumstances has offered to enter into, interconnection agreements that satisfy
a 14-point "checklist" of competitive requirements. The FCC granted Bell
Atlantic's (Verizon) petitions to provide long distance service in New York
State (December 29, 1999), Massachusetts (April 16, 2001), Connecticut (July 20,
2001), Pennsylvania (September 19, 2001), and Rhode Island (February 22, 2002).
Verizon has filed for approval in Vermont and the FCC has until April 17, 2002,
to render a decision on that application. Verizon filed for approval in New
Jersey but withdrew that application on March 19, 2002, to resolve procedural
concerns. Verizon has announced that it plans to re-file the New Jersey
application. By order dated June 30, 2000, the FCC authorized SBC to offer long
distance services in Texas. The FCC also granted SBC's petition to provide long
distance service in Kansas and Oklahoma, effective March 7, 2001. The FCC
authorized SBC to offer long distance services in Arkansas (November 26, 2001)
and Missouri (December 7, 2001). BellSouth had filed for approval in both
Georgia and Louisiana but withdrew both applications on December 20, 2001,
citing FCC concerns. BellSouth has re-filed for approval in Georgia and
Louisiana, with an FCC decision due by May 15, 2002. WCG expects that additional
petitions for entry will be filed and that the regional Bell operating companies
will obtain approval to provide long distance services in several other states
within the next two years. However, the timing of such approvals depends on many
variables and it is impossible to predict with certainty when the Bell operating
companies will receive such approvals in all states.

     With certain exceptions, revenues derived from the provision of interstate
and international telecommunications services to domestic end-users, including
enhanced services providers, are subject to assessment for the FCC's Universal
Service Fund, which assists in ensuring the universal

                                        25
<PAGE>

availability of basic telecommunications services at affordable prices and
provides funding for telecommunications infrastructure development for schools,
libraries, and rural health care providers. The FCC announced assessments for
the first quarter of 2002 of approximately 6.8 percent of gross revenues subject
to contribution. Some of WCG's services are subject to these assessments, which
increase its costs. Some states also impose assessments for state universal
service programs and for other purposes.

  Federal Regulation

     Under the FCC's rules, WCG is a non-dominant carrier. Generally, the FCC
has chosen not to closely regulate the charges or practices of non-dominant
carriers. Although the FCC has the power to impose more stringent regulatory
requirements on non-dominant carriers, WCG believes that the FCC is unlikely to
do so. WCG is subject to the regulatory requirements applicable to all common
carriers, such as providing services without unreasonable discrimination and
charging reasonable rates.

     Federal regulation affects the cost and thus the demand for long distance
services through regulation of interstate access charges, which are the local
telephone companies' charges for use of their exchange facilities in originating
or terminating interstate transmissions. The FCC, on May 31, 2000, ordered a
multi-year transition in the structure of interstate access charges, leading to
lower per-minute charges. Among some of the changes in that order, the FCC
increased non-usage sensitive charges on local lines, eliminated non-usage
sensitive charges on interexchange carriers, modified the productivity factor
used in part to determine price caps on access charges for some local telephone
companies, and created an explicit universal service component to recover some
implicit subsidies in access charges that were effectively eliminated by the
order. Additionally, the FCC adopted an order, effective December 31, 2001,
modifying its rules to reform the interstate access charge and universal support
system for incumbent local telephone companies subject to rate-of-return
regulation. The FCC required all rate-of-return carriers to increase Subscriber
Line Charge (SLC) caps to the levels established for price cap carriers, allowed
limited SLC deaveraging, eliminated the Carrier Common Line Charge (CCL)
effective July 1, 2003, reformed the local switching and transport rate
structure, and created a new universal service support mechanism (Interstate
Common Line Support) to convert implicit support in the access rate structure to
explicit support. Some aspects of the FCC's access charge rules are subject to
periodic review, and the agency may adopt further changes in the structure and
levels of interstate access charges and other aspects of intercarrier
compensation in the future.

     The FCC has adopted interconnection rules, including rules relating to
pricing, for the provision of unbundled network elements and wholesale services
by incumbent local telephone companies to competitive local telephone companies.
The agency also adopted rules governing the physical collocation of competitive
local telephone company equipment in certain of the incumbent local telephone
companies' buildings to access unbundled network elements. Pursuant to
interconnection agreements entered into with incumbent local telephone
companies, competitive carriers may use these network elements, services, and
collocation space to offer local services. Various aspects of these rules are
subject to appeal and the FCC may alter portions of the rules in the future.
These regulations affect growth opportunities for WCG and some of its customers
that provide demand for its services.

     The FCC has to date treated Internet service providers as enhanced service
providers rather than common carriers. As such, Internet service providers have
been generally exempt from various federal and state regulations, including the
obligation to pay access charges and contribute directly to universal service
funds.

                                        26
<PAGE>

     The FCC has adopted rules for a multi-year transition to lower
international settlement payments by U.S. common carriers, leading to lower
rates for some international services and increased demand for these services
provided by some of WCG's customers. The result is likely to be increased demand
for capacity on the U.S. facilities, including its domestic network.

     The FCC has instituted mandatory detariffing of the interstate, domestic,
interexchange services of nondominant interexchange carriers (IXCs). By January
31, 2001, carriers were required to cancel customer specific tariffs. Effective
July 31, 2001, the FCC required carriers to cancel tariffs covering most mass
market interstate long distance services. The FCC further required those
carriers with corporate Web sites to post information relating to the rates,
terms, and conditions of such services on their Web sites. The FCC adopted a
similar detariffing process relative to international services. The mandatory
deadline for carriers to cancel their international interexchange service
tariffs was January 28, 2002. The FCC requires carriers providing international
interexchange services to adhere to the same posting requirements as those
imposed by the FCC with respect to domestic detariffing. These actions may
significantly affect the ability of Williams and its customers to rely on filed
rates, terms, and conditions for interstate and international services and the
way these services are offered to customers.

  State Regulation

     The Telecommunications Act generally prohibits state and local governments
from enforcing any law, rule, or legal requirement that prohibits or has the
effect of prohibiting any person from providing any interstate or intrastate
telecommunications service. However, states retain jurisdiction to adopt
regulations necessary to preserve universal service, protect public safety and
welfare, ensure the continued quality of communications services, and safeguard
the rights of consumers.

     Generally, WCG must obtain and maintain certificates of authority from
regulatory bodies in states in which it offers intrastate services. In most
states, it must also file and obtain prior regulatory approval of tariffs for
its regulated intrastate services. Certificates of authority can generally be
conditioned, modified, or revoked by state regulatory authorities for failure to
comply with state law or regulations. Fines and other penalties also may be
imposed for such violations. WCG is currently authorized to provide intrastate
services, at least to some extent, in 50 states and the District of Columbia.
WCG believes that most states do not regulate its provision of dark fiber. If a
state did regulate its provision of dark fiber, WCG could be required to provide
dark fiber in that state pursuant to tariffs and at regulated rates.

     State regulatory commissions generally regulate the rates incumbent local
telephone companies charge for intrastate services, including intrastate access
services paid by providers of intrastate long distance services. WCG's local and
other intrastate services compete against the regulated rates of these carriers
and also use some of these services in providing its services. Under the
Telecommunications Act, state commissions have jurisdiction to arbitrate and
review negotiations between incumbent local telephone companies and competitive
local exchange carriers regarding the prices incumbent local telephone companies
charge for interconnection of network elements with, and resale of, services by
competitive local exchange carriers; however, the Supreme Court has generally
upheld the FCC's authority to adopt rules that the states must apply when
setting these prices. WCG, through its subsidiary Williams Local Network, LLC,
is entering into interconnection agreements with various incumbent local
telephone companies. These regulations, therefore, also affect its plans to
offer such services.

  Local Regulation

     WCG is occasionally required to obtain street use and construction permits
and licenses and/or franchises to install and expand its fiber-optic network
using municipal rights of way. Termination or

                                        27
<PAGE>

failure to renew its existing franchise or license agreements could have a
material adverse effect on it. In some municipalities where it has installed or
anticipates constructing networks, it is required to pay license or franchise
fees based on a percentage of gross revenue, a flat annual fee, or on a per
linear foot basis. WCG cannot guarantee that fees will remain at their current
levels following the expiration of existing franchises. In addition, WCG could
be at a competitive disadvantage if its competitors do not pay the same level of
fees as it does. The Telecommunications Act requires municipalities to manage
public rights of way in a competitively neutral and non-discriminatory manner
and prohibits use of right-of-way fees as a means of raising revenue. However, a
considerable amount of litigation has already ensued wherein municipalities are
alleged to have exceeded or ignored the Act's requirements in this regard.
Related activity is expected to continue throughout 2002.

  Other U.S. Regulation

     WCG's operations are subject to a variety of federal, state, local, and
foreign environmental, safety and health laws, and governmental regulations.
These laws and regulations govern matters such as the generation, storage,
handling, use, and transportation of hazardous materials, the emission and
discharge of hazardous materials into the atmosphere, the emission of
electromagnetic radiation, the protection of wetlands, historic sites, and
endangered species, and the health and safety of employees. Although a pending
rulemaking commenced by the California Public Utilities Commission seeks to
clarify and refine the agency's administration of environmental review for
communications projects, WCG continues to face uncertainty on the extent of
state regulatory authorizations and environmental review required to construct
communications facilities in that state.

     Although WCG monitors compliance with environmental, safety, and health
laws and regulations, it cannot give assurances that it has been or will be in
complete compliance with these laws and regulations. It may be subject to fines
or other sanctions imposed by governmental authorities if it fails to obtain
certain permits or violates their respective laws and regulations. Capital or
other expenditures for compliance with laws, regulations, or permits relating to
the environment, safety, and health were not material in 2001.

     In addition, WCG may be subject to environmental laws requiring the
investigation and cleanup of contamination at sites it owns or operates or at
third-party waste disposal sites. These laws often impose liability even if the
owner or operator did not know of, or was not responsible for, the
contamination. Although WCG owns or operates numerous sites in connection with
its operations, it is not aware of any liability relating to contamination at
these sites or third-party waste disposal sites that could have a material
adverse effect on the company.

     WCG has ownership interests in and utilizes certain submarine cable systems
for the provision of telecommunications services. WCG may be subject to certain
state and federal laws and regulations governing the construction, maintenance
and use of such facilities. These laws and regulations may include corridor
restrictions, exclusionary zones, undersea cable fees, or right-of-way use fees
for submerged lands. Increased regulation of cable assets or assessments may
affect the cost and ultimately the demand for services provided over such
facilities.

  Foreign Regulation

     The provision of telecommunications services in the countries in which WCG
operates and intends to operate is regulated. Telecommunications carriers are
generally required to obtain permits, licenses, or authorizations to initiate or
terminate communications in a country. The regulatory requirements vary from
country to country, although in some significant respects regulation in the
Western European markets is harmonized under the regulatory structure of the

                                        28
<PAGE>

European Union. Many regulatory systems have only recently faced the issues
raised by competition and are still in the process of development.
Telecommunications laws and regulations are changing generally to promote
competition and new offerings. However, future regulatory, judicial, or
legislative activities may have a material adverse effect on WCG, and
international regulators or third parties may raise material issues with regard
to its compliance or noncompliance with applicable regulations.

     Generally, WCG must obtain and maintain authorizations from regulatory
bodies in the countries in which it will offer telecommunications services. It
may need different authorizations or no authorizations, depending on whether it
constructs or leases its facilities, and whether it offers dark fiber, switched
voice, private line, data, video, or enhanced services in many of the countries
in which it plans to operate. WCG must also comply with environmental, planning,
and property laws in those countries where it constructs and/or operates
fiber-optic systems. In many countries, it must also file and obtain prior
regulatory approval of the rates, terms, and conditions for its services.
Authorizations can generally be conditioned, modified, or revoked by regulators
for failure to comply with applicable laws or regulations. Fines and other
penalties also may be imposed for violations. WCG expects to apply for and
acquire various authorizations to operate its foreign facilities and provide its
telecommunications services though it cannot guarantee that its licenses will
not be delayed or include burdensome conditions.

     Authorizations to operate as a new carrier are not available in some
countries, may be available in other countries with limitations on the number
and characteristics of carriers, and may not be required at all in other
countries. In addition, while some countries require complex applications
procedures for authorizations, some countries simply require registration with
or notification to the regulatory agency. Within a country, moreover, some
services or activities may require a full authorization while others may require
a simple registration or notification, or no filing at all. Authorizations and
regulations impose a range of restrictions on the carriers' operations,
corporate governance, and shareholders, with penalties for noncompliance,
including loss of license and monetary fines. For example, many countries place
limits on foreign ownership of telecommunications carriers and require
regulatory approval of transfers of control.

     In granting authorizations, regulators frequently establish service
obligations for the operator. Typical obligations include nondiscrimination,
build-out or service coverage, and interconnection obligations, as well as
requirements regarding the quality of service provided and the approval of new
service offerings. Many regulators also require licensed carriers to pay certain
fees or charges that, among other things, cover the costs of regulation and to
support the availability of services, and these fees may in some cases be
significant.

     Many national regulators require interconnection between carriers and
resolve disputes as to the reasonableness of particular interconnection
arrangements and pricing. Many regulators require a dominant carrier in the
market to offer competing carriers interconnection on reasonable and
nondiscriminatory terms and conditions, and a number of regulators are also
beginning to require incumbent carriers to unbundle their local loops, allowing
increasing competition in local services. In some countries, all
telecommunications carriers are required to provide interconnection to other
carriers. WCG may be required to provide interconnection to its foreign network
as well as access to its facilities for the installation of other carriers'
telecommunications equipment.

     WCG may also be required to obtain street use and construction permits and
licenses and/or franchises to install and expand its fiber-optic network using
public rights of way. In some countries where it has installed or anticipates
constructing networks, it may be required to pay license or franchise fees.

                                        29
<PAGE>

     Submarine telecommunications cable systems require national authorizations
from each country in which they land and operate. Cable landing authorizations
typically involve environmental reviews as well as approvals by
telecommunications authorities to provide international telecommunications
facilities and services. In addition, municipal and state permits may be
necessary. Any such authorization may be difficult to obtain or involve
burdensome conditions. Telecommunications carriers using capacity on the cables
usually need licenses from each country in which they operate and may need
different licenses to provide different services. For example, WCG has received
a Public Telecommunications Operator license in the United Kingdom in order to
provide services over the TAT-14 undersea cable.

  Japan

     WCG's Japanese subsidiary, Williams Communications K.K., has obtained a
Type I license to land its interest in an undersea cable and to provide
telecommunications services in Japan over this undersea cable. Before providing
new telecommunications services in Japan pursuant to its Type I license, WCG
must obtain approval of the regulator.

  United Kingdom

     WCG's subsidiary in the United Kingdom, Williams Communications UK Limited,
has received a Public Telecommunications Operator license to provide
telecommunications services in the United Kingdom. This subsidiary intends to
apply to the Office of Telecommunications for "Annex II" interconnection status,
which will give it the right to interconnect with other carriers in the United
Kingdom. The Public Telecommunications Operator license requires WCG's
subsidiary to comply with a number of conditions, including but not limited to
interconnection with other telecommunications companies and payment of license
fees.

  Australia

     PowerTel holds a carrier license and is subject to regulation by the
Australian Competition and Consumer Commission and the Australian Communications
Authority. PowerTel does not have any service coverage obligations and does not
require any further regulatory approval for new services provided on its
fiber-optic network.

     Under the Australian regulations, access to particular regulated carriage
services and other services that facilitate the supply of those regulated
services must be provided between operators on non-discriminatory technical and
operational terms and, in some circumstances, at cost-based prices. Any
transmission capacity of two or more megabits per second is regulated on all
routes except between Sydney, Canberra, and Melbourne.

     The Australian Competition and Consumer Commission has decided to regulate
local call resale and local network unbundling. Regulation of interconnection at
the local exchange level potentially allows PowerTel and other competitors to
reduce their access costs by interconnecting with the Telstra Corporation
Limited network closer to the customer.

     PowerTel currently has entered into a facilities access agreement with
Telstra for access to Telstra's ducts, underground facilities, and equipment
buildings. PowerTel also obtains services from Telstra through wholesale/resale
products and is negotiating an agreement covering Telstra's wireline and mobile
originating and terminating access services.

  Chile

     Chile currently has a competitive, multi-carrier system for long distance
and local services. There is no regulatory limit on the number of concessions
that could be granted to companies that

                                        30
<PAGE>

would compete against Manquehue Net S.A. The largest provider of local
telecommunications services in Santiago is Compania de Telecomunicaciones de
Chile with 85% of the market.

     Manquhue Net S.A. holds a Public Telecommunications License to install and
operate a high capacity fiber optic cable network in Santiago and the towns
surrounding it, and provides public switched voice services over that network.
The license is for a renewable 30-year term. The license provided for network
construction to end on December 23, 1998, with service to begin on January 23,
1999. The company requested an extension of these terms, which was granted by
the telecommunications authority and approved by the Republic Comptrollership's
Office for formal amendment of the license. Service is required to begin by
April 4, 2002. Manquehue Telecomunicaciones de Larga Distancia S.A. and Metrocom
are subsidiaries of Manquehue Net S.A. Manquehue Telecomunicaciones de Larga
Distancia S.A. holds an intermediate services concession to provide long
distance services and resells capacity from other carriers. Metrocom holds an
intermediate service concession and provides long distance services to
subscribers.

     Neither Manquehue Larga Distancia nor Metrocom nor Manquehue Net are
subject to a maximum rate. The maximum rate structure is determined every five
years and applies to the incumbent only. Local providers must also give long
distance service providers equal access to their network connections.

  Hong Kong

     WCG's subsidiary in Hong Kong, Williams Communications (Hong Kong) Limited,
has been informed by the regulator in Hong Kong that its application for a
Public Non-Exclusive Telecommunications Services license has been approved. The
license will allow WCG's subsidiary to provide a range of international
telecommunications services to customers in Hong Kong. The license is granted
subject to a number of conditions, including payments of annual licensing fees
and restrictions on anti-competitive behavior.

  Settlement Costs for International Traffic

     International switched long distance traffic between two countries
historically is exchanged under correspondent agreements between carriers, each
owning network transmission facilities in their respective countries.
Correspondent agreements generally provide for, among other things, the
termination of switched traffic in, and return switched traffic to, the
carriers' respective countries at a negotiated accounting rate. Settlement
costs, typically one-half of the accounting rate, are reciprocal fees owed by
one international carrier to another for transporting traffic on its facilities
and terminating that traffic in the other country. The FCC and regulators in
foreign countries may regulate agreements between U.S. and foreign carriers.

     The FCC's international settlements policy governs the settlements between
U.S. carriers and their foreign correspondents and prevents foreign carriers
from discriminating among U.S. carriers in bilateral accounting rate
negotiations. The policy requires:

     - the equal division of accounting rates;

     - non-discriminatory treatment of U.S. carriers; and

     - proportionate return of inbound traffic.

     Agreements governed under the policy must be filed publicly with and
approved by the FCC. The policy applies only to U.S. carrier arrangements with
certain foreign carriers with market power in their respective countries. For
example, U.S. carrier arrangements with Telefonos de Mexico continue to be
subject to the policy, but U.S. carrier arrangements with a Telefonos de Mexico
competitor in Mexico are not subject to the policy. The FCC also recently
decided to exempt certain

                                        31
<PAGE>

foreign routes from the policy, depending upon the ability of U.S. carriers to
terminate traffic on those routes at rates substantially below benchmarks set by
the agency. However, Mexico is not currently an exempted route. Other countries
have policies similar to that of the FCC.

     Resale of international private lines allows carriers to bypass the
settlement rate system, and, therefore, bypass the need to negotiate accounting
rates with foreign carriers with market power and obtain termination of
international traffic in the United States and foreign countries at
substantially reduced rates. The FCC's private line resale policy currently
prohibits a carrier from reselling international private leased circuits to
provide switched services to or from a country unless certain conditions are
met.

     Currently, Mexican carriers other than Telefonos de Mexico can engage in
such resale under FCC rules, but the Mexican regulator has not permitted such
resale. If Mexico approves such resale but the FCC continues to restrict
Telefonos de Mexico from engaging in such resale, competitors of Telefonos de
Mexico would be permitted to engage in low-cost termination of traffic between
the United States and Mexico, but Telefonos de Mexico would be precluded from
doing so.

FORWARD-LOOKING INFORMATION

     Certain matters discussed in this report, excluding historical information,
include forward-looking statements -- statements that discuss WCG's expected
future results based on current and pending business operations. WCG makes these
forward-looking statements in reliance on the safe harbor protections provided
under the Private Securities Litigation Reform Act of 1995.

     Forward-looking statements can be identified by words such as
"anticipates," "believes," "expects," "planned," "scheduled" or similar
expressions. Although WCG believes these forward-looking statements are based on
reasonable assumptions, statements made regarding future results are subject to
a number of risks, assumptions, and uncertainties that could cause WCG's actual
results to differ materially from those projected. In addition to risk factors
set forth in WCG's filings with the Securities and Exchange Commission, the
following important factors could cause actual results to differ materially from
any results projected, forecasted, estimated, or budgeted:

     - The risks associated with negotiating a comprehensive restructuring of
       WCG's debt, including the potential risks associated with commencement of
       a chapter 11 case and operating a business in chapter 11.

     - The possibility of further deterioration in the health of capital markets
       and the telecommunications industry and the ability of WCG to adapt to
       such conditions, particularly as a result of the perceived oversupply of
       bandwidth.

     - The risk of competitors gaining competitive advantages by successfully
       completing a restructuring or bankruptcy reorganization process.

     - The possibility that uncertainty or adverse publicity concerning WCG's
       efforts to restructure its balance sheet will hinder its ability to
       obtain new customers or undermine its commercial relationship with
       existing customers.

     - The possibility that capital market constraints may further hinder "last
       mile" development and slow the growth in demand for bandwidth at the
       retail level.

     - The effects of and changes in political and/or economic conditions,
       including inflation, interest rates and monetary conditions, and in
       communications, trade, monetary, fiscal and tax policies in the United
       States and in foreign markets, including Asia, Australia, Europe, and
       South America.

                                        32
<PAGE>

     - The effects of and changes in political and/or economic conditions
       resulting from acts of war and/or terrorism.

     - WCG's ability to raise capital in a cost-effective way, manage cash, make
       capital expenditures, generate operating cash flow, and meet debt
       obligations.

     - The ability of WCG to collect proceeds from the sale of the Solutions
       business.

     - The ability of WCG to manage operating costs and capital spending without
       limiting revenue growth.

     - The financial health of WCG's customers and the ability to collect
       revenues from customers.

     - WCG's success in integrating the assets of iBEAM Broadcasting Corp. and
       CoreExpress, Inc., or any other newly acquired businesses.

     - Changes in the technological, regulatory, or business environment
       applicable to WCG or the telecommunications industry generally.

     - Termination of the SBC strategic alliance or SBC's inability to obtain
       regulatory approval to provide long-distance telecommunications services
       within markets in which it currently provides local services.

     - The potential loss of a high-volume Network customer.

     - High levels of competition, lack of customer diversification, and general
       uncertainties of government regulation in the telecommunications
       industry.

     - WCG's ability to deploy sophisticated technologies on a local-to-global
       basis.

     - WCG's ability to expand and enhance the network in response to customer
       demands and industry changes.

     - Network's ability to timely turn up service requests and minimize service
       interruptions.

     - WCG's ability to obtain additional capacity for the WCG network from
       other providers.

     - The risk that current capacity providers will no longer provide capacity
       at economically justifiable rates.

     - The possibility of adverse effects from rapid and significant
       developments or changes in the technology used by WCG or its customers.

     - WCG's ability to successfully market capacity on its network.

     - The ability of each operating segment to implement successfully key
       systems, such as order entry systems and service delivery systems, within
       currently estimated time frames and budgets.

     - WCG's ability to develop the "Williams Communications" brand.

     - WCG's ability, in a cost-effective way, to maintain necessary rights of
       way for the WCG network.

     - The realization of revenues from products and services in the early
       stages of development or operation.

     - Significant competition on pricing and product offerings for Network.

     - Changes in external competitive market factors that might affect results
       of operations.

     - The effect of changes in accounting policies.

                                        33
<PAGE>

     - The potential need to record additional impairment charges.

     - WCG's ability to attract and retain essential employees.

     - The cost and effects of current and future legal and administrative
       claims and proceedings against WCG or its subsidiaries.

     - WCG's ability to develop financial, management, and operating controls to
       manage costs and rapid change.

ITEM 2. PROPERTIES

     The WCG network and its component assets are the principal properties that
WCG currently operates. See Item 1(c), Narrative Description of
Business -- Network -- Properties, for a description of these properties.

     In 1998, WCG entered into a lease agreement covering a portion of its
fiber-optic network. WCG's creditors refer to this operating lease as an asset
defeasance program, or ADP. The total cost of the network assets covered by the
ADP was $750 million. The lease term was scheduled to expire in 2003 but could
have been renewed to extend the lease term to 2005 upon approval of the parties
to the lease. On March 8, 2002, WCG exercised its option to purchase the covered
network assets during the lease term at an amount approximating the lessor's
cost. Pursuant to a prior agreement among WCG, WCL, TWC, and the administrative
agent for WCG's bank group, TWC was obligated to fund the purchase price of the
ADP assets. On March 29, 2002, TWC funded the purchase price, the ADP assets
were transferred to WCG, the asset defeasance program was terminated, and WCG
tendered an unsecured note to TWC in the approximate amount of $750 million.

     The installed fiber-optic cable on the WCG network is laid under various
rights of way. WCG has agreements in place for substantially all of the rights
of way for its network. Almost all of its rights of way extend through at least
2018.

     WCG owns or leases sites in approximately 200 U.S. cities and towns in
which it locates or plans to locate transmission, routing and switching
equipment. These sites range in size from 2,000 square feet to 150,000 square
feet and total approximately 2,200,000 square feet. WCG also leases office space
in various locations, including from TWC. WCG leases from TWC approximately
882,000 square feet of office space in Tulsa, Oklahoma. On February 26, 2001,
TWC contributed to WCG in exchange for shares of Class A common stock the
Williams Technology Center, which was substantially complete at year-end. The
Williams Technology Center provides approximately 750,000 square feet of office
space and accommodates up to 3,600 employees. In September 2001, WCG sold to TWC
and subsequently leased from TWC the Williams Technology Center for a term of
ten years. WCG has terminated the majority of its other leases with TWC. In
March 2001, WCG sold approximately 1.5 million square feet in real estate assets
in connection with the sale of its Solutions business segment.

ITEM 3. LEGAL PROCEEDINGS

     WCG is subject to various types of litigation in connection with its
business and operations.

     On January 29, 2002, the first of numerous putative federal securities
class actions was filed in the U.S. District Court for the Northern District of
Oklahoma, against WCG, TWC, Keith Bailey, the Chairman of TWC, Howard Janzen,
the Chairman, President, and CEO of WCG, and Scott Schubert, the CFO of WCG. The
putative class members in all of the cases are purchasers of the common stock of
TWC and/or the common stock of WCG between July 24, 2000, and January 29, 2002.
The complaints allege that the defendants violated federal securities acts by
issuing a series of

                                        34
<PAGE>

alleged misrepresentations to the market between July 24, 2000, and January 29,
2002. WCG believes that the allegations are without merit.

     A number of suits attempting to achieve class action status seek damages
and other relief from WCG based on allegations that WCG installed portions of
its fiber optic cable without all necessary landowner consents. These
allegations relate to use of rights of way licensed by railroads, state
departments of transportation, and others controlling pre-existing right-of-way
corridors. The putative members of the class in each suit are those owning the
land underlying or adjoining the right-of-way corridors. Similar actions have
been filed against all major carriers with fiber optic networks. It is likely
that additional actions will be filed. WCG believes it obtained sufficient
rights to install its cable and that the attempts to include these landowners in
a class action suit are subject to challenge on procedural grounds.

     WCG and other major carriers are seeking to settle the class action claims
referenced above relating to the railroad rights of way through an agreed class
action filed in the U.S. District Court for the District of Oregon on January
31, 2002. On that same day, the plaintiffs and defendants jointly asked the
court to approve a settlement. The settlement, if approved by the court, should
settle the majority of the claims in the putative nationwide and statewide class
actions referenced above.

     On August 28, 2001, Platinum Equity LLC sent formal notice that it believes
WCG owes it approximately $47 million arising from a recalculation of the net
working capital of the domestic, Mexican, and Canadian professional services
operations of the Solutions segment sold to Platinum. Pursuant to the provisions
of the sale agreement, the parties will submit the dispute to an independent
public accounting firm for binding resolution if they are unable to resolve the
dispute by agreement.

     On July 24, 2001, Thoroughbred Technology and Telecommunications, Inc.
(TTTI) filed suit against WCG in the U.S. District Court for the Northern
District of Georgia for claims that include breach of contract with respect to a
fiber-optic fiber installation project that TTTI was constructing for itself and
others including WCG. TTTI seeks damages in excess of $37 million. WCG alleges
various defenses, including significant warranty and breach of contract claims
on the part of TTTI.

     On December 20, 2000, the Women's Cooperative Trust Union filed a
derivative shareholder action in the U.S. District Court for the Western
District of Oklahoma against TWC, WCG, and certain directors and officers
alleging that a former director of WCG, an officer and a former officer
purchased at a reduced price stock of corporations that sold telecommunication
equipment to WCG. The allegations include breach of fiduciary duty, waste of
corporate assets, and usurpation of corporate opportunities as well as
negligence by the directors. WCG and the directors filed motions to dismiss the
action based upon the failure of the plaintiff to comply with applicable legal
standards in its complaint. On December 7, 2001, the Court dismissed the case
without prejudice.

  Summary

     WCG is a party to various other claims, legal actions, and complaints
arising in the ordinary course of business. In the opinion of management upon
advice from legal counsel, the ultimate resolution of all claims, legal actions,
and complaints after consideration of amounts accrued, insurance coverage, or
other indemnification arrangements is not expected to have a materially adverse
effect upon WCG's future financial position, results of operations, or cash
flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

                                        35
<PAGE>

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

     Until March 2002, Williams Communications Group's (WCG) Class A common
stock was listed on the New York Stock Exchange (NYSE) under the symbol "WCG."
At the close of business on February 28, 2002, WCG had 15,902 holders of record
of its Class A common stock. No common stock cash dividends were made in 2001,
2000, or 1999. In addition, management does not expect to pay cash dividends on
common stock in the foreseeable future as its current debt agreements place
limitations on the payment of cash dividends. It is management's intention to
retain future earnings, if any, to finance the operation and development of the
business. Future dividends, if any, will be determined by the board of directors
and will depend on the success of operations, capital needs, financial
conditions, contractual restrictions and other factors that the board of
directors considers. The high and low sales price ranges (composite
transactions) are listed for the four quarters of 2001 and 2000 and fourth
quarter 1999, the first quarter that WCG's Class A Common Stock was traded.

<Table>
<Caption>
                                              HIGH     LOW
                                             ------   ------
<S>                                          <C>      <C>
2001
First Quarter..............................  $20.63   $ 8.80
Second Quarter.............................  $ 9.35   $ 2.35
Third Quarter..............................  $ 3.24   $ 1.12
Fourth Quarter.............................  $ 3.10   $ 1.11
2000
First Quarter..............................  $61.81   $26.75
Second Quarter.............................  $51.31   $30.31
Third Quarter..............................  $33.69   $18.06
Fourth Quarter.............................  $21.13   $ 9.50
1999
Fourth Quarter.............................  $35.44   $23.25
</Table>

     In March 2002, WCG was delisted from the NYSE due to the low trading price
relative to the NYSE requirements. The stock last traded on the NYSE on February
28, 2002 at a price of $0.13. WCG began trading on the over-the-counter bulletin
board effective March 2002 under the symbol "WCGr."
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

     The following financial data as of December 31, 2001 and 2000 and for the
three years ended December 31, 2001 should be read in conjunction with the
consolidated financial statements and notes thereto which have been audited by
Ernst & Young LLP, independent auditors. Ernst & Young LLP's report on the
consolidated financial statements for the year ended December 31, 2001, which
appears elsewhere herein, includes an explanatory paragraph that describes an
uncertainty about WCG's ability to continue as a going concern. All other
amounts have been prepared from WCG financial records. Information concerning
significant trends in the financial condition and results of operations is
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages F-2 through F-29 of this report.

<Table>
<Caption>
                                           2001         2000         1999         1998        1997
                                        ----------   ----------   ----------   ----------   --------
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                     <C>          <C>          <C>          <C>          <C>
Revenues..............................  $1,185,521   $  839,077   $  601,456   $  375,339   $244,161
Loss from operations(1)...............  (3,544,366)    (448,671)    (246,495)    (141,164)  (103,501)
Loss from continuing operations(1)....  (4,107,253)    (277,688)    (328,312)    (146,579)   (56,410)
Income (loss) from discontinued
  operations(2).......................          --     (540,000)     (31,389)     (39,150)    26,367
Extraordinary gain(3).................     296,896           --           --           --         --
Net loss..............................  (3,810,357)    (817,688)    (359,701)    (185,729)   (30,043)
Preferred stock dividends and
  amortization of preferred stock
  issuance costs......................     (17,568)      (4,956)          --           --         --
Net loss attributable to common
  stockholders........................  (3,827,925)    (822,644)    (359,701)    (185,729)   (30,043)
Basic and diluted earnings (loss) per
  share (2, 3):
  Loss from continuing operations
     attributable to common
     stockholders.....................       (8.47)        (.61)        (.79)        (.37)      (.15)
  Income (loss) from discontinued
     operations.......................          --        (1.16)        (.08)        (.10)       .07
  Extraordinary gain..................         .61           --           --           --         --
  Net loss attributable to common
     stockholders.....................       (7.86)       (1.77)        (.87)        (.47)      (.08)
Common dividends paid per share.......          --           --           --           --         --
Total assets as of December 31........   5,992,026    7,409,285    6,057,703    2,022,136    981,223
Long-term debt as of December 31 (3,
  4)..................................   5,838,779    4,526,706    2,965,385      615,352        292
Redeemable cumulative convertible
  preferred stock as of December 31...     242,338      240,722           --           --         --
Total stockholders' equity (deficit)
  as of December 31(4)................  (1,449,042)   1,213,272    2,112,600    1,007,682    868,502
</Table>

---------------

(1) See Note 5 for a discussion of asset impairments and restructuring charges.

(2) See Note 3 for a discussion of WCG's sale of the Solutions segment in first
    quarter 2001. The sale was accounted for as a disposal of a business segment
    with the associated operating results and financial position of the segment
    segregated and reported as discontinued operations for the prior periods.

(3) See Note 12 for a discussion of WCG's extraordinary gain related to the
    purchase of a portion of its senior redeemable notes in the open market.

(4) See Note 14 for a discussion of the agreement entered into with The Williams
    Companies, Inc. that, among other things, resulted in the conversion of debt
    for WCG's equity.

                                       F-1
<PAGE>

ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
       OF OPERATIONS

2002 RECENT DEVELOPMENTS

RESTRUCTURING COULD INCLUDE CHAPTER 11 FILING

     As previously announced, WCG, in response to the events and conditions
described below, is evaluating restructuring options in an effort to develop a
comprehensive plan to restructure and de-leverage its balance sheet by reducing
the amount of its indebtedness outstanding. Among the options is reorganization
under Chapter 11 of the U.S. Bankruptcy Code. WCG has not committed to a Chapter
11 reorganization or any other option.

     WCG is evaluating a Chapter 11 reorganization as a means to maximize
enterprise value, support the uninterrupted continuation of the business and
minimize the damage to customer and vendor relationships that uncertainty about
WCG's financial condition might otherwise create. Although WCG believes that, if
it chooses to reorganize under Chapter 11, these objectives can be furthered by
the negotiation of a plan of reorganization prior to filing for bankruptcy
protection with some or all of its stakeholders, WCG cannot assure that it can
negotiate a consensual plan of restructuring prior to any filing or at all. WCG
is engaged in discussions regarding the restructuring with representatives of
three of its major stakeholders, The Williams Companies, Inc. (TWC), certain
holders of its senior redeemable notes and its bank group. The option pursued by
WCG will depend in part on the outcome of these discussions. The Chapter 11
reorganization currently being evaluated would likely result in substantial, if
not total, dilution of WCG's shareholders.

     As part of its restructuring effort, WCG has taken steps to reduce its 2002
planned controllable cost structure by approximately 25%. These steps have
included workforce reductions of approximately 750 employees in March 2002. WCG
expects to incur restructuring charges of approximately $13 million in first
quarter 2002 due to these workforce reductions.

     To successfully restructure, WCG must obtain the agreement of at least some
of its major stakeholders, each of which may view its own interest to be in
conflict with the other constituencies. Accordingly, WCG cannot provide
assurance that it will be able to effect a restructuring. As reflected in WCG's
report from its independent public accountants, certain of WCG's creditors have
informed WCG that in their view, WCG may be in default under the terms of its
credit facility. This condition raises substantial doubt about WCG's ability to
continue as a going concern.

     WCG believes that preserving the value of the enterprise is best effected
by an expedited resolution to the restructuring process. Although WCG believes
that a Chapter 11 reorganization would support the uninterrupted continuation of
the business and minimal impact to customer and vendor relationships, there are
significant risks involved in any bankruptcy proceeding. The following narrative
does not attempt to address all of the possible risks or negative impacts that
could result from a bankruptcy filing or any other plan of restructuring.
Accordingly, this section must be read in conjunction with Item 1, Business, and
Item 8, Financial Statements and Supplementary Data, as well as the risk factors
under Forward-Looking Information at the end of Item 1.

CREDIT FACILITY DEVELOPMENTS

     WCG has various debt covenants relating to its $1.5 billion credit facility
with various banks. One of the covenants would have required WCG to raise $224
million in cash, of which at least $150 million had to be in the form of equity,
by December 31, 2001. In October 2001, the credit facility was amended to extend
the date by which WCG is required to raise the $224 million of cash from
December 31, 2001 to July 1, 2003. In connection with the amendment, WCG agreed
to work jointly with its bank group and the bank group's financial advisor to
perform a more comprehensive review of the credit facility. This review and the
resulting amendment were initially expected to be completed in January 2002.
However through a series of agreements, WCG and its bank group

                                       F-2
<PAGE>

agreed to extend the negotiating period for an amendment to the credit facility
until April 26, 2002. WCG also agreed that it will not purchase its securities
and that it will limit transactions through certain of its subsidiaries through
mid-2003. Additionally, WCG confirmed with its bank group that it will not draw
upon the $525 million revolver portion of the credit facility prior to mid-2003.
Borrowings under the facility totaled $975 million as of December 31, 2001.

     On January 29, 2002, the banks, through their administrative agent,
informed WCG that, in their view, WCG may be in default under the terms of its
credit facility, and the banks reserved their rights accordingly. The possible
default related to the fact that, due to negative developments in the
telecommunications industry and the value of WCG's assets, the banks questioned
whether WCG could confirm the representations and warranties included in the
credit facility. The banks also have reserved their right to claim that the
purchase by a wholly-owned subsidiary of WCG of WCG's senior redeemable notes in
2001 violated the terms of the credit facility. Because of the potential adverse
consequences to WCG if the banks were to conclude and notify WCG of a default
and attempt to accelerate its indebtedness, which could result in cross-defaults
under other material agreements and securities and foreclosure on substantially
all of WCG's assets upon which the banks have a lien, WCG agreed to develop a
comprehensive plan for restructuring and de-leveraging its balance sheet. In
developing this plan, WCG, in consultation with financial and legal advisors,
has considered various restructuring alternatives, the ultimate outcome of which
will be influenced by stakeholders of WCG.

     As detailed above and as reflected in WCG's report from its independent
public accountants, certain of WCG's creditors have informed WCG that in their
view, WCG may be in default under the terms of its credit facility. This
condition raises substantial doubt about WCG's ability to continue as a going
concern. Certain of WCG's debt agreements require that its annual financial
statements be accompanied by an opinion from its independent public accountants
that does not contain a "going concern" explanatory paragraph. Noncompliance
with this term is an event of default. As a result of the inclusion of the going
concern explanatory paragraph in that report, WCG will not be able to satisfy
this term in the agreements. In addition, WCG anticipates that it may be in
default under other covenants in 2002. Consequently, unless WCG is able to
obtain a waiver of or amendment to this and certain other covenants in its
credit facility or refinance the indebtedness under its credit facility by April
30, 2002, an "Event of Default" will occur under the terms of the credit
facility. If an Event of Default occurs, the lenders under the credit facility
would not be obligated to make additional advances under the credit facility;
would be entitled to declare all amounts outstanding under the credit facility,
including accrued interest or other obligations, to be immediately due and
payable; and would be entitled to proceed against the collateral granted to them
to secure the debt under the credit facility. Substantially all of the assets
WCG are pledged as collateral under the credit facility. Unless WCG is able to
obtain a waiver of or amendment to certain covenants in the credit facility,
cross-defaults could occur making substantially all of WCG's other long-term
debt due. In addition, WCG anticipates making use of the 30-day grace period for
interest payments totaling approximately $91 million that would be due on April
1, 2002, on approximately $1.7 billion face value, on a consolidated basis, of
its senior redeemable notes. If WCG does not make the required payments within
the grace period, cross-defaults may give the senior redeemable noteholders and
other creditors the right to seek remedies. WCG does not have existing liquidity
sufficient to pay all amounts that would become due as a result of defaults
under the credit facility or the senior redeemable notes and, thus, would have
to find other means of liquidity, enter into separate agreements to restructure
its debt agreements, or file a voluntary petition under Chapter 11 of the U.S.
Bankruptcy Code in order to avoid the material adverse effects associated with
creditors foreclosing or exercising other remedies.

                                       F-3
<PAGE>

  Balance sheet restructuring

     As of December 31, 2001, WCG's total debt was $5.9 billion. This amount was
comprised of:

<Table>
<Caption>
                                                               (IN MILLIONS)
<S>                                                            <C>
Parent company debt:
  Senior redeemable notes...................................      $2,439
                                                                  ------
Subsidiary debt:
  Senior secured notes guaranteed by TWC ...................       1,400
  Secured bank credit facility..............................         975
  Secured obligation under an asset defeasance program (ADP)
     guaranteed by TWC......................................         750
  Secured sale and subsequent leaseback to TWC..............         269
  Secured PowerTel bank facility agreement..................          36
  Other.....................................................          42
                                                                  ------
     Total subsidiary debt..................................       3,472
                                                                  ------
Total consolidated debt.....................................      $5,911
                                                                  ======
</Table>

     In March 2002, TWC secured the consents of holders of the $1.4 billion
senior secured notes issued by WCG Note Trust, a wholly-owned subsidiary of WCG,
and guaranteed by TWC to amend a provision that would have caused the
acceleration of the notes in the event of a WCG bankruptcy or other events. The
amendment affirmed TWC's obligations for all payments under the notes, which
mature in March 2004, and allows TWC to fund the payments from any available
sources. WCG is obligated to reimburse TWC for the payments discussed above with
the exception of the March and September 2002 interest payments totaling
approximately $115 million. WCG Note Trust's obligation to reimburse TWC is
secured by a $1.5 billion note issued by WCG to WCG Note Trust. Consequently, to
the extent TWC makes payments under these notes for which it is entitled to
reimbursement, TWC will have an unsecured claim against WCG.

     The $975 million secured bank credit facility is secured by substantially
all of WCG's assets except those secured under the asset defeasance program and
those secured under the sale and subsequent leaseback with TWC.

     The schedule above includes $750 million associated with the asset
defeasance program. As previously disclosed, Williams Communications, LLC (WCL),
a wholly-owned subsidiary of WCG, was the lessee on a lease agreement covering a
portion of its fiber-optic network. The total cost of the network assets covered
by the lease agreement was $750 million. TWC guaranteed WCL's obligations under
the lease. Subsequent to December 31, 2001, WCL exercised its right to acquire
ownership of these assets as one of the steps to achieve a comprehensive
restructuring. Pursuant to an agreement among WCG, WCL, TWC and the
administrative agent for WCG's bank group, TWC was obligated to fund the
purchase price of the network assets covered by the asset defeasance program. In
exchange for making that payment, TWC is entitled to receive debt from WCG in
the amount of approximately $750 million that is subordinate to, and neither
matures nor requires any payments to be made earlier than one year after the
maturity of, WCG's credit facility. On March 29, 2002, TWC funded the purchase
price, the ADP assets were transferred to WCG, the asset defeasance program was
terminated, and WCG tendered an unsecured note to TWC for approximately $750
million. As a result, WCG has included the assets and the associated obligation
in its Consolidated Balance Sheet as of December 31, 2001 in anticipation of
exercising the purchase option. TWC has reserved its rights with respect to the
transaction.

                                       F-4
<PAGE>

     As previously noted WCG is currently in the process of negotiating new
covenants and other terms with its bank group in connection with its
restructuring. WCG has delivered a revised business plan to the bank group and
is sending to the bank group, on a weekly basis, a cash forecast that projects
cash receipts and payments for the following 13 week period.

     WCG's ultimate decision on whether or not to file for Chapter 11
reorganization, and if so, which legal entities will file, will ultimately be
dictated by the option which allows WCG to preserve the value of the enterprise
to the maximum extent possible.

POWERTEL LONG-TERM DEBT

     As of December 31, 2001, PowerTel was in violation of two covenant
requirements under its 150 million Australian dollar bank facility and was in
the process of negotiating a restructuring plan with its bank group. As of
December 31, 2001, PowerTel had drawn 71 million Australian dollars (or $36.3
million) under the bank facility. In February 2002, WCG advanced PowerTel 16
million Australian dollars (or $8.3 million) in the form of a subordinated loan
in order to satisfy certain conditions of the restructuring plan. In March 2002,
as part of an approved restructuring plan with its bank group, PowerTel received
waivers from its bank group related to the covenant violations for the three
months ending December 31, 2001. Under the approved restructuring plan, PowerTel
will have access to its remaining bank facility beginning September 1, 2002.
PowerTel's violation of covenant requirements does not cause any cross-defaults
under WCG's other debt obligations.

RESULTS OF OPERATIONS

     On February 4, 2002, WCG reported a preliminary net loss attributable to
common stockholders for 2001 of approximately $1.2 billion subject to a
continuing analysis of possible impairment related charges to WCG's long-lived
assets. As more fully discussed in the Critical Accounting Policies section
below, in March 2002, WCG concluded its analysis and recorded impairment charges
of approximately $2.6 billion. WCG's net loss attributable to common
stockholders for 2001, after giving effect to the impairment charges, was
approximately $3.8 billion or $7.86 per share.

NEW YORK STOCK EXCHANGE DELISTING

     In March 2002, WCG was delisted from the New York Stock Exchange (NYSE) due
to the low trading price relative to NYSE requirements, market capitalization
and other possible factors not enumerated by the NYSE. The stock last traded on
the NYSE on February 28, 2002 at a price of $0.13. WCG now trades on the
over-the-counter bulletin board under the symbol "WCGr."

2001 DEVELOPMENTS

DISCONTINUED OPERATIONS

     On January 25, 2001, WCG's board of directors authorized a plan for its
management to divest the Solutions segment that provided professional
communications services and sold and installed communications equipment.
Accordingly, the financial statements prior to 2001 reflect the Solutions
segment as discontinued operations. On January 29, 2001, WCG signed an agreement
to sell the domestic, Mexican and Canadian professional services operations of
the Solutions segment to Platinum Equity LLC. This sale closed on March 31, 2001
for approximately $100 million in cash and an interest-bearing $75 million
promissory note receivable of which $30 million is due on March 31, 2002 and $45
million plus accrued interest is due on September 30, 2002. WCG also entered
into a collection agreement in which Platinum Equity LLC is responsible for the
collection of certain identified retained accounts receivables. As of December
31, 2001, approximately

                                       F-5
<PAGE>

$86 million had been collected on the outstanding receivables. WCG believes it
is adequately reserved for the remaining uncollected balance as of December 31,
2001.

     WCG is involved in a dispute with the purchaser regarding the calculation
of net working capital as defined in the agreement. Platinum Equity LLC claims
that WCG owes approximately $47 million as a working capital adjustment under
the terms of the agreement. WCG denies that a working capital adjustment of this
magnitude is required. The matter has been submitted to arbitration.

     On March 27, 2001, WCG signed an agreement to sell its remaining Canadian
operations of the Solutions segment to Telus Corporation. The sale closed in
second quarter 2001 for approximately $38 million in cash.

SALE OF ALGAR TELECOM LESTE, S.A.

     WCG entered into an agreement with America Movil, S.A. de C.V. in second
quarter 2001 to sell its remaining economic interest in Algar Telecom Leste,
S.A. (ATL). The transaction closed in third quarter 2001 and WCG received $309.6
million in cash with an additional $90.0 million due from America Movil, S.A. de
C.V. on May 15, 2002. WCG recognized a gain from the sale of $45.1 million. In
February 2002, America Movil, S.A. de C.V. prepaid its note from the sale of ATL
by paying a discounted amount of $88.8 million.

AGREEMENT WITH TWC

     In February 2001, TWC and WCG entered into an agreement that, among other
things, resulted in the transfer of ownership of a building under construction
and other assets from TWC to WCG, a commitment to fund the completion of the
building, the conversion of the TWC note into paid in capital and the issuance
of 24.3 million shares of WCG Class A common stock. In 2001, WCG's total equity
increased by approximately $1.2 billion as a result of this transaction. As of
December 31, 2001, WCG has $72.8 million recorded as contra to capital in excess
of par value representing the remaining cost of completing the building that TWC
has agreed to fund.

TAX-FREE SPIN-OFF FROM TWC

     On March 30, 2001, TWC's board of directors approved a tax-free spin-off of
WCG to TWC's shareholders. After the close of the market on April 23, 2001, TWC
distributed approximately 95% of the WCG common stock it owned to holders of TWC
common shares on a pro rata basis as a dividend distribution. Following the
distribution, TWC retained approximately 5% of WCG's Class A common stock which
TWC has committed to the Internal Revenue Service (IRS) to sell within five
years of the tax-free spin-off. Under a separation agreement between TWC and
WCG, subject to the receipt of a favorable letter ruling from the IRS which had
been requested, TWC had agreed not to sell any shares before April 23, 2004.
However, WCG has waived this requirement and accordingly, TWC is free to sell
its shares of WCG at any time and has withdrawn its request for a letter ruling
from the IRS that otherwise might have restricted its ability to sell its
remaining WCG stock for three years.

     Prior to the spin-off of WCG from TWC, WCG received charges from TWC for
certain corporate administrative expenses which were either directly
identifiable or allocable under various methodologies. In conjunction with the
spin-off, WCG has either hired employees to perform these functions or has
entered into service level agreements with TWC for the continuation of services
with initial terms primarily through December 31, 2001. WCG is currently in the
process of transitioning services to other outside service providers. The
combined costs of the additional employees and the costs incurred under the
service level agreements have been approximately the

                                       F-6
<PAGE>

same or less than the amounts incurred prior to the spin-off. In 2001, WCG
incurred charges related to the spin-off of $6.9 million primarily consisting of
legal and consulting costs.

     Effective with the spin-off of WCG from TWC, the existing tax sharing
agreement with TWC was amended to address pre spin-off tax attributes. Under the
amendment, TWC retains all rights and obligations with respect to tax attributes
of WCG for all periods prior to WCG's initial public offering. In the event of
any final determination with respect to a WCG tax attribute that arose from the
time of WCG's initial public offering to the date of the spin-off of WCG from
TWC, WCG will pay TWC for any determination resulting in a detriment as compared
to previous amounts filed and TWC shall pay WCG for any determination resulting
in favorable tax consequences as compared to amounts filed. Tax attributes of
WCG arising subsequent to the spin-off date are rights and obligations of WCG.

CREDIT RATINGS

     On July 19, 2001, Moody's Investor Service (Moody's) announced that it
lowered various credit ratings of WCG. The announcement stated that contributing
to this change is the tax-free spin-off from TWC and the potential impact the
current economic slowdown could have on both the telecommunications industry and
WCG's operating results. This downgrade increased the borrowing rate on WCG's
credit facility from LIBOR plus 2.75% to LIBOR plus 3.00% and could potentially
limit or increase the cost of future public or private financings. In addition,
due to the downgrade the credit facility lenders requested liens on WCG's assets
that were not previously secured under the credit facility.

     During first quarter 2002, WCG's credit rating was downgraded by Standard &
Poor's (S&P) rating agency due to the impact of a weak economy and current
conditions within the telecommunications industry and warned it could cut the
ratings further due to concerns about WCG's ability to fund its business beyond
2002. In addition, Moody's further downgraded WCG's credit rating.

DEBT PURCHASES

     In the second half of 2001, a wholly-owned subsidiary of WCG purchased
$551.0 million of WCG's senior redeemable notes in the open market at an average
price of 43% of face value. The purchase resulted in an extraordinary gain of
$296.9 million (net of a zero provision for income taxes) including the
recognition of deferred costs and debt discounts related to the purchased senior
redeemable notes.

REPORTING CHANGES

     In fourth quarter 2001, WCG changed its measure of segment profit and loss
to operating EBITDA. Operating EBITDA as defined by WCG, represents earnings
before interest, income taxes, depreciation and amortization, lease costs
attributable to WCG's operating lease agreement covering a portion of WCG's
fiber-optic network (operating lease costs) and other unusual, non-recurring or
non-cash items, such as asset impairments and restructuring charges, equity
earnings or losses and minority interest. A reconciliation of operating EBITDA
to loss from operations is presented in Note 4 to the financial statements.

NETWORK

  Winstar Communications, Inc.

     In April 2001, Winstar Communications, Inc. (Winstar) announced it filed
for protection under Chapter 11 of the U.S. Bankruptcy Code and in September
2001, WCG reached a bankruptcy settlement agreement with Winstar. Under the
bankruptcy settlement agreement, WCG

                                       F-7
<PAGE>

and Winstar amended their 1998 agreement for WCG's 25-year indefeasible right to
use a percentage of the wireless local capacity of Winstar. The amendment
limited WCG's total capital expenditures for capacity on 200 of 270 hubs, or
antenna sites, to the amount which was paid before March 31, 2001 of
approximately $300 million, increased the amount of capacity WCG could utilize
on the 200 hubs and canceled WCG's remaining payments for the undelivered hubs.
The amendment also shortened the term of the original agreement to a 20-year
term ending July 2021 from the original termination in December 2023. WCG and
Winstar also entered into a mutual release of claims against each other for
services and payments provided or made to each other prior to June 30, 2001. WCG
agreed to provide services to Winstar while Winstar was under bankruptcy
protection. Payment for on-network services was deferred and secured on an equal
and pro-rata basis with Winstar's post-bankruptcy lenders. Any off-network
services were paid for in cash on a monthly basis. Winstar also released any
claims over two fibers in which it had a right to use and two fibers in which it
had an option to purchase a right to use.

     In December 2001, IDT Corporation (IDT) purchased the assets of Winstar.
Under the terms of the court order, WCG was ordered to provide the same services
to IDT at the same rate provided to Winstar for up to 120 days effective
December 19, 2001. During this interim period, IDT is required to prepay for
on-network and off-network services and will determine which contracts to renew
with WCG. As a result of a review for impairment of WCG's investment in
Winstar's wireless hub capacity under Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Assets to Be Disposed Of," WCG recorded a net impairment charge of
$215.0 million in fourth quarter 2001 for its remaining investment in the
wireless hub capacity.

  Ameritech Global Gateway Services acquisition

     In September 2001, WCG acquired two gateway switches from a SBC
Communications, Inc. (SBC) subsidiary, Ameritech Global Gateway Services (AGGS),
and in turn, WCG assumed the wholesale international long-distance business
conducted by AGGS. The gateway switches allow WCG to offer outbound foreign
termination and inbound domestic termination to other carrier customers. As part
of this transaction, WCG signed a preferred provider status agreement with the
long-distance telephone affiliate of SBC, SBC Long Distance (SBC-LD). Under the
terms of the agreement, WCG is the preferred provider of SBC-LD's
U.S.-originated international long-distance traffic. Revenues associated with
this business totaled $47.4 million in 2001, including $14.5 million from SBC.

  WorldCom agreement

     In October 2001, WCG and WorldCom reached an agreement in which WCG sold to
WorldCom its single strand of lit fiber (sometimes known as the SUSA fiber) that
WCG had retained when it sold the majority of its predecessor network to
WorldCom in 1995. In exchange for granting title to the SUSA fiber to WorldCom,
WCG received cash of $143.6 million from WorldCom resulting in a gain to WCG in
fourth quarter 2001 of $46.1 million. WCG did not record any revenue from this
sale. WCG purchased from WorldCom a 20-year indefeasible right of use (IRU) of
capacity on WorldCom's network for approximately $100 million. The agreement for
the sale of the SUSA fiber and the purchase of the IRU settled ongoing disputes
of operational matters dating back to 1995.

  Purchase of CoreExpress assets

     In December 2001, WCG closed its asset purchase agreement to obtain the
fiber-optic network, intellectual property, and Internet protocol capabilities
of CoreExpress. This acquisition

                                       F-8
<PAGE>

enhances WCG's ability to offer value-added services that complement the
traditional services offered by Internet Service Providers.

EMERGING MARKETS

  iBEAM Broadcasting Corp. acquisition

     WCG entered into an investment in third quarter 2001 with iBEAM
Broadcasting Corp. (iBEAM), a provider of streaming communications solutions.
Under the terms of the agreement, WCG invested $20 million in cash and agreed to
provide $10 million of future services to iBEAM in exchange for convertible
preferred stock of iBEAM representing approximately a 49% ownership of the
company. On December 7, 2001, WCG purchased substantially all the assets of
iBEAM under terms approved by U.S. Bankruptcy Court for consideration of
approximately $25 million in cash and assumed certain liabilities of iBEAM
relating to the acquired assets. WCG accounted for its investment in iBEAM under
the equity method of accounting until the purchase of iBEAM in December 2001.

CRITICAL ACCOUNTING POLICIES

     Accounting standards require information in financial statements about the
accounting principles and methods used and the risks and uncertainties inherent
in significant estimates. WCG believes that its financial statements and
footnote disclosures present fairly, in all material respects, an accurate
application of generally accepted accounting principles (GAAP). In an effort to
reconcile the technical application of GAAP to the communication and disclosure
of important information to facilitate and enhance an investor's understanding
of a company's financial status, and the possibility and implication of changes
in the financial and operating status of a company, the Securities Exchange
Commission issued Financial Reporting Release No. 60 (FR-60) in which it stated
that it is considering new rules during 2002 to elicit more precise disclosures
about the accounting policies that management believes are the most critical;
that is, they are both most important to the portrayal of the company's
financial condition and results, and they require management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain. In addition, the SEC
issued FR-61 to remind public companies of existing disclosure requirements and
to suggest steps for meeting those requirements. In response to FR-60 and FR-61,
and in anticipation of new rules, WCG is making the following comments, all of
which should be read in conjunction with the audited financial statements
including the accompanying footnotes:

  Impairments of long-lived assets

     Accounting standards at December 31, 2001 require WCG to evaluate and test
recoverability of long-lived assets or asset groups including goodwill and other
intangibles whenever events or changes in circumstances indicate that its
carrying value amount may not be recoverable. Whenever these "impairment
indicators" are present, the company must estimate the future cash flows
attributable to the assets and determine whether or not future cash flows, net
of direct cash flows attributable to the generation of those revenues, results
in recovery of the company's basis in those assets. If so, there is no
impairment. If not, then the company must record an impairment charge equal to
the difference between its basis in the assets and the fair value of the assets.
The rules further require the company to determine whether it plans to use the
assets or hold the assets for sale.

     Throughout 2001, indicators of impairment were primarily limited to
external forces such as general market and industry conditions. For example,
many analysts anticipated and attributed WCG's depressed bond and equity prices
during second and third quarter 2001 to factors associated

                                       F-9
<PAGE>

with the spin-off from TWC. During third quarter 2001, national events such as
the September 11 tragedy continued to put pressure on virtually all securities
regardless of the industry. Throughout these periods, WCG continued to execute
on its operational and financial plans, consistently growing its revenue base
and meeting or beating operational EBITDA guidance. Inasmuch as WCG had recently
completed its network and spin-off from TWC, it did not perceive the external
factors and general market conditions as an inability to recover its basis in
its long-lived assets. In contrast, WCG perceived this period as an opportunity
to differentiate its performance from its peers.

     In October 2001, because of WCG's strong cash position and the generally
depressed industry and market conditions, WCG and its bank group agreed to an
amendment to defer a covenant requirement that would have otherwise forced WCG
to raise cash in the form of equity by December 2001. WCG viewed this covenant
amendment as further evidence that the external factors affecting its industry
were not necessarily indicative of an inability to recover its basis in its
long-lived assets.

     Simultaneously with obtaining the amendment, WCG and its bank group began a
comprehensive review of the existing credit facility. In conjunction with that
review, in November 2001, WCG completed an extensive cash flow modeling exercise
which demonstrated adequate cash flow projections to sustain the carrying values
of its long-lived assets on a held for use basis. This multi-year analysis
included growth assumptions consistent with WCG's historical growth rates in the
early years with increases in growth assumptions in Data and MediaXtranet
services in two to three years. In addition, the analysis was performed
following a number of positive factors that further caused WCG to believe that
it would differentiate itself from its peers and accordingly mitigate, if not
eliminate, what were otherwise external indicators of impairment. These items
included but were not necessarily limited to:

     - The successful negotiation of the covenant deferral discussed above due
       in part to WCG's strong cash position.

     - Excess liquidity used to reduce outstanding debt by $551 million at an
       average price of 43% of the face value.

     - A stronger balance sheet subsequent to the spin-off from TWC primarily
       due to reduced debt balances.

     - Full compliance with existing financial covenants at September 30, 2001
       and into fourth quarter 2001 and, after giving consideration to normal
       revenue growth at historical trends and planned capacity sales, an
       expectation of continuing compliance into 2002, if not the full year
       2002.

     - Continued execution of its business plan resulting in WCG meeting or
       beating guidance.

     - Use of cash to opportunistically acquire companies or assets such as
       iBEAM, AGGS and CoreExpress.

     Accordingly, based on this analysis and the positive mitigating factors
noted above, WCG concluded that there were no additional impairments to be
recorded, other than those disclosed in the filing of WCG's Form 10-Q as of
September 30, 2001, or for any reporting periods prior to December 31, 2001.
Further, other than the potential for impairment related to WCG's investment in
wireless capacity, which had been disclosed since first quarter 2001, WCG exited
third quarter 2001 with an expectation that there would be no additional
impairments in 2001 for the reasons noted above.

     However, during and subsequent to fourth quarter 2001, industry events
including high profile bankruptcies of companies such as Global Crossing Ltd.
and Enron Corp. and other actions by WCG's peer group, along with a continuing
downward spiral of valuations associated with telecom
                                       F-10
<PAGE>

companies, created an environment in which WCG could not differentiate itself
from its peer group despite its continued execution of its operational and
financial plan. In January 2002, WCG's bank group, through their administrative
agent, informed WCG that, in their view, recent negative developments in the
telecommunications industry raised questions as to whether or not WCG could
confirm representations and warranties included in the credit facility. Those
representations and warranties generally state that there has been no material
adverse change to WCG. The banks questioned whether or not a material adverse
change in the industry represented a material adverse change to WCG and
accordingly reserved their rights to declare a default on WCG's credit facility
despite WCG's continued execution on its operational and financial plan. This
"reservation of rights" letter based on general market conditions, along with
the industry events mentioned above, collectively represented new impairment
indicators. Further, because one of the indicators was now in the form of a
letter from WCG's bank group, which was a primary source of WCG's interim
funding in its financial model until such time as WCG achieved free cash flow,
WCG found itself in the position of needing to again assess the recoverability
of its long-lived assets. This new assessment was made using assumptions that
placed an increased need to preserve as much of its existing cash as possible
and the sale of assets in a distressed market to raise cash to fund capital
expenditures and working capital rather than relying on its credit facility. In
addition, as part of the preparation of a comprehensive plan to restructure and
de-leverage its balance sheet, management revised its plans and intentions with
regard to the use of certain long-lived assets, and accordingly, revised its
estimates of future cash flows associated with these long-lived assets. On
February 25, 2002, WCG announced it was considering the potential benefits of a
negotiated Chapter 11 reorganization process. Although WCG has not yet committed
to a Chapter 11 reorganization, it is currently evaluating that alternative on
the belief it will allow for a more orderly process that maximizes enterprise
value. These restructuring scenarios, which are being driven and influenced by
stakeholders of WCG, are substantially different from any of WCG's previous
business plans and accordingly, when considering impairment impacts, has
substantially different results. As part of its restructuring efforts and the
management of its cost structure, WCG has taken steps to reduce its 2002 planned
controllable cost structure by approximately 25%, including workforce reductions
of approximately 750 employees in March 2002.

     As a result of these developments, WCG continued its impairment analysis
subsequent to December 31, 2001. The events discussed above, all of which are
required to be taken into consideration in the impairment analysis as of
December 31, 2001, resulted in assigning higher probabilities to selling certain
assets or ascribing cash flows to asset groups that may be carved out for sale
that otherwise would have remained an integral part of WCG's overall network
services, to compensate for the potential loss of funding as described above.
These estimates include assumptions regarding decreased prices for WCG's
products and services, significant increases in sales quantities in periods
beyond 2002 and that WCG has adequate liquidity. If actual results do not meet
or exceed these estimates, WCG will revise its estimates of future cash flows
and additional asset impairments may be necessary.

     These events also resulted in abandoning or suspending projects because of
a reduced workforce or uncertainties related to the availability of funding to
complete the projects and limited growth

                                       F-11
<PAGE>

profiles because of uncertainties now inherent in WCG's business. This analysis
resulted in total year impairments as follows:

<Table>
<Caption>
                                                               (IN MILLIONS)
<S>                                                            <C>
Dark fiber and conduit(1)...................................      $1,876
Optronics equipment(2)......................................         336
International assets and undersea cable(3)..................         256
Wireless capacity, net(4)...................................         215
Abandoned projects and other(5).............................         211
Goodwill and other intangible assets(6).....................          86
                                                                  ------
  Total impairment of long-lived assets.....................      $2,980
                                                                  ======
</Table>

---------------

(1) WCG has assumed that on various routes it will keep 8 to 24 fibers for its
    internal use. Previous assumptions were that WCG would keep an average of 24
    fibers for its own use. WCG's fourth quarter 2001 impairment charge of
    approximately $1.9 billion considers this change and revised estimates of
    future cash flows for all excess fiber and conduit.

(2) Because of increasingly lower prices for excess optronics, WCG recorded a
    fourth quarter 2001 impairment charge of approximately $186 million. WCG had
    previously recorded a third quarter 2001 impairment charge of approximately
    $150 million related to excess optronics.

(3) As of December 31, 2001, WCG has ownership interest in a number of
    international routes in process of completion for which the funding of that
    completion is now in doubt. In addition, the recent or expected completion
    of several undersea cable systems has negatively impacted prices. Because of
    these conditions, WCG does not believe it will recover its investment in
    these international assets. As such, WCG recorded a fourth quarter 2001
    impairment charge of approximately $256 million on international routes.

(4) WCG had previously entered into a strategic relationship with Winstar. WCG
    planned to use wireless technology to provide high capacity local exchange
    and internet access services to companies located in buildings not served by
    fiber-optic cable. However, in 2001 Winstar filed for bankruptcy protection
    and the assets were subsequently purchased by another company. WCG has fully
    impaired its basis in the Winstar capacity that it had previously purchased
    by recording a net fourth quarter 2001 impairment charge of approximately
    $215 million.

(5) WCG recorded a fourth quarter 2001 impairment charge of approximately $181
    million primarily representing the write-off of project costs that will not
    be completed because of funding constraints and/or personnel reductions. WCG
    had previously recorded a third quarter 2001 charge of approximately $30
    million for similar items.

(6) WCG recorded a fourth quarter 2001 impairment charge of approximately $75
    million representing the remaining balances of its goodwill and other
    intangibles. WCG had previously recorded a third quarter 2001 impairment
    charge of approximately $11 million related to goodwill associated with its
    satellite operations.

     The impairment analysis has been prepared on a going concern basis and
WCG's remaining basis in its long-lived assets is presumed to be recoverable
through future cash flows. If WCG enters bankruptcy, further impairments may be
necessary because of differences between accounting for impairments of
long-lived assets under SFAS 121 and accounting for such assets under "Fresh
Start Accounting" as described in Statement of Position 90-7 "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code." These
differences include, but may not be limited to, the revaluation of all assets to
fair value, further revisions of the underlying cash flow assumptions,

                                       F-12
<PAGE>

revised assumptions underlying assets to be held for use versus assets to be
sold, or estimates or appraisals for the purpose of determining and/or
establishing a new enterprise value.

  Impairments of investments

     Accounting standards require WCG to classify investments in other companies
as trading securities or available-for-sale securities. WCG generally classifies
its investments as available-for-sale. Unrealized appreciation or depreciation
is reported as a component of other comprehensive income within the balance
sheet. Exceptions to this practice occur when the losses are deemed to be other
than temporary in which case the losses are required to be reflected in the
income statement. Similar rules requiring loss recognition through the income
statement apply when losses are deemed to be other than temporary for equity
method investments. WCG systematically, throughout the year, evaluated its
investment portfolio and recorded impairment charges of $207.6 million during
2001, of which $71.9 million was recorded in fourth quarter 2001.

     As of December 31, 2001 WCG's investment portfolio includes a remaining
basis of marketable equity securities of approximately $11 million, cost-based
investments of approximately $3 million and equity method investments of
approximately $8 million. WCG will continue to monitor its portfolio in future
quarters for signs of declines in values of an other than temporary nature.

  Debt, preferred stock obligations and covenant compliance

     As of December 31, 2001, WCG has obligations classified as debt totaling
approximately $5.9 billion, of which approximately $5.8 billion is listed as
long-term. Substantially all of WCG's assets are pledged as collateral for WCG's
debt. A description of the debt, including payment terms, and a maturity
schedule are included in Note 12 to the financial statements. WCG's debt
agreements contain a number of terms that require it to take certain actions,
which restrict it from various other actions and require it to meet certain
financial ratios. The terms and the calculations (collectively referred to as
covenants) require subjective and legal interpretations. The ability for WCG to
continue to classify its debt as long-term is dependent on its ability to
continue to meet the covenant requirements listed in the debt agreements or
obtain waivers or amendments in the event WCG cannot comply with its covenants
or cure any instances of noncompliance. As of December 31, 2001, WCG believes it
is in compliance with its covenants. However, as previously described and as
reflected in WCG's report from its independent public accountants, certain of
WCG's creditors have informed WCG that in their view, WCG may be in default
under the terms of its credit facility. This condition raises substantial doubt
about WCG's ability to continue as a going concern. Certain of WCG's debt
agreements require that its annual financial statements be accompanied by an
opinion from its independent public accountants that does not contain a "going
concern" explanatory paragraph. Noncompliance with this term is an event of
default. As a result of the inclusion of the going concern explanatory paragraph
in that report, WCG will not be able to satisfy this term in the agreements. In
addition, WCG anticipates that it may be in default under other covenants in
2002. Consequently, unless WCG is able to obtain a waiver of or amendment to
this and certain other covenants in its credit facility or refinance the
indebtedness under its credit facility by April 30, 2002, an "Event of Default"
will occur under the terms of the credit facility. If an Event of Default
occurs, the lenders under the credit facility would not be obligated to make
additional advances under the credit facility; would be entitled to declare all
amounts outstanding under the credit facility, including accrued interest or
other obligations, to be immediately due and payable; and would be entitled to
proceed against the collateral granted to them to secure the debt under the
credit facility. Substantially all of the assets of WCG are pledged as
collateral under the credit facility. Unless WCG is able to obtain a waiver of
or amendment to certain covenants in the credit facility, cross-defaults could
occur making substantially all of WCG's other long-term debt

                                       F-13
<PAGE>

due. In addition, WCG anticipates making use of the 30-day grace period for
interest payments totaling approximately $91 million that would be due on April
1, 2002 on approximately $1.7 billion face value, on a consolidated basis, of
its senior redeemable notes. If WCG does not make the required payments within
the grace period, cross-defaults may give the senior redeemable noteholders and
other creditors the right to seek remedies. WCG does not have existing liquidity
sufficient to pay all amounts that would become due as a result of defaults
under the credit facility or the senior redeemable notes and, thus, would have
to find other means of liquidity, enter into separate agreements to restructure
its debt agreements, or file a voluntary petition under Chapter 11 of the U.S.
Bankruptcy Code in order to avoid the material adverse effects associated with
creditors foreclosing or exercising other remedies.

     At December 31, 2001, WCG has unamortized debt issuance costs of $103.5
included in other assets and deferred charges. These charges are amortized as
additional interest expense over the estimated life of the associated debt with
maturity dates of 2004 to 2010. As a result of the balance sheet restructuring
efforts in process, subsequent to December 31, 2001, WCG will need to reassess
the remaining useful life which could result in the write-off of the remaining
debt issuance costs in 2002.

     As of December 31, 2001, PowerTel was in violation of two covenant
requirements under its 150 million Australian dollar bank facility and was in
the process of negotiating a restructuring plan with its bank group. As of
December 31, 2001, PowerTel had drawn 71 million Australian dollars (or $36.3
million) under the bank facility. In February 2002, WCG advanced PowerTel 16
million Australian dollars (or $8.3 million) in the form of a subordinated loan
in order to satisfy certain conditions of the restructuring plan. In March 2002,
as part of the approved restructuring plan with its bank group, PowerTel
received waivers from its bank group related to the covenant violations for the
three months ending December 31, 2001. Under the approved restructuring plan,
PowerTel will have access to its remaining bank facility beginning September 1,
2002. PowerTel's violation of covenant requirements does not cause any
cross-defaults under WCG's other debt obligations.

     WCG has redeemable cumulative convertible preferred stock outstanding as of
December 31, 2001 of approximately $242 million. Through January 15, 2002, WCG
has met all required quarterly dividends although WCG has discretion to defer
the payments for up to six quarters without triggering certain rights of holders
of the preferred stock. In February 2002, WCG adopted a policy that it will not
declare or pay dividends on the preferred stock until such time as the market
price of the common stock equals or exceeds $5.00 per share. In accordance with
existing GAAP, the preferred stock is classified on its balance sheet as
mezzanine financing, meaning it is neither debt nor equity. Pending rules before
the Financial Accounting Standards Board would require classifying this security
as debt, due in 2012.

  Collections on notes receivable

     As of December 31, 2001, WCG has notes receivable outstanding of
approximately $179 million primarily related to the sale of its Solutions
business of approximately $75 million and the sale of its remaining interest in
ATL of approximately $90 million. In February 2002, America Movil, S.A. de C.V.
prepaid its note from the sale of ATL by paying a discounted amount of $88.8
million. WCG is involved in a dispute with the purchaser of its Solutions
business regarding the calculation of net working capital as defined in the
agreement in which the purchaser claims that WCG owes approximately $47 million.
WCG denies that a working capital adjustment of this magnitude is required. The
matter has been submitted to arbitration.

                                       F-14
<PAGE>

  Revenue Recognition

     WCG recognizes capacity revenues monthly as services are provided or as
revenues are earned. As a result of accounting rules that became effective in
June 1999, revenues from WCG's dark fiber IRU transactions are accounted for as
operating leases and recognized over the life of the agreement. WCG has
recognized one-time dark fiber IRU revenues only to the extent that title was
transferred or to the extent that the fulfillment of the order was pursuant to
an obligation that existed prior to June 1999. WCG's dark fiber revenues are
separately disclosed in Note 4 to the financial statements.

     As part of WCG's strategy to be the low cost provider, WCG has entered into
transactions such as buying, selling, swapping and/or exchanging capacity,
conduit and fiber to complete and compliment its network. WCG has not recognized
or recorded any one-time capacity or service revenues from these transactions.
Depending upon the terms of the agreement, certain transactions are accounted
for as pure asset swaps with no revenue and no cost recognition while certain
transactions are accounted for as both revenue and cost over the corresponding
length of time for each agreement.

FINANCING ARRANGEMENTS GUARANTEED BY TWC AND OBLIGATIONS TO TWC

     In March 2001, WCG Note Trust, which is wholly-owned by WCL, issued
approximately $1.4 billion of 8.25% senior secured notes in a private placement.
This obligation ranks equal to all of WCG's existing and future senior unsecured
debt, senior to subordinated debt and junior to any secured debt WCG may incur
as to the assets securing such debt. This obligation is described further in
Note 12 to the financial statements. TWC provided indirect credit support for
the notes through a commitment to issue its preferred stock in the event of a
default under the senior secured notes. In March 2002, TWC secured the consents
of holders of the senior secured notes guaranteed by TWC to amend a provision
that would have caused the acceleration of the notes in the event of a WCG
bankruptcy or other events. The amendment affirmed TWC's obligations for all
payments under the notes, which mature in 2004, and allows TWC to fund the
payments from any available sources. WCG is obligated to reimburse TWC for the
payment discussed above with the exception of the March and September 2002
interest payments totaling approximately $115 million. WCG Note Trust's
obligation to reimburse TWC is secured by a $1.5 billion note issued by WCG to
WCG Note Trust. Consequently, to the extent TWC makes payments under these notes
for which it is entitled to reimbursement, TWC will likely have an unsecured
claim against WCG.

     Subsequent to December 31, 2001, WCL exercised its right to acquire
ownership of the assets covered by the asset defeasance program, as one of the
steps to achieve a comprehensive restructuring. WCG has included the assets and
the associated obligation on its Consolidated Balance Sheet as of December 31,
2001, in anticipation of exercising its purchase option. TWC was notified that
WCL exercised its right to purchase the assets covered by the asset defeasance
program. Pursuant to an agreement among WCG, WCL, TWC and the administrative
agent for WCG's bank group, TWC was obligated to fund the purchase price of the
network assets covered by the asset defeasance program. In exchange for making
that payment, TWC is entitled to receive debt from WCG in the amount of
approximately $750 million that is subordinate to, and neither matures nor
requires any payments to be made earlier than one year after the maturity of,
WCG's credit facility. On March 29, 2002, TWC funded the purchase price, the ADP
assets were transferred to WCG, the asset defeasance program was terminated, and
WCG tendered an unsecured note to TWC for approximately $750 million. TWC has
reserved its rights with respect to the transaction.

     In September 2001, WCG sold its Technology Center building and other
ancillary assets to TWC for approximately $276 million in cash. Concurrent with
the sale, WCG leased the

                                       F-15
<PAGE>

Technology Center building for a period of ten years and other ancillary assets
for a period of three to ten years with varying payment terms. WCG has an option
to repurchase and TWC has the right to sell the Technology Center building to
WCG at the expiration date of the lease for approximately $92 million. WCG also
has the option to repurchase and TWC has the right to sell certain ancillary
assets to WCG at the expiration date of the lease at their stated fair market
value per the lease. In the event neither WCG nor TWC exercise these options,
the property will remain owned by TWC.

     As of December 31, 2001, WCG owes TWC approximately $100 million for
various normal course services which is included in accounts payable. By
agreement with TWC, WCG elected to defer payment of these payables until
September 15, 2002 at an interest rate of 8.25%.

TRANSACTIONS WITH SBC

     SBC is WCG's largest customer and was a related party due to the membership
of an officer of SBC on WCG's board of directors. Subsequent to December 31,
2001, the officer of SBC resigned his membership on WCG's board of directors.
SBC purchases domestic voice and data long-distance and local transport services
from WCG. Revenues from SBC were $402.0 million, $169.4 million and $2.4 million
in 2001, 2000 and 1999, respectively. WCG purchases local transport services,
platform services such as toll-free, operator, calling card and directory
assistance services and international services such as transport and
switched-voice services from SBC. These purchases from SBC were $149.6 million,
$51.7 million and $13.2 million in 2001, 2000 and 1999, respectively. Amounts
due from SBC were $65.3 million and $24.7 million as of December 31, 2001 and
2000, respectively. Amounts due to SBC were $1.5 million as of December 31,
2001. No amounts were due to SBC as of December 31, 2000.

     In a series of transactions in first quarter 2000, WCG sold to an entity
jointly owned by SBC and Telefonos de Mexico S.A. de C.V., 7% and 30% of ATL's
total preferred shares and common stock, respectively. The partial sale of WCG's
investment in ATL yielded proceeds of approximately $168 million. WCG recognized
a gain on the sale of $16.5 million and deferred a gain of approximately $121
million associated with $150 million of the proceeds which were subsequently
advanced to ATL. In June 2000, WCG acquired SBC's interests in undersea
communications cables between the United States and China, and between the
United States and Japan, for a purchase price of $111.4 million. In September
2000, WCG acquired the long-distance network assets of Ameritech Communications,
Inc., a subsidiary of SBC, for a purchase price of approximately $145 million.
These assets are located in the states of Illinois, Indiana, Michigan, Ohio and
Wisconsin and include a 2,200 mile fiber-optic network over four routes, IRU in
dark fiber and 15 data centers. In September 2001, WCG acquired the wholesale
international long-distance business conducted by AGGS, a subsidiary of SBC for
approximately $13 million in cash.

                                       F-16
<PAGE>

RESULTS OF OPERATIONS

     The table below summarizes WCG's consolidated results from operations:

<Table>
<Caption>
                                                        YEAR ENDED DECEMBER 31,
                                                  ------------------------------------
                                                     2001          2000        1999
                                                  -----------   ----------   ---------
                                                             (IN THOUSANDS)
<S>                                               <C>           <C>          <C>
Revenues:
  Network.......................................  $ 1,077,840   $  705,020   $ 438,509
  Emerging Markets..............................      164,702      168,761     162,849
  Other.........................................           --           --      35,435
  Eliminations..................................      (57,021)     (34,704)    (35,337)
                                                  -----------   ----------   ---------
     Total revenues.............................    1,185,521      839,077     601,456
Operating expenses:
  Cost of sales.................................    1,029,455      823,272     526,040
  Selling, general and administrative...........      285,771      270,071     199,615
  Provision for doubtful accounts...............       26,020        9,959       1,066
  Depreciation and amortization.................      467,118      185,024      86,718
  Asset impairments and restructuring charges...    2,979,925           --      33,854
  Other expense (income), net...................      (58,402)        (578)        658
                                                  -----------   ----------   ---------
     Total operating expenses...................    4,729,887    1,287,748     847,951
                                                  -----------   ----------   ---------
Loss from operations............................   (3,544,366)    (448,671)   (246,495)
Net interest expense............................     (454,724)    (221,116)    (96,421)
Investing income (loss):
  Interest and other............................       47,829       59,434      29,777
  Equity losses.................................      (35,522)     (20,297)    (36,440)
  Income (loss) from investments................      (95,722)     294,136       9,397
Minority interest in loss of consolidated
  subsidiaries..................................       25,533       24,492       9,044
Other income (loss), net........................         (160)         227        (359)
                                                  -----------   ----------   ---------
Loss before income taxes........................   (4,057,132)    (311,795)   (331,497)
Benefit (provision) from income taxes...........      (50,121)      34,107       3,185
                                                  -----------   ----------   ---------
Loss from continuing operations.................  $(4,107,253)  $ (277,688)  $(328,312)
                                                  ===========   ==========   =========
</Table>

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

CONSOLIDATED RESULTS

     WCG's loss from continuing operations increased $3.8 billion due to an
increase in loss from operations of $3.1 billion, a decrease in investing income
of $416.7 million, an increase in net interest expense of $233.6 million and an
increase of $84.2 million related to the tax provision.

     Excluding asset impairments and restructuring charges of $3.0 billion in
2001, Network and Emerging Markets accounted for $91.5 million and $29.1
million, respectively, of the increase in loss from operations while Other
decreased $4.9 million.

                                       F-17
<PAGE>

NETWORK

     The table below summarizes Network's results from operations:

<Table>
<Caption>
                                                        YEAR ENDED DECEMBER 31,
                                                  ------------------------------------
                                                     2001          2000        1999
                                                  -----------   ----------   ---------
                                                             (IN THOUSANDS)
<S>                                               <C>           <C>          <C>
Revenues:
  Dark fiber....................................  $     9,101   $   62,397   $ 109,258
  Capacity and other............................    1,012,098      608,348     295,799
  Intercompany..................................       56,641       34,275      33,452
                                                  -----------   ----------   ---------
     Total revenues.............................    1,077,840      705,020     438,509
Operating expenses:
  Cost of sales.................................      932,714      726,125     415,191
  Selling, general and administrative...........      241,463      221,281     138,748
  Provision for doubtful accounts...............       24,394        8,752         989
  Depreciation and amortization.................      433,032      154,288      51,454
  Asset impairments and restructuring charges...    2,928,648           --          --
  Other expense (income), net...................      (57,316)        (526)         25
                                                  -----------   ----------   ---------
     Total operating expenses...................    4,502,935    1,109,920     606,407
                                                  -----------   ----------   ---------
Loss from operations............................  $(3,425,095)  $ (404,900)  $(167,898)
                                                  ===========   ==========   =========
</Table>

     Network revenues increased $372.8 million, or 53%, primarily attributable
to data and voice services provided to SBC of approximately $402 million in 2001
compared to approximately $169 million in 2000 and an increase of $47.4 million
attributable to the acquisition of AGGS as of September 28, 2001, of which $14.5
million relates to SBC and is included in the SBC revenues amount above. The
remaining increase is attributable to sales to new customers as well as expanded
sales to existing customers, both domestic and international, partially offset
by contractual price re-rates, customer disconnects and $53.3 million lower
revenues from dark fiber transactions entered into prior to June 30, 1999, and
accordingly accounted for as sales-type leases.

     Network had a gross profit of $145.1 million in 2001 while Network's costs
of sales exceeded revenues by $21.1 million in 2000. The continued improvement
in Network's gross profit is primarily a result of revenue growth described
above and greater on-net utilization, partially offset by increased payroll
related expenses.

     Network's selling, general and administrative expenses increased $20.2
million, or 9%, due primarily to an increase in payroll related expenses.
Network's selling, general and administrative expenses decreased to 22% in 2001
as a percentage of revenues from 31% in 2000. Network's provision for doubtful
accounts increased $15.6 million primarily due to the growth in its customer
base and general market conditions in the telecommunications industry.

     Network's depreciation and amortization increased $278.7 million primarily
as a result of assets placed in service since December 31, 2000, as well as in
fourth quarter 2000.

     Network's asset impairments and restructuring charges in 2001 were $2.9
billion consisting of the following categories: dark fiber and conduit
(approximately $1.9 billion), optronics equipment (approximately $336 million),
international assets and undersea cable (approximately $256 million), wireless
capacity, net (approximately $215 million), abandoned projects and other

                                       F-18
<PAGE>

(approximately $211 million) and goodwill and other intangible assets
(approximately $35 million). See Critical Accounting Policies -- Impairments of
long-lived assets for further details.

     Network's other income increased $56.8 million primarily related to the
sale of SUSA fiber of $46.1 million and settlement gains of $28.7 million
related to the termination of various agreements, partially offset by expenses
related to a loss provision on notes receivable of $12.0 million.

EMERGING MARKETS

     The table below summarizes Emerging Markets' results from operations:

<Table>
<Caption>
                                                          YEAR ENDED DECEMBER 31,
                                                      -------------------------------
                                                        2001        2000       1999
                                                      ---------   --------   --------
                                                              (IN THOUSANDS)
<S>                                                   <C>         <C>        <C>
Revenues............................................  $ 164,702   $168,761   $162,849
Operating expenses:
  Cost of sales.....................................    153,762    131,851    122,915
  Selling, general and administrative...............     41,155     42,033     40,568
  Provision for doubtful accounts...................      1,626      1,207       (160)
  Depreciation and amortization.....................     33,607     30,269     29,866
  Asset impairments and restructuring charges.......     51,277         --         --
  Other expense (income), net.......................        206        (48)       254
                                                      ---------   --------   --------
     Total operating expenses.......................    281,633    205,312    193,443
                                                      ---------   --------   --------
Loss from operations................................  $(116,931)  $(36,551)  $(30,594)
                                                      =========   ========   ========
</Table>

     Emerging Markets' revenues decreased $4.1 million, or 2%, primarily due to
a decrease in satellite business, partially offset by higher revenues from media
services and the transmission of broadcast news events.

     Emerging Markets' gross profit decreased to $10.9 million in 2001 from
$36.9 million in 2000. Gross margin decreased to 7% in 2001 from 22% in 2000.
The decrease in gross profit is primarily due to costs associated with the
development of media services and a lower gross profit relating to its satellite
business.

     Emerging Markets' selling, general and administrative expenses decreased
$0.8 million, or 2%, due primarily to lower expenses in existing Vyvx activities
offset by an increase in payroll related and professional services expenses
associated with the development of media services.

     Emerging Markets' depreciation and amortization expense increased $3.3
million, or 11%, due primarily to assets placed in service since December 31,
2000 relating to media services.

     Emerging Markets' asset impairments and restructuring charges in 2001
represents an impairment of goodwill associated with its satellite and
advertising distribution operations of $11.3 million and $40.0 million,
respectively.

                                       F-19
<PAGE>

OTHER

     The table below summarizes other results from operations:

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                         ----------------------------
                                                          2001      2000       1999
                                                         -------   -------   --------
                                                                (IN THOUSANDS)
<S>                                                      <C>       <C>       <C>
Revenues...............................................  $    --   $    --   $ 35,435
Operating expenses:
  Cost of sales........................................       --        --     23,271
  Selling, general and administrative..................    3,153     6,757     20,299
  Provision for doubtful accounts......................       --        --        237
  Depreciation and amortization........................      479       467      5,398
  Asset impairments and restructuring charges..........       --        --     33,854
  Other expense (income), net..........................   (1,292)       (4)       379
                                                         -------   -------   --------
     Total operating expenses..........................    2,340     7,220     83,438
                                                         -------   -------   --------
Loss from operations...................................  $(2,340)  $(7,220)  $(48,003)
                                                         =======   =======   ========
</Table>

     Other results represent costs associated with managing certain equity and
cost-based investments.

     Selling, general and administrative expenses decreased $3.6 million, or
53%, primarily due to lower costs related to managing WCG's investment in ATL as
it was sold in third quarter 2001.

CONSOLIDATED NON-OPERATING COSTS

     WCG's net interest expense in 2001 increased $233.6 million from 2000 as a
result of increased borrowings, some at higher interest rates, to finance
operations and capital expenditures and decreased interest capitalized primarily
due to fewer assets under construction. Excluding the $750 million obligation
under the asset defeasance program which was added to WCG's Consolidated Balance
Sheet as of December 31, 2001, WCG's total debt has increased $634.6 million
from December 31, 2000 to December 31, 2001, which primarily reflects the $1.4
billion principal amount of senior secured notes issued in March 2001, borrowing
of the $450.0 million add-on to its credit facility in April 2001, and the sale
and subsequent leaseback of its Technology Center and other ancillary assets for
$276.0 million in September 2001. These items are partially offset by the
exchange of the $975.6 million TWC note for WCG's equity in February 2001 and
the purchase of $551.0 million of its senior redeemable notes in third and
fourth quarter 2001.

     WCG's interest and other investing income in 2001 decreased $11.6 million
due to a reduction in short-term interest rates partially offset by higher
average short-term investment balances in 2001 compared to 2000.

     WCG's equity losses in 2001 increased $15.2 million due primarily to $20.0
million of equity losses related to WCG's equity investment in iBEAM in third
quarter 2001. WCG purchased the assets of iBEAM out of bankruptcy in December
2001 (see 2001 Developments). This increase is partially offset by a decrease of
$10.5 million related to WCG's share of cumulative losses attributable to an
equity method investment exceeding its investment balance in fourth quarter
2000. As a result, WCG suspended recording equity losses related to the
investment with the exception of any additional financing activity.

     Loss from investments in 2001 of $95.7 million includes a loss of $207.6
million related to write-downs of certain investments resulting from
management's determination that the decline in

                                       F-20
<PAGE>

the value of these investments was other than temporary. This loss was partially
offset by a gain of $45.1 million from the sale of WCG's remaining economic
interest in ATL to America Movil, S.A. de C.V., gains of $40.9 million realized
from the termination of cashless collars on certain marketable equity securities
and net gains of $23.2 million from sales of certain marketable equity
securities.

     Income from investments in 2000 of $294.1 million includes a gain of $214.7
million from the conversion of WCG's shares of common stock of Concentric
Network Corporation into shares of common stock of XO Communications, Inc.
pursuant to a merger of those companies completed in June 2000 and net gains of
$93.7 million related to the sales of certain marketable equity securities. In
addition, there were gains of $16.5 million related to the partial sale of WCG's
interest in ATL and receipt of a $3.7 million dividend from a cost-based
investment, partially offset by $34.5 million of write-downs of certain
investments resulting from management's determination that the decline in the
value of these investments was other than temporary.

     WCG's tax provision in 2001 is significantly different than the benefit
expected from applying the federal statuary rate to pre-tax losses primarily due
to a valuation allowance established for WCG's net deferred tax assets. The
valuation allowance fully reserves WCG's net deferred tax assets. Reductions
during 2001 in the fair value of marketable equity securities reduced the
associated deferred tax liabilities creating a $50 million net deferred tax
asset for which the utilization has not yet been demonstrated. WCG's entire 2001
tax provision is due to WCG fully reserving its net deferred tax asset. WCG
recorded a $34.1 million tax benefit in 2000 primarily due to changes in various
temporary differences including changes in deferred revenue balances that
resulted in a fully reserved net deferred tax asset as of December 31, 2000.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

CONSOLIDATED RESULTS

     WCG's loss from continuing operations improved $50.6 million, or 15%, due
to an increase in investing income of $330.6 million, an increase of $30.9
million related to the tax benefit and a change in minority interest results of
$15.5 million. These items were partially offset by an increase in loss from
operations of $202.2 million and an increase in net interest expense of $124.7
million.

     Network and Emerging Markets accounted for $237.0 million and $6.0 million
of the increase in loss from operations, respectively. Other loss from
operations decreased by $40.8 million.

NETWORK

     Network's revenues increased $266.5 million, or 61%, primarily due to a
$311.6 million increase related to data and voice services provided to its
customers as the traffic increased on its network. Approximately 50% of the
increase in data and voice revenues is attributable to SBC, due in part to a
decision by the Federal Communications Commission announced at the end of second
quarter 2000 allowing it to sell long-distance service in Texas. The increase in
revenues is partially offset by $46.9 million lower revenues from dark fiber
transactions entered into prior to June 30, 1999, and accordingly accounted for
as sales-type leases.

     Network's cost of sales exceeded revenues by $21.1 million in 2000. In
1999, Network had a gross profit of $23.3 million. Cost of sales increased
$310.9 million, or 75%, primarily due to a $203.5 million increase related to
data and voice off-net capacity and local access connection costs in support of
the revenue increase described above, $63.8 million of higher operating and
maintenance costs to support the increased revenue streams, $52.0 million of
lease expense attributable to WCG's operating lease agreement covering a portion
of WCG's fiber optic network, $16.2 million of higher ad valorem taxes
reflecting the increased asset base associated with the

                                       F-21
<PAGE>

network build-out and $12.9 million of higher leasing costs for equipment
collocation space and data centers. The increase in costs is partially offset by
$25.1 million lower costs of sales associated with the reduced level of dark
fiber transactions accounted for as sales-type leases.

     Network's selling, general and administrative expenses increased $82.6
million, or 59%, primarily due to adding resources and infrastructure required
to support its growing customer base.

     Network's provision for doubtful accounts increased $7.8 million primarily
due to the growth in its customer base and general market conditions primarily
in the last six months of 2000.

     Network's depreciation and amortization increased $102.8 million primarily
as a result of placing an additional 8,000 route miles in operation since
December 31, 1999.

EMERGING MARKETS

     Emerging Markets' revenues increased $6.0 million, or 4%, as a result of
higher revenues from both media and video transmission services, partially
offset by lower satellite business.

     Emerging Markets' gross profit decreased to $36.9 million in 2000 from
$39.9 million in 1999. Gross margin decreased to 22% in 2000 from 25% in 1999.
Cost of sales increased $9.0 million, or 7%, as a result of an increase in media
and transmission service revenues, an increase in resources to support these
services and costs associated with the development of media services.

OTHER

     WCG sold its audio and video conferencing services and closed-circuit video
broadcasting services business in 1999 for which it recognized a pre-tax loss of
$28.4 million, included in asset impairments and restructuring charges. The
remaining portion of WCG's learning content business was also sold in 1999. WCG
also abandoned a business that provided wireless remote monitoring and meter
reading equipment and related services to industrial and commercial customers in
1999 for which it recognized a loss of $5.5 million, included in asset
impairments and restructuring charges. As a result, in 2000, there were no
operations related to these businesses and selling, general and administrative
expenses and depreciation and amortization expenses have been significantly
reduced. The costs incurred in 2000 represent costs associated with managing
certain equity and cost-based investments.

CONSOLIDATED NON-OPERATING COSTS

     WCG's net interest expense in 2000 increased $124.7 million from 1999 as a
result of increased borrowings at higher interest rates to finance operations
and capital expenditures, partially offset by increased interest capitalized of
$127.2 million related to assets under construction. WCG's total debt increased
$1.5 billion from December 31, 1999, to December 31, 2000, which primarily
reflects the $1.0 billion principal amount of senior redeemable notes issued in
August 2000 and the borrowing of the $525.0 million term loan under the credit
facility in September 2000.

     WCG's interest and other investing income in 2000 increased $29.6 million
due to interest earned on short-term investments, which were purchased with
proceeds from the October 1999 offerings and concurrent investments, the August
2000 debt offering and the borrowing of the term loan under the credit facility
in September 2000.

     WCG's equity losses decreased $16.1 million primarily due to WCG's
decreased equity ownership of ATL, which resulted in $22.9 million less equity
losses, partially offset by a $10.7 million increase in equity losses from WCG
applying the equity method of accounting to an investment beginning in first
quarter 2000 that was previously consolidated in 1999. In fourth quarter 2000,
WCG's share of the cumulative losses attributable to this equity method
investment

                                       F-22
<PAGE>

exceeded its investment balance. As a result, WCG suspended the recording of
equity losses related to this investment with the exception of any additional
financing activity.

     Income from investments in 2000 of $294.1 million includes a gain of $214.7
million from the conversion of WCG's shares of common stock of Concentric
Network Corporation into shares of common stock of XO Communications, Inc.
pursuant to a merger of those companies completed in June 2000 and net gains of
$93.7 million related to the sales of certain marketable equity securities. In
addition, there were gains of $16.5 million related to the partial sale of its
interest in ATL and receipt of a $3.7 million dividend from a cost-based
investment, partially offset by $34.5 million write-downs of certain investments
resulting from management's determination that the decline in the value of these
investments was other than temporary.

     Income from investments in 1999 represents dividends received from a
cost-based investment.

     The change in minority interest increased $15.5 million due to an increase
in PowerTel's net loss.

     WCG's tax benefit increased $30.9 million primarily due to changes in
various temporary differences including changes in deferred revenue balances
that resulted in a fully reserved net deferred tax asset as of December 31, 2000
as compared to a net deferred tax liability position as of December 31, 1999.

LIQUIDITY AND CAPITAL RESOURCES

2002 AND 2003

FINANCING PLAN

     As of December 31, 2001, WCG had cash, cash equivalents and short-term
investments of approximately $1 billion. WCG does not anticipate raising
additional funds during 2002. WCG is currently undergoing efforts to restructure
its balance sheet. The need to raise additional funds in 2003 will depend on the
outcome of WCG's balance sheet restructuring efforts as more fully discussed in
the 2002 Recent Developments section.

     The financing plan presented below reflects the impact of agreements
reached through March 2002 with TWC with regard to amending the senior secured
notes and exercising its option to purchase assets covered under the asset
defeasance program. All other debt obligations are assumed to remain
outstanding. WCG's financing plan will ultimately be determined by the
development of and execution of its comprehensive debt restructuring plan.

CASH REQUIREMENTS

     WCG's expected cash requirements for 2002 and 2003 total approximately $1.2
billion consisting of the following:

     - capital expenditures of approximately $325 million;

     - debt service obligations of approximately $1.2 billion;

     - partially offset by cash expected to be generated from its operating and
       investing activities including cash from asset sales, dark fiber
       transactions and other capacity sales.

     As previously announced, WCG, in response to the events and conditions
described below, is evaluating restructuring options in an effort to develop a
comprehensive plan to restructure and de-leverage its balance sheet by reducing
the amount of its indebtedness outstanding. Among the options under
consideration is reorganization under Chapter 11 of the U.S. Bankruptcy Code.
WCG has not committed to a Chapter 11 reorganization or any other option.

                                       F-23
<PAGE>

     WCG is evaluating a Chapter 11 reorganization as an alternative to maximize
enterprise value, support the uninterrupted continuation of the business and
minimize the damage to customer and vendor relationships that uncertainty about
WCG's financial condition might otherwise create. Although WCG believes that, if
it chooses to reorganize under Chapter 11, these objectives can be furthered by
the negotiation of a plan of reorganization prior to filing for bankruptcy
protection with some or all of its stakeholders, WCG cannot assure that it can
negotiate a consensual plan of restructuring prior to any filing or at all. WCG
is engaged in discussions regarding the restructuring with representatives of
three of its major stakeholders, TWC, certain holders of its senior redeemable
notes and its bank group. The option pursued by WCG will depend in part on the
outcome of these discussions.

     As part of its restructuring effort, WCG has taken steps to reduce its 2002
planned controllable cost structure by approximately 25%. These steps have
included workforce reductions of approximately 750 employees in March 2002. WCG
expects to incur restructuring charges of approximately $13 million in first
quarter 2002 due to these workforce reductions.

     To successfully restructure, WCG must obtain the agreement of at least some
of its major stakeholders, each of which may view its own interest to be in
conflict with the other constituencies. Accordingly, WCG cannot provide
assurance that it will be able to effect a restructuring. As reflected in WCG's
report from its independent public accountants, certain of WCG's creditors have
informed WCG that in their view, WCG may be in default under the terms of its
credit facility. This condition raises substantial doubt about WCG's ability to
continue as a going concern.

     WCG believes that preserving the value of the enterprise is best effected
by an expedited resolution to the restructuring process. Although WCG believes
that a Chapter 11 reorganization would support the uninterrupted continuation of
the business and minimal impact to customer and vendor relationships, there are
significant risks involved in any bankruptcy proceeding. The following narrative
does not attempt to address all of the possible risks or negative impacts that
could result from a bankruptcy filing or any other plan of restructuring.
Accordingly, this section must be read in conjunction with Item 1, Business, and
Item 8, Financial Statements and Supplementary Data, as well as the risk factors
under Forward-Looking Information at the end of Item 1.

     WCG has various debt covenants relating to its $1.5 billion credit facility
with various banks. One of the covenants would have required WCG to raise $224
million in cash, of which at least $150 million had to be in the form of equity,
by December 31, 2001. In October 2001, the credit facility was amended to extend
the date by which WCG is required to raise the $224 million of cash from
December 31, 2001, to July 1, 2003. In connection with the amendment, WCG agreed
to work jointly with its bank group and the bank group's financial advisor to
perform a more comprehensive review of the credit facility. This review and the
resulting amendment were initially expected to be completed in January 2002.
However through a series of agreements, WCG and its bank group agreed to extend
the negotiating period for an amendment to the credit facility until April 26,
2002. WCG also agreed that it will not purchase its securities and that it will
limit transactions through certain of its subsidiaries through mid-2003.
Additionally, WCG confirmed with its bank group that it will not draw upon the
$525 million revolver portion of the credit facility prior to mid-2003.
Borrowings under the facility totaled $975 million as of December 31, 2001.

     On January 29, 2002, the banks, through their administrative agent,
informed WCG that, in their view, WCG may be in default under the terms of its
credit facility, and the banks reserved their rights accordingly. The possible
default related to the fact that, due to negative developments in the
telecommunications industry and the value of WCG's assets, the banks questioned
whether WCG could confirm the representations and warranties included in the
credit facility. The banks also have reserved their right to claim that the
purchase by a wholly-owned subsidiary of WCG of WCG's senior redeemable notes in
2001 violated the terms of the credit facility. Because of the potential

                                       F-24
<PAGE>

adverse consequences to WCG if the banks were to conclude and notify WCG of a
default and attempt to accelerate its indebtedness, which could result in
cross-defaults under other material agreements and securities and foreclosure on
substantially all of WCG's assets upon which the banks have a lien, WCG agreed
to develop a comprehensive plan for restructuring and de-leveraging its balance
sheet. In developing this plan, WCG, in consultation with financial and legal
advisors, has considered various restructuring alternatives, the ultimate
outcome of which will be influenced by stakeholders of WCG.

     As detailed above and as reflected in WCG's report from its independent
public accountants, certain of WCG's creditors have informed WCG that in their
view, WCG may be in default under the terms of its credit facility. This
condition raises substantial doubt about WCG's ability to continue as a going
concern. Certain of WCG's debt agreements require that its annual financial
statements be accompanied by an opinion from its independent public accountants
that does not contain a "going concern" explanatory paragraph. Noncompliance
with this term is an event of default. As a result of the inclusion of the going
concern explanatory paragraph in that report, WCG will not be able to satisfy
this term in the agreements. In addition, WCG anticipates that it may be in
default under other covenants in 2002. Consequently, unless WCG is able to
obtain a waiver of or amendment to this and certain other covenants in its
credit facility or refinance the indebtedness under its credit facility by April
30, 2002, an "Event of Default" will occur under the terms of the credit
facility. If an Event of Default occurs, the lenders under the credit facility
would not be obligated to make additional advances under the credit facility;
would be entitled to declare all amounts outstanding under the credit facility,
including accrued interest or other obligations, to be immediately due and
payable; and would be entitled to proceed against the collateral granted to them
to secure the debt under the credit facility. Substantially all of the assets of
WCG are pledged as collateral under the credit facility. Unless WCG is able to
obtain a waiver of or amendment to certain covenants in the credit facility,
cross-defaults could occur making substantially all of WCG's other long-term
debt due. In addition, WCG anticipates making use of the 30-day grace period for
interest payments totaling approximately $91 million that would be due on April
1, 2002, on approximately $1.7 billion face value, on a consolidated basis, of
its senior redeemable notes. If WCG does not make the required payments within
the grace period, cross-defaults may give the senior redeemable noteholders and
other creditors the right to seek remedies. WCG does not have existing liquidity
sufficient to pay all amounts that would become due as a result of defaults
under the credit facility or the senior redeemable notes and, thus, would have
to find other means of liquidity, enter into separate agreements to restructure
its debt agreements, or file a voluntary petition under Chapter 11 of the U.S.
Bankruptcy Code in order to avoid the material adverse effects associated with
creditors foreclosing or exercising other remedies.

2001 AND 2002

CASH SOURCES

     As of December 31, 2001, WCG had $1.0 billion of cash, cash equivalents and
short-term investments. Included in the short-term investments portfolio are
marketable equity securities classified as available for sale with a market
value of $10.9 million.

     In March 2001, WCG Note Trust issued $1.4 billion of 8.25% senior secured
notes in a private placement. In March 2002, TWC secured the consents of holders
of the senior secured notes guaranteed by TWC to amend a provision that would
have caused the acceleration of the notes in the event of a WCG bankruptcy or
other events. The amendment affirmed TWC's obligations for all payments under
the notes, which mature in March 2004, and allows TWC to fund the payments from
any available sources. WCG is obligated to reimburse TWC for the payments
discussed above with the exception of the March and September 2002 interest
payments totaling approximately

                                       F-25
<PAGE>

$115 million. WCG Note Trust's obligation to reimburse TWC is secured by a $1.5
billion note issued by WCG to WCG Note Trust. Consequently, to the extent TWC
makes payments under these notes for which it is entitled to reimbursement, TWC
will have an unsecured claim against WCG.

     In first quarter 2001, WCG announced that it had revised the total size of
its credit facility to $1.8 billion. As of December 31, 2001, the $1.8 billion
facility consisted of borrowings of $975 million, an undrawn revolver of $525
million, and a $300 million commitment. However, subsequent to December 31,
2001, WCG cancelled the $300 million commitment and confirmed with the banks
that it will not draw upon the $525 million revolver portion of the credit
facility prior to mid-2003.

     In first quarter 2001, PowerTel completed a 1 for 4, 110 million Australian
dollar equity rights offering which allowed each PowerTel shareholder to
purchase one new share at 0.54 Australian dollars per share for each four shares
held. PowerTel paid off its existing 70 million Australian dollar bridge
financing facility with the proceeds received from the equity rights offering.
In first quarter 2001, PowerTel also entered into a 150 million Australian
dollar bank facility agreement due March 2006. In 2001, PowerTel has drawn 71
million Australian dollars (or approximately $36 million as of December 31,
2001) under the bank facility agreement. As of December 31, 2001, PowerTel was
in violation of two covenant requirements and was in the process of negotiating
a restructuring plan with its bank group. In February 2002, WCG advanced
PowerTel 16 million Australian dollars (or $8.3 million) in the form of a
subordinated loan in order to satisfy certain conditions of the restructuring
plan. In March 2002, as part of the approved restructuring plan with its bank
group, PowerTel received waivers from its bank group related to the covenant
violations for the three months ending December 31, 2001. Under the approved
restructuring plan, PowerTel will have access to its remaining bank facility
beginning September 1, 2002. PowerTel's violation of covenant requirements does
not cause any cross-defaults to WCG's other debt obligations.

     In first quarter 2001, TWC and WCG entered into an agreement that, among
other things, resulted in the transfer of ownership of a building under
construction and other assets from TWC to WCG, the conversion of the $975.6
million TWC note into paid in capital and the issuance of 24.3 million shares of
WCG common stock. In 2001, WCG's total equity increased by approximately $1.2
billion as a result of this transaction. As of December 31, 2001, WCG has $72.8
million recorded as contra to capital in excess of par value representing the
remaining cost of completing the building that TWC has agreed to fund.

     WCG completed the sale of its interest in the domestic, Mexican and
Canadian professional services operations of the Solutions segment to Platinum
Equity LLC on March 31, 2001. In April 2001, WCG received proceeds of $100
million from the sale in addition to an interest-bearing $75 million promissory
note receivable of which $30 million is due on March 31, 2002, and $45 million
plus accrued interest is due on September 30, 2002. WCG also entered into a
collection agreement in which Platinum Equity LLC is responsible for the
collection of certain identified retained accounts receivables. As of December
31, 2001, approximately $86 million had been collected on the outstanding
receivables. WCG believes it is adequately reserved for the remaining
uncollected balance as of December 31, 2001.

     In first quarter 2001, WCG granted an option to Telecom Americas, Ltd., a
joint venture between SBC, America Movil, S.A. de C.V., and Bell Canada
International, Inc., to purchase WCG's interest in ATL for an agreed to price.
The option was granted in exchange for Telecom Americas, Ltd. funding WCG's
share of capital contributions to ATL. The option expired at the end of first
quarter 2001. WCG entered into an agreement with America Movil, S.A. de C.V., in
second quarter 2001 to sell its remaining economic interest in ATL. The
transaction closed in third quarter 2001 and WCG received $309.6 million in cash
with an additional $90.0 million due from America

                                       F-26
<PAGE>

Movil, S.A. de C.V., on May 15, 2002. WCG recognized a gain from the sale of
$45.1 million. In February 2002, America Movil, S.A. de C.V., prepaid its note
from the sale of ATL by paying a discounted amount of $88.8 million.

     In September 2001, WCG sold its Technology Center building and other
ancillary assets to TWC for approximately $276 million in cash. Concurrent with
the sale, WCG leased the Technology Center building for a period of ten years
and other ancillary assets for a period of three to ten years with varying
payment terms. WCG has an option to repurchase and TWC has the right to sell the
Technology Center building to WCG at the expiration date of the lease for
approximately $92 million. WCG also has the option to repurchase and TWC has the
right to sell certain ancillary assets to WCG at the expiration date of the
lease at their stated fair market value per the lease. In the event neither WCG
nor TWC exercise these options, the property will remain owned by TWC.

     In October 2001, WCG sold to WorldCom lit fiber for approximately $144
million. Additionally, WCG purchased from WorldCom a 20-year indefeasible right
of use of capacity on WorldCom's network for approximately $100 million which is
included in the capital expenditures amount discussed below.

CASH USES

     Cash used in operating activities was $516.7 million for the year ended
December 31, 2001 which includes cash received from dark fiber transactions of
$231.8 million. Cash used in operating activities is expected to be
approximately $350 million in 2002 primarily attributable to scheduled interest
payments of approximately $345 million.

     In 2001, WCG acquired AGGS and substantially all of the assets of iBEAM for
approximately $13 million and $25 million, respectively.

     In 2001, WCG spent $1.4 billion on capital expenditures primarily to
enhance the capacity and functionality of the intercity network, provide local
access services, expand its domestic network and provide connectivity for
overseas customers to its domestic network. WCG currently estimates it will
spend approximately $120 million for capital expenditures in 2002 primarily to
enhance and expand products and service offerings for both carrier and media
services and continued extension of the network in major metro markets.

     In third and fourth quarter 2001, a wholly-owned subsidiary of WCG
purchased $551.0 million of WCG's senior redeemable notes in the open market at
an average price of 43% of face value, or approximately $240 million in cash.

     As of December 31, 2001, WCG had debt obligations of approximately $5.9
billion. WCG's outstanding long-term debt consists primarily of $2.4 billion
principal amount of its senior redeemable notes, $1.4 billion principal amount
under the senior secured notes, $975 million term loan under its credit
facility, $750 million under its asset defeasance program and $269 million under
the sale and subsequent leaseback of its Technology Center and other ancillary
assets. As discussed above, in first quarter 2001, the TWC note was exchanged
for WCG's equity and in first quarter 2002, the senior secured notes were
amended through an agreement with TWC.

     Interest payments of approximately $455 million were paid in 2001.
Principal payment obligations of approximately $9 million were paid in 2001 for
the sale and subsequent leaseback of WCG's Technology Center and other ancillary
assets and capital leases. Scheduled interest payment obligations total
approximately $345 million in 2002. Principal payment obligations of
approximately $72 million are scheduled to occur in 2002 primarily for the
credit facility term loans, the sale and subsequent leaseback of WCG's
Technology Center and other ancillary assets and capital leases.

                                       F-27
<PAGE>

     Under its asset defeasance program, WCG made annual lease payments of
approximately $40 million in 2001. In March 2002, WCG exercised its option to
purchase the network assets covered under the asset defeasance program and has
included the assets and associated debt obligation on its Consolidated Balance
Sheet as of December 31, 2001.

     In April 2001, TWC and WCG entered into an agreement in which WCG owes TWC
approximately $100 million for various normal course services which is included
in accounts payable. By agreement with TWC, WCG elected to defer payment of
these payables and related interest at a rate of 8.25% until September 15, 2002.

     Factors that could impact WCG's ability to have sufficient liquidity to
execute on its business plan are the successful implementation of its balance
sheet restructuring efforts, its ability to generate sufficient sales to
customers during the restructuring efforts, changes in the competitive
environment of the markets that it serves and changes in technology. Any
variation could impact WCG's future cash requirements.

     Substantially all of WCG's assets are pledged as collateral for WCG's debt.
A description of the debt, including payment terms, and a maturity schedule are
included in Note 12 to the financial statements. WCG's debt agreements contain a
number of terms that require it to take certain actions, which restrict it from
various other actions and require it to meet certain financial ratios. The terms
and the calculations (collectively referred to as covenants) require subjective
and legal interpretations. The ability of WCG to continue to classify its debt
as long-term is dependent on its ability to continue to meet the covenant
requirements listed in the debt agreements or obtain waivers or amendments in
the event WCG cannot comply with its covenants or cure any instances of
noncompliance. As of December 31, 2001, WCG believes it is in compliance with
its covenants. However, as previously described and as reflected in WCG's report
from its independent public accountants, certain of WCG's creditors have
informed WCG that in their view, WCG may be in default under the terms of its
credit facility. This condition raises substantial doubt about WCG's ability to
continue as a going concern. Certain of WCG's debt agreements require that its
annual financial statements be accompanied by an opinion from its independent
public accountants that does not contain a "going concern" explanatory
paragraph. Noncompliance with this term is an event of default. As a result of
the inclusion of the going concern explanatory paragraph in that report, WCG
will not be able to satisfy this term in the agreements. In addition, WCG
anticipates that it may be in default under other covenants in 2002.
Consequently, unless WCG is able to obtain a waiver of or amendment to this and
certain other covenants in its credit facility or refinance the indebtedness
under its credit facility by April 30, 2002, an "Event of Default" will occur
under the terms of the credit facility. If an Event of Default occurs, the
lenders under the credit facility would not be obligated to make additional
advances under the credit facility; would be entitled to declare all amounts
outstanding under the credit facility, including accrued interest or other
obligations, to be immediately due and payable; and would be entitled to proceed
against the collateral granted to them to secure the debt under the credit
facility. Substantially all of the assets of WCG are pledged as collateral under
the credit facility. Unless WCG is able to obtain a waiver of or amendment to
certain covenants in the credit facility, cross-defaults could occur making
substantially all of WCG's other long-term debt due. In addition, WCG
anticipates making use of the 30-day grace period for interest payments totaling
approximately $91 million that would be due on April 1, 2002, on approximately
$1.7 billion face value, on a consolidated basis, of its senior redeemable
notes. If WCG does not make the required payments within the grace period,
cross-defaults may give the senior redeemable noteholders and other creditors
the right to seek remedies. WCG does not have existing liquidity sufficient to
pay all amounts that would become due as a result of defaults under the credit
facility or the senior redeemable notes and, thus, would have to find other
means of liquidity, enter into separate agreements to restructure its debt
agreements, or file a voluntary

                                       F-28
<PAGE>

petition under Chapter 11 of the U.S. Bankruptcy Code in order to avoid the
material adverse effects associated with creditors foreclosing or exercising
other remedies.

     WCG is in negotiations to restructure its debt with its three primary
creditors: its bank group, TWC (as a creditor and a guarantor both on the senior
secured notes and on the asset defeasance program) and certain holders of its
senior redeemable notes. However, WCG cannot provide assurance that it will be
able to effect a restructuring.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

     WCG's interest rate risk exposure relates primarily to its short-term
investments and debt portfolio. WCG is currently undergoing efforts to
restructure its balance sheet, the effects of which could have a significant
impact on reducing its interest rate risk. The discussion and table presented
below reflect the impact of agreements reached through March 2002 with TWC with
regard to amending the senior secured notes and exercising its option to
purchase assets covered under the asset defeasance program. All other debt
obligations are assumed to remain outstanding. WCG's interest rate risk will
ultimately be determined by the development of and execution of its balance
sheet restructuring plan.

     Short-term investments excluding marketable equity securities total $893.9
million as of December 31, 2001, and consist primarily of debt securities mutual
funds, corporate debt securities and government debt securities. WCG's interest
and other investing income is subject to interest rate risk resulting from
potential future increases in interest rates on comparable investment
securities. To mitigate the impact of fluctuations in interest rates, WCG
instructs the managing financial institutions to invest only in highly liquid
instruments with short-term maturity dates in order for WCG to easily access
these investments to fund operations and capital expenditures. These investments
were purchased with a portion of the proceeds from the sale of $1.4 billion
senior secured notes in March 2001 and the $450 million credit facility add-on
in April 2001.

     WCG's debt portfolio as of December 31, 2001, consisted of fixed-rate
senior redeemable notes, a fixed-rate senior secured note, a long-term credit
facility, borrowings under the asset defeasance program and the sale and
subsequent leaseback of its Technology Center and other ancillary assets.
Borrowings under the long-term credit facility and the sale and subsequent
leaseback are influenced by changes in short-term LIBOR interest rates. As of
December 31, 2001, borrowings under the asset defeasance program are influenced
by changes in short-term commercial paper rates. To mitigate the impact of
fluctuations in interest rates, WCG targets to maintain a significant portion of
its debt portfolio in fixed-rate debt. None of WCG's market rate risk sensitive
instruments require it to manage or hedge the risks related to interest rate
movements, and WCG currently does not mitigate the risk through the use of
interest rate swaps or other derivative instruments. However, in the future WCG
may choose to manage its risk associated with interest rate movements through an
appropriate balance of fixed- and variable-rate obligations. To maintain an
effective balance of fixed- and variable-rate obligations, WCG may elect to
enter into specific interest rate swaps or other derivative instruments as
deemed necessary.

     The following tables provide information as of December 31, 2001 and 2000,
about WCG's market rate risk sensitive instruments. For short-term investments
excluding marketable equity securities and long-term debt including the current
portion, the table presents principal cash flows and weighted-average interest
rates by expected maturity dates. The TWC note has been excluded

                                       F-29
<PAGE>

from the December 31, 2000, table below due to the exchange of the TWC note for
WCG equity in first quarter 2001 (see Note 12 to the financial statements).

<Table>
<Caption>
                                                                                                FAIR VALUE
                                                                                               DECEMBER 31,
                             2002     2003     2004     2005     2006    THEREAFTER   TOTAL        2001
                            ------   ------   ------   ------   ------   ----------   ------   ------------
                                                         (DOLLARS IN MILLIONS)
<S>                         <C>      <C>      <C>      <C>      <C>      <C>          <C>      <C>
ASSETS
  Short-term
    investments...........  $  894   $   --   $   --   $   --   $   --     $   --     $  894      $  894
  Average interest rate...     4.1%
  Notes receivable, net...  $  179   $   --   $   --   $   --   $   --     $   --     $  179      $  179
  Average interest rate...     8.8%
LIABILITIES
  Fixed rate long-term
    debt, including
    current portions
    High yield public
      debt................  $   --   $   --   $   --   $   --   $   --     $2,449     $2,449      $1,026
    Average interest
      rate................    11.1%    11.1%    11.1%    11.1%    11.1%      11.1%
    Bank debt.............  $   --   $   --   $1,400   $   --   $   --     $   --     $1,400      $1,400
    Average interest
      rate................    8.25%    8.25%    8.25%
  Variable rate long-term
    debt, including
    current portions
    Long-term credit
      facility............  $   37   $  171   $  256   $  292   $  219     $   --     $  975      $  670
    Average interest
      rate................   LIBOR    LIBOR    LIBOR    LIBOR    LIBOR
                             +3.00    +3.00    +3.00    +3.00    +3.00
Asset defeasance
  program.................  $   --   $   --   $   --   $   --   $   --     $  750     $  750      $  750
  Average interest rate(1)
  Sale and subsequent
    leaseback.............  $   29   $   29   $   26   $   18   $   17     $  150     $  269      $  269
    Average interest
      rate................   LIBOR    LIBOR    LIBOR    LIBOR    LIBOR      LIBOR
                             +2.75    +2.75    +2.75    +2.75    +2.75      +2.75
</Table>

---------------

(1) Interest was primarily based on average daily commercial paper rates and
    effective in February 2002, interest is primarily based on the Prime rate.

<Table>
<Caption>
                                                                                                FAIR VALUE
                             2001     2002     2003     2004     2005    THEREAFTER   TOTAL    DECEMBER 31,
                            ------   ------   ------   ------   ------   ----------   ------   ------------
                                                         (DOLLARS IN MILLIONS)
<S>                         <C>      <C>      <C>      <C>      <C>      <C>          <C>      <C>
ASSETS
  Short-term
    investments...........  $   83   $   --   $   --   $   --   $   --     $   --     $   83      $   83
  Average interest rate...     6.4%
LIABILITIES
  Fixed rate long-term
    debt, including
    current portions
    High yield public
      debt................  $   --   $   --   $   --   $   --   $   --     $3,000     $3,000      $2,237
    Average interest
      rate................    11.1%    11.1%    11.1%    11.1%    11.1%      11.1%
  Variable rate long-term
    debt, including
    current portions
    Long-term credit
      facility............  $   --   $   20   $   92   $  138   $  157     $  118     $  525      $  525
    Average interest
      rate................   LIBOR    LIBOR    LIBOR    LIBOR    LIBOR      LIBOR
                             +2.25    +2.25    +2.25    +2.25    +2.25      +2.25
</Table>

FOREIGN CURRENCY RISK

     WCG has international investments, primarily in Australia and South America
that could affect its financial results if the investments incur a permanent
decline in value as a result of changes in foreign currency exchange rates and
the economic conditions in foreign countries. WCG's foreign currency risk
decreased from December 31, 2000, due to the sale of its investment in ATL, a

                                       F-30
<PAGE>

Brazilian telecommunications venture, in third quarter 2001. As of December 31,
2000, WCG's total investment in ATL was $448.3 million.

     The net assets of WCG's foreign operations which are consolidated are
located in various other countries throughout the world and approximate $32.3
million as of December 31, 2001, and 7% of WCG's total net assets as of December
31, 2000. These foreign operations, whose functional currency is generally the
local currency, do not have significant transactions or financial instruments
denominated in other currencies. However, these investments do have the
potential to impact WCG's financial position due to fluctuations in these local
currencies arising from the process of remeasuring the local functional currency
into the U.S. dollar. A 20% change in the respective functional currencies
against the U.S. dollar could have changed WCG's stockholders' equity by
approximately $6 million and $16 million as of December 31, 2001 and 2000,
respectively.

     Management historically has not utilized derivatives or other financial
instruments to hedge the risk associated with the movement in foreign
currencies. However, management continually monitors fluctuations in these
currencies and will consider the use of derivative financial instruments or
employment of other investment alternatives if cash flows or investment returns
so warrant.

EQUITY PRICE RISK

     Equity price risk primarily arises from investments in publicly traded
telecommunications related companies. These investments are carried at fair
value and approximate less than 1% and 4% of WCG's total assets as of December
31, 2001 and December 31, 2000, respectively. WCG recognized a loss of $89.8
million in 2001 related to write-downs of certain marketable equity securities
resulting from management's determination that the decline in the value of these
investments was other than temporary. In addition, WCG's equity price risk has
decreased from December 31, 2000, due to further monetization of its marketable
equity securities portfolio. WCG has utilized derivative instruments during 2001
and 2000 to hedge the risk associated with the movement in the price of these
equity securities. However, WCG has no derivative instruments in place as of
December 31, 2001.

                                       F-31
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<Table>
<S>                                                           <C>
Report of Ernst & Young LLP, Independent Auditors...........  F-33
Consolidated Balance Sheets as of December 31, 2001 and
  2000......................................................  F-34
Consolidated Statements of Operations for the years ended
  December 31, 2001, 2000 and 1999..........................  F-35
Consolidated Statements of Stockholders' Equity for the
  years ended December 31, 2001, 2000 and 1999..............  F-36
Consolidated Statements of Cash Flows for the years ended
  December 31, 2001, 2000 and 1999..........................  F-37
Notes to Consolidated Financial Statements..................  F-38
Quarterly Financial Data (Unaudited)........................  F-78
</Table>

                                       F-32
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Stockholders of
Williams Communications Group, Inc.

     We have audited the accompanying consolidated balance sheets of Williams
Communications Group, Inc. as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 2001. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Williams
Communications Group, Inc. at December 31, 2001 and 2000, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the financial
statements and schedules when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

     The accompanying financial statements have been prepared assuming that
Williams Communications Group, Inc. will continue as a going concern. As more
fully described in Note 1, certain of the Company's creditors have informed WCG
that in their view WCG may be in default under the terms of its credit facility.
This condition raises substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.

                                                    ERNST & YOUNG LLP

Tulsa, Oklahoma
March 28, 2002

                                       F-33
<PAGE>

                      WILLIAMS COMMUNICATIONS GROUP, INC.

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                 AS OF DECEMBER 31,
                                                              -------------------------
                                                                 2001          2000
                                                              -----------   -----------
                                                                   (IN THOUSANDS)
<S>                                                           <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $   116,038   $   213,888
  Short-term investments....................................      904,813       395,184
  Receivables less allowance of $41,362,000 ($21,501,000 in
     2000):
     Related party..........................................       65,287        24,658
     Other..................................................      177,788       266,346
  Notes receivable less allowance of $12,000,000 ($0 in
     2000)..................................................      178,601           702
  Net assets of discontinued operations.....................           --       288,384
  Net assets held for sale..................................       20,659            --
  Other.....................................................       21,768        17,252
                                                              -----------   -----------
Total current assets........................................    1,484,954     1,206,414
Investments.................................................       11,555       619,852
Property, plant and equipment, net..........................    4,353,213     5,138,984
Goodwill and other intangibles, net.........................           --       103,231
Other assets and deferred charges...........................      142,304       340,804
                                                              -----------   -----------
Total assets................................................  $ 5,992,026   $ 7,409,285
                                                              ===========   ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable..........................................  $   363,670   $   419,863
  Deferred income...........................................       75,286       107,931
  Accrued liabilities.......................................      373,119       401,858
  Long-term debt due within one year........................       72,488            --
                                                              -----------   -----------
Total current liabilities...................................      884,563       929,652
Long-term debt..............................................    5,838,779     4,526,706
Long-term deferred income...................................      401,546       430,203
Other liabilities...........................................       28,935        23,702
Minority interest in consolidated subsidiaries..............       44,907        45,028
Contingent liabilities and commitments 6.75% redeemable
  cumulative convertible preferred stock; $0.01 par value
  per share; 500.0 million shares authorized; 5.0 million
  shares outstanding in 2001 and 2000; aggregate liquidation
  preference of $250,000,000................................      242,338       240,722
Stockholders' equity (deficit):
  Class A common stock, $0.01 par value, 1 billion shares
     authorized, 491.0 million shares and 68.2 million
     shares outstanding in 2001 and 2000, respectively......        4,910           682
  Class B common stock, $0.01 par value, 500 million shares
     authorized, no shares and 395.4 million shares
     outstanding in 2001 and 2000, respectively.............           --         3,954
  Capital in excess of par value............................    3,862,465     2,659,136
  Accumulated deficit.......................................   (5,304,906)   (1,494,549)
  Accumulated other comprehensive income (loss).............      (11,511)       44,049
                                                              -----------   -----------
Total stockholders' equity (deficit)........................   (1,449,042)    1,213,272
                                                              -----------   -----------
Total liabilities and stockholders' equity (deficit)........  $ 5,992,026   $ 7,409,285
                                                              ===========   ===========
</Table>

                            See accompanying notes.

                                       F-34
<PAGE>

                      WILLIAMS COMMUNICATIONS GROUP, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                  ------------------------------------------
                                                      2001            2000          1999
                                                  -------------   ------------   -----------
                                                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                               <C>             <C>            <C>
Revenues:
  Related party.................................   $   402,042     $  169,446     $   2,447
  Other.........................................       783,479        669,631       599,009
                                                   -----------     ----------     ---------
        Total revenues..........................     1,185,521        839,077       601,456
Operating expenses:
  Cost of sales.................................     1,029,455        823,272       526,040
  Selling, general and administrative...........       285,771        270,071       199,615
  Provision for doubtful accounts...............        26,020          9,959         1,066
  Depreciation and amortization.................       467,118        185,024        86,718
  Asset impairments and restructuring charges...     2,979,925             --        33,854
  Other expense (income), net...................       (58,402)          (578)          658
                                                   -----------     ----------     ---------
        Total operating expenses................     4,729,887      1,287,748       847,951
                                                   -----------     ----------     ---------
Loss from operations............................    (3,544,366)      (448,671)     (246,495)
Interest accrued................................      (525,850)      (387,816)     (135,939)
Interest capitalized............................        71,126        166,700        39,518
Investing income (loss):
  Interest and other............................        47,829         59,434        29,777
  Equity losses.................................       (35,522)       (20,297)      (36,440)
  Income (loss) from investments................       (95,722)       294,136         9,397
Minority interest in loss of consolidated
  subsidiaries..................................        25,533         24,492         9,044
Other income (loss), net........................          (160)           227          (359)
                                                   -----------     ----------     ---------
Loss before income taxes........................    (4,057,132)      (311,795)     (331,497)
Benefit (provision) from income taxes...........       (50,121)        34,107         3,185
                                                   -----------     ----------     ---------
Loss from continuing operations.................    (4,107,253)      (277,688)     (328,312)
Loss from discontinued operations...............            --       (540,000)      (31,389)
                                                   -----------     ----------     ---------
Loss before extraordinary gain..................    (4,107,253)      (817,688)     (359,701)
Extraordinary gain..............................       296,896             --            --
                                                   -----------     ----------     ---------
Net loss........................................    (3,810,357)      (817,688)     (359,701)
Preferred stock dividends and amortization of
  preferred stock issuance costs................       (17,568)        (4,956)           --
                                                   -----------     ----------     ---------
Net loss attributable to common stockholders....   $(3,827,925)    $ (822,644)    $(359,701)
                                                   ===========     ==========     =========
Basic and diluted earnings (loss) per share:
  Loss from continuing operations attributable
     to common stockholders.....................   $     (8.47)    $     (.61)    $    (.79)
  Loss from discontinued operations.............            --          (1.16)         (.08)
                                                   -----------     ----------     ---------
  Loss before extraordinary gain................         (8.47)         (1.77)         (.87)
  Extraordinary gain............................           .61             --            --
                                                   -----------     ----------     ---------
  Net loss attributable to common
     stockholders...............................   $     (7.86)    $    (1.77)    $    (.87)
                                                   ===========     ==========     =========
  Weighted average shares outstanding...........       487,048        464,145       412,620
</Table>

                            See accompanying notes.
                                       F-35
<PAGE>

                      WILLIAMS COMMUNICATIONS GROUP, INC.

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<Table>
<Caption>
                                                                                     ACCUMULATED
                                                                                        OTHER
                                                         CAPITAL IN                 COMPREHENSIVE
                                                COMMON   EXCESS OF    ACCUMULATED      INCOME
                                                STOCK    PAR VALUE      DEFICIT        (LOSS)          TOTAL
                                                ------   ----------   -----------   -------------   -----------
                                                                        (IN THOUSANDS)
<S>                                             <C>      <C>          <C>           <C>             <C>
Balance, December 31, 1998....................  $3,954   $1,295,918   $  (316,896)    $ 24,706      $ 1,007,682
  Net loss....................................     --            --      (359,701)          --         (359,701)
  Other comprehensive income (loss):
    Net unrealized appreciation on marketable
      equity securities.......................     --            --            --      113,198          113,198
    Foreign currency translation
      adjustments.............................     --            --            --      (13,006)         (13,006)
                                                                                                    -----------
  Comprehensive loss..........................                                                         (259,509)
  Capital contributions from The Williams
    Companies, Inc............................     --        91,290            --           --           91,290
  Net proceeds from equity offering...........    681     1,467,926            --           --        1,468,607
  Conversion of The Williams Companies, Inc.
    stock based awards to WCG stock based
    awards....................................     --         5,316            --           --            5,316
  Recharacterization of amounts due to The
    Williams Companies, Inc. .................     --      (200,000)           --           --         (200,000)
  Stock award transactions....................      1          (523)           --           --             (522)
  Other.......................................     --            --          (264)          --             (264)
                                                ------   ----------   -----------     --------      -----------
Balance, December 31, 1999....................  4,636     2,659,927      (676,861)     124,898        2,112,600
  Net loss....................................     --            --      (817,688)          --         (817,688)
  Other comprehensive loss:
    Net unrealized depreciation of marketable
      equity securities, net of
      reclassification adjustment for net
      gains realized in net loss..............     --            --            --      (51,609)         (51,609)
    Foreign currency translation
      adjustments.............................     --            --            --      (29,240)         (29,240)
                                                                                                    -----------
  Comprehensive loss..........................                                                         (898,537)
  Stock award transactions....................     --         4,877            --           --            4,877
  Preferred stock dividends and amortization
    of preferred stock issuance costs.........     --        (4,956)           --           --           (4,956)
  Other.......................................     --          (712)           --           --             (712)
                                                ------   ----------   -----------     --------      -----------
Balance, December 31, 2000....................  4,636     2,659,136    (1,494,549)      44,049        1,213,272
  Net loss....................................     --            --    (3,810,357)          --       (3,810,357)
  Other comprehensive income (loss):
    Net unrealized depreciation of marketable
      equity securities, net of
      reclassification adjustment for net
      losses realized in net loss.............     --            --            --      (83,012)         (83,012)
    Foreign currency translation adjustments,
      net of reclassification adjustment for
      losses realized in net loss.............     --            --            --       27,452           27,452
                                                                                                    -----------
  Comprehensive loss..........................                                                       (3,865,917)
  Agreement with The Williams Companies, Inc.
    (see Note 14).............................    243     1,201,660            --           --        1,201,903
  Stock award transactions....................      4         5,367            --           --            5,371
  Preferred stock dividends and amortization
    of preferred stock issuance costs.........     --       (17,568)           --           --          (17,568)
  Common stock issued to pay preferred stock
    dividends.................................     27        13,830            --           --           13,857
  Other.......................................     --            40            --           --               40
                                                ------   ----------   -----------     --------      -----------
Balance, December 31, 2001....................  $4,910   $3,862,465   $(5,304,906)    $(11,511)     $(1,449,042)
                                                ======   ==========   ===========     ========      ===========
</Table>

                            See accompanying notes.
                                       F-36
<PAGE>

                      WILLIAMS COMMUNICATIONS GROUP, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                      YEAR ENDED DECEMBER 31,
                                                              ---------------------------------------
                                                                 2001          2000          1999
                                                              -----------   -----------   -----------
                                                                          (IN THOUSANDS)
<S>                                                           <C>           <C>           <C>
OPERATING ACTIVITIES
Loss from continuing operations.............................  $(4,107,253)  $  (277,688)  $  (328,312)
Adjustments to reconcile net loss to net cash provided by
  (used in) operating activities:
  Depreciation and amortization.............................      467,118       185,024        86,718
  Provision (benefit) from deferred income taxes............       50,057       (36,134)       (3,293)
  Asset impairments and restructuring charges...............    2,979,925            --        33,854
  Provision for loss on investments.........................      204,887        34,515         1,640
  Provision for doubtful accounts...........................       26,020         9,959         1,066
  Equity losses.............................................       35,522        20,297        36,440
  (Gain) loss on sales of property and other assets.........      (45,519)          730           814
  Gain on sales of investments..............................     (109,243)     (110,220)           --
  Gain on conversion of common stock investment.............           --      (214,732)           --
  Minority interest in loss of consolidated subsidiaries....      (25,533)      (24,492)       (9,044)
  Cash provided by (used in) changes in:
     Receivables............................................     (174,213)     (183,021)       23,631
     Other current assets...................................       (9,389)       (6,685)       (8,023)
     Accounts payable.......................................      (63,200)      196,296        82,011
     Current deferred income................................      (15,634)       53,511        43,624
     Accrued liabilities....................................       65,521       (68,146)      155,319
     Long-term deferred income..............................      190,001       267,228        60,072
     Other..................................................       14,228       (23,375)       31,961
                                                              -----------   -----------   -----------
Net cash provided by (used in) operating activities.........     (516,705)     (176,933)      208,478
FINANCING ACTIVITIES
Proceeds from long-term debt................................    2,487,683     1,670,588     4,357,809
Payments on and purchase of long-term debt..................     (570,989)     (110,000)   (2,369,367)
Proceeds from issuance of common stock, net of expenses.....       18,904         4,166     1,468,085
Proceeds from issuance of preferred stock, net of
  expenses..................................................           --       240,500            --
Debt issue costs............................................      (42,743)      (28,701)      (78,098)
Capital contributions from The Williams Companies, Inc. ....           --            --        91,290
Preferred stock dividends paid..............................      (18,076)           --            --
Contribution to subsidiary from minority interest
  shareholders..............................................       31,694            --        37,588
Changes in due to/from The Williams Companies, Inc. ........           --       (12,500)      173,767
                                                              -----------   -----------   -----------
Net cash provided by financing activities...................    1,906,473     1,764,053     3,681,074
INVESTING ACTIVITIES
Property, plant and equipment:
  Capital expenditures......................................   (1,389,294)   (3,390,276)   (1,766,559)
  Proceeds from sales.......................................      165,625        34,453        60,318
  Changes in accrued liabilities............................     (138,498)       85,306       174,858
Purchase of investments.....................................   (2,479,988)   (1,472,432)   (2,383,037)
Proceeds from sales of investments..........................    2,157,029     2,908,015       598,635
Acquisition of businesses (primarily property, plant and
  equipment)................................................      (38,687)           --            --
Proceeds from sale of businesses............................           --           200        49,452
Other.......................................................        3,455         8,669            --
                                                              -----------   -----------   -----------
Net cash used in investing activities.......................   (1,720,358)   (1,826,065)   (3,266,333)
DISCONTINUED OPERATIONS
Net cash provided by (used in) operating activities.........       17,719         9,362      (125,047)
Net cash provided by (used in) investing activities.........      215,021       (40,382)      (49,677)
                                                              -----------   -----------   -----------
Net cash provided by (used in) discontinued operations......      232,740       (31,020)     (174,724)
                                                              -----------   -----------   -----------
Increase (decrease) in cash and cash equivalents............      (97,850)     (269,965)      448,495
Cash and cash equivalents at beginning of period............      213,888       483,853        35,358
                                                              -----------   -----------   -----------
Cash and cash equivalents at end of period..................  $   116,038   $   213,888   $   483,853
                                                              ===========   ===========   ===========
</Table>

                            See accompanying notes.
                                       F-37
<PAGE>

                      WILLIAMS COMMUNICATIONS GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF THE BUSINESS -- BASIS OF PRESENTATION -- SUMMARY OF SIGNIFICANT
   ACCOUNTING POLICIES

NATURE OF THE BUSINESS

     Williams Communications Group, Inc. (WCG), through its wholly-owned
operating subsidiary, Williams Communications, LLC (WCL), owns or leases and
operates a nationwide inter-city fiber-optic network, extended locally and
globally, to provide broadband network services to bandwidth-centric customers.
Information on WCG's operations by segment and geographic area is included in
Note 4.

     Prior to April 2001, The Williams Companies, Inc. (TWC) owned 100% of WCG's
outstanding Class B common stock which gave TWC approximately 98% of the voting
power of WCG. In March 2001, TWC's board of directors approved a tax-free
spin-off of WCG to TWC's shareholders. On April 23, 2001, TWC distributed
approximately 95% of the WCG common stock it owned, to holders of TWC common
shares on a pro rata basis (see Note 14).

BASIS OF PRESENTATION

     WCG has experienced significant losses in 2001 and expects to incur
additional losses in 2002. In addition, WCG is not generating positive cash flow
from its operations nor is it expected to in 2002. As of December 31, 2001, WCG
had cash and short-term liquid investments of approximately $1.0 billion and
long-term debt of $975.0 million owed to its bank group (see Note 12 for a
complete discussion of all of WCG's debt). In October 2001, because WCG did not
have an immediate need to raise additional cash and because of generally weak
market conditions, WCG and its bank group agreed to defer until 2003 a covenant
that would have otherwise required WCG to raise $224 million in cash, of which
at least $150 million had to be in the form of equity, by December 31, 2001. At
that time, WCG also agreed to work jointly with its bank group and the bank
group's financial advisor to perform a more comprehensive review of its credit
facility. This review and resulting amendments to the credit facility were
expected to be completed in January 2002. However, on January 29, 2002, the
banks, through their administrative agent, informed WCG that, in their view, WCG
may be in default under the terms of its credit facility, and the banks reserved
their rights accordingly. The possible default related to the fact that, due to
negative developments in the telecommunications industry and the value of WCG's
assets, the banks questioned whether WCG could confirm the representations and
warranties included in the credit facility. The banks also have reserved their
right to claim that the purchase by a wholly-owned subsidiary of WCG of WCG's
senior redeemable notes in 2001 violated the terms of the credit facility.
Because of the potential adverse consequences to WCG if the banks were to
conclude and notify WCG of a default and attempt to accelerate its indebtedness,
which could result in cross-defaults under other material agreements and
securities and foreclosure on substantially all of WCG's assets upon which the
banks have a lien, WCG agreed to develop a comprehensive plan for restructuring
and de-leveraging its balance sheet. Through a series of agreements, the
negotiation period with WCG's bank group has been extended to April 26, 2002. In
developing this plan, WCG, in consultation with financial and legal advisors,
has considered various restructuring alternatives, the ultimate outcome of which
will be influenced by stakeholders of WCG.

     As a result of these factors, WCG is evaluating restructuring options in an
effort to develop a comprehensive plan to restructure and de-leverage its
balance sheet by reducing the amount of its indebtedness outstanding. Among the
options is reorganization under Chapter 11 of the U.S. Bankruptcy Code. WCG has
not committed to a Chapter 11 reorganization or any other option. WCG is
evaluating a Chapter 11 reorganization as a means to maximize enterprise value,

                                       F-38
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

support the uninterrupted continuation of the business and minimize the damage
to customer and vendor relationships. Although WCG believes that, if it chooses
to reorganize under Chapter 11, these objectives can be furthered by the
negotiation of a plan of reorganization prior to filing for bankruptcy
protection with some or all of its stakeholders, WCG cannot assure that it can
negotiate a consensual plan of restructuring prior to any filing or at all.

     WCG is engaged in discussions with representatives of three of its major
stakeholders, The Williams Companies, Inc. (TWC), certain holders of its senior
redeemable notes and its bank group, regarding the restructuring. The option
pursued by WCG will depend in part on the outcome of these discussions. To
successfully restructure, WCG must obtain the agreement of at least some of its
major stakeholders, each of which may view its own interest to be in conflict
with the others. WCG believes that preserving the value of the enterprise is
best effected by an expedited resolution to the restructuring process. However,
WCG cannot provide assurance that it will be able to effect a restructuring. The
Chapter 11 reorganization currently being evaluated would likely result in
substantial, if not total, dilution of WCG's shareholders.

     As detailed above and as reflected in WCG's report from its independent
public accountants, certain of WCG's creditors have informed WCG that in their
view, WCG may be in default under the terms of its credit facility. This
condition raises substantial doubt about WCG's ability to continue as a going
concern. Certain of WCG's debt agreements require that its annual financial
statements be accompanied by an opinion from its independent public accountants
that does not contain a "going concern" explanatory paragraph. Noncompliance
with this term is an event of default. As a result of the inclusion of the going
concern explanatory paragraph in that report, WCG will not be able to satisfy
this term in the agreements. In addition, WCG anticipates that it may be in
default under other covenants in 2002. Consequently, unless WCG is able to
obtain a waiver of or amendment to this and certain other covenants in its
credit facility or refinance the indebtedness under its credit facility by April
30, 2002, an "Event of Default" will occur under the terms of the credit
facility. If an Event of Default occurs, the lenders under the credit facility
would not be obligated to make additional advances under the credit facility;
would be entitled to declare all amounts outstanding under the credit facility,
including accrued interest or other obligations, to be immediately due and
payable; and would be entitled to proceed against the collateral granted to them
to secure the debt under the credit facility. Substantially all of the assets of
WCG are pledged as collateral under the credit facility. Unless WCG is able to
obtain a waiver of or amendment to certain covenants in the credit facility,
cross-defaults could occur making substantially all of WCG's other long-term
debt due. In addition, WCG anticipates making use of the 30-day grace period for
interest payments totaling approximately $91 million that would be due on April
1, 2002, on approximately $1.7 billion face value, on a consolidated basis, of
its senior redeemable notes. If WCG does not make the required payments within
the grace period, cross-defaults may give the senior redeemable noteholders and
other creditors the right to seek remedies. WCG does not have existing liquidity
sufficient to pay all amounts that would become due as a result of defaults
under the credit facility or the senior redeemable notes and, thus, would have
to find other means of liquidity, enter into separate agreements to restructure
its debt agreements, or file a voluntary petition under Chapter 11 of the U.S.
Bankruptcy Code in order to avoid the material adverse effects associated with
creditors foreclosing or exercising other remedies. These material adverse
effects could also include issuing debt, issuing equity, selling assets or
significantly reducing operations on terms that are not favorable to WCG.

     The accompanying consolidated financial statements have been prepared on a
going concern basis of accounting, which contemplates the realization of assets
and the satisfaction of liabilities in

                                       F-39
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the normal course of business. The appropriateness of using the going concern
basis is dependent upon, among other things, the successful restructuring of
WCG's balance sheet, future profitable operations and the ability to generate
sufficient cash from its operations and financing arrangements to meet its
obligations. Management believes that the restructuring plan that it is
developing, if successfully implemented, will provide sufficient liquidity to
allow WCG to operate as a going concern. However, there can be no assurance that
the sources of liquidity will be available or sufficient to meet WCG's needs,
and accordingly, there is substantial doubt about WCG's ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments relating to recoverability and classification of recorded asset
amounts or the amount and classification of liabilities that might be necessary
should WCG be unable to continue as a going concern.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of WCG, its
majority-owned subsidiaries and a subsidiary that WCG controls but owns less
than 50% of the voting common stock. Companies that WCG does not control and
owns 20% to 50% of the voting common stock, or otherwise has the ability to
exercise significant influence over the operating and financial policies of the
company, are accounted for under the equity method of accounting.

     WCG has a 45% interest as of December 31, 2001 (45% and 41% as of December
31, 2000 and 1999, respectively) in PowerTel Limited (PowerTel), which is
located in Australia and accounted for under the principles of consolidation.
WCG consolidates PowerTel as WCG has control over PowerTel's operations despite
its less than 50% ownership because WCG is entitled to appoint a majority of the
members of PowerTel's board of directors and thereby exercises control over its
operations.

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

REVENUE RECOGNITION

  Network

     Capacity and other services revenues are recognized monthly as the services
are provided or revenues are earned. Amounts billed in advance of the service
month are recorded as deferred income.

     Payments received for the installation of conduit under joint build
construction contracts are generally recorded as a recovery of the applicable
construction costs.

     Revenues under multiple element contracts are recognized based on the
respective fair values of each individual element within the multiple element
contract.

     Revenues from conduit and duct sales are recognized at time of delivery and
acceptance and when all significant contractual obligations have been satisfied
and collection is reasonably assured.

     Grants of indefeasible rights of use, or IRUs, of constructed but unlit
fiber, or dark fiber, in exchange for cash, are accounted for as leases. IRUs
are evaluated for sales-type lease accounting which results in certain lease
transactions being accounted for as sales at the time of acceptance of

                                       F-40
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the fiber by the customer. IRUs that do not meet the criteria for a sales-type
lease are accounted for as an operating lease, and the cash received is
recognized as revenue over the term of the IRU. In accordance with Financial
Accounting Standards Board (FASB) Interpretation No. 43, "Real Estate Sales, an
interpretation of Statement of Financial Accounting Standards (SFAS) No. 66,"
issued in June 1999, dark fiber is considered integral equipment and accordingly
title must transfer to a lessee in order for a lease transaction to be accounted
for as a sales-type lease. After June 30, 1999, the effective date of FASB
Interpretation No. 43, sales-type lease accounting is not appropriate for IRUs
since WCG's IRUs generally do not transfer title to the fibers under lease to
the lessee. Therefore, these transactions are accounted for as operating leases
unless title to the fibers under lease transfers to the lessee or the agreement
was entered into prior to June 30, 1999.

     WCG has entered into transactions such as buying, selling, swapping and/or
exchanging capacity, conduit and fiber to complete and compliment its network.
Depending upon the terms of the agreement, certain transactions are accounted
for as pure asset swaps with no revenue and no cost recognition while certain
transactions are accounted for as both revenue and cost over the corresponding
length of time for each agreement.

  Emerging Markets

     Transmission and media services revenues are recognized monthly as the
services are provided. Amounts billed in advance of the service month are
recorded as deferred income.

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents include demand and time deposits, certificates of
deposit and other marketable securities with maturities of three months or less
when acquired.

     Certain items which meet the definition of cash equivalents, but are part
of a larger pool of investments managed by financial institutions, are included
in short-term investments.

INVESTMENTS

     Debt and equity securities are classified as available-for-sale. The
carrying amount of these investments is reported at fair value with net
unrealized appreciation or depreciation reported as a component of other
comprehensive income.

     The cost of investments sold is based on the specific identification method
with gross realized gains and losses included in income from investments. For
investments with declines in fair value below their cost basis, which are
determined to be other than temporary, the cost basis of the investment is
written down to its fair value with the realized loss included in income from
investments.

DERIVATIVE INSTRUMENTS

     All derivative financial instruments are recorded on the balance sheet at
their fair value. Changes in fair value of derivatives are recorded each period
in earnings if the derivative is not a hedge. If a derivative is a hedge,
changes in the fair value of the derivative are either recognized in earnings
offset against the changes in fair value of the hedged asset, liability or firm
commitment also recognized in earnings or recognized in other comprehensive
income until the hedged item is recognized in earnings. The ineffective portion
of a derivative's change in fair value is recognized immediately in earnings.

                                       F-41
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY, PLANT AND EQUIPMENT

     Property and equipment is recorded at cost. Depreciation is computed
primarily on the straight-line method over estimated useful lives with the
exception of assets acquired through capital leases, which are depreciated over
the lesser of the estimated useful lives or the term of the lease.

GOODWILL AND OTHER INTANGIBLES

     Through December 31, 2001, goodwill and other intangibles were amortized on
a straight-line basis over the estimated period of benefit ranging from five to
twenty years. As of December 31, 2001, WCG has fully impaired its goodwill and
other intangibles. Accumulated amortization as of December 31, 2000, was $38.7
million. Effective January 1, 2002, goodwill and certain indefinite lived
intangible assets, if any, will no longer be amortized due to the issuance of
SFAS No. 142, "Goodwill and Other Intangible Assets," which is discussed below
in recent accounting standards.

IMPAIRMENT OF LONG-LIVED ASSETS

     WCG evaluates its long-lived assets, including related intangibles, of
identifiable business activities for impairment when events or changes in
circumstances indicate, in management's judgment, that the carrying value of
such assets may not be recoverable. The determination of whether an impairment
has occurred is based on management's estimate of undiscounted future cash flows
attributable to the assets as compared to the carrying value of the assets. If
an impairment has occurred, the amount of the impairment recognized is
determined by estimating the fair value for the assets and recording a provision
for loss if the carrying value is greater than fair value.

     For assets identified to be disposed of in the future, the carrying value
of these assets is compared to the estimated fair value less the cost to sell to
determine if an impairment is required. Until the assets are disposed of, an
estimate of the fair value is redetermined when related events or circumstances
change.

FINANCING COSTS

     Costs incurred to obtain financing through the issuance of WCG's senior
redeemable notes, senior secured notes and its long-term credit facility are
included in other assets and deferred charges and amortized over the life of the
debt. Costs incurred to obtain financing through the issuance of WCG's
redeemable cumulative convertible preferred stock are included as a reduction to
the carrying value of the preferred stock and amortized over the life of the
preferred stock. Costs incurred in conjunction with WCG's restructuring efforts
are expensed as incurred.

INCOME TAXES

     Prior to the spin-off in April 2001, WCG's operations were included in
TWC's consolidated federal income tax return. A tax sharing agreement existed
between WCG and TWC to allocate and settle among themselves the consolidated
federal income tax liability (see Note 7). Deferred income taxes were allocated
from TWC using the liability method and were provided on all temporary
differences between the financial basis and allocated tax basis of WCG's assets
and liabilities. Valuation allowances were established to reduce deferred tax
assets to an amount that was more likely than not be realized.

     Effective with the spin-off of WCG from TWC, the existing tax sharing
agreement with TWC was amended to address pre spin-off tax attributes. Under the
amendment, TWC retains all rights and obligations with respect to tax attributes
of WCG for all periods prior to WCG's initial public

                                       F-42
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

offering. In the event of any final determination with respect to a WCG tax
attribute that arose from the time of WCG's initial public offering to the date
of the spin-off of WCG from TWC, WCG will pay TWC for any determination
resulting in a detriment as compared to previous amounts filed and TWC shall pay
WCG for any determination resulting in favorable tax consequences as compared to
amounts filed. Tax attributes of WCG arising subsequent to the spin-off date are
rights and obligations of WCG.

LOSS PER SHARE

     Basic loss per share is based on the sum of the average number of common
shares outstanding and deferred shares. Diluted loss per share includes any
dilutive effect of stock options and convertible preferred stock. For the
periods presented, diluted loss per common share is the same as the basic
calculation as the inclusion of any stock options and convertible preferred
stock would be antidilutive since WCG reported a loss from continuing operations
for these periods. Stock options and convertible preferred stock of 10.6 million
shares, 4.6 million shares, and 1.1 million shares in 2001, 2000, and 1999,
respectively, have been excluded from the computation of diluted loss per common
share.

FOREIGN CURRENCY TRANSLATION

     The functional currency of WCG is the U.S. dollar. Generally, the
functional currency of WCG's foreign operations is the applicable local currency
for each foreign subsidiary and equity method investee. Assets and liabilities
of foreign subsidiaries and equity investees are translated at the spot rate in
effect at the applicable reporting date, and the combined statements of
operations and WCG's share of the results of operations of its equity affiliates
are translated at the average exchange rates in effect during the applicable
period. The resulting cumulative translation adjustment is recorded as a
separate component of other comprehensive income.

     Transactions denominated in currencies other than the functional currency
are recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in the statement of operations.

RECENT ACCOUNTING STANDARDS

     In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." These Statements change
the accounting for business combinations, goodwill, and intangible assets. SFAS
No. 141 eliminates the pooling-of-interests method of accounting for business
combinations except for qualifying business combinations that were initiated
prior to July 1, 2001. SFAS No. 141 further clarifies the criteria to recognize
intangible assets separately from goodwill. The requirements of SFAS No. 141 are
effective for any business combination accounted for by the purchase method that
is completed after June 30, 2001.

     Under SFAS No. 142, goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
useful lives (but with no maximum life). The amortization provisions of SFAS No.
142 applies to goodwill and intangible assets acquired after June 30, 2001. With
respect to goodwill and intangible assets acquired prior to July 1, 2001,
adoption of SFAS No. 142 is required in fiscal years beginning after December
15, 2001. In 2001, WCG recorded amortization of goodwill and other intangible
assets of approximately $8 million. As of December 31, 2001, WCG has fully

                                       F-43
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

impaired its goodwill and other intangible assets. WCG does not anticipate a
material impact on WCG's results of operations and financial position upon
adopting SFAS No. 141 and 142.

     In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The Statement, effective for fiscal years beginning
after June 15, 2002, requires companies to record a liability for asset
retirement obligations in the period in which they are incurred, which typically
could be upon completion of construction or shortly thereafter. The FASB decided
to limit the scope to legal obligations and the liability will be recorded at
fair value. The effect of adopting this standard on WCG's results of operations
and financial position is currently being evaluated.

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The Statement, effective for
fiscal years beginning after December 15, 2001, provides a single accounting
model for long-lived assets to be disposed of and replaces SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." WCG's approach for impairment under SFAS No. 121 is consistent
with the provisions under SFAS No. 144. Accordingly, the effect of adopting this
standard on WCG's results of operations and financial position is not expected
to be different than had WCG continued to operate under SFAS No. 121.

RECLASSIFICATIONS

     Certain prior year amounts have been reclassified to conform with the
current period presentation.

2. ACQUISITIONS

     The following acquisitions occurred during 2001 and have been accounted for
in the accompanying financial statements under the purchase method of accounting
for business combinations. The purchase price was allocated based on the
estimated fair value of acquired assets and liabilities at the date of the
acquisition. A summary of the acquisitions by segment is as follows:

    Network

     On September 28, 2001, WCG acquired the wholesale international
long-distance business conducted by Ameritech Global Gateway Services (AGGS), a
subsidiary of SBC Communications, Inc. (SBC) for approximately $13 million in
cash.

    Emerging Markets

     WCG entered into an investment in third quarter 2001 with iBEAM
Broadcasting Corp. (iBEAM), a provider of streaming communications solutions.
Under the terms of the agreement, WCG invested $20 million in cash and agreed to
provide $10 million of future services to iBEAM in exchange for convertible
preferred stock of iBEAM representing approximately a 49% ownership of the
company. On December 7, 2001, WCG purchased substantially all the assets of
iBEAM under terms approved by the U.S. Bankruptcy Court for consideration of
approximately $25 million in cash and assumed certain liabilities of iBEAM,
relating to the acquired assets. WCG accounted for its investment in iBEAM under
the equity method of accounting until the purchase of iBEAM.

                                       F-44
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Costs of the acquisitions discussed above are allocated to the assets and
liabilities acquired as follows for the year ended December 31:

<Table>
<Caption>
                                                                   2001
                                                              --------------
                                                              (IN THOUSANDS)
<S>                                                           <C>
Working capital.............................................     $(1,594)
Property and equipment......................................      43,930
Long-term debt..............................................      (3,860)
Other.......................................................         211
                                                                 -------
           Cost of acquisitions.............................     $38,687
                                                                 =======
</Table>

     The following summarized unaudited pro forma financial information for the
years ended December 31 assumes each acquisition had occurred on January 1 of
the year immediately preceding the year of the acquisition:

<Table>
<Caption>
                                                                2001          2000
                                                             -----------   ----------
                                                                  (IN THOUSANDS)
<S>                                                          <C>           <C>
Revenues...................................................  $ 1,339,226   $1,072,055
Loss before extraordinary gain.............................  $(4,230,975)  $ (943,798)
Net loss...................................................  $(3,934,079)  $ (943,798)
Basic and diluted loss per share:
  Loss before extraordinary gain...........................  $     (8.72)  $    (2.04)
  Net loss attributable to common stockholders.............  $     (8.11)  $    (2.04)
</Table>

3. DISCONTINUED OPERATIONS

     On January 25, 2001, WCG's board of directors authorized a plan for its
management to divest the Solutions segment. Accordingly, the financial
statements prior to 2001 reflect the Solutions segment as discontinued
operations. On January 29, 2001, WCG signed an agreement to sell the domestic,
Mexican and Canadian professional services operations of the Solutions segment
to Platinum Equity LLC. This sale closed on March 31, 2001, for approximately
$100 million in cash and an interest-bearing $75 million promissory note
receivable of which $30 million is due on March 31, 2002, and $45 million plus
accrued interest is due on September 30, 2002. WCG also entered into a
collection agreement in which Platinum Equity LLC is responsible for the
collection of certain identified retained accounts receivables. As of December
31, 2001, approximately $86 million had been collected on the outstanding
receivables. WCG believes it is adequately reserved for the remaining
uncollected balance as of December 31, 2001.

     WCG is involved in a dispute with the purchaser regarding the calculation
of net working capital as defined in the agreement. Platinum Equity LLC claims
that WCG owes approximately $47 million as a working capital adjustment under
the terms of the agreement. WCG denies that a working capital adjustment of this
magnitude is required. The matter has been submitted to arbitration.

     On March 27, 2001, WCG signed an agreement to sell its remaining Canadian
operations of the Solutions segment to Telus Corporation. The sale closed in
second quarter 2001 for approximately $38 million in cash.

     The liabilities of discontinued operations as of December 31, 2001, are
included in accrued liabilities and consist primarily of remaining obligations
relating to the disposal of the Solutions segment.

                                       F-45
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. SEGMENT DISCLOSURES

     WCG's reportable segments are Network and Emerging Markets. Network
includes the nationwide intercity fiber-optic network, extended locally and
globally, a publicly traded Australian telecommunications company and various
other investments that drive bandwidth usage on the WCG network. Network
provides advanced Internet, data, voice and video services to companies that use
high capacity communications as an integral part of their service offerings. WCG
also offers rights of use in dark fiber, which is fiber that it installs but for
which it does not provide communications transmission services. WCG's network as
well as established strategic relationships provide services in 125 U.S. cities
and connectivity to Asia, Australia, Canada, South America, and Europe. Emerging
Markets, previously called Broadband Media, provides services to acquire, manage
and distribute audio, video, and multimedia content for the media industry as
well as other mission-critical industries such as the government and financial
services. Emerging Markets also includes investments in domestic broadband media
communication companies. Other includes various foreign and domestic equity and
cost-based investments and the costs to manage these investments, previously
called Strategic Investments, as well as certain corporate assets not
attributable to a specific segment such as cash and cash equivalents, short-term
investments and unamortized debt expense. As of December 31, 2001, the foreign
investments included in Other were all located in South America.

     In fourth quarter 2001, WCG changed its measure of segment profit and loss
to operating EBITDA. Operating EBITDA as defined by WCG, represents earnings
before interest, income taxes, depreciation and amortization, lease costs
attributable to WCG's operating lease agreement covering a portion of WCG's
fiber-optic network (operating lease costs) and other unusual, non-recurring or
non-cash items, such as asset impairments and restructuring charges, equity
earnings or losses and minority interest. A reconciliation of operating EBITDA
to loss from operations is provided below. Prior period information has been
restated to conform to the current period presentation. Intercompany sales are
generally accounted for as if the sales were to unaffiliated third

                                       F-46
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

parties. The following tables present certain financial information concerning
WCG's reportable segments.

<Table>
<Caption>
                                                  EMERGING
                                      NETWORK      MARKETS     OTHER    ELIMINATIONS      TOTAL
                                    -----------   ---------   -------   ------------   -----------
                                                            (IN THOUSANDS)
<S>                                 <C>           <C>         <C>       <C>            <C>
DECEMBER 31, 2001
Revenues:
  External customers:
     Dark fiber...................  $     9,101   $      --   $    --     $     --     $     9,101
     Capacity and other...........    1,012,098     164,322        --           --       1,176,420
                                    -----------   ---------   -------     --------     -----------
  Total external customers........    1,021,199     164,322        --           --       1,185,521
     Intercompany.................       56,641         380        --      (57,021)             --
                                    -----------   ---------   -------     --------     -----------
Total segment revenues............  $ 1,077,840   $ 164,702   $    --     $(57,021)    $ 1,185,521
                                    ===========   =========   =======     ========     ===========
Costs of sales:
  Dark fiber......................  $     3,177   $      --   $    --     $     --     $     3,177
  Capacity and other..............      929,157      97,121        --           --       1,026,278
  Intercompany....................          380      56,641        --      (57,021)             --
                                    -----------   ---------   -------     --------     -----------
Total cost of sales...............  $   932,714   $ 153,762   $    --     $(57,021)    $ 1,029,455
                                    ===========   =========   =======     ========     ===========
Operating EBITDA:
  Loss from operations............  $(3,425,095)  $(116,931)  $(2,340)    $     --     $(3,544,366)
  Adjustments to reconcile loss
     from operations to operating
     EBITDA:
     Depreciation and
       amortization...............      433,032      33,607       479           --         467,118
     Operating lease costs........       35,214          --        --           --          35,214
     Other:
          Asset impairments and
            restructuring
            charges...............    2,928,648      51,277        --           --       2,979,925
          Gain on sale of
            assets................      (46,079)         --        --           --         (46,079)
          Other...................           --          --    (1,500)          --          (1,500)
                                    -----------   ---------   -------     --------     -----------
Operating EBITDA..................  $   (74,280)  $ (32,047)  $(3,361)    $     --     $  (109,688)
                                    ===========   =========   =======     ========     ===========
Equity method investments.........  $     4,843   $      --   $ 3,587     $     --     $     8,430
Additions to long-lived assets....  $ 1,318,990   $  68,678   $ 1,626     $     --     $ 1,389,294
</Table>

                                       F-47
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                    EMERGING
                                        NETWORK     MARKETS     OTHER    ELIMINATIONS     TOTAL
                                       ----------   --------   -------   ------------   ----------
                                                             (IN THOUSANDS)
<S>                                    <C>          <C>        <C>       <C>            <C>
DECEMBER 31, 2000
Revenues:
  External customers:
     Dark fiber......................  $   62,397   $     --   $    --     $     --     $   62,397
     Capacity and other..............     608,348    168,332        --           --        776,680
                                       ----------   --------   -------     --------     ----------
  Total external customers...........     670,745    168,332        --           --        839,077
  Intercompany.......................      34,275        429        --      (34,704)            --
                                       ----------   --------   -------     --------     ----------
Total segment revenues...............  $  705,020   $168,761   $    --     $(34,704)    $  839,077
                                       ==========   ========   =======     ========     ==========
Costs of sales:
  Dark fiber.........................  $   42,207   $     --   $    --     $     --     $   42,207
  Capacity and other.................     683,489     97,576        --           --        781,065
  Intercompany.......................         429     34,275        --      (34,704)            --
                                       ----------   --------   -------     --------     ----------
Total cost of sales..................  $  726,125   $131,851   $    --     $(34,704)    $  823,272
                                       ==========   ========   =======     ========     ==========
Operating EBITDA:
  Loss from operations...............  $ (404,900)  $(36,551)  $(7,220)    $     --     $ (448,671)
  Adjustments to reconcile loss from
     operations to operating EBITDA:
     Depreciation and amortization...     154,288     30,269       467           --        185,024
     Operating lease costs...........      52,035         --        --           --         52,035
     Other...........................        (686)        --        --           --           (686)
                                       ----------   --------   -------     --------     ----------
Operating EBITDA.....................  $ (199,263)  $ (6,282)  $(6,753)    $     --     $ (212,298)
                                       ==========   ========   =======     ========     ==========
Equity method investments............  $   15,335   $     --   $77,454     $     --     $   92,789
Additions to long-lived assets.......  $3,444,286   $ 37,113   $ 2,506     $     --     $3,483,905
</Table>

                                       F-48
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                        EMERGING
                                            NETWORK     MARKETS     OTHER     ELIMINATIONS     TOTAL
                                           ----------   --------   --------   ------------   ----------
                                                                  (IN THOUSANDS)
<S>                                        <C>          <C>        <C>        <C>            <C>
DECEMBER 31, 1999
Revenues:
  External customers:
     Dark fiber..........................  $  109,258   $     --   $     --     $     --     $  109,258
     Capacity and other..................     295,799    161,324     35,075           --        492,198
                                           ----------   --------   --------     --------     ----------
  Total external customers...............     405,057    161,324     35,075           --        601,456
  Intercompany...........................      33,452      1,525        360      (35,337)            --
                                           ----------   --------   --------     --------     ----------
Total segment revenues...................  $  438,509   $162,849   $ 35,435     $(35,337)    $  601,456
                                           ==========   ========   ========     ========     ==========
Costs of sales:
  Dark fiber.............................  $   67,306   $     --   $     --     $     --     $   67,306
  Capacity and other.....................     347,437     91,083     20,214           --        458,734
  Intercompany...........................         448     31,832      3,057      (35,337)            --
                                           ----------   --------   --------     --------     ----------
Total cost of sales......................  $  415,191   $122,915   $ 23,271     $(35,337)    $  526,040
                                           ==========   ========   ========     ========     ==========
Operating EBITDA:
  Loss from operations...................  $ (167,898)  $(30,594)  $(48,003)    $     --     $ (246,495)
  Adjustments to reconcile loss from
     operations to operating EBITDA:
       Depreciation and amortization.....      51,454     29,866      5,398           --         86,718
       Asset impairments and
          restructuring charges..........          --         --     33,854           --         33,854
       Other.............................         841        160         --           --          1,001
                                           ----------   --------   --------     --------     ----------
Operating EBITDA.........................  $ (115,603)  $   (568)  $ (8,751)    $     --     $ (124,922)
                                           ==========   ========   ========     ========     ==========
Equity method investments................  $   14,416   $     --   $ 42,572     $     --     $   56,988
Additions to long-lived assets...........  $1,815,378   $ 39,776   $  3,069     $     --     $1,858,223
</Table>

<Table>
<Caption>
                                                               TOTAL ASSETS
                                                   ------------------------------------
                                                               DECEMBER 31,
                                                   ------------------------------------
                                                      2001         2000         1999
                                                   ----------   ----------   ----------
                                                              (IN THOUSANDS)
<S>                                                <C>          <C>          <C>
Network..........................................  $4,446,479   $6,025,728   $2,651,192
Emerging Markets.................................     230,155      210,840      228,778
Other............................................   1,315,392      884,333    2,380,369
Discontinued operations..........................          --      288,384      797,364
                                                   ----------   ----------   ----------
  Total assets...................................  $5,992,026   $7,409,285   $6,057,703
                                                   ==========   ==========   ==========
</Table>

                                       F-49
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following geographic area data includes revenues from external
customers based on origin of services rendered for the years ended December 31
and long-lived assets based upon physical location as of December 31.

<Table>
<Caption>
                                                      2001         2000         1999
                                                   ----------   ----------   ----------
                                                              (IN THOUSANDS)
<S>                                                <C>          <C>          <C>
Revenues from external customers:
  United States..................................  $1,125,319   $  815,122   $  561,844
  Other..........................................      60,202       23,955       39,612
                                                   ----------   ----------   ----------
Total............................................  $1,185,521   $  839,077   $  601,456
                                                   ==========   ==========   ==========
Long-lived assets:
  United States..................................  $4,215,867   $5,166,086   $2,202,913
  Other..........................................     137,346      313,242      120,034
                                                   ----------   ----------   ----------
Total............................................  $4,353,213   $5,479,328   $2,322,947
                                                   ==========   ==========   ==========
</Table>

     Long-lived assets are comprised of property, plant and equipment, goodwill
and other intangible assets and certain other noncurrent assets.

     In 2001, two of Network's customers exceeded 10% of WCG's revenues with
sales from each customer of approximately $402 million and $122 million,
respectively. In 2000, three of Network's customers exceeded 10% of WCG's
revenues with sales from each customer of approximately $169 million, $133
million and $101 million, respectively. In 1999, two of Network's customers
exceeded 10% of WCG's revenues with sales from each customer of approximately
$102 million and $65 million, respectively.

5. ASSET IMPAIRMENTS AND RESTRUCTURING CHARGES

  2001

     During and subsequent to fourth quarter 2001, several industry events
occurred including high profile bankruptcies of companies such as Global
Crossing Ltd. and Enron Corp. and other actions by WCG's peer group, along with
a continuing downward spiral of valuations associated with telecom companies.
Note 1, Basis of Presentation, and Note 12 describe a series of events and
conditions impacting WCG during and subsequent to fourth quarter 2001. As a
result of the combination of industry events, conditions specific to WCG and as
part of the preparation of a comprehensive plan to restructure and de-leverage
its balance sheet, management revised its plans and intentions with regard to
the use of certain long-lived assets, and accordingly, revised its estimates of
future cash flows associated with these long-lived assets. Certain assets are
now considered excess, and WCG expects to measure future cash flows based on
disposition. These assets have been impaired as described below using the
present value of future cash flows for fair value. Other long-lived assets are
currently in use or projected to be in use and these assets have not been
impaired under SFAS 121 based on management's latest estimates of future cash
flows. These estimates include assumptions regarding decreased prices for WCG's
products and services, significant increases in sales quantities in periods
beyond 2002 and that WCG has adequate liquidity. If actual results do not meet
or exceed these estimates, WCG will revise its estimates of future cash flows
and additional asset impairments may be necessary.

     These events also resulted in abandoning or suspending projects because of
a reduced workforce or uncertainties related to the availability of funding to
complete the projects and limited growth

                                       F-50
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

profiles because of uncertainties now inherent in WCG's business. This analysis
resulted in impairments for the year ended December 31, 2001 as follows:

<Table>
<Caption>
                                                              (IN MILLIONS)
<S>                                                           <C>
Dark fiber and conduit(1)...................................     $1,876
Optronics equipment(2)......................................        336
International assets and undersea cable(3)..................        256
Wireless capacity, net(4)...................................        215
Abandoned projects and other(5).............................        211
Goodwill and other intangible assets(6).....................         86
                                                                 ------
  Total impairment of long-lived assets.....................     $2,980
                                                                 ======
</Table>

---------------

(1) WCG has assumed that on various routes it will keep 8 to 24 fibers for its
    internal use. Previous assumptions were that WCG would keep an average of 24
    fibers for its own use. WCG's fourth quarter 2001 impairment charge of
    approximately $1.9 billion considers this change and revised estimates of
    future cash flows for all excess fiber and conduit.

(2) Because of increasingly lower prices for excess optronics, WCG recorded a
    fourth quarter 2001 impairment charge of approximately $186 million. WCG had
    previously recorded a third quarter 2001 impairment charge of approximately
    $150 million related to excess optronics.

(3) As of December 31, 2001, WCG has ownership interest in a number of
    international routes in process of completion for which the funding of that
    completion is now in doubt. In addition, the recent or expected completion
    of several undersea cable systems has negatively impacted prices. Because of
    these conditions, WCG does not believe it will recover its investment in
    these international assets. As such, WCG recorded a fourth quarter 2001
    impairment charge of approximately $256 million on international routes.

(4) WCG had previously entered into a strategic relationship with Winstar
    Communications, Inc. (Winstar). WCG planned to use wireless technology to
    provide high capacity local exchange and internet access services to
    companies located in buildings not served by fiber-optic cable. However, in
    2001 Winstar filed for bankruptcy protection and the assets were
    subsequently purchased by another company. Accordingly, WCG has fully
    impaired its basis in the Winstar capacity that it had previously purchased
    by recording a net fourth quarter 2001 impairment charge of approximately
    $215 million.

(5) WCG recorded a fourth quarter 2001 impairment charge of approximately $181
    million primarily representing the write-off of project costs that will not
    be completed because of funding constraints and/or personnel reductions. WCG
    had previously recorded a third quarter 2001 charge of approximately $30
    million for similar items.

(6) WCG recorded a fourth quarter 2001 impairment charge of approximately $75
    million representing the remaining balances of its goodwill and other
    intangibles. WCG had previously recorded a third quarter 2001 impairment
    charge of approximately $11 million related to goodwill associated with its
    satellite operations.

     The impairments discussed above relate to the Network segment with the
exception of goodwill and other intangibles of which $51.3 million relates to
the Emerging Markets segment.

     The impairment analysis has been prepared on a going concern basis and
WCG's remaining basis in its long-lived assets is presumed to be recoverable
through future cash flows. If WCG enters bankruptcy, further impairments may be
necessary because of differences between accounting for impairments of
long-lived assets under SFAS 121 and accounting for such assets under "Fresh
Start

                                       F-51
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Accounting" as described in Statement of Position 90-7 "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code." These differences
include, but may not be limited to, the revaluation of all assets to fair value,
further revisions of the underlying cash flow assumptions, revised assumptions
underlying assets to be held for use versus assets to be sold, or estimates or
appraisals for the purpose of determining and/or establishing a new enterprise
value.

  1999

     In second quarter 1999, management determined that the businesses that
provide audio and video conferencing services and closed-circuit video
broadcasting services for businesses were held for sale. On June 30, 1999, WCG
signed an agreement, which closed effective July 31, 1999, with Genesys, S.A. to
sell its business which provides audio and video conferencing services. In
addition, on July 31, 1999, WCG signed and closed an agreement with Cyberstar
L.P. to sell its business which provides closed-circuit video broadcasting
services for businesses. The proceeds from these transactions totaled
approximately $50 million. Included in 1999 asset impairments and restructuring
charges is a pre-tax loss of $28.4 million consisting of a $24.5 million
impairment of the assets to fair value based on the net sales proceeds and exit
costs of $3.9 million consisting of contractual obligations related to the sales
of these businesses. These transactions resulted in an income tax provision of
approximately $7.9 million, which reflects the impact of goodwill not deductible
for tax purposes. Loss from operations related to these assets for 1999 was
$10.2 million.

     In fourth quarter 1999, WCG abandoned a business involved in providing
wireless remote monitoring and meter reading equipment and related services to
industrial and commercial customers resulting in a $5.5 million loss consisting
of an impairment charge of $4.7 million and exit costs of $0.8 million. Loss
from operations related to these assets for 1999 was not significant.

6. OTHER OPERATING EXPENSE (INCOME), NET

  Transactions included in segment profit (loss)

     In 2001, WCG recorded other income of $10.8 million including gains of
$28.7 million related to the termination of various agreements, partially offset
by expenses related to a loss provision on notes receivable of $12.0 million and
severance charges of $4.7 million.

  Transactions excluded from segment profit (loss)

     In October 2001, WCG and WorldCom reached an agreement in which WCG sold to
WorldCom its single strand of lit fiber (sometimes known as the SUSA fiber) that
WCG had retained when it sold the majority of its predecessor network to
WorldCom in 1995. In exchange for granting title to the SUSA fiber to WorldCom,
WCG received cash of $143.6 million from WorldCom resulting in a gain to WCG in
fourth quarter 2001 of $46.1 million. WCG did not record any revenue from this
sale. WCG purchased from WorldCom a 20-year IRU of capacity on WorldCom's
network for $100 million. The agreement for the sale of the SUSA fiber and the
purchase of the IRU settled ongoing disputes of operational matters dating back
to 1995.

                                       F-52
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. BENEFIT (PROVISION) FROM INCOME TAXES

     The benefit (provision) from income taxes includes:

<Table>
<Caption>
                                                   YEAR ENDED DECEMBER 31,
                                                 ----------------------------
                                                   2001      2000      1999
                                                 --------   -------   -------
                                                        (IN THOUSANDS)
<S>                                              <C>        <C>       <C>
Current:
  Federal......................................  $     --   $(1,849)  $    --
  State........................................       (64)     (178)     (108)
  Foreign......................................        --        --        --
                                                 --------   -------   -------
                                                      (64)   (2,027)     (108)
Deferred:
  Federal......................................   (41,916)   37,323    (2,293)
  State........................................    (8,145)   10,909    (2,584)
  Foreign......................................         4   (12,098)    8,170
                                                 --------   -------   -------
                                                  (50,057)   36,134     3,293
                                                 --------   -------   -------
Total benefit (provision) for income taxes.....  $(50,121)  $34,107   $ 3,185
                                                 ========   =======   =======
</Table>

     The U.S. and foreign components of loss before income taxes are as follows:

<Table>
<Caption>
                                                YEAR ENDED DECEMBER 31,
                                          -----------------------------------
                                             2001         2000        1999
                                          -----------   ---------   ---------
                                                    (IN THOUSANDS)
<S>                                       <C>           <C>         <C>
United States...........................  $(3,915,624)  $(294,381)  $(288,453)
Foreign.................................     (141,508)    (17,414)    (43,044)
                                          -----------   ---------   ---------
Total loss before taxes.................  $(4,057,132)  $(311,795)  $(331,497)
                                          ===========   =========   =========
</Table>

     WCG's undistributed earnings from non U.S. subsidiaries in 2001, 2000 and
1999 have been accounted for as if fully repatriated.

                                       F-53
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Reconciliations from the benefit (provision) from income taxes at the
federal statutory rate to the benefit (provision) from income taxes are as
follows:

<Table>
<Caption>
                                                YEAR ENDED DECEMBER 31,
                                           ----------------------------------
                                              2001         2000        1999
                                           -----------   ---------   --------
                                                     (IN THOUSANDS)
<S>                                        <C>           <C>         <C>
Benefit at statutory rate................  $ 1,419,996   $ 109,128   $116,024
Increases (reductions) in benefits
  resulting from:
  State income taxes.....................       (5,335)      6,191     (1,750)
  Foreign operations.....................      (46,547)      1,080    (10,867)
  Goodwill amortization..................         (866)       (986)    (4,248)
  Non-deductible costs related to asset
     sales...............................       (5,426)         --    (16,765)
  Change in federal valuation
     allowance...........................   (1,212,878)   (100,249)        --
  Tax benefits (provisions) allocated
     from TWC............................     (200,718)     27,158    (80,160)
  Other -- net...........................        1,653      (8,215)       951
                                           -----------   ---------   --------
Benefit (provision) from income taxes....  $   (50,121)  $  34,107   $  3,185
                                           ===========   =========   ========
</Table>

     Significant components of deferred tax assets and liabilities as of
December 31 are as follows:

<Table>
<Caption>
                                                          2001         2000
                                                       -----------   --------
                                                           (IN THOUSANDS)
<S>                                                    <C>           <C>
Deferred tax assets:
  Deferred revenues..................................  $   194,925   $195,973
  Property, plant and equipment, including
     impairments.....................................      403,705         --
  Investments, including impairments.................       76,955         --
  Other asset impairments............................      191,224      5,732
  Reserves...........................................       63,335     49,713
  Net operating loss carryforward....................      485,306     93,773
  Other..............................................       17,243     22,020
                                                       -----------   --------
                                                         1,432,693    367,211
Valuation allowance..................................   (1,388,970)  (141,994)
                                                       -----------   --------
Total deferred tax assets............................       43,723    225,217
Deferred tax liabilities:
  Property, plant and equipment......................           --    150,581
                                                       -----------   --------
  Investments........................................           --     34,656
                                                       -----------   --------
  Other..............................................       43,723     39,980
                                                       -----------   --------
Total deferred tax liabilities.......................       43,723    225,217
                                                       -----------   --------
Net deferred tax liability...........................  $        --   $     --
                                                       ===========   ========
</Table>

     As of December 31, 2001, WCG had $1.2 billion of federal net operating
losses, which will expire in 2022, $34.0 million of estimated capital loss
carryforwards, which will expire in 2006, and $58.0 million of foreign net
operating losses that carry forward indefinitely as well as various state

                                       F-54
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

net operating losses. Valuation allowances have been established that reduce the
deferred tax assets to amounts that will more likely than not be utilized.
Uncertainties that may affect the utilization of the loss carryforwards include
future operating results, impact of WCG's restructuring efforts, tax law changes
and expiration of carryforward periods. The valuation allowance increased in
2001 primarily due to the net operating losses incurred after the spin-off of
WCG from TWC.

     If WCG had filed a separate federal income tax return for all periods
presented, the benefit for income taxes for 1999 would have increased by $84.1
million to reflect full use of the net operating losses generated in 1999. The
2000 tax benefit of $34.1 million would have changed to a $50.0 million tax
provision to eliminate the net deferred tax asset created in 2000 by the
additional 1999 net operating loss carryforward.

     There were no cash refunds for income taxes in 2001 and $0.5 million in
2000. Cash payments for income taxes were $0.8 million in 1999.

8. EMPLOYEE BENEFIT PLANS

     After the sale of Solutions to Platinum Equity LLC in March 2001, WCG
retained the salaried employees' noncontributory defined benefit pension plans.
However, no future service benefits will be accrued in these plans as the
participants are no longer employed by WCG. Effective January 1, 2001, separate
noncontributory defined benefit pension plans were established for WCG employees
that had previously been covered under TWC's plans. Subsequent to the tax-free
spin-off from TWC (see Note 14), these plans, as well as other postretirement
medical benefit obligations, were transferred from TWC to WCG for active
employees at that date. Effective May 31, 2001, WCG merged these transferred
noncontributory defined benefit pension plans and other postretirement medical
benefit obligations with the salaried employees' plans retained by WCG after the
sale of Solutions (WCG plans). WCG does not provide pension and postretirement
benefits for employees hired subsequent to the spin-off from TWC.

     Contributions for pension and postretirement medical benefits related to
WCG's participation in the TWC plans were $2.1 million and $2.8 million in 2000
and 1999, respectively. Contributions for pension and postretirement medical
benefits related to WCG's plans were $1.6 million in 2001. No contributions were
made in 2001 to the TWC plans by WCG in anticipation of the planned spin-off
from TWC and subsequent plan transfers.

     The following table presents the changes in benefit obligations and plan
assets for pension benefits and other postretirement benefits for the WCG plans
for the years indicated. It also presents a reconciliation of the funded status
of these benefits to the amount recognized in the accompanying consolidated
balance sheet as of December 31 of each year indicated. The amounts reported for
2001 include total year activity for retained Solutions salaried employees as
well as activity for WCG active employees subsequent to the spin-off from TWC.
The amounts reported for 2000

                                       F-55
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

include activity only for retained Solutions salaried employees, as WCG
employees were included in the TWC plans for this period.

<Table>
<Caption>
                                                                     OTHER
                                                                POSTRETIREMENT
                                           PENSION BENEFITS        BENEFITS
                                          -------------------   ---------------
                                            2001       2000      2001     2000
                                          --------   --------   -------   -----
                                                     (IN THOUSANDS)
<S>                                       <C>        <C>        <C>       <C>
Change in benefit obligation:
  Benefit obligation at beginning of
     year...............................  $ 55,531   $ 38,512   $    --   $  --
  Benefit obligation transferred from
     TWC................................    33,243         --     3,443      --
  Service cost..........................     4,921      3,877       156      --
  Interest cost.........................     5,365      3,526       171      --
  Actuarial loss........................     2,969     10,437       311      --
  Benefits paid.........................    (3,639)      (821)       --      --
  Plan curtailment......................    (9,327)        --        --      --
                                          --------   --------   -------   -----
Benefit obligation at end of year.......    89,063     55,531     4,081      --
                                          --------   --------   -------   -----
Change in plan assets:
  Fair value of plan assets at beginning
     of year............................    45,039     47,856        --      --
  Assets transferred from TWC...........    36,387         --        --      --
  Actual return on plan assets..........    (3,546)    (1,996)       --      --
  Employer contribution.................     1,591         --        --      --
  Benefits paid.........................    (3,639)      (821)       --      --
                                          --------   --------   -------   -----
Fair value of plan assets at end of
  year..................................    75,832     45,039        --      --
                                          --------   --------   -------   -----
Funded status...........................   (13,231)   (10,492)   (4,081)     --
Unrecognized net actuarial loss.........     1,917      3,156     2,029      --
Unrecognized prior service cost
  (credit)..............................       702       (671)       73      --
                                          --------   --------   -------   -----
Net accrued benefit cost................  $(10,612)  $ (8,007)  $(1,979)  $  --
                                          ========   ========   =======   =====
</Table>

     The net accrued benefit cost is included in the accompanying balance sheet
as accrued benefit cost within accrued liabilities.

     Net pension expense and other postretirement benefit expense for the WCG
plans consisted of the following:

<Table>
<Caption>
                                                   2001      2000      1999
                                                  -------   -------   -------
                                                        (IN THOUSANDS)
<S>                                               <C>       <C>       <C>
Components of net periodic pension expense:
  Service cost..................................  $ 4,921   $ 3,877   $ 4,875
  Interest cost.................................    5,365     3,526     2,954
  Expected return on plan assets................   (6,991)   (4,531)   (4,006)
  Amortization of prior service credit..........        9      (280)     (280)
  Recognized net actuarial gain.................     (489)     (186)     (154)
  Curtailment gain..............................   (1,374)       --        --
                                                  -------   -------   -------
Net periodic pension expense....................  $ 1,441   $ 2,406   $ 3,389
                                                  =======   =======   =======
</Table>

                                       F-56
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                           2001   2000    1999
                                                           ----   -----   -----
                                                              (IN THOUSANDS)
<S>                                                        <C>    <C>     <C>
Components of net periodic postretirement benefit
  expense:
  Service cost...........................................  $156   $  --   $  --
  Interest cost..........................................   171      --      --
  Amortization of prior service credit...................    43      --      --
  Recognized net actuarial gain..........................   (16)     --      --
                                                           ----   -----   -----
Net periodic postretirement benefit expense..............  $354   $  --   $  --
                                                           ====   =====   =====
</Table>

     Net pension expense related to WCG's participation in TWC's plans was $1.1
million, $2.7 million and $3.4 million for 2001, 2000 and 1999, respectively.
Other postretirement benefit expense related to WCG's participation in TWC's
plans was $0.2 million, $0.4 million and $0.2 million for 2001, 2000 and 1999,
respectively.

     The following are the weighted-average assumptions utilized as of December
31 of the year indicated:

<Table>
<Caption>
                                                                         OTHER
                                                        PENSION     POSTRETIREMENT
                                                       BENEFITS        BENEFITS
                                                      -----------   ---------------
                                                      2001   2000    2001     2000
                                                      ----   ----   ------   ------
<S>                                                   <C>    <C>    <C>      <C>
Discount rate.......................................   7.5%   7.5%    7.5%     7.5%
Expected return on plan assets......................  10.0   10.0     N/A      N/A
Rate of compensation increase.......................   5.0    5.0     N/A      N/A
</Table>

     The annual assumed rate of increase in the health care cost trend rate for
2002 is 12% which systematically decreases to 5% by 2010.

     The various nonpension postretirement benefit plans which WCG sponsors
provide for retiree contributions and contain other cost-sharing features such
as deductibles and coinsurance. The accounting for these plans anticipates
future cost-sharing changes to the written plans that are consistent with WCG's
expressed intent to increase the retiree contribution rate generally in line
with health care cost increases.

     The health care cost trend rate assumption has a significant effect on the
amounts reported. A one-percentage-point change in assumed health care cost
trend rates would have the following effects:

<Table>
<Caption>
                                                              1-PERCENTAGE-POINT
                                                              -------------------
                                                              INCREASE   DECREASE
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Effect on total of service and interest cost components.....    $ 59      $ (48)
Effect on postretirement benefit obligation.................    $709      $(573)
</Table>

     Beginning January 1, 2001, WCG established and continues to maintain a
defined contribution plan for its employees. Prior to January 1, 2001, WCG
employees were included in various defined contribution plans maintained by TWC.
WCG's costs related to these plans were $12.1 million, $8.1 million and $5.1
million in 2001, 2000 and 1999, respectively. These costs increased from 2000 to
2001 primarily due to the growth in the eligible employee base.

                                       F-57
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. INVESTMENTS

     Investments as of December 31 consisted of the following (in thousands):

<Table>
<Caption>
                                                           2001       2000
                                                         --------   --------
<S>                                                      <C>        <C>
Short-term investments:
Debt securities:
  Debt securities mutual funds.........................  $303,340   $    765
  Corporate debt securities............................   256,762     82,153
  Government debt securities...........................   214,106         --
  Other debt securities and time deposits..............    85,980        514
                                                         --------   --------
     Total debt securities.............................   860,188     83,432
Preferred stocks.......................................    33,705         --
Marketable equity securities...........................    10,920    311,752
                                                         --------   --------
     Short-term investments............................  $904,813   $395,184
                                                         ========   ========
Long-term investments:
Equity method:
  ATL -- common stock..................................  $     --   $ 23,683
  Others...............................................     8,430     69,106
                                                         --------   --------
                                                            8,430     92,789
Cost method:
  ATL -- preferred stock...............................        --    292,048
  Others...............................................     3,125    101,271
                                                         --------   --------
                                                            3,125    393,319
Advances to investees:
  ATL..................................................        --    132,606
  Others...............................................        --      1,138
                                                         --------   --------
                                                               --    133,744
                                                         --------   --------
     Long-term investments.............................  $ 11,555   $619,852
                                                         ========   ========
</Table>

  Short-term investments

  Debt securities

     Contractual maturity dates for debt securities as of December 31 are as
follows (in thousands):

<Table>
<Caption>
                                                            2001      2000
                                                          --------   -------
<S>                                                       <C>        <C>
CONTRACTUAL MATURITY:
Maturing in one year or less............................  $259,652   $82,640
Maturing after one year through five years..............    70,113        --
Maturing after five years...............................   227,083        --
No stated maturity......................................   303,340       792
                                                          --------   -------
                                                          $860,188   $83,432
                                                          ========   =======
</Table>

     The carrying amount of these investments is fair value, which approximates
cost. These investments are considered short-term based on management's intent
and ability to liquidate the investments within one year. Interest and other
investing income consists primarily of interest income related to the debt
securities.

                                       F-58
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Preferred stock

     The carrying amount of the preferred stock investments is fair value, which
approximates cost.

  Marketable equity securities

     The carrying amount of the marketable equity securities is fair value. The
aggregate cost of these investments, net of write-downs, was $1.1 million and
$170.6 million as of December 31, 2001 and 2000, respectively. Gross unrealized
gains were $9.8 million as of December 31, 2001, after taking into effect the
write-downs discussed below. Gross unrealized gains and losses were $179.4
million and $38.2 million as of December 31, 2000, respectively.

     WCG recognized a loss of $89.8 million and $1.7 million in 2001 and 2000,
respectively, related to write-downs of certain marketable equity security
investments resulting from management's determination that the decline in the
value of these investments was other than temporary.

     WCG sold portions of its investments in certain marketable equity
securities for proceeds of $104.5 million and $254.4 million in 2001 and 2000,
respectively. WCG recorded gross realized gains of $63.7 million and $108.3
million in 2001 and 2000, respectively, and gross realized losses of $40.5
million and $14.6 million in 2001 and 2000, respectively, from these sales. WCG
also recognized a gain of $214.7 million in 2000 from the conversion of WCG's
shares of common stock of Concentric Network Corporation into shares of common
stock of XO Communications, Inc., pursuant to a merger of those companies
completed in June 2000.

     WCG recorded income of $40.9 million in 2001 from the change in market
value of cashless collars on certain marketable equity securities in accordance
with SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" as amended since the cashless collars did not qualify as a hedge.
The cashless collars were terminated in 2001 yielding proceeds of $40.9 million.
Prior to the adoption of SFAS No. 133, WCG received cash proceeds of $85.1
million from the early termination of derivative instruments treated as hedges
of certain marketable equity securities in 2000. The cash proceeds were recorded
as a reduction in the basis of the underlying marketable equity security. WCG
has no cashless collars in place as of December 31, 2001.

LONG-TERM INVESTMENTS

  Equity and cost method investments and advances to investees

     WCG's equity losses were $35.5 million, $20.3 million and $36.4 million in
2001, 2000 and 1999, respectively. Equity losses in 2001 include $20.0 million
of equity losses related to WCG's equity investment in iBEAM in third quarter
2001. WCG purchased the assets of iBEAM out of bankruptcy in December 2001 (see
Note 2). In addition, equity losses related to WCG's investment in Algar Telecom
Leste, S. A. (ATL) were $10.4 million, $12.8 million and $37.5 million for 2001,
2000 and 1999, respectively. WCG sold its investment in ATL in two separate
transactions in 2001 and 2000 as discussed below.

     Cash dividends of $4.5 million and $8.0 million were received from
investments in companies carried on the equity basis in 2001 and 2000,
respectively. Property distributions of $8.5 million were also received from an
equity method investment in 2001. These dividends and distributions were
recorded as a return of investment and, therefore, had no income statement
impact.

     WCG recognized a loss of $117.8 million and $32.8 million in 2001 and 2000,
respectively, related to write-downs of certain cost-based and equity-method
investments resulting from management's estimate that the decline in the value
of these investments was other than temporary.

                                       F-59
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Other cost investments in the table above consisted primarily of common
stock investments in various privately-held companies in the telecommunications
industry.

     Prior to March 1999, WCG owned 30% of the preferred shares in ATL and
through participation in a limited liability company owned 30% of the common
stock. In March 1999, WCG purchased from Algar Telecom for $265 million an
additional 43% of the preferred shares and 19% of the common stock of ATL. The
purchase price of ATL common stock exceeded the related share of the net assets
by $35 million which was being amortized over 15 years.

     In a series of transactions in first quarter 2000, WCG sold to an entity
jointly owned by SBC and Telefonos de Mexico, S.A. de C.V., 7% and 30% of ATL's
total preferred shares and common stock, respectively. The partial sale of WCG's
investment in ATL, which had a carrying value of $30 million, yielded proceeds
of approximately $168 million. WCG recognized a gain on the sale of $16.5
million and deferred a gain of approximately $121 million associated with $150
million of the proceeds which were subsequently advanced to ATL. As of December
31, 2000, WCG owned 66% of the preferred shares and 19% of the common stock of
ATL.

     WCG entered into an agreement with America Movil, S.A. de C.V., in second
quarter 2001 to sell its remaining economic interest in ATL. The transaction
closed in third quarter 2001 and WCG received $309.6 million in cash with an
additional $90.0 million due from America Movil, S.A. de C.V., on May 15, 2002.
WCG recognized a gain from the sale of $45.1 million. In February 2002, America
Movil, S.A. de C.V., prepaid its note from the sale of ATL by paying a
discounted amount of $88.8 million.

     During 2001, WCG pledged its total shares in Manquehue Net, S.A., an equity
method investment with a carrying value of $3.6 million as of December 31, 2001,
to a shareholder in Silica Networks S.A. in exchange for this shareholder
funding WCG's share of a required capital contribution to Silica Networks S.A.
During 2001, WCG fully reserved the Silica Networks S.A. equity method
investment, which is included in the write-downs discussed above.

10. PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment as of December 31 was summarized as follows:

<Table>
<Caption>
                                                DEPRECIABLE LIVES      2001         2000
                                               -------------------  ----------   ----------
                                                   (IN YEARS)           (IN THOUSANDS)
<S>                                            <C>                  <C>          <C>
Network equipment (including fiber, optronics
  and capacity IRUs).........................         7-30          $3,253,651   $2,234,491
Right-of-way.................................         20-40            139,029      255,670
Buildings and leasehold improvements.........  30 or life of lease     595,083      297,751
Computer equipment...........................           3              202,449       89,640
General office furniture and fixtures........          3-5              52,555       36,962
Construction in progress.....................    Not applicable        346,385    2,313,128
Other........................................        Various           364,880      242,278
                                                                    ----------   ----------
                                                                     4,954,032    5,469,920
  Less accumulated depreciation and
     amortization............................                         (600,819)    (330,936)
                                                                    ----------   ----------
                                                                    $4,353,213   $5,138,984
                                                                    ==========   ==========
</Table>

     Depreciation expense was $459.4 million, $176.1 million and $73.6 million
in 2001, 2000 and 1999, respectively.

                                       F-60
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

     WCG's cash accounts reflect credit balances to the extent checks written
have not been presented for payment. The amounts of these credit balances
included in accounts payable were $66.3 million and $138.9 million as of
December 31, 2001 and 2000, respectively.

     Accrued liabilities as of December 31 consisted of the following:

<Table>
<Caption>
                                                                2001       2000
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Construction costs..........................................  $ 67,988   $199,540
Interest....................................................   132,696    104,084
Employee costs..............................................    62,646     42,023
Taxes, other than income taxes..............................    58,056     16,111
Other.......................................................    51,733     40,100
                                                              --------   --------
                                                              $373,119   $401,858
                                                              ========   ========
</Table>

12. DEBT AND OTHER FINANCING ARRANGEMENTS

     Long-term debt as of December 31 consisted of the following:

<Table>
<Caption>
                                                     WEIGHTED-
                                                      AVERAGE
                                                     INTEREST
                                                       RATE*        2001         2000
                                                     ---------   ----------   ----------
                                                                     (IN THOUSANDS)
<S>                                                  <C>         <C>          <C>
Senior redeemable notes, 10.70% -- 11.875%,
  due 2007 -- 2010.................................    11.1%     $2,438,692   $2,986,598
Senior secured notes due 2004......................     8.3%      1,400,000           --
Credit facility....................................     5.1%        975,000      525,000
Asset defeasance program...........................     2.2%        750,000           --
TWC note...........................................      --              --      975,610
Other..............................................     5.8%        347,575       39,498
                                                                 ----------   ----------
                                                                  5,911,267    4,526,706
Less current maturities............................                 (72,488)          --
                                                                 ----------   ----------
Long-term debt.....................................              $5,838,779   $4,526,706
                                                                 ==========   ==========
</Table>

---------------

* As of December 31, 2001

  Senior redeemable notes

     In the second half of 2001, a wholly-owned subsidiary of WCG purchased
$551.0 million of WCG's senior redeemable notes in the open market at an average
price of 43% of face value. The purchase resulted in an extraordinary gain of
$296.9 million (net of a zero provision for income taxes) including the
recognition of deferred costs and debt discounts related to the purchased senior
redeemable notes.

     The senior redeemable notes are senior unsecured obligations of WCG,
ranking equally with all of WCG's existing and future senior unsecured debt. The
senior redeemable notes are senior to all of WCG's subordinated debt and junior
to any existing or future secured debt.

     WCG anticipates making use of the 30-day grace period for interest payments
totaling approximately $91 million that would be due on April 1, 2002, on
approximately $1.7 billion face

                                       F-61
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

value, on a consolidated basis, of its senior redeemable notes. If WCG does not
make the required payments within the grace period, cross-defaults may give the
senior redeemable noteholders and other creditors the right to seek remedies.

  Senior secured notes

     In March 2001, WCG Note Trust, which is wholly-owned by WCL, a wholly-owned
subsidiary of WCG, issued approximately $1.4 billion of 8.25% senior secured
notes in a private placement. The notes are due March 15, 2004, with the
principal payment due in full at maturity and interest payments due
semi-annually in arrears on March 15 and September 15 of each year beginning
September 15, 2001. The notes may be repaid at varying redemption premiums or
make-whole prices, as defined.

     The senior secured notes are backed by a $1.5 billion note issued by WCG to
WCG Note Trust which is eliminated in consolidation. The note issued by WCG
ranks equal to all of WCG's existing and future senior unsecured debt, senior to
subordinated debt and junior to any secured debt WCG may incur as to the assets
securing such debt. The note issued by WCG will mature on March 31, 2008, and
will bear interest at an annual rate of 8.25% until September 15, 2003, at which
time the interest rate will be reset in accordance with the terms of such note.
Interest on this note is payable semiannually one business day prior to the
interest payment dates with respect to the senior secured notes. Under the terms
of the note issued by WCG to WCG Note Trust, principal payments under the senior
secured notes will be met by remarketing to the public by September 2003 the
note issued by WCG to WCG Note Trust to enable a sale at a price which will
generate proceeds sufficient to redeem the senior secured notes.

     TWC provided indirect credit support for the senior secured notes through a
commitment to issue its preferred stock in the event of a default under the
senior secured notes. In addition, if the remarketing of the note issued by WCG
to WCG Note Trust is unsuccessful or does not generate sufficient proceeds to
redeem senior secured notes in full, TWC is obligated to issue its preferred
stock to cover any such shortfall.

     In March 2002, TWC secured the consents of holders of the senior secured
notes guaranteed by TWC to amend a provision that would have caused the
acceleration of the notes in the event of a WCG bankruptcy or other events. The
amendment affirmed TWC's obligations for all payments under the notes, which
mature in March 2004, and allows TWC to fund the payments from any available
sources. WCG is obligated to reimburse TWC for the payments discussed above with
the exception of the March and September 2002 interest payments totaling
approximately $115 million. WCG Note Trust's obligation to reimburse TWC is
secured by a $1.5 billion note issued by WCG to WCG Note Trust. Consequently, to
the extent TWC makes payments under these notes for which it is entitled to
reimbursement, TWC will have an unsecured claim against WCG.

  Credit facility

     In September 1999, WCL entered into a $1.05 billion credit facility with
various banks. The credit facility consists of a $525 million senior amortizing
term loan facility maturing September 2006 and a $525 million senior reducing
revolving credit facility maturing September 2005. WCG (through WCL) may borrow
under the term loan facility during a one-year period beginning on the
commencement date of the credit facility and may borrow under the revolving
credit facility throughout its six-year term. WCG borrowed $525 million under
the term loan facility in September 2000. In April 2001, WCG closed an add-on of
$450 million to its senior amortizing term loan facility maturing 2006. In April
2001, WCG borrowed $450 million under the add-on facility.

                                       F-62
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Outstanding borrowings under the credit facility bear interest based on WCG's
credit ratings, currently a variable rate of LIBOR plus 3.00%.

     Term loans must be repaid in installments beginning in the fourth year of
the term loan facility: 15% of the term loans must be repaid during the fourth
year, 25% during the fifth year, 30% during the sixth year and 30% during the
seventh year. The commitments under the revolving credit facility will be
permanently reduced by 20% in the fourth year, by 30% in the fifth year, and by
50% in the sixth year. WCG must repay amounts borrowed under the revolving
credit facility to the extent these amounts are in excess of the remaining
commitments. In addition, WCG is required to ratably prepay the term loans or
reduce its revolving loan commitments in certain circumstances, as defined,
based on excess cash flows or proceeds received from asset sales that are not
otherwise reinvested back into WCG's core business operations.

     The credit facility ranks senior to WCG's senior redeemable notes and
senior secured notes.

     In connection with the add-on to the credit facility, WCG was required to
grant to the lenders a security interest in substantially all of the domestic
assets of WCG except for certain assets such as any land or interest in land and
any Emerging Markets related assets. However, due to the downgrade of WCG's
credit rating discussed below, the credit facility lenders were entitled to and
requested liens on substantially all of WCG's assets that were not previously
secured under the credit facility except for those assets secured under the
asset defeasance program and those assets secured under the sale and subsequent
leaseback with TWC. WCG also received a commitment, subject to various
conditions, to further increase its credit facility by $300 million which would
bring the total size of the credit facility to $1.8 billion. The $300 million
commitment was accessible through the end of first quarter 2002. However,
subsequent to December 31, 2001, WCG cancelled the $300 million commitment.

     On July 19, 2001, Moody's Investor Service (Moody's) announced that it
lowered various credit ratings of WCG. The announcement stated that contributing
to this change is the tax-free spin-off from TWC and the potential impact the
current economic slowdown could have on both the telecommunications industry and
WCG's operating results. This downgrade increased the borrowing rate on WCG's
credit facility from LIBOR plus 2.75% to LIBOR plus 3.00%.

     During first quarter 2002, WCG's credit rating was downgraded by Standard &
Poor's (S&P) rating agency due to the impact of a weak economy and current
conditions within the telecommunications industry and warned it could cut the
ratings further due to concerns about WCG's ability to fund its business beyond
2002. In addition, Moody's further downgraded WCG's credit rating.

     In October 2001, the credit facility was amended to extend the date by
which WCG is required to raise an additional $224 million of cash, of which at
least $150 million had to be in the form of equity, from December 31, 2001, to
July 1, 2003. In connection with the amendment, WCG agreed to work jointly with
its bank group and the bank group's financial advisor to perform a more
comprehensive review of the credit facility. This review and the resulting
amendment were initially expected to be completed in January 2002. However
through a series of agreements, WCG and its bank group agreed to extend the
negotiating period for an amendment to the credit facility until April 26, 2002.
WCG also agreed that it will not purchase its securities and that it will limit
transactions through certain of its subsidiaries through mid-2003. Additionally,
WCG confirmed with its bank group that it will not draw upon the $525 million
revolver portion of the credit facility prior to mid-2003.

     On January 29, 2002, the banks, through their administrative agent,
informed WCG that, in their view, WCG may be in default under the terms of its
credit facility, and the banks reserved their

                                       F-63
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

rights accordingly. The possible default related to the fact that, due to
negative developments in the telecommunications industry and the value of WCG's
assets, the banks questioned whether WCG could confirm the representations and
warranties included in the credit facility. The banks also have reserved their
right to claim that the purchase by a wholly-owned subsidiary of WCG of WCG's
senior redeemable notes in 2001, violated the terms of the credit facility.
Because of the potential adverse consequences to WCG if the banks were to
conclude and notify WCG of a default and attempt to accelerate its indebtedness,
which could result in cross-defaults under other material agreements and
securities and foreclosure on substantially all of WCG's assets upon which the
banks have a lien, WCG agreed to develop a comprehensive plan for restructuring
and de-leveraging its balance sheet. In developing this plan, WCG, in
consultation with financial and legal advisors, has considered various
restructuring alternatives, of which the ultimate outcome of which will be
influenced by stakeholders of WCG.

     As detailed above and as reflected in WCG's report from its independent
public accountants, certain of WCG's creditors have informed WCG that in their
view, WCG may be in default under the terms of its credit facility. This
condition raises substantial doubt about WCG's ability to continue as a going
concern. Certain of WCG's debt agreements require that its annual financial
statements be accompanied by an opinion from its independent public accountants
that does not contain a "going concern" explanatory paragraph. Noncompliance
with this term is an event of default. As a result of the inclusion of the going
concern explanatory paragraph in that report, WCG will not be able to satisfy
this term in the agreements. In addition, WCG anticipates that it may be in
default under other covenants in 2002. Consequently, unless WCG is able to
obtain a waiver of or amendment to this and certain other covenants in its
credit facility or refinance the indebtedness under its credit facility by April
30, 2002, an "Event of Default" will occur under the terms of the credit
facility. If an Event of Default occurs, the lenders under the credit facility
would not be obligated to make additional advances under the credit facility;
would be entitled to declare all amounts outstanding under the credit facility,
including accrued interest or other obligations, to be immediately due and
payable; and would be entitled to proceed against the collateral granted to them
to secure the debt under the credit facility. Substantially all of the assets of
WCG are pledged as collateral under the credit facility. Unless WCG is able to
obtain a waiver of or amendment to certain covenants in the credit facility,
cross-defaults could occur making substantially all of WCG's other long-term
debt due. In addition, WCG anticipates making use of the 30-day grace period for
interest payments totaling approximately $91 million that would be due on April
1, 2002, on approximately $1.7 billion face value, on a consolidated basis, of
its senior redeemable notes. If WCG does not make the required payments within
the grace period, cross-defaults may give the senior redeemable noteholders and
other creditors the right to seek remedies. WCG does not have existing liquidity
sufficient to pay all amounts that would become due as a result of defaults
under the credit facility or the senior redeemable notes and, thus, would have
to find other means of liquidity, enter into separate agreements to restructure
its debt agreements, or file a voluntary petition under Chapter 11 of the U.S.
Bankruptcy Code in order to avoid the material adverse effects associated with
creditors foreclosing or exercising other remedies.

  Asset defeasance program

     In 1998, WCG entered into an operating lease agreement covering a portion
of its fiber-optic network referred to as an asset defeasance program (ADP). The
total cost of the network assets covered by the lease agreement was $750
million. TWC has guaranteed WCG's obligations under the lease. This obligation
was secured by the assets under the asset defeasance program. Interest on

                                       F-64
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the debt obligation was primarily based on average daily commercial paper rates
and effective in February 2002, interest was primarily based on the Prime rate.

     Pursuant to an agreement among WCG, WCL, TWC and the administrative agent
for WCG's bank group, TWC was obligated to fund the purchase price of the
network assets covered by the asset defeasance program. In exchange for making
that payment, TWC is entitled to receive debt from WCG in the amount of
approximately $750 million that is subordinate to, and neither matures nor
requires any payments to be made earlier than one year after the maturity of,
WCG's credit facility. On March 29, 2002, TWC funded the purchase price, the ADP
assets were transferred to WCG, the asset defeasance program was terminated and
WCG tendered an unsecured note to TWC for approximately $750 million. As a
result, WCG has included the assets and the associated obligation in its
Consolidated Balance Sheet as of December 31, 2001, in anticipation of
exercising the purchase option. TWC has reserved its rights with respect to the
transaction.

  TWC note

     In February 2001, TWC and WCG entered into an agreement that, among other
things, resulted in the exchange of the TWC note for WCG's equity (see Note 14).

  Other

     In September 2001, WCG sold its Technology Center building and other
ancillary assets to TWC for approximately $276 million in cash. Concurrent with
the sale, WCG leased the Technology Center building for a period of ten years
and other ancillary assets for a period of three to ten years with varying
payment terms. WCG has an option to repurchase and TWC has the right to sell the
Technology Center building to WCG at the expiration date of the lease for
approximately $92 million. WCG also has the option to repurchase and TWC has the
right to sell certain ancillary assets to WCG at the expiration date of the
lease at their stated fair market value per the lease. In the event neither WCG
nor TWC exercise these options, the property will remain owned by TWC. The
current portion of the obligation is $28.9 million as of December 31, 2001. The
assets under the sale and subsequent leaseback secure the obligation.

     In first quarter 2001, PowerTel paid off its 70 million Australian dollar
bridge financing facility agreement with a portion of the proceeds received from
the completion of a 110 million Australian dollar equity rights offering. In
first quarter 2001, PowerTel also entered into a 150 million Australian dollar
bank facility agreement due March 2006 with a variable interest rate as defined
in the agreement. As of December 31, 2001, PowerTel had drawn 71 million
Australian dollars (or $36.3 million) under the bank facility agreement at an
average interest rate of 7.3%.

     As of December 31, 2001, PowerTel was in violation of two covenant
requirements and was in the process of negotiating a restructuring plan with its
bank group. In February 2002, WCG advanced PowerTel 16 million Australian
dollars (or $8.3 million) in the form of a subordinated loan in order to satisfy
certain conditions of the restructuring plan. In March 2002, as part of an
approved restructuring plan with its bank group, PowerTel received waivers from
its bank group related to the covenant violations for the three months ending
December 31, 2001. Under the approved restructuring plan, PowerTel will have
access to its remaining bank facility beginning September 1, 2002. PowerTel's
violation of covenant requirements does not cause any cross-defaults under WCG's
other debt obligations.

                                       F-65
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Scheduled maturities of debt as of December 31, 2001 are as follows (in
thousands):

<Table>
<S>                                       <C>
2002....................................  $   72,488
2003....................................     206,414
2004....................................   1,699,726
2005....................................     325,977
2006....................................     242,503
Thereafter..............................   3,374,467
                                          ----------
                                          $5,921,575
                                          ==========
</Table>

     Cash payments for interest, net of amounts capitalized, were $381.7
million, $152.1 million and $46.8 million in 2001, 2000 and 1999, respectively,
including commitment fees relating to the credit facility of $7.5 million, $9.0
million and $3.6 million in 2001, 2000 and 1999, respectively.

     WCG's debt agreements contain restrictive covenants and require it to meet
certain financial ratios and tests. These agreements restrict WCG's ability to
borrow additional money, pay dividends or other distributions to stockholders,
make investments, create liens on assets and sell assets. Restrictions contained
in certain of WCG's debt agreements limit the ability of WCL, the wholly-owned
operating subsidiary of WCG, to transfer funds to its parent, WCG, except for
regularly scheduled interest payments with respect to the senior redeemable
notes, as well as certain other payments as outlined in the long-term credit
facility agreement.

  Other financing arrangements

     As of December 31, 2001, WCG owes TWC approximately $100 million for
various normal course services which is included in accounts payable. By
agreement with TWC, WCG elected to defer payment of these payables until
September 15, 2002 at an interest rate of 8.25%.

13. REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK

     In September 2000, WCG issued 5,000,000 shares of 6.75% redeemable
cumulative convertible preferred stock at a liquidation preference of $50.00 per
share for proceeds of approximately $240.5 million, net of issuance costs of
$9.5 million. Each share of preferred stock is convertible into 1.7610 shares of
WCG's Class A common stock, based on a conversion price of $28.39.

     WCG may redeem all or any part of the shares of preferred stock at any time
on or after October 15 of 2005 and 2006 at a redemption price of 103.38% and
102.70%, respectively, and under specified circumstances, before that date. The
preferred stock will be subject to mandatory redemption on October 15, 2012, at
100% of the liquidation preference, plus accumulated and unpaid dividends to the
date of redemption.

     The preferred stock ranks senior to WCG's common stock with respect to
dividend rights and rights upon liquidation, winding up and dissolution. The
preferred stock is junior in right to payment of all debt obligations of WCG.

     Dividends on the preferred stock are cumulative from the date of issue and
will be payable on January 15, April 15, July 15, and October 15 of each year,
beginning on January 15, 2001, at the annual rate of 6.75%. The terms of WCG's
current debt agreements preclude WCG or its restricted subsidiaries, as defined
in the credit facility, from paying cash dividends. During any periods when WCG
is restricted from paying cash dividends, it expects to pay preferred stock
dividends by delivering shares of its common stock to the transfer agent for the
preferred stock, which will resell those shares of common stock. The proceeds
from the sale of its common stock will then be used to

                                       F-66
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

pay cash dividends to the holder of shares of preferred stock. In October 2001,
CG Investment Company, LLC, a wholly-owned unrestricted subsidiary of WCG,
purchased $4.2 million of WCG's shares from the transfer agent that WCG had
issued to the transfer agent relating to the October 2001 dividend payment. The
transfer agent utilized the proceeds to pay the October 2001 dividend payment.

     Through January 15, 2002, WCG has met all required quarterly dividends
although WCG has discretion to defer the payments for up to six quarters without
triggering certain rights of holders of the preferred stock. In February 2002,
WCG adopted a policy such that it will not declare or pay dividends on the
preferred stock until such time as the market price of the common stock equals
or exceeds $5.00 per share.

14. STOCKHOLDERS' EQUITY

     In February 2001, TWC and WCG entered into an agreement that, among other
things, resulted in the transfer of ownership of a building under construction
and other assets from TWC to WCG, a commitment to fund the completion of the
building, the conversion of the TWC note into paid in capital and the issuance
of 24.3 million shares of WCG Class A common stock. In 2001, WCG's total equity
increased by approximately $1.2 billion as a result of this transaction. As of
December 31, 2001, WCG has $72.8 million recorded as contra to capital in excess
of par value representing the remaining cost of completing the building that TWC
has agreed to fund.

     In March 2001, TWC's board of directors approved a tax-free spin-off of WCG
to TWC's shareholders. TWC owned 24,265,892 of WCG Class A common stock shares
outstanding and 395,434,965 of Class B common stock shares outstanding which it
converted to Class A shares prior to the spin-off. After the close of the market
on April 23, 2001, TWC distributed 398,500,000 shares, or approximately 95%, of
the WCG common stock it owned, to holders of TWC common shares on a pro rata
basis by distributing approximately 0.822399 of a share of WCG Class A common
stock as a dividend on each share of TWC common stock outstanding on the record
date. Following the distribution, TWC retained 21,200,857 shares of WCG Class A
common stock which TWC has committed to the Internal Revenue Service (IRS) to
sell within five years of the tax-free spin-off. Under a separation agreement
between TWC and WCG, subject to the receipt of a favorable letter ruling from
the IRS which has been requested, TWC had agreed not to sell any shares before
April 23, 2004. However, WCG has waived this requirement and accordingly, TWC is
free to sell its shares of WCG at any time and has withdrawn its request for a
letter ruling from the IRS that otherwise might have restricted its ability to
sell its remaining WCG stock for three years.

     Class A and Class B common stock have identical rights with the exception
of voting, conversion and transfer rights. Class A common stock receives one
vote per share while Class B common stock receives ten votes per share. Class B
common stock can be converted into Class A common stock on a share-for-share
basis at the option of the owner at any time, or automatically upon transfer to
a person or entity which is not a permitted transferee.

                                       F-67
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. ACCUMULATED OTHER COMPREHENSIVE INCOME

     The table below presents changes in the components of accumulated other
comprehensive income (loss).

<Table>
<Caption>
                                                      UNREALIZED       FOREIGN
                                                     APPRECIATION     CURRENCY
                                                    (DEPRECIATION)   TRANSLATION
                                                    OF SECURITIES    ADJUSTMENTS     TOTAL
                                                    --------------   -----------   ---------
                                                                 (IN THOUSANDS)
<S>                                                 <C>              <C>           <C>
Balance as of December 31, 1998...................    $  27,629       $ (2,923)    $  24,706
Current period change:
  Pre-income tax amount...........................      189,023        (13,006)      176,017
  Income tax expense..............................      (75,825)            --       (75,825)
                                                      ---------       --------     ---------
                                                        113,198        (13,006)      100,192
                                                      ---------       --------     ---------
Balance as of December 31, 1999...................      140,827        (15,929)      124,898
Current period change:
  Pre-income tax amount...........................      222,140        (29,240)      192,900
  Reclassification adjustment for net gains
     realized in net loss.........................     (308,419)            --      (308,419)
  Income tax benefit..............................       34,670             --        34,670
                                                      ---------       --------     ---------
                                                        (51,609)       (29,240)      (80,849)
                                                      ---------       --------     ---------
Balance as of December 31, 2000...................       89,218        (45,169)       44,049
Current period change:
  Pre-income tax amount...........................     (202,698)       (42,794)     (245,492)
  Reclassification adjustment for net losses
     realized in net loss.........................       66,648         70,246       136,894
  Income tax benefit..............................       53,038             --        53,038
                                                      ---------       --------     ---------
                                                        (83,012)        27,452       (55,560)
                                                      ---------       --------     ---------
Balance as of December 31, 2001...................    $   6,206       $(17,717)    $ (11,511)
                                                      =========       ========     =========
</Table>

     In 2001, WCG realized a foreign currency loss of $70.2 million, of which
$66.4 million related to the sale of ATL (see Note 9).

16. STOCK-BASED COMPENSATION

     WCG has several plans providing for WCG common-stock-based awards to its
employees and employees of its subsidiaries.

     Stock options granted to WCG employees under TWC plans prior to spin-off of
WCG from TWC become exercisable after three to five years, subject to
accelerated vesting if certain future stock prices or specific financial
performance targets are achieved.

     In connection with the initial public offering of WCG stock, options
granted in 1998 and 1999 under the WCG Plan were converted from TWC to WCG
options when market prices were $37.63 and $23.00, respectively. In accordance
with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," this resulted in a new measurement date, and related
expense of $0.4 million and $0.9 million recognized in 2000 and 1999,
respectively. The remaining value of the option conversion will be amortized
over the various vesting periods of the converted stock options. 2001 expense
was offset for unvested converted options related to discontinued operations
which were forfeited during the year.

                                       F-68
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In connection with the spin-off of WCG from TWC, all TWC's options
outstanding and held by WCG employees as of April 23, 2001, were converted from
TWC to WCG options when market prices were $42.10 and $4.20, respectively. The
awards' aggregate intrinsic value immediately after the conversion was not
greater than the awards' aggregate intrinsic value immediately before the
conversion. The ratio of the exercise price per share to the market value per
share was not reduced. In accordance with FASB Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation," there was
not a new measurement date and no additional expense was recognized.

     WCG plans permit the granting of various types of awards including, but not
limited to, stock options, stock-appreciation rights, restricted stock and
deferred stock. Awards may be granted for no consideration other than prior and
future services or based on certain financial performance targets being
achieved. The purchase price per share for stock options and the grant price for
stock-appreciation rights may not be less than the market price of the
underlying stock on the date of grant. Stock options granted under the WCG Plan
are exercisable at such times and are subject to such restrictions and
conditions as the board of directors shall in each instance approve, which need
not be the same for each grant or for each participant. Current vesting terms
include 5 year cliff vesting, of which some option grants are subject to
accelerated vesting if certain future stock prices or specific financial
performance targets are achieved, 5 year cliff vesting without acceleration
features, 3 year cliff vesting without acceleration features and 3 year staged
vesting in thirds. Stock options in all plans expire ten years after grant. As
of December 31, 2001 and 2000, 85 million shares and 36 million shares,
respectively, of WCG Class A common stock were reserved for issuance pursuant to
existing and future stock awards, of which 32.8 million shares and 16.7 million
shares, respectively, were available for future grants.

     TWC's and WCG's employee stock-based awards are accounted for under
provisions of APB Opinion No. 25 and related interpretations. TWC's and WCG's
fixed plan common stock options generally do not result in compensation expense
because the exercise price of the stock options equals the market price of the
underlying stock on the date of grant.

     Pro forma net income and earnings per share, assuming WCG had applied the
fair-value method of SFAS No. 123, "Accounting for Stock-Based Compensation," in
measuring compensation cost beginning with 1999 employee stock-based awards, are
as follows:

<Table>
<Caption>
                                      2001                      2000                    1999
                            -------------------------   ---------------------   ---------------------
                             PRO FORMA     REPORTED     PRO FORMA   REPORTED    PRO FORMA   REPORTED
                            -----------   -----------   ---------   ---------   ---------   ---------
<S>                         <C>           <C>           <C>         <C>         <C>         <C>
Net loss (In thousands)...  $(3,854,387)  $(3,810,357)  $(941,478)  $(817,688)  $(379,174)  $(359,701)
Net loss per share........  $     (7.95)  $     (7.86)  $   (2.04)  $   (1.77)  $    (.92)  $    (.87)
</Table>

     Pro forma amounts include a reduction in expense of $11.3 million for
unvested options related to discontinued operations which were forfeited in
2001. Pro forma amounts also include compensation expense related to
discontinued operations of $36.0 million and $6.2 million in 2000 and 1999,
respectively. Pro forma amounts for 1999 include the remaining total
compensation expense for TWC plan awards made in 1998 and the total compensation
expense from TWC plan awards in 1999, as these awards fully vested in 1999 as a
result of the accelerated vesting provisions. Since compensation expense from
stock options is recognized over the future years' vesting period for pro forma
disclosure purposes, and additional awards generally are made each year, pro
forma amounts may not be representative of future years' amounts.

     The fair value of the stock options was estimated at the date of grant
using a Black-Scholes option valuation model. The Black-Scholes model was
developed for use in estimating the fair value

                                       F-69
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of traded options which have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because TWC's and
WCG's stock options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options. The following weighted-average assumptions were used
in the Black-Scholes model:

<Table>
<Caption>
                                                                       WCG                 TWC
                                                           ---------------------------   -------
                                                            2001      2000      1999      1999
                                                           -------   -------   -------   -------
<S>                                                        <C>       <C>       <C>       <C>
Expected life of the stock options.......................  5 years   5 years   5 years   5 years
Volatility of the expected market price of underlying
  common stock...........................................       90%       71%       60%       28%
Risk-free interest rate..................................      4.9%      6.3%      6.0%      5.6%
Expected dividend yield..................................        0%        0%        0%      1.5%
</Table>

                                       F-70
<PAGE>

                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following summary provides information on stock options in both WCG and
TWC (NYSE: WMB) common stock granted to WCG employees:
<Table>
<Caption>
                                                   2001                                      2000
                                  ---------------------------------------   ---------------------------------------
                                       WCG PLAN             TWC PLAN             WCG PLAN             TWC PLAN
                                  ------------------   ------------------   ------------------   ------------------
                                            WEIGHTED             WEIGHTED             WEIGHTED             WEIGHTED
                                            AVERAGE              AVERAGE              AVERAGE              AVERAGE
                                    WCG     EXERCISE     WMB     EXERCISE     WCG     EXERCISE     WMB     EXERCISE
                                  OPTIONS    PRICE     OPTIONS    PRICE     OPTIONS    PRICE     OPTIONS    PRICE
                                  -------   --------   -------   --------   -------   --------   -------   --------
                                                               (OPTIONS IN THOUSANDS)
<S>                               <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>
Outstanding -- Beginning of
 year...........................  18,420     $31.84     3,700     $27.54     8,035     $22.70     4,845     $27.33
Granted.........................
Canceled........................                       (1,958)    $24.76
Converted from WMB to WCG.......  17,450     $ 3.06    (1,742)    $30.67
Granted.........................  21,988     $ 3.67                         12,836     $37.55        --     $   --
Exercised.......................    (170)    $ 1.22                            (39)    $19.14    (1,307)    $26.66
Net intercompany transfers......                                                                    209     $29.09
Canceled........................  (7,339)    $19.06                         (2,412)    $31.98       (47)    $37.27
                                  ------               ------               ------               ------
Outstanding -- End of year......  50,349     $11.53        --               18,420     $31.84     3,700     $27.54
                                  ======     ======    ======               ======     ======    ======     ======
Exercisable -- End of year......  24,007     $13.57                          4,611     $42.51     3,693     $27.53
                                  ======     ======                         ======     ======    ======     ======
Weighted-average grant date fair
 value of options granted during
 the year where:
 Market price = exercise
   price........................             $ 1.48                                    $23.93               $   --
 Market price > exercise
   price........................

<Caption>
                                                                 1999
                                  ------------------------------------------------------------------
                                        WCG PLAN                           TWC PLAN
                                  ---------------------   ------------------------------------------
                                     WCG       WEIGHTED      WMB       WEIGHTED             WEIGHTED
                                   OPTIONS     AVERAGE     OPTIONS     AVERAGE              AVERAGE
                                    AFTER      EXERCISE     BEFORE     EXERCISE     WMB     EXERCISE
                                  CONVERSION    PRICE     CONVERSION    PRICE     OPTIONS    PRICE
                                  ----------   --------   ----------   --------   -------   --------
                                                        (OPTIONS IN THOUSANDS)
<S>                               <C>          <C>        <C>          <C>        <C>       <C>
Outstanding -- Beginning of
 year...........................                              470       $30.50     5,378     $23.87
Granted.........................                               24       $37.38
Canceled........................                              (56)      $31.81
Converted from WMB to WCG.......      716      $ 18.87       (438)      $30.71
Granted.........................    7,623      $ 23.05                               900     $39.92
Exercised.......................       (3)     $ 15.35                            (1,383)    $21.92
Net intercompany transfers......
Canceled........................     (301)     $ 22.60                               (50)    $31.16
                                    -----                    ----                 ------
Outstanding -- End of year......    8,035      $ 22.70         --                  4,845     $27.33
                                    =====      ========      ====                 ======     ======
Exercisable -- End of year......      334      $ 20.86                             4,831     $27.30
                                    =====      ========                           ======     ======
Weighted-average grant date fair
 value of options granted during
 the year where:
 Market price = exercise
   price........................               $ 13.13                                       $11.55
 Market price > exercise
   price........................               $ 14.24
</Table>

                                       F-71
<PAGE>

                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following summary provides information on stock options in WCG common
stock issued to WCG employees outstanding and exercisable as of December 31,
2001:

<Table>
<Caption>
                                         STOCK OPTIONS OUTSTANDING                STOCK OPTIONS EXERCISABLE
                               ---------------------------------------------   -------------------------------
                                                                  WEIGHTED
                                                                   AVERAGE
                                                   WEIGHTED       REMAINING                        WEIGHTED
                                  OPTIONS          AVERAGE       CONTRACTUAL      OPTIONS          AVERAGE
RANGE OF EXERCISE PRICES:      (IN THOUSANDS)   EXERCISE PRICE      LIFE       (IN THOUSANDS)   EXERCISE PRICE
-------------------------      --------------   --------------   -----------   --------------   --------------
<S>                            <C>              <C>              <C>           <C>              <C>
WCG Plan:
  $ 0.93 - $ 4.60............      36,117           $ 3.30        7.5 years        16,376           $ 3.05
  $ 9.00 - $14.00............         294           $11.81        8.0 years            85           $11.75
  $16.69 - $20.00............       1,216           $19.07        7.7 years           378           $19.18
  $20.13 - $24.13............       4,330           $23.00        6.8 years         2,151           $23.00
  $27.00 - $37.63............       3,603           $28.16        8.1 years         1,303           $28.47
  $48.75.....................       4,789           $48.75        6.0 years         3,714           $48.75
                                   ------                                          ------
                                   50,349           $11.53        7.4 years        24,007           $13.57
                                   ======                                          ======
</Table>

     The following summary provides information on deferred shares of TWC and
WCG common stock granted to WCG employees:

<Table>
<Caption>

                                                                         TWC COMMON STOCK
                                     WCG COMMON STOCK UNDER WCG     ---------------------------
                                                PLAN
                                   ------------------------------    2000           1999
                                                                    -------   -----------------
                                     2001       2000       1999       WCG       WCG       TWC
                                   --------   --------   --------
                                              WCG PLAN               PLAN      PLAN      PLANS
                                   ------------------------------   -------   -------   -------
<S>                                <C>        <C>        <C>        <C>       <C>       <C>
Deferred shares granted..........   187,769    527,829    462,589    13,290    10,000    36,258
Weighted-average grant date fair
  value of shares granted........  $   6.41   $  25.17   $  23.00   $ 37.63   $ 33.00   $ 39.82
</Table>

     $4.7 million, $3.8 million and $5.2 million were recognized as expense for
deferred shares in 2001, 2000 and 1999, respectively. Deferred shares may be
granted in the year following performance or in return for future performance.
The expense is recognized in the performance year.

     In connection with the initial public offering, 255,000 deferred shares
granted under the TWC and WCG Plans in 1998 were converted from TWC to WCG stock
based upon the relative market prices at the conversion date. The market prices
of the TWC and WCG stock were $37.625 and $23.00, respectively, at the
conversion date. At that time 25% of the shares became fully vested. In
accordance with APB Opinion No. 25, this resulted in a new measurement date, and
related expense of $1.1 million and $2.2 million included in 2000 and 1999,
respectively. The remaining value of the deferred share conversion will be
amortized over the vesting periods of the converted stock.

     In connection with the spin-off of WCG stock, all TWC deferred shares
outstanding and held by WCG employees at April 23, 2001, were converted from TWC
to WCG deferred shares when market prices for the TWC and WCG common stock were
$42.10 and $4.20, respectively. The awards' aggregate intrinsic value
immediately after the conversion was not greater than the awards' aggregate
intrinsic value immediately before the conversion.

                                       F-72
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17.  LEASES

LESSEE:

     Future minimum annual rentals under noncancellable operating leases and
service contracts for off-network capacity as of December 31, 2001 are payable
as follows:

<Table>
<Caption>
                                                      OFF-NETWORK
                                           PROPERTY   CAPACITY AND
                                            RENTAL     EQUIPMENT      OTHER      TOTAL
                                           --------   ------------   --------   --------
                                                          (IN THOUSANDS)
<S>                                        <C>        <C>            <C>        <C>
2002.....................................  $ 33,211     $ 42,245     $ 16,142   $ 91,598
2003.....................................    33,936       38,126       14,594     86,656
2004.....................................    33,238       26,397       13,186     72,821
2005.....................................    32,988       11,671       12,917     57,576
2006.....................................    31,386       10,058       12,714     54,158
Thereafter...............................   153,740        9,048      150,549    313,337
                                           --------     --------     --------   --------
Total minimum annual rentals.............  $318,499     $137,545     $220,102   $676,146
                                           ========     ========     ========   ========
</Table>

     Total capacity expense incurred from leasing from a third party's network
(off-network capacity expense) was $208.2 million, $332.3 million and $201.1
million in 2001, 2000 and 1999, respectively. All other rent expense was $51.4
million, $49.5 million and $33.1 million in 2001, 2000 and 1999, respectively.

18. RELATED PARTY TRANSACTIONS

  SBC Communications, Inc.

     SBC is WCG's largest customer and was a related party due to the membership
of an officer of SBC on WCG's board of directors. Subsequent to December 31,
2001, the officer of SBC resigned his membership on WCG's board of directors.
SBC purchases domestic voice and data long-distance and local transport services
from WCG. Revenues from SBC were $402.0 million, $169.4 million and $2.4 million
in 2001, 2000 and 1999, respectively. WCG purchases local transport services,
platform services such as toll-free, operator, calling card and directory
assistance services and international services such as transport and
switched-voice services from SBC. These purchases from SBC were $149.6 million,
$51.7 million and $13.2 million in 2001, 2000 and 1999, respectively. Amounts
due from SBC were $65.3 million and $24.7 million as of December 31, 2001 and
2000, respectively. Amounts due to SBC were $1.5 million as of December 31,
2001. No amounts were due to SBC as of December 31, 2000.

     In a series of transactions in first quarter 2000, WCG sold to an entity
jointly owned by SBC and Telefonos de Mexico S.A. de C.V., 7% and 30% of ATL's
total preferred shares and common stock, respectively. The partial sale of WCG's
investment in ATL, which had a carrying value of $30 million, yielded proceeds
of approximately $168 million. WCG recognized a gain on the sale of $16.5
million and deferred a gain of approximately $121 million associated with $150
million of the proceeds which were subsequently advanced to ATL (see Note 9).

     In June 2000, WCG acquired SBC's interests in undersea communications
cables between the United States and China, and between the United States and
Japan, for a purchase price of $111.4 million.

     In September 2000, WCG acquired the long-distance network assets of
Ameritech Communications, Inc., a subsidiary of SBC, for a purchase price of
approximately $145 million. These assets

                                       F-73
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

are located in the states of Illinois, Indiana, Michigan, Ohio and Wisconsin and
include a 2,200 mile fiber-optic network over four routes, IRU in dark fiber and
15 data centers.

     On September 28, 2001, WCG acquired the wholesale international
long-distance business conducted by AGGS, a subsidiary of SBC for approximately
$13 million in cash (see Note 2). Revenues associated with this business totaled
$47.4 million in 2001, of which $14.5 million relates to SBC and is included in
the SBC revenues amount above.

  The Williams Companies, Inc.

     Prior to the spin-off from TWC in April 2001 (see Note 14), TWC was a
related party. WCG has several financial arrangements with TWC as of December
31, 2001 as follows. TWC provided indirect credit support through a commitment
to issue TWC preferred stock in the event of default related to the senior
secured notes (see Note 12). TWC guaranteed WCG's obligations including the
residual value guarantee under an operating lease agreement covering a portion
of its fiber-optic network (see Notes 12 and 17). WCG sold its new Technology
Center building and other ancillary assets to TWC and subsequently leased them
back from TWC (see Note 12). WCG owes TWC approximately $100 million for various
normal course services, which is included in accounts payable (see Note 12). WCG
incurred $8.2 million of expenses related to certain corporate administrative
functions provided under service level agreements with TWC that were consummated
at the time of the spin-off from TWC.

  Executive Officer Loans and Retention Incentive

     In prior years, TWC granted loans to executive officers, including officers
of WCG. In conjunction with the spin-off from TWC, WCG acquired the outstanding
loans to WCG executive officers. As of December 31, 2001 the outstanding balance
of these loans are $19.9 million, all of which are considered long-term. The
loans bear an interest rate of 3.97% per annum with maturity dates of four years
or less or upon the earlier termination of the officers' employment.

     Effective December 31, 2001, WCG's Compensation Committee of the Board of
Directors established a program to pay annual retention bonuses to certain
executives to be applied solely against the outstanding principal loan balances.
The program would serve as a four year retention program, subject to continued
employment during the term of the program. The final retention bonus payment
date is December 31, 2005. If employment is terminated for reasons such as
death, disability, resignation for good reason as defined in the agreement or if
the agreement is rejected in any voluntary or involuntary bankruptcy
proceedings, the executive can setoff their claim for any remaining bonus
payments against their outstanding loan balance. Under the program, the affected
officers are responsible for any associated taxes.

19. COMMITMENTS AND CONTINGENCIES

  Commitments

     WCG has historically entered into various telecommunications equipment
agreements in connection with its fiber-optic network construction. As of
December 31, 2001, WCG has either satisfied these agreements or negotiated the
termination of the agreements such that any remaining obligations are not
significant.

                                       F-74
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Litigation

     WCG is subject to various types of litigation in connection with its
business and operations.

     On January 29, 2002, the first of numerous putative federal securities
class actions was filed in the U.S. District Court for the Northern District of
Oklahoma, against WCG, TWC, Keith Bailey, the Chairman of TWC, Howard Janzen,
the Chairman, President, and CEO of WCG and Scott Schubert, the CFO of WCG. The
putative class members in all of the cases are purchasers of the common stock of
TWC and/or the common stock of WCG between July 24, 2000, and January 29, 2002.
The complaints allege that the defendants violated federal securities acts by
issuing a series of alleged misrepresentations to the market between July 24,
2000, and January 29, 2002. WCG believes that the allegations are without merit.

     A number of suits attempting to achieve class action status seek damages
and other relief from WCG based on allegations that WCG installed portions of
its fiber-optic cable without all necessary landowner consents. These
allegations relate to use of rights-of-way licensed by railroads, state
departments of transportation, and others controlling pre-existing right-of-way
corridors. The putative members of the class in each suit are those owning the
land underlying or adjoining the right-of-way corridors. Similar actions have
been filed against all major carriers with fiber-optic networks. It is likely
that additional actions will be filed. WCG believes it obtained sufficient
rights to install its cable and that the attempts to include these landowners in
a class action suit are subject to challenge on procedural grounds.

     WCG and other major carriers are seeking to settle the class action claims
referenced above relating to the railroad rights-of-way through an agreed class
action filed in the U.S. District Court for the District of Oregon on January
31, 2002. On that same day, the plaintiffs and defendants jointly asked the
court to approve a settlement. The settlement, if approved by the court, should
settle the majority of the claims in the putative nationwide and statewide class
actions referenced above.

     On August 28, 2001, Platinum Equity LLC sent formal notice that it believes
WCG owes it approximately $47 million arising from a recalculation of the net
working capital of the domestic, Mexican, and Canadian professional services
operations of the Solutions segment sold to Platinum Equity LLC. Pursuant to the
provisions of the sale agreement, the parties will submit the dispute to an
independent public accounting firm for binding resolution if they are unable to
resolve the dispute by agreement.

     On July 24, 2001, Thoroughbred Technology and Telecommunications, Inc.
(TTTI) filed suit against WCG in the U.S. District Court for the Northern
District of Georgia for claims which include breach of contract with respect to
a fiber-optic fiber installation project that TTTI was constructing for itself
and others, including WCG. TTTI seeks damages in excess of $37 million. WCG
alleges various defenses, including significant warranty and breach of contract
claims on the part of TTTI.

     On December 20, 2000, the Women's Cooperative Trust Union filed a
derivative shareholder action in the U.S. District Court for the Western
District of Oklahoma against TWC, WCG, and certain directors and officers
alleging that a former director of WCG, an officer and a former officer
purchased at a reduced price stock of corporations that sold telecommunication
equipment to WCG. The allegations include breach of fiduciary duty, waste of
corporate assets, and usurpation of corporate opportunities as well as
negligence by the directors. WCG and the directors filed motions to dismiss the
action based upon the failure of the plaintiff to comply with applicable legal
standards in its complaint. On December 7, 2001, the Court dismissed the case
without prejudice.

                                       F-75
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     WCG is a party to various other claims, legal actions, and complaints
arising in the ordinary course of business. In the opinion of management upon
advice from legal counsel, the ultimate resolution of all claims, legal actions,
and complaints after consideration of amounts accrued, insurance coverage, or
other indemnification arrangements is not expected to have a materially adverse
effect upon WCG's future financial position, results of operations, or cash
flows.

20. FINANCIAL INSTRUMENTS

FAIR VALUE METHODS

     The following methods and assumptions were used by WCG in estimating its
fair value disclosures for financial instruments:

          Cash and cash equivalents:  The carrying amounts reported in the
     balance sheet approximate fair value due to the short-term maturity of
     these instruments.

          Short-term investments and marketable equity securities:  In
     accordance with SFAS No. 115, these securities are classified as available
     for sale and are reported at fair value, with net unrealized appreciation
     or depreciation reported as a component of other comprehensive income. As
     of December 31, 2001 and 2000, short-term investments excluding marketable
     equity securities had a carrying amount of $893.9 million and $83.4
     million, respectively, which approximated cost. Marketable equity
     securities had a carrying amount of $10.9 million and $311.8 million as of
     December 31, 2001 and 2000, respectively, with associated aggregate costs
     of $1.1 million and $170.6 million, respectively.

          Notes receivables less allowance:  The carrying amounts reported in
     the balance sheet approximate fair value due to the short-term maturity of
     these instruments.

          Investments -- cost method and advances to investees:  Fair value is
     estimated to approximate historically recorded amounts, subject to
     impairment analysis, as the investments are primarily in nonpublicly traded
     companies for which it is not practicable to estimate the fair value.

          Long-term debt:  The fair value of WCG's long-term debt from third
     parties is valued using indicative year-end traded bond market prices for
     publicly traded issues, while private debt is valued based on the prices of
     similar securities with similar terms and credit ratings. The carrying
     value of WCG's debt guaranteed by TWC approximates fair value. As of
     December 31, 2001 and 2000 long-term debt from third parties, including the
     current portion, had carrying amounts of $5.9 billion and $4.5 billion,
     respectively, with associated fair value amounts of $4.2 billion and $3.8
     billion, respectively. WCG used the expertise of outside investment banking
     firms to establish the fair value of long-term debt from third parties. As
     of December 31, 2001 and 2000, 41% and 66%, respectively of WCG's total
     long-term debt was publicly traded.

          Redeemable cumulative convertible preferred stock:  Fair value is
     based on the prices of similar securities with similar terms and credit
     ratings as the preferred stock is not publicly-traded. As of December 31,
     2001 and 2000, the preferred stock had a carrying value of $242.3 million
     and $240.7 million, respectively, with an associated fair value amount of
     $72.4 million and $142.0 million, respectively. WCG used the expertise of
     outside investment banking firms to establish the fair value of redeemable
     cumulative convertible preferred stock. In first quarter 2002, the fair
     value of WCG's preferred stock continued to decline as a result of the
     decline in market value of its common stock.

                                       F-76
<PAGE>
                      WILLIAMS COMMUNICATIONS GROUP, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONCENTRATION OF CREDIT RISK

     WCG's cash equivalents and short-term investments excluding marketable
equity securities consist of high-quality securities placed with various major
financial institutions with high credit ratings. WCG's investment policy limits
its credit exposure to any one issuer/obligor.

     WCG's customers include numerous corporations. WCG serves a wide range of
customers, of which SBC comprises approximately 27% of its net accounts
receivable balance as of December 31, 2001. There are no other customers which
are individually significant to its business. While sales to these various
customers are generally unsecured, the financial condition and creditworthiness
of customers are routinely evaluated.

21. SUBSEQUENT EVENTS

     As part of its restructuring effort as discussed in Notes 1 and 12, WCG has
taken steps to reduce its 2002 planned controllable cost structure by
approximately 25%. These steps have included workforce reductions of
approximately 750 employees in March 2002. WCG expects to incur restructuring
charges of approximately $13 million in first quarter 2002 due to these
workforce reductions.

                                       F-77
<PAGE>

                      WILLIAMS COMMUNICATIONS GROUP, INC.
                      QUARTERLY FINANCIAL DATA (UNAUDITED)

     Summarized quarterly financial data are as follows (thousands, except per
share amounts).

<Table>
<Caption>
                                                 FIRST      SECOND       THIRD       FOURTH
2001                                            QUARTER     QUARTER     QUARTER      QUARTER
----                                           ---------   ---------   ---------   -----------
<S>                                            <C>         <C>         <C>         <C>
Revenues.....................................  $ 276,064   $ 281,338   $ 297,776   $   330,343
Cost of sales................................    254,858     246,739     244,173       283,685
Loss from operations.........................   (141,631)   (146,795)   (368,372)   (2,887,568)
Loss from continuing operations..............   (302,174)   (245,740)   (491,995)   (3,067,344)
Loss before extraordinary gain...............   (302,174)   (245,740)   (491,995)   (3,067,344)
Extraordinary gain...........................         --          --     223,664        73,232
Net loss.....................................   (302,174)   (245,740)   (268,331)   (2,994,112)
Basic and diluted earnings (loss) per common
  share:
  Loss from continuing operations
     attributable to common stockholders.....       (.65)       (.51)      (1.01)        (6.24)
  Loss before extraordinary gain.............       (.65)       (.51)      (1.01)        (6.24)
  Extraordinary gain.........................         --          --         .46           .15
  Net loss attributable to common
     stockholders............................       (.65)       (.51)       (.55)        (6.09)
</Table>

<Table>
<Caption>
                                                   FIRST      SECOND       THIRD      FOURTH
2000                                              QUARTER     QUARTER     QUARTER     QUARTER
----                                             ---------   ---------   ---------   ---------
<S>                                              <C>         <C>         <C>         <C>
Revenues.......................................  $ 163,374   $ 179,353   $ 209,314   $ 287,036
Cost of sales..................................    181,004     183,808     214,325     244,135
Loss from operations...........................   (105,235)   (107,053)   (121,129)   (115,254)
Income (loss) from continuing operations.......    (86,158)     14,462    (150,283)    (55,709)
Income (loss) from discontinued operations.....    (35,458)    (18,373)        340    (486,509)
Net loss.......................................   (121,616)     (3,911)   (149,943)   (542,218)
Basic and diluted earnings (loss) per common
  share:
  Income (loss) from continuing operations
     attributable to common stockholders.......       (.18)        .03        (.32)       (.13)
  Income (loss) from discontinued operations...       (.08)       (.04)         --       (1.05)
  Net loss attributable to common
     stockholders..............................       (.26)       (.01)       (.32)      (1.18)
</Table>

     The sum of losses per share for the four quarters may not equal the total
loss per share for the year due to changes in the average common shares
outstanding.

     First, second, third and fourth quarter 2001 loss from continuing
operations includes loss from write-downs of certain investments of $59.2
million, $34.5 million, $42.0 million and $71.9 million, respectively (see Note
9). Third quarter 2001 loss from continuing operations also includes equity
losses relating to iBEAM of $20.0 million. Third and fourth quarter 2001 loss
from continuing operations includes asset impairments and restructuring charges
of $191.3 million and $2.8 billion, respectively (see Note 5). The third quarter
2001 loss from continuing operations includes a $45.1 million gain from the sale
of ATL. Fourth quarter 2001 loss from continuing operations includes a gain on
sale of assets of $46.1 million. The extraordinary gain of $223.7 million and
$73.2 million for the third and fourth quarters 2001, respectively, (both net of
a zero tax provision) related to purchasing a portion of WCG's senior redeemable
notes in the open market at a favorable price (see Note 12).

     First quarter 2000 loss from discontinued operations and net loss includes
a $25.4 million cumulative effect of change in accounting principle related to
the implementation of Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements," as the Solutions segment changed its method of accounting
for new systems sales and upgrades revenue from the percentage of completion
method to the completed contract method. Second quarter 2000 loss from

                                       F-78
<PAGE>

continuing operations and net loss includes a gain of $214.7 million WCG
recognized from the conversion of its shares of common stock of Concentric
Network Corporation into shares of common stock of XO Communications, Inc.
pursuant to a merger of those companies (see Note 9). Third quarter and fourth
quarter 2000 loss from continuing operations and net loss includes $20.0 million
and $14.5 million in charges, respectively, related to the write-down of
investments (see Note 9). Fourth quarter 2000 loss from continuing operations
and net loss includes an income tax benefit of $148 million reflecting a change
in estimate of the total year impact of the application of the tax sharing
agreement with TWC including approximately $50 million of tax matters resolved
in fourth quarter pertaining to items such as deferred revenue estimates and
mid-quarter depreciation convention methods for which uncertainties as to the
application of the tax sharing agreement and the related impact of these items
existed as of September 30, 2000. Fourth quarter 2000 loss from discontinued
operations and net loss includes a provision for the loss on sale of $360
million expected on the ultimate disposition of the Solutions segment.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     None.

                                       F-79
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                                   DIRECTORS

HOWARD E. JANZEN, AGE 48

     Director since 1994. Mr. Janzen is the Chairman of the Board, President,
and Chief Executive Officer of Williams Communications Group, Inc. ("WCG") and
has been the President and Chief Executive Officer of WCG since 1994. Prior to
that, Mr. Janzen served as Senior Vice President and General Manager of Williams
Gas Pipelines Central, Inc., a subsidiary of The Williams Companies, Inc.
("TWC"). Mr. Janzen has also held various other management and officer level
positions with subsidiaries of TWC since 1979. Mr. Janzen also serves on the
board of directors of BOK Financial Corporation and Hillcrest Healthcare System.
Mr. Janzen's term as a director expires at the annual stockholders' meeting in
2002.

PETER C. MEINIG, AGE 62

     Director since 2001. Mr. Meinig is Chairman and Chief Executive Officer of
HM International, Inc., a privately owned diversified manufacturing and
management company, and has held executive positions with HM International for
more than five years. He also serves as Chairman of Windsor Food Company, Ltd.
and Ninth House, Inc. Mr. Meinig's term as a director expires at the annual
stockholders' meeting in 2002.

MORGAN E. O'BRIEN, AGE 57

     Director since 2001. Mr. O'Brien has served as Vice Chairman of Nextel
Communications, Inc. since 1996. Mr. O'Brien's term as a director expires at the
annual stockholders' meeting in 2002.

JOHN A. (IAN) CRAIG, AGE 59

     Director since 2001. Mr. Craig retired as an officer from Nortel Networks
in March 2000. From 1994-2000, Mr. Craig served in various executive positions
with Nortel Networks, including Executive Vice President and Chief Marketing
Officer, President of Carrier Solutions, and President of Broadband Networks.
Mr. Craig also serves on the board of directors for Arris International, BCI
Inc., CAE Inc., TrizecHahn, Inc., and XPV Capital. Mr. Craig's term as a
director expires at the annual stockholders' meeting in 2003.

JULIUS W. ERVING, II, AGE 52

     Director since 2001. Mr. Erving is Senior Vice President of RDV Sports and
Executive Vice President of the Orlando Magic professional basketball club. Mr.
Erving formerly served on the board of directors for LCI Communications and
currently serves on the boards of directors for SAKS Holdings, Inc., The Sports
Authority Inc., and Darden Restaurants, Inc. Mr. Erving's term as a director
expires at the annual stockholders' meeting in 2003.

H. BRIAN THOMPSON, AGE 63

     Director since 1999. Mr. Thompson is the Chairman, President, and Chief
Executive Officer of Universal Telecommunications, Inc., a private investment
and advisory firm. From March 1999 through September 2000, he served as Chairman
and Chief Executive Officer of Global TeleSystems Group, Inc. From January to
March 1999, he served as Non-Executive Chairman of Telecom Eireann, Ireland's
incumbent telephone company. From June to December 1998, Mr. Thompson served as
Vice Chairman of Qwest Communications International Inc. after its merger with
LCI International. From 1991 to June 1998, Mr. Thompson served as Chairman and
Chief Executive Officer of LCI International. Mr. Thompson also serves as a
member of the board of directors of

                                      III-1
<PAGE>

Bell Canada International Inc., Dyncorp, Axcelis Technologies, Inc., ArrayCom,
Inc., and United Auto Group, Inc. and serves as Co-Chairman of the Global
Information Infrastructure Commission and as Vice Chairman of Capitol College in
Laurel, Maryland. Mr. Thompson's term as a director expires at the annual
stockholders' meeting in 2004.

ROBERT W. LAWLESS, AGE 65

     Director since 2000. Robert W. Lawless has been the President of The
University of Tulsa since May 1996. Previously, he served as President and Chief
Executive Officer of Texas Tech University and Texas Tech University Health
Sciences Center from 1989 to 1996. From 1982 to 1989 he served, first as Vice
President -- Finance and Chief Financial Officer, then as Executive Vice
President and Chief Operations Officer, for Southwest Airlines in Dallas, Texas.
He currently serves as Chair of the NCAA Executive Committee. Mr. Lawless' term
as a director expires at the annual stockholders' meeting in 2004.

                               EXECUTIVE OFFICERS

HOWARD E. JANZEN, AGE 48

     Mr. Janzen is the Chairman of the Board, President, and Chief Executive
Officer of WCG and has been the President and Chief Executive Officer of WCG
since 1994. Prior to that, Mr. Janzen served as Senior Vice President and
General Manager of Williams Gas Pipelines Central, Inc., a subsidiary of TWC.
Mr. Janzen has also held various other management and officer level positions
with subsidiaries of TWC since 1979.

MATTHEW W. BROSS, AGE 41

     Mr. Bross is Chief Technology Officer (on assignment), Vice President and
General Manager of Emerging Markets. He leads the development of new technology
and products in emerging markets. Prior to that he served WCG as Chief
Technology Officer and Vice President. He joined WCG in March 1997 through WCG's
acquisition of Critical Technologies, a company that he established in 1991 that
focused on global telecommunications infrastructures and the emerging Internet.

JOHN C. BUMGARNER, JR., AGE 59

     Mr. Bumgarner is Chief Operating Officer and prior to that served WCG as
President of Strategic Investments. In his capacity as Chief Operating Officer
he is responsible, among other things, for establishing all operating policies
and procedures and managing operating performance. He joined WCG in 2001
following 24 years' tenure with TWC, where he held various offices including
Senior Vice President of Corporate Development and Planning, President of
Williams Headquarters Building Group, and President of Williams International
Company.

GERALD L. CARSON, AGE 62

     Mr. Carson is Chief People Officer and is responsible for establishing and
administering the Company's human resource policies and procedures. He joined
the Company from TWC where he was employed for 15 years and there performed
responsibilities in areas of compensation and benefits.

P. DAVID NEWSOME, JR., AGE 54

     Mr. Newsome is General Counsel and Secretary and is responsible for
managing all legal and regulatory activities of WCG. He joined WCG in 2000 from
the law firm Conner & Winters where he served as Director and Chief Operating
Officer. Before joining Conner & Winters he served as Administrator of the
Oklahoma Department of Securities and as an attorney with the U.S. Securities
and Exchange Commission.

                                      III-2
<PAGE>

SCOTT E. SCHUBERT, AGE 48

     Mr. Schubert is Chief Financial and Corporate Services Officer and
previously served WCG as Executive Vice President and Chief Financial Officer.
He is responsible for overseeing all finance, tax, real estate, information
technology, and marketing activities of WCG. He joined WCG in 1999 following a
23-year tenure at BP Amoco where he held various leadership and financial
positions including Vice President of Global Accounting Services and Vice
President of Worldwide Financial Services.

FRANK M. SEMPLE, AGE 50

     Mr. Semple is Chief Operating Officer and formerly served WCG as President
of Network. He is responsible for establishing all operating policies and
procedures and managing operating performance and key business unit decisions.
He joined WCG in 1997 from TWC, where he served in several leadership positions
including Senior Vice President and General Manager of Williams Natural Gas.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

     Section 16(a) of the Securities Exchange Act of 1934 requires WCG's
directors, executive officers, and persons who beneficially own more than 10
percent of WCG's stock to file certain reports with the SEC and the New York
Stock Exchange concerning their beneficial ownership of WCG's equity securities.
The SEC regulations also require that a copy of all such Section 16(a) forms
filed be furnished to WCG by the executive officers, directors, and greater than
10 percent stockholders. Based upon a review of the copies of such forms and
amendments thereto received by WCG with respect to 2001, WCG is aware of the
following late filings. On September 7, 2001, Mr. Howard E. Janzen filed a Form
4 for the month of April 2001, to reflect the purchase on April 25, 2001, of
4,200 shares of WCG's Class A Common Stock by his wife as custodian for his son
and 179 shares by his daughter as joint tenant with his wife. Mr. Janzen
disclaims beneficial ownership of these securities, and this report shall not be
deemed an admission that he is the beneficial owner of the securities for
purposes of Section 16 or for any other purpose. On February 14, 2002, Mr.
Gerald L. Carson filed a Form 5 for 2001 wherein he reported the ownership of
300 shares of WCG's Class A Common Stock by his wife that were acquired in
September 1999 at WCG's initial public offering. Mr. Carson disclaims beneficial
ownership of these securities, and this report shall not be deemed an admission
that he is the beneficial owner of the securities for purposes of Section 16 or
for any other purpose.

                                      III-3
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

     The following table provides certain summary information concerning
compensation of WCG's Chief Executive Officer and each of the five other most
highly-compensated executive officers of WCG for the three fiscal years ended
December 31, 2001.

                           SUMMARY COMPENSATION TABLE

<Table>
<Caption>
                                       ANNUAL COMPENSATION                       LONG-TERM COMPENSATION
                                    --------------------------   -------------------------------------------------------
                                                                                         STOCK OPTIONS
                                                                  RESTRICTED STOCK         SHARES(1)
                                                    BONUS              AWARDS            -------------      ALL OTHER
NAME AND PRINCIPAL POSITION  YEAR    SALARY    (YR. EARNED)(2)   (YR. EARNED)(3)(4)           WCG        COMPENSATION(5)
---------------------------  ----   --------   ---------------   ------------------      -------------   ---------------
<S>                          <C>    <C>        <C>               <C>                     <C>             <C>
Howard E. Janzen...........  2001   $520,000      $      0           $  269,200              868,095(6)      $10,200
  Chairman of the Board,     2000    500,000       446,393                    0              100,000          11,466
  President, Chief           1999    451,538       226,616               97,122              300,000          10,905
  Executive Officer
John Bumgarner.............  2001   $ 79,494(7)    $      0          $        0              500,000(8)      $10,200
  Chief Operating Officer    2000     50,897(7)          (7)                 (7)                  (7)             (7)
                             1999         (7)           (7)             325,933(9)            50,000(10)          (7)
Patti L. Schmigle(11)......  2001   $266,740      $ 47,335           $   47,336              611,108(6)      $10,200
  Vice President,            2000    250,000        89,306              385,000(12)           97,700          11,466
  Business Services          1999    222,431        41,748               17,893               87,250          10,767
Scott E. Schubert..........  2001   $320,000      $ 53,198           $   53,198              196,513(6)      $10,200
  Chief Financial and        2000    272,961       107,727              385,000(12)           81,800          11,466
  Corporate Services         1999    144,231        61,831            1,088,388(13)           80,000           8,077
  Officer
Frank M. Semple............  2001   $322,320      $ 56,574           $  216,306(14)        1,331,130(6)      $10,200
  Chief Operating Officer    2000    300,000       169,963              985,017(12)(15)      125,000          11,466
                             1999    264,000        82,050               35,165              100,000          10,905
Matthew W. Bross...........  2001   $240,066      $ 42,169           $   42,170              270,183(6)      $10,200
  Chief Technology Officer   2000    225,000        39,882            1,160,024(15)(16)      345,200           9,608
  (on assignment), Vice      1999    180,000        48,326               17,114               89,816          12,056
  President and General
  Manager, Emerging Markets
</Table>

---------------

 (1) WCG's Common Stock is designated WCG.

 (2) Excludes 2001 and 1999 executive incentive compensation program awards
     required to be converted to deferred stock amounts that are included in the
     Restricted Stock Awards column.

 (3) Amounts reported in this column are the dollar value as of the date of
     grant of WCG's deferred stock awards under the terms of WCG's 1999 Stock
     Plan. Amounts shown include the value of awards granted pursuant to the
     executive incentive compensation program. Such awards are converted to
     stock using the closing price of WCG's stock on the date of grant for 2001
     and the three-month average stock price of WCG's stock for the 1999 awards
     as follows: Mr. Janzen -- for 2001, 213,651 shares valued at $269,200 and
     for 1999, 3,417 shares valued at $97,122; Ms. Schmigle -- for 2001, 37,568
     shares valued at $47,336 and for 1999, 630 shares valued at $17,893; Mr.
     Schubert -- for 2001, 42,221 valued at $53,198 and for 1999, 933 shares
     valued at $26,499 and 2,175 shares vested on 2/14/00 valued at $61,833; Mr.
     Semple -- for 2001, 44,901 shares valued at $56,575 and for 1999, 1,237
     shares valued at $35,165; Mr. Bross -- for 2001, 33,468 shares valued at
     $42,170 and for 1999, 602 shares valued at $17,114.

 (4) The aggregate number and market value of WCG's deferred shares held at the
     end of the fiscal year were as follows: Mr. Janzen, 315,220 shares valued
     at $740,767; Mr. Bumgarner, 14,171 shares valued at $33,302; Ms. Schmigle,
     70,467 shares valued at $165,597; Mr. Schubert, 87,069 shares valued at
     $204,612; Mr. Semple, 194,540 shares valued at

                                      III-4
<PAGE>

     $457,169; and Mr. Bross, 74,179 shares valued at $174,321. Aggregate market
     value was calculated using $2.35 per share, the closing price of WCG's
     Common Stock reported in the table entitled "New York Stock Exchange
     Composite Transactions" contained in the Wall Street Journal for December
     31, 2001. Distribution of mandatory deferred stock under the 2001 and 1999
     executive incentive compensation programs will occur approximately three
     years after the date of grant. Dividends are not paid on WCG's stock.

 (5) Amounts reported in this column represent the value of contributions made
     by WCG to defined contribution plans, on behalf of each of WCG's executive
     officers named in the table.

 (6) Mr. Janzen's shares reflect 601,428 WCG shares converted from TWC shares at
     spin-off (4/23/01); 200,000 shares awarded on 4/24/01; and 66,667 shares
     awarded on 11/30/01; Ms. Schmigle's shares reflect 466,108 WCG shares
     converted from TWC shares at spin-off (4/23/01); 120,000 shares awarded on
     4/24/01, and 25,000 shares awarded on 11/30/01; Mr. Schubert's shares
     reflect 75,179 WCG shares converted from TWC shares at spin-off (4/23/01);
     88,000 shares awarded on 4/24/01, and 33,334 shares awarded on 11/30/01;
     Mr. Semple's shares reflect 1,177,797 WCG shares converted from TWC shares
     at spin-off (4/23/01); 120,000 shares awarded on 4/24/01, and 33,333 shares
     awarded on 11/30/01; Mr. Bross' shares reflect 167,910 WCG shares converted
     from TWC shares at spin-off (4/23/01); 80,040 shares awarded on 4/24/01,
     and 22,233 shares awarded on 11/30/01.

 (7) During these periods, Mr. Bumgarner was employed by TWC, and the majority
     of his services were not attributable to WCG. Although Mr. Bumgarner was
     paid by TWC, a portion of his compensation was billed by TWC to WCG. The
     amount shown for 2000 represents that billed amount, and for 2001
     represents $10,000 paid by WCG and $69,494 billed by TWC to WCG.

 (8) Mr. Bumgarner elected to forgo any cash compensation and cash bonus in
     excess of $10,000 in exchange for an award of 500,000 options to acquire
     WCG's Common Stock under WCG's 1999 Stock Plan.

 (9) Mr. Bumgarner received 14,171 shares of WCG's deferred stock at the IPO
     (9/30/99) valued at $325,933 on the date of the grant ($23.00) before his
     retirement with TWC.

(10) Mr. Bumgarner received these options because he was serving as a director
     of WCG at the time of WCG's initial public offering.

(11) Following her change in position in April 2001, after the sale of WCG's
     Solutions segment, Patti L. Schmigle is no longer an executive officer of
     WCG. Data is included for Ms. Schmigle since she would otherwise be
     included in the table if she had been an executive officer at the end of
     fiscal year 2001.

(12) Amounts include a grant of 20,000 shares each of WCG's deferred stock
     awarded for retention purposes on September 22, 2000, under WCG's 1999
     Stock Plan to Ms. Schmigle, and Messrs. Schubert and Semple, valued at the
     closing stock price on the date of grant at $385,000.

(13) Amount includes the closing market value as of the date of grant on
     September 30, 1999, of 13,290 shares of TWC deferred stock under the terms
     of the TWC Stock Plan for Nonofficer Employees valued at $500,036 of which
     8,860 shares vested and were distributed April 9, 2001, and 4,430 shares
     were vested (accelerated) and distributed on March 30, 2001. Amount
     includes the closing market value as of the date of grant on September 30,
     1999, of 21,740 shares of WCG's deferred stock under the terms of WCG's
     1999 Stock Plan valued at $500,020 and vesting on June 7, 2002.

(14) Amount includes deferred shares awarded for executive incentive
     compensation program in prior years (1994, 1996, and 1997 respectively)
     which were converted from TWC stock on 4/23/01 to WCG's deferred stock at
     the conversion rate of 10.023810: 2,350 TWC shares converted to 23,556
     shares of WCG's stock which vested 12/02/97 valued at $21,761 for the
     converted price of $0.9238; 2,120 TWC shares converted to 21,250 shares of
     WCG's stock

                                      III-5
<PAGE>

     which vested 12/31/99 valued at $45,532 for the converted price of $2.0015;
     and 4,163 TWC shares converted to 41,729 shares of WCG's stock which vested
     01/22/98 valued at $95,438 for the converted price of $2.2871.

(15) Amount includes the closing market value on the date of grant on January
     24, 2000 ($34.625) of WCG's deferred shares granted under the terms of
     WCG's 1999 Stock Plan with performance based vesting: Mr. Semple, 17,329
     shares valued at $600,017; Mr. Bross, 10,109 shares valued at $350,024.

(16) This amount includes WCG's deferred stock award of 30,000 shares granted
     for retention purposes on July 31, 2000 under the WCG 1999 Stock Plan with
     a closing market value on the date of grant of $810,000.

                    STOCK OPTION GRANTS IN LAST FISCAL YEAR

     The following table provides certain information concerning the grant of
WCG stock options during the last fiscal year to the named executive officers:

                     WCG OPTION GRANTS IN LAST FISCAL YEAR

<Table>
<Caption>
                                                             INDIVIDUAL GRANTS
                       ----------------------------------------------------------------------------------------------
                                     NUMBER OF      PERCENT OF TOTAL
                                  WCG SECURITIES    OPTIONS GRANTED
                         DATE       UNDERLYING      TO EMPLOYEES IN    EXERCISE PRICE   EXPIRATION      GRANT DATE
NAME                   GRANTED    OPTIONS GRANTED     FISCAL YEAR       (PER SHARE)        DATE      PRESENT VALUE(1)
----                   --------   ---------------   ----------------   --------------   ----------   ----------------
<S>                    <C>        <C>               <C>                <C>              <C>          <C>
Howard E. Janzen.....  04/24/01       200,000(2)           .91%           $4.2500        04/24/11       $  752,000
                       11/30/01        66,667(3)           .30%           $2.4400        11/30/11       $  142,667
John Bumgarner.......  04/30/01       500,000(4)          2.27%           $4.5200        04/30/11       $1,995,000
Patti L. Schmigle....  04/24/01       120,000(2)           .55%           $4.2500        04/24/11       $  451,200
                       11/30/01        25,000(3)           .11%           $2.4400        11/30/11       $   53,500
Scott E. Schubert....  04/24/01        88,000(2)           .40%           $4.2500        04/24/11       $  330,880
                       11/30/01        33,334(3)           .15%           $2.4400        11/30/11       $   71,335
Frank M. Semple......  04/24/01       120,000(2)           .55%           $4.2500        04/24/11       $  451,200
                       11/30/01        33,333(3)           .15%           $2.4400        11/30/11       $   71,333
Matthew Bross........  04/24/01        80,040(2)           .36%           $4.2500        04/24/11       $  300,950
                       11/30/01        22,233(3)           .10%           $2.4400        11/30/11       $   47,579
</Table>

---------------

(1) The grant date present value is determined using the Black-Scholes option
    pricing model and is based on assumptions about future stock price
    volatility and dividend yield. The model does not take into account that the
    stock options are subject to vesting restrictions and that executives cannot
    sell their options. The calculations assume an expected volatility of 90
    percent, a weighted average risk-free rate of return of 5.25 percent, a
    dividend yield of 0 percent and an exercise date at the end of the
    contractual term in 2011. The actual value, if any, that may be realized by
    an executive will depend on the market price of WCG's common stock on the
    date of exercise. The dollar amounts shown are not intended to forecast
    possible future appreciation in WCG's stock price.

(2) These stock options will vest in thirds on April 24, 2002, April 24, 2003,
    and April 24, 2004, respectively.

(3) These stock options will vest in thirds on November 30, 2002, November 30,
    2003, and November 30, 2004, respectively.

(4) These stock options will vest in thirds on April 30, 2002, April 30, 2003,
    and April 30, 2004, respectively.

                                      III-6
<PAGE>

OPTION EXERCISES AND FISCAL YEAR-END VALUES

     The following table provides certain information on stock option exercises
of WCG stock in 2001 by the named executive officers and the value of such
officers' unexercised options at December 31, 2001.

          AGGREGATED OPTION EXERCISES OF WCG STOCK IN LAST FISCAL YEAR
                       AND FISCAL YEAR-END OPTION VALUES

<Table>
<Caption>
                                                                                        VALUE OF UNEXERCISED
                            NUMBER OF OPTIONS AT            WEIGHTED AVERAGE           IN-THE-MONEY OPTIONS AT
                               FISCAL YEAR-END              EXERCISE PRICE(1)            FISCAL YEAR-END(2)
                         ---------------------------   ---------------------------   ---------------------------
NAME                     EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
----                     -----------   -------------   -----------   -------------   -----------   -------------
<S>                      <C>           <C>             <C>           <C>             <C>           <C>
Howard E. Janzen.......     751,428       516,667         10.56          11.59        $       0         $0
John Bumgarner.........      50,000       593,376         23.00           5.58        $       0         $0
Patti L. Schmigle......     547,142       248,916          8.05           9.09        $       0         $0
Scott E. Schubert......     115,253       243,060         21.19          14.21        $       0         $0
Frank M. Semple........   1,287,797       268,333          5.32           6.39        $9,893.50         $0
Matthew Bross..........     332,231       372,968         17.69          18.82        $       0         $0
</Table>

---------------

(1) There were no exercises for WCG shares for 2001, and no value realized. This
    data is included to show the weighted average price for the exercise of
    options.

(2) Based on the closing price of WCG's Common Stock reported in the table
    entitled "New York Stock Exchange Composite Transactions" contained in The
    Wall Street Journal for December 31, 2001 ($2.35 per share), less the
    exercise price. The values shown reflect the value of options accumulated
    over periods of up to ten years. Such values had not been realized at that
    date and may not be realized. In the event the options are exercised, their
    value will depend on the market price of WCG's Common Stock on the date of
    exercise.

RETIREMENT PLAN

     Prior to January 1, 2001, eligible employees participated in the TWC
Pension Plan. Effective January 1, 2001, eligible employees participate in the
WCG Pension Plan. The WCG pension plan is a noncontributory, tax-qualified
defined benefit plan subject to the Employee Retirement Income Security Act of
1974, as amended. The WCG pension plan generally includes salaried employees of
WCG who have completed one year of service. Except as noted below, executive
officers of WCG participate in the WCG pension plan on the same terms as other
full-time employees.

     Effective April 1, 1998, TWC converted its pension plan from a final
average pay plan to a cash balance pension plan. Each participant's accrued
benefit as of that date was converted to a beginning account balance. Account
balances are credited with an annual employer contribution and quarterly
interest allocations. Each year an employer contribution equal to a percentage
of eligible compensation is allocated to an employee's pension account. Such
percentage is based upon the employee's age according to the following table:

<Table>
<Caption>
                                                                  PERCENTAGE OF ELIGIBLE PAY
                                                PERCENTAGE OF      GREATER THAN THE SOCIAL
AGE                                            ALL ELIGIBLE PAY       SECURITY WAGE BASE
---                                            ----------------   --------------------------
<S>                                            <C>                <C>
30 or younger................................        4.5%                     +1%
30-39........................................          6%                     +2%
40-49........................................          8%                     +3%
50+..........................................         10%                     +5%
</Table>

     For employees, including the executive officers named in the Summary
Compensation Table, who were active employees and plan participants in the TWC
Pension Plan on March 31, 1998, and April 1, 1998, and are now participants in
the WCG Pension Plan, the percentage of all eligible pay is increased by an
amount equal to the sum of 0.3 percent multiplied by the participant's total
years

                                      III-7
<PAGE>

of service prior to March 31, 1998. Interest is credited to account balances
quarterly at a rate determined annually in accordance with the terms of the
plan. The normal retirement benefit is a monthly annuity based on an
individual's account balance as of benefit commencement. The plan defines
eligible compensation to include salary and bonuses. Normal retirement age is
65. Early retirement may begin as early as age 55. At retirement, employees are
entitled to receive a single-life annuity or one of several optional forms of
payment having an equivalent actuarial value to the single-life annuity.

     Participants who were age 50 or older as of March 31, 1998, were
grandfathered under a transitional provision that gives them the greater of the
benefit payable under the cash balance formula or the final average pay formula
based on all years of service and compensation.

     The Internal Revenue Code of 1986, as amended, currently limits the pension
benefits that can be paid from a tax-qualified defined benefit plan, such as the
pension plan, to highly compensated individuals. These limits prevent such
individuals from receiving the full pension benefit based on the same formula as
is applicable to other employees. As a result, WCG has adopted an unfunded
supplemental retirement plan to provide a supplemental retirement benefit equal
to the amount of such reduction to every employee, including the executive
officers named in the Summary Compensation Table, whose benefit payable under
the pension plan is reduced by Internal Revenue Code limitations.

     Total estimated annual benefits payable at normal retirement age under the
cash balance formula from both the tax qualified and the supplemental retirement
plans are as follows:

<Table>
<S>                                                           <C>
Howard E. Janzen............................................  $571,227
John Bumgarner..............................................         0
Patti L. Schmigle...........................................   360,251
Scott E. Schubert...........................................   162,843
Frank M. Semple.............................................   292,970
Matt Bross..................................................   238,011
</Table>

     The following schedule illustrates projected annual retirement benefits
under the final average pay formula, payable from both the tax qualified and the
supplemental retirement plans based on various levels of final average annual
compensation and years of service. The benefits are not subject to deduction for
any offset amounts:

                               PENSION PLAN TABLE

<Table>
<Caption>
                                           YEARS OF SERVICE
                        ------------------------------------------------------
REMUNERATION               15         20         25         30          35
------------            --------   --------   --------   --------   ----------
<S>                     <C>        <C>        <C>        <C>        <C>
$  400,000............  $108,631   $144,841   $181,051   $217,262   $  253,472
   600,000............   164,131    218,841    273,551    328,262      382,972
   800,000............   219,631    292,841    366,051    439,262      512,472
 1,000,000............   275,131    366,841    458,551    550,262      641,972
 1,200,000............   330,631    440,841    551,051    661,262      771,472
 1,400,000............   386,131    514,841    643,551    772,262      900,972
 1,600,000............   441,631    588,841    736,051    883,262    1,030,472
 1,800,000............   497,131    662,841    828,551    994,262    1,159,972
</Table>

EMPLOYMENT AGREEMENTS, SEVERANCE PAY PLAN, AND CHANGE IN CONTROL SEVERANCE PLAN

     WCG has no employment agreements with executive officers. WCG has
established the WCG Severance Pay Plan and the WCG Change in Control Severance
Plan, which cover certain employees of the Company, including the executive
officers named in the Summary Compensation Table.

                                      III-8
<PAGE>

     The Severance Pay Plan provides severance benefits for employees who are
terminated because of a reduction in force or job elimination. The severance
benefit for the Chief Executive Officer is a lump sum payment equal to 200
percent of annual base salary. The severance benefit for the senior vice
president level is a lump sum payment equal to 150 percent of the annual base
salary, and for the vice president level a lump sum payment equal to 100 percent
of the annual base salary.

     The Change in Control Severance Plan provides severance benefits if, within
two years following a change in control of WCG, a participant's employment is
terminated (i) involuntarily other than for cause, death, disability,
retirement, or the sale of a business, or (ii) voluntarily for good reason. The
severance benefit for the Chief Executive Officer is a lump sum payment equal to
200 percent of the sum of annual base salary plus target incentive. The
severance benefit for the senior vice president level is a lump sum payment
equal to 150 percent of the sum of annual base salary plus target incentive, and
for the vice president level, a lump sum payment equal to 100 percent of the sum
of annual base salary plus target incentive. If necessary, a participant is also
entitled to receive a corresponding gross-up payment sufficient to compensate
for the amount of any excise tax imposed by Internal Revenue Code Section 4999,
and for any taxes imposed on such additional payment. Amounts payable under the
plan are in lieu of any other severance, change in control severance or
termination benefit that may otherwise be payable under any other severance plan
or program.

            COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

     The Compensation Committee of the Board of Directors (the "Committee") is
composed of independent outside directors. The Committee is responsible for
overseeing and administering WCG's executive compensation program.

COMPENSATION POLICY

     The WCG executive compensation program is designed to serve the interests
of WCG and its stockholders by aligning executive compensation with stockholder
objectives and to encourage and reward management initiative and performance.
Specifically, the executive compensation program seeks to:

          (i) Attract and retain the talent needed to drive superior shareholder
     value and help each of the Company's businesses meet or exceed financial
     performance targets;

          (ii) Motivate and reward to achieve superior performance relative to
     industry peers;

          (iii) Align executive and shareholder interests; and

          (iv) Reinforce and reward leadership supporting WCG's core values.

     These objectives are met through a program comprised of base salary; annual
cash incentive tied to business performance and individual performance; and
long-term incentive opportunities primarily in the form of stock options and the
selective use of deferred stock. Compensation decisions with respect to those
executives named in the Summary Compensation Table are made by the Committee and
ratified by the Board of Directors.

COMPENSATION PROGRAM

     Total Compensation.  Base salary, cash incentive targets and stock option
targets for WCG's executives, including those executive officers named in the
Summary Compensation Table, were generally established at the 50th percentile of
compensation survey results. For this purpose, WCG uses compensation survey
information relevant to high-performance general industry companies and
communications companies of similar size supplied by nationally known
compensation consulting firms.

                                      III-9
<PAGE>

     Base Salary.  The Committee considers base salary adjustments for each of
WCG's executives annually. The Committee also annually approves a merit increase
budget for all executives. For 2001, the merit increase budget approved for
WCG's executives was 0 percent. This target was developed based upon WCG's
review of survey data and WCG's financial and stock performance. Specific
increases for individual executives involve consideration of certain subjective
factors, principally the performance of such executive over the prior
compensation period.

     Cash Incentive.  The WCG executives including those executive officers
named in the Summary Compensation Table, are eligible each year for cash
incentive payments. The cash incentive program is designed to measure and reward
both business and individual achievements. Each participant has a cash incentive
target opportunity that is a percentage of base salary that can be earned when
business results meet target levels of performance and individual performance
achieves expectations. The cash incentive target opportunity percentages of base
salary used for this purpose range from 12.5 percent for manager level
participants to 80 percent for the President and Chief Executive Officer. Actual
awards can be up to 200 percent of the target opportunity depending on
achievement of business and individual performance objectives.

     An executive's award for a given year is the sum of the product of (i) the
percentage actual performance bears to targeted performance (the "performance
factor"); (ii) the applicable weight of the component; (iii) the target
opportunity percentage; and (iv) the participant's base salary, for each of the
components. Awards are earned based on the extent to which pre-established
performance targets are achieved. The components and weighting of the award
formula are 67 percent business performance and 33 percent individual
performance, with the sum of the weights for the components totaling one hundred
percent.

     The components of business performance, except the stock performance
component, are measured by comparing actual business results to pre-established
goals based on WCG's business strategies. The respective business units submit
goals for these components of business performance, at threshold, target and
stretch levels, to the Committee and the Board of Directors for approval in
January of the plan year. Threshold and stretch levels represent the Committee's
subjective assessment of performance below which there should be no incentive
payment (the threshold level) and performance at which 200 percent of the
incentive potential should be paid (the stretch level). If performance is at
target, the performance factor used to calculate the award is 100 percent.
Performance above or below target results in awards representing a linear
increase/decrease from target to stretch and from target to threshold depending
upon where actual performance falls. Except in unusual circumstances, there are
no awards for performance below threshold. The Committee and the Board of
Directors assess WCG's stock performance in January following the plan year, by
comparing its total shareholder return to the total shareholder return of the
NASDAQ Index and the Network Index. The range for the stock performance
component is 0 to 200 percent. For the executive officers named in the Summary
Compensation Table, with the exception of Mr. Janzen, whose compensation is
discussed elsewhere herein, the business performance factor for 2001 was tied to
WCG's stock performance and other business measures applicable to WCG. The 2001
cash incentive was paid out at 65 percent of target and was distributed as 50
percent cash and 50 percent mandatory deferred stock which will vest in thirds
over three years. The Committee and Board of Directors retain the discretion to
adjust reported performance to allow for extraordinary, nonrecurring factors.

     The Committee determines the amount of funding for an individual
performance component award pool from which the actual individual performance
awards are distributed. The Committee funds the pool for the plan year at 0 to
200 percent of the target level. Individual performance is measured by the
performance management process, comparing individual results to pre-established
individual objectives. The size of actual individual awards is impacted by the
individual performance component award pool.

                                      III-10
<PAGE>

     Long-term Compensation.  The Committee's and the Board of Directors'
objective with respect to stock option awards is to provide a long-term
component to overall compensation that aligns the interests of executives with
the interests of stockholders through stock ownership. Compensation
opportunities in the form of stock options serve this purpose.

     The WCG 1999 Stock Plan, established by the TWC Compensation Committee and
approved by its stockholders in 1999, provides for issuance of WCG stock options
to employees and members of the board of directors of WCG or its affiliates.
These stock option awards give executives the right to purchase WCG's common
stock over a ten-year period at the market value per share of WCG's common
stock, as defined by the plan, as of the date the option is granted. Stock
option awards from this plan will generally be subject to three-year (one-third
per year) graded vesting schedule.

     The Committee and Board of Directors have established stock option award
targets for each executive participant and for director and manager level
participants in the stock option program. The target levels for annual stock
option grants have been established based on competitive market data for each
executive position and based on competitive market practices for director and
manager level positions. In 2001, the stock option targets for participants
ranged from 200,000 shares for the President and Chief Executive Officer to
7,400 shares for manager-level employees. The size of actual stock option awards
is tied to individual performance, as measured by the performance management
process, comparing individual results to pre-established individual objectives.

     Deferred Stock:  The WCG 1999 Stock Plan provides for the issuance of
deferred stock, which is not distributed to the executive until the applicable
restriction period lapses. Deferred stock that is not vested is normally
forfeited if the executive terminates employment for any reason other than
retirement, disability or death prior to the lapsing of applicable restrictions.
The Committee uses deferred stock awards primarily to provide, on a selective
basis, a vehicle for tying an element of compensation to the executive's
willingness to remain with WCG in a way that aligns the executive's interests
with those of the other stockholders.

     All executives have an opportunity to defer up to 50 percent of their base
salary and up to 100 percent of their incentive bonus for an elective period in
the form of vested deferred stock. Deferred stock cannot be sold or otherwise
disposed of until the applicable deferral period lapses. The value of the
deferred stock is at risk during the deferral period since the value is tied to
the stock price.

CHIEF EXECUTIVE OFFICER COMPENSATION

     The full Board meets in executive session each year to review Mr. Janzen's
performance. The session is conducted without Mr. Janzen present, and the
meeting is chaired by the Chairman of the Compensation Committee. The results of
this performance review, which are shared with Mr. Janzen, are used by the
Compensation Committee in making its review of Mr. Janzen's performance for
compensation purposes.

     Mr. Janzen participates in the cash incentive program described herein. For
Mr. Janzen, the business performance factor of the cash incentive program for
2001 was tied to WCG's stock performance and WCG's earning before income taxes,
depreciation and amortization. The stock performance component of business
performance was measured by comparing total shareholder return of WCG stock to
the total shareholder return of the Nasdaq Index. The award of $269,200 earned
in 2001 and awarded in February 2002 represents 65 percent of the award target.
Mr. Janzen received his 2001 award in deferred stock, which totaled 213,651
shares.

     A stock option grant of 200,000 shares was also approved for Mr. Janzen in
2001. This award represents 100 percent of the target for stock option awards
previously established by the Committee and the Board of Directors for the
President and Chief Executive Officer position. The specific award, relative to
the target, was based on a subjective analysis of Mr. Janzen's performance.

                                      III-11
<PAGE>

Additionally, Mr. Janzen was awarded a stock option grant for 66,667 shares on
11/31/2001 when WCG moved to a three times per year grant cycle.

OTHER MATTERS

     Section 162(m) of the Internal Revenue Code places a $1 million per person
limitation on the tax deduction WCG may take for compensation paid to its Chief
Executive Officer and its four other highest paid executive officers.
Compensation constituting performance-based compensation, as defined by the
Code, is not subject to the $1 million limit. The Committee generally intends to
grant awards under the WCG 1999 Stock Plan consistent with the terms of Section
162(m) so that such awards will not be subject to the $1 million limit. In other
respects, the Committee expects to take actions in the future that may be
necessary to preserve the deductibility of executive compensation to the extent
reasonably practicable and consistent with other objectives of the Company's
compensation program. In doing so, the Committee may utilize alternatives such
as deferring compensation to qualify compensation for deductibility and may rely
on grandfathering provisions with respect to existing compensation commitments.

THE COMPENSATION COMMITTEE

H. Brian Thompson, Chairman
John A. Craig
Julius W. Erving, II
Morgan E. O'Brien

                       COMPENSATION COMMITTEE INTERLOCKS
                           AND INSIDER PARTICIPATION

     Mr. Ross K. Ireland served on the Compensation Committee from the time of
his election to the Board of Directors on January 25, 2001, until his
resignation from the Compensation Committee on September 13, 2001. Mr. Ross K.
Ireland resigned from the Board of Directors on February 5, 2002. Mr. Ireland is
Senior Executive Vice President for SBC Communications Inc. An SBC subsidiary
purchases wholesale long distance service from WCG. Revenues from SBC totaling
$402.0 million for the year ended December 31, 2001, represented approximately
34 percent of WCG's total revenues.

                                      III-12
<PAGE>

                  STOCKHOLDER RETURN PERFORMANCE PRESENTATION

     Set forth below is a line graph comparing WCG's cumulative total
stockholder return on its Common Stock with the cumulative total return of the
Nasdaq Stock Index and a Network Index, composed of Level 3, Broadwing, and
Global Crossing, currently WCG's telecommunications industry peer companies,
from the date of WCG's equity offering, September 30, 1999, through December 31,
2001. The graph assumes an investment of $100 at the beginning of the period at
the IPO price of $23 per share of Class A Common Stock.

WCG TOTAL MONTHLY STOCKHOLDER RETURN SINCE INCEPTION

                              (PERFORMANCE GRAPH)
<Table>
<Caption>
                  9/99    10/99    11/99    12/99     1/00     2/00     3/00     4/00     5/00     6/00     7/00     8/00     9/00
                 ------   ------   ------   ------   ------   ------   ------   ------   ------   ------   ------   ------   ------
<S>              <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
WCG               100     138.6    129.6    125.8    163.6    193.8    225.5    160.9    159.5    143.9    117.4    127.7    86.96
Network Index     100     122.9    147.9    178.4    204.3    182.3    182.8      145    121.1    133.6    119.3    141.4    132.1
Nasdaq            100       108    121.5      147    141.6    166.7    162.3    137.4    123.8    144.4    137.2    154.2      130

<Caption>
                 10/00    11/00    12/00     1/01     2/01     3/01     4/01     5/01     6/01     7/01     8/01     9/01    10/01
                 ------   ------   ------   ------   ------   ------   ------   ------   ------   ------   ------   ------   ------
<S>              <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
WCG              79.62    47.28    51.09     78.3    54.17    39.13    19.65    18.26    12.91     9.39     7.17     5.13     7.26
Network Index    108.6    69.59    78.07    101.6    76.74    60.77     67.2    65.29    56.13    52.78    38.56    32.25     19.5
Nasdaq           122.7     94.6    89.96      101    78.36    67.01    77.06    76.85    78.67    73.84    65.74    54.58    61.55

<Caption>
                 11/01    12/01
                 ------   ------
<S>              <C>      <C>
WCG              10.61    10.22
Network Index    21.49    20.54
Nasdaq            70.3    71.02
</Table>

     Last year WCG compared stockholder return to the S&P 500 Index rather than
the Nasdaq composite index used this year. As of March 20, 2002, fewer than 5
percent of the 500 stocks included in the S&P 500 Index were telecommunications
services. The Nasdaq composite index provides a broader index of approximately
4,000 stocks including 12 percent telecommunications.

                                      III-13
<PAGE>

     Below, a line graph for the period from September 30, 1999, through
December 31, 2001, compares WCG's cumulative total stockholder return on its
Common Stock with the cumulative total return of the S&P 500 Index that was
previously used for comparison. The graph assumes an investment of $100 at the
beginning of the period at the IPO price of $23 per share of Class A Common
Stock.

                              (PERFORMANCE GRAPH)
<Table>
<Caption>
                  9/99    10/99    11/99    12/99     1/00     2/00     3/00     4/00     5/00     6/00     7/00     8/00     9/00
                 ------   ------   ------   ------   ------   ------   ------   ------   ------   ------   ------   ------   ------
<S>              <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
WCG               100     138.6    129.6    125.8    163.6    193.8    225.5    160.9    159.5    143.9    117.4    127.7     87.0
Network Index     100     122.9    147.9    178.4    204.3    182.3    182.8    145.0    121.1    133.6    119.3    141.4    132.1
S&P 500           100      99.7     89.7     81.6    101.7    111.7    117.8    100.5    111.4    112.1    112.8    124.4    114.0

<Caption>
                 10/00    11/00    12/00     1/01     2/01     3/01     4/01     5/01     6/01     7/01     8/01     9/01    10/01
                 ------   ------   ------   ------   ------   ------   ------   ------   ------   ------   ------   ------   ------
<S>              <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
WCG               79.6     47.3     51.1     78.3     54.2     39.1     19.7     18.3     12.9      9.4      7.2      5.1      7.3
Network Index    108.6     69.6     78.1    101.6     76.7     60.8     67.2     65.3     56.1     52.8     38.6     32.3     19.5
S&P 500          112.8     95.5    108.2    112.0    101.8     95.4    102.7    103.4    100.9     99.9     93.7     86.1     87.8

<Caption>
                 11/01    12/01
                 ------   ------
<S>              <C>      <C>
WCG               10.6      9.3
Network Index     21.5     20.1
S&P 500           94.5     95.0
</Table>

               NETWORK INDEX: LEVEL 3, BROADWING, GLOBAL CROSSING
                       Index values are as of month-end.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Based upon a review of filings made with the Securities and Exchange
Commission, WCG believes that no person owns beneficially 5 percent or more of
WCG's Class A Common Stock.

     The following table sets forth the number of shares of 6.75% Redeemable
Cumulative Convertible Preferred Stock of WCG and the percentage represented by
such number of each person who is known to WCG to own beneficially 5 percent or
more of WCG's 6.75% Redeemable Cumulative Convertible Preferred Stock as of
March 5, 2002.

<Table>
<Caption>
                                                                NUMBER OF   PERCENT
TITLE OF CLASS                       NAME AND ADDRESS            SHARES     OF CLASS
--------------                -------------------------------   ---------   --------
<S>                           <C>                               <C>         <C>
Preferred Stock.............  Bear, Stearns Securities Corp.    1,672,920     33.5%
                              One Metrotech Center North
                              Brooklyn, NY 11201
Preferred Stock.............  Donaldson, Lufkin and Jenrette    1,328,425     26.6%
                              Securities Corp.
                              Jersey City, NJ 07399
</Table>

     The following table sets forth, as of February 28, 2002, the amount of WCG
Class A Common Stock beneficially owned by each of WCG's directors, each of its
executive officers named in the Summary Compensation Table, and by all directors
and executive officers as a group. The ownership data presented in this table
includes shares acquired as a result of the spin-off distribution
                                      III-14
<PAGE>

on April 23, 2001, by TWC of shares of WCG's Class A Common Stock. Unless
otherwise indicated, each beneficial owner has sole voting and sole investment
power with respect to their respective shares. In addition, unless otherwise
indicated, the address of each beneficial owner named below is c/o Williams
Communications Group, Inc., One Technology Center, Tulsa, Oklahoma 74103.

<Table>
<Caption>
                                                       SHARES
                                      SHARES OF      UNDERLYING
                                        COMMON         OPTIONS
                                     STOCK OWNED     EXERCISABLE               PERCENT
                                     DIRECTLY OR      WITHIN 60                  OF
NAME OF INDIVIDUAL OR GROUP         INDIRECTLY(1)      DAYS(2)       TOTAL      CLASS
---------------------------         --------------   -----------   ---------   -------
<S>                                 <C>              <C>           <C>         <C>
Matthew Bross.....................      224,922         358,911      583,833      *
John Bumgarner....................      842,994         216,667    1,059,661      *
John A. (Ian) Craig...............       19,919          20,667       40,586      *
Julius W. Erving, II..............       11,934          20,667       32,601      *
Ross K. Ireland(3)................            0               0            0      *
Howard E. Janzen..................      576,828         818,095    1,394,923      *
Robert W. Lawless.................       18,156          26,000       44,156      *
Peter C. Meinig...................      307,611          16,667      324,278      *
Morgan O'Brien....................       23,517          20,667       44,184      *
Patti L. Schmigle.................       64,319         587,142      651,461      *
Scott E. Schubert.................      188,097         144,587      332,684      *
Frank M. Semple...................      383,470       1,327,797    1,711,267      *
H. Brian Thompson.................       29,592          42,667       72,259      *
All directors and executive
  officers as a group (17
  persons)(4).....................    2,980,458       5,404,613    8,385,071      *
</Table>

---------------

(1) Includes shares held under the terms of incentive and investment plans as
    follows: Mr. Bross, 75,569, including 1,390 over which he has sole voting
    and investment power; Mr. Bumgarner, 203,171, including 189,000 over which
    he has sole voting and investment power; Mr. Janzen, 365,485, including
    50,265 over which he has sole voting and investment power; Ms. Schmigle,
    12,872 over which she has sole voting and investment power; Mr. Schubert,
    141,512, including 54,443 over which he has sole voting and investment
    power; and Mr. Semple, 241,416, including 46,876 over which he has sole
    voting and investment power.

(2) The Securities and Exchange Commission deems a person to have beneficial
    ownership of all shares that person has the right to acquire within 60 days.
    The shares indicated represent shares of Common Stock that may be acquired
    upon the exercise of options exercisable within 60 days of February 28,
    2002. The shares indicated represent stock options granted under WCG's Stock
    Plan. Unexercised options cannot be voted.

(3) Mr. Ireland resigned as Director effective February 5, 2002.

(4) Includes shares held by Bob F. McCoy, former Senior Vice President of Law,
    who retired from WCG on January 31, 2002.

     No director or officer owns beneficially any other WCG equity securities or
equity securities of any of its subsidiaries other than directors' qualifying
shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                            EXECUTIVE OFFICER LOANS

     In prior years, TWC granted loans to employees, primarily executive
officers, including employees of WCG. In conjunction with the spin-off from TWC,
WCG acquired the loans to WCG officers. These loans total $19.9 million, all of
which are considered long-term as of December 31, 2001. In June and December
2001, all loans to individuals were combined, which extended the due

                                      III-15
<PAGE>

dates and reduced interest rates. The loans currently bear interest rates stated
below and have maturity dates of four years or less or upon the earlier
termination of the employee.

     Effective December 31, 2001, WCG's Compensation Committee of the Board of
Directors entered into an agreement to pay annual retention bonuses to certain
executives in the amount of $13 million to be applied solely against the
outstanding loan balances. The final payment date is December 31, 2005, unless
employment is terminated for reasons other than cause, death or disability or if
the agreement is rejected in any voluntary or involuntary bankruptcy proceedings
in which case the executive can setoff his claim for any remaining bonus
payments against his outstanding loan balance.

<Table>
<Caption>
                                    TOTAL INTEREST   LARGEST AMOUNT     PRINCIPAL
                         INTEREST    OVER TERM OF     OUTSTANDING      OUTSTANDING
NAME                       RATE          LOAN          12/31/2001       12/31/2001
----                     --------   --------------   --------------   --------------
<S>                      <C>        <C>              <C>              <C>
John C. Bumgarner,
  Jr. .................    5.02%    $1,882,718.08    $ 7,270,970.93   $ 6,904,628.30
Gerald L. Carson.......    3.97%    $  341,297.88    $ 1,213,532.36   $ 1,157,868.80
Howard E. Janzen.......    3.97%    $1,646,199.13    $ 5,885,515.35   $ 5,603,829.82
Frank M. Semple........    3.97%    $  550,268.18    $ 2,101,785.47   $ 2,011,096.74
James W. Dutton........    3.97%    $   47,725.17    $   248,421.81   $   238,478.00
Scott E. Schubert......    3.97%    $1,117,590.40    $ 4,217,223.86   $ 4,000,000.00
GRAND TOTAL............             $5,585,798.84    $20,937,449.78   $19,915,901.66
</Table>

OTHER RELATED TRANSACTIONS

     John C. Bumgarner, Chief Operating Officer of WCG, owns real estate and
leases a portion of it to subsidiaries of WCG for use as office space. In 2001,
payments under these leases were approximately $370,000. WCG vacated the
majority of space leased in August 2001 and will vacate the remainder by May
2002.

     Ross K. Ireland was a director of WCG from January 25, 2001, until his
resignation on February 5, 2002. Mr. Ireland is Senior Executive Vice President
for SBC Communications Inc. An SBC subsidiary purchases wholesale long distance
service from WCG. Revenues from SBC totaling $402.0 million for the year ended
December 31, 2001, represented approximately 34 percent of WCG's total revenues.

                                      III-16
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) and (a)(2).  The Financial statements and financial statement schedules
listed in the Index to Consolidated Financial Statements below are filed as part
of this report.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
                                                       PAGE
                                                       ----
<S>                                                    <C>
Covered by report of independent auditors:
  Consolidated balance sheets at December 31, 2001
     and 2000........................................  F-34
  Consolidated statements of operations for the three
     years ended December 31, 2001...................  F-35
  Consolidated statements of stockholders' equity for
     the three years ended December 31, 2001.........  F-36
  Consolidated statements of cash flows for the three
     years ended December 31, 2001...................  F-37
  Notes to consolidated financial statements.........  F-38
  Schedules for the three years ended December 31,
     2001:
     I -- Condensed financial information of
        Registrant...................................   V-1
     II -- Valuation and qualifying accounts.........   V-8
Not covered by report of independent auditors:
  Quarterly financial data (unaudited)...............  F-78
</Table>

     All other schedules have been omitted since the required information is not
present or is not present in an amount sufficient to require submission of the
schedules, or because the information required is included in the financial
statements and notes thereto.

(a)(3) and (c).  The documents in the Exhibit List below are filed as part of
this annual report.

                                  EXHIBIT LIST

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
          3.1*           -- Restated Certificate of Incorporation of WCG (filed as
                            Exhibit 3.1 to the Current Report on Form 8-K dated
                            October 1, 1999 (the "October 1999 8-K"))
          3.2*           -- Restated By-laws of WCG (filed as Exhibit 3.2 to the
                            October 1999 8-K)
          3.3*           -- Restated By-laws of WCG as of September 27, 2001 (filed
                            as Exhibit 3.3 to the Quarterly Report on Form 10-Q for
                            the quarter ended September 30, 2001, as filed on
                            November 14, 2001)
          4.1*           -- Specimen certificate of common stock (filed as Exhibit
                            4.1 to Registration Statement No. 333-76007 on Form S-1
                            relating to an equity offering (the "Equity Registration
                            Statement"), dated April 9, 1999)
          4.2*           -- Certificate of designation of Series A Junior
                            Participating Preferred Stock (filed as Exhibit 4.1 to
                            the October 1999 8-K)
          4.3*           -- Specimen certificate of Class B common stock (filed as
                            Exhibit 4.2 to the Equity Registration Statement dated
                            April 9, 1999)
          4.4*           -- Indenture governing notes dated October 6, 1999, between
                            WCG and The Bank of New York, Trustee (filed as Exhibit
                            4.2 to the October 1999 8-K)
</Table>

                                       IV-1
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
          4.5*           -- Indenture dated as of August 8, 2000, between WCG and The
                            Bank of New York, as trustee relating to the 11.70%
                            Senior Redeemable Notes due 2008 and the 11.875% Senior
                            Redeemable Notes due 2010 (filed as Exhibit 4.1 to the
                            S-4 dated October 12, 2000 (the "October 2000 S-4"))
          4.6*           -- Registration Rights Agreement dated as of August 8, 2000
                            between WCG and the initial purchasers (filed as Exhibit
                            4.2 to the October 2000 S-4)
          4.7*           -- Certificate of Designation of 6.75% Redeemable Cumulative
                            Convertible Preferred Stock (filed as Exhibit 4.4 to the
                            October 2000 S-4)
         10.1*           -- Securities Purchase Agreement among WCG, The Williams
                            Companies, Inc. ("TWC"), and Telefonos de Mexico, S.A. de
                            C.V., dated May 25, 1999 (filed as Exhibit 10.1 to the
                            Equity Registration Statement, Amendment No. 1, dated May
                            27, 1999)
         10.2*           -- Amended and Restated Alliance Agreement Between Telefonos
                            de Mexico, S.A. de C.V., and Williams Communications,
                            Inc., dated May 25, 1999 (filed as Exhibit 10.2 to the
                            Equity Registration Statement, Amendment No. 8, dated
                            September 29, 1999)
         10.3*           -- Securities Purchase Agreement dated as of May 24, 1999,
                            by and among WCG, TWC, and Intel Corporation (filed as
                            Exhibit 10.3 to the Equity Registration Statement,
                            Amendment No. 3, dated July 12, 1999)
         10.4*           -- Master Alliance Agreement Between Intel Internet Data
                            Services and Williams Communications, Inc., dated as of
                            May 24, 1999 (filed as Exhibit 10.4 to the Equity
                            Registration Statement, Amendment No. 1, dated May 27,
                            1999)
         10.5*           -- Fiber Lease Agreement between Metromedia Fiber Network
                            Services, Inc., and Williams Communications, Inc., dated
                            September 16, 1999 (filed as Exhibit 10.5 to the Equity
                            Registration Statement, Amendment No. 8, dated September
                            29, 1999)
         10.6*           -- Fiber Lease Agreement between Williams Communications,
                            Inc., and Metromedia Fiber National Network Services,
                            Inc., dated September 16, 1999 (filed as Exhibit 10.6 to
                            the Equity Registration Statement, Amendment No. 8, dated
                            September 29, 1999)
         10.7*           -- Shareholders Agreement by and among Metrogas S.A.,
                            Williams International Telecom (Chile) Limited, and
                            Metrocom S.A., dated March 30, 1999, and Letter Agreement
                            dated March 30, 1999 (filed as Exhibit 10.8 the Equity
                            Registration Statement, Amendment No. 3, dated July 29,
                            1999)
         10.8*           -- Share Purchase Agreement by and Among Lightel, S.A.
                            Technologia de Informacao, Williams International ATL
                            Limited, Johi Representacoes Ltda, and ATL-Algar Telecom
                            Leste, S.A., dated as of March 25, 1999 (filed as Exhibit
                            10.9 to the Equity Registration Statement, Amendment No.
                            1, dated May 27, 1999)
         10.9*           -- Master Alliance Agreement between SBC Communications Inc.
                            and Williams Communications, Inc., dated February 8, 1999
                            (filed as Exhibit 10.10 the Equity Registration
                            Statement, Amendment No. 1, dated May 27, 1999)
</Table>

                                       IV-2
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.10*          -- Transport Services Agreement dated February 8, 1999,
                            between Southwestern Bell Communication Services, Inc.,
                            and Williams Communications, Inc. (filed as Exhibit 10.11
                            to the Equity Registration Statement, Amendment No. 1,
                            dated May 27, 1999)
         10.11*          -- Securities Purchase Agreement dated February 8, 1999,
                            between SBC Communications Inc. and WCG (filed as Exhibit
                            10.12 to the Equity Registration Statement, Amendment No.
                            1, dated May 27, 1999)
         10.12*          -- Amended and Restated Lease for Bank of Oklahoma Tower, as
                            of January 1, 1999, by and between Williams Headquarters
                            Building Company and TWC (filed as Exhibit 10.14 the
                            Equity Registration Statement, Amendment No. 1, dated May
                            27, 1999)
         10.13*          -- Lease as of January 1, 1999, for Williams Technology
                            Center, by and between Williams Headquarters Building
                            Company and WCG (filed as Exhibit 10.15 to the Equity
                            Registration Statement, Amendment No. 1, dated May 27,
                            1999)
         10.14*          -- Lease as of January 1, 1999, for Williams Resource
                            Center, by and between Williams Headquarters Building
                            Company and WCG (filed as Exhibit 10.16 the Equity
                            Registration Statement, Amendment No. 1, dated May 27,
                            1999)
         10.15*          -- Wireless Fiber IRU Agreement by and between WinStar
                            Wireless, Inc., and Williams Communications, Inc.,
                            effective as of December 17, 1998 (filed as Exhibit 10.17
                            to the Equity Registration Statement, Amendment No. 1,
                            dated July 12, 1999)
         10.16*          -- IRU Agreement between WinStar Wireless, Inc., and
                            Williams Communications, Inc., dated December 17, 1998
                            (long haul), together with Clarification Agreement
                            effective as of December 17, 1998, and Side Agreement
                            dated March 31, 1999 (filed as Exhibit 10.18 to the
                            Equity Registration Statement, Amendment No. 1, dated May
                            27, 1999)
         10.17*          -- UtiliCom Networks, Inc., Note and Warrant Purchase
                            Agreement dated December 15, 1998 (filed as Exhibit 10.19
                            to the Equity Registration Statement, Amendment No. 3,
                            dated July 12, 1999)
         10.18*          -- Consolidated IRU Agreement by and among IXC Carrier,
                            Inc., Vyvx, Inc., and The WilTech Group, dated December
                            9, 1998, and Amendment No. 4, dated December 22, 1998
                            (filed as Exhibit 10.20 to the Equity Registration
                            Statement, Amendment No. 2, dated July 6, 1999)
         10.19*          -- Stock Purchase Agreement for CNG Computer Networking
                            Group Inc. by and among The Sellers (1310038 Ontario
                            Inc., George Johnston, Hayden Marcus, The H. Marcus
                            Family Trust, and Gary White), WilTel Communications
                            (Canada), Inc., and Williams Communications Solutions,
                            LLC, dated October 13, 1998 (filed as Exhibit 10.21 to
                            the Equity Registration Statement, Amendment No. 6, dated
                            August 18, 1999)
         10.20*          -- Preferred Stock Purchase by and among UniDial Holdings,
                            Inc., and Williams Communications, Inc., dated October 2,
                            1998 (filed as Exhibit 10.22 to the Equity Registration
                            Statement, Amendment No. 6, dated August 18, 1999)
</Table>

                                       IV-3
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.21*          -- Amended and Restated Lease between State Street Bank &
                            Trust Co. of Connecticut, National Association, as
                            Lessor, and Williams Communications, Inc., as Lessee, as
                            of September 2, 1998 (filed as Exhibit 10.23 to the
                            Equity Registration Statement, Amendment No. 3, dated
                            July 12, 1999)
         10.22*          -- Amended and Restated Participation Agreement dated as of
                            September 2, 1998, among Williams Communications, Inc.;
                            State Street Bank & Trust Company of Conn., National
                            Association, as Trustee; Note Holders and Certificate
                            holders; APA Purchasers; State Street Bank & Trust Co.,
                            as Collateral Agent; Citibank, N.A., as agent, with
                            Citibank, N.A. and Bank of Montreal as Co-Arrangers;
                            Royal Bank of Canada, as Documentation Agent; and Bank of
                            America, The Chase Manhattan Bank, and Toronto Dominion,
                            as Managing Agents (filed as Exhibit 10.24 to the Equity
                            Registration, Amendment No. 1, dated May 27, 1999)
         10.23*          -- Capacity Purchase Agreement between Williams
                            Communications, Inc., and Intermedia Communications,
                            Inc., dated January 5, 1998, and Amendment dated August
                            5, 1998 (filed as Exhibit 10.25 to the Equity
                            Registration Statement, Amendment No. 6, dated August 18,
                            1999)
         10.24*          -- Settlement and Release Agreement by and between WorldCom
                            Network Services, Inc., and Williams Communications,
                            Inc., dated July 1, 1998 (filed as Exhibit 10.26 to the
                            Equity Registration Statement, Amendment No. 6, dated
                            August 18, 1999)
         10.25*          -- Umbrella Agreement by and among DownTown Utilities Pty
                            Limited, WilTel Communications Pty Limited, Spectrum
                            Network Systems Limited, CitiPower Pty, Energy Australia,
                            South East Queensland Electricity Corporation Limited,
                            Williams Holdings of Delaware Inc., and Williams
                            International Services Company, dated June 19, 1998
                            (filed as Exhibit 10.27 to the Equity Registration
                            Statement, Amendment No. 1, dated May 27, 1999)
         10.26*          -- Carrier Services Agreement between Vyvx, Inc., and U S
                            WEST Communications, Inc., dated January 5, 1998, and
                            Amendment No. 1, dated June 14, 1999 (filed as Exhibit
                            10.28 to the Equity Registration Statement, Amendment No.
                            1, dated May 27, 1999)
         10.27*          -- Distributorship Agreement by and between Northern Telecom
                            Limited and WilTel Communications, L.L.C., dated January
                            1, 1998 (filed as Exhibit 10.29 to the Equity
                            Registration Statement, Amendment No. 6, dated August 18,
                            1999)
         10.28*          -- Common Stock and Warrant Purchase Agreement by and
                            between Concentric Network Corporation and WCG, dated
                            July 25, 1997 (filed as Exhibit 10.30 to the Equity
                            Registration, Amendment No. 1, dated May 27, 1999)
         10.29*          -- Note and Warrant Purchase Agreement by and between
                            Concentric Network Corporation and WCG, dated June 19,
                            1997 (filed as Exhibit 10.31 to the Equity Registration
                            Statement, Amendment No. 3, dated July 12, 1999)
</Table>

                                       IV-4
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.30*          -- Limited Liability Company Agreement of WilTel
                            Communications, LLC, by and between WCG and Northern
                            Telecom, Inc., dated April 30, 1997 (filed as Exhibit
                            10.32 to the Equity Registration Statement, Amendment No.
                            6, dated August 18, 1999)
         10.31*          -- Share Purchase Agreement for TTS Meridian Systems Inc. by
                            and among Northern Telecom Limited, WilTel
                            Communications, LLC, and 1228966 Ontario Inc., dated
                            April 30, 1997 (filed as Exhibit 10.33 to the Equity
                            Registration Statement, Amendment No. 6 dated August 18,
                            1999)
         10.32*          -- Formation Agreement by and between Northern Telecom, Inc.
                            and WCG dated April 1, 1997 (filed as Exhibit 10.34 to
                            the Equity Registration Statement, Amendment No. 6, dated
                            August 18, 1999)
         10.33*          -- Purchase Agreement among ABC Industria e Comercio
                            S.A. -- ABC INCO, Lightel S.A. Tecnologia da Informacao,
                            Algar S.A. -- Empreendimentos e Participacoes, and
                            Williams International Telecom Limited, dated January 21,
                            1997 (filed as Exhibit 10.35 to the Equity Registration
                            Statement, Amendment No. 1, dated May 27, 1999)
         10.34*          -- Subscription and Shareholders Agreement among Lightel
                            S.A. Tecnologia da Informacao, Algar
                            S.A. -- Empreendimentos e Participacoes, and Williams
                            International Telecom Limited, dated January 21, 1997
                            (filed as Exhibit 10.36 to the Equity Registration
                            Statement, Amendment 1, dated May 27, 1999)
         10.35*          -- Sublease Agreement as of June 1, 1996, by and between
                            Transcontinental Gas Pipeline Company and Williams
                            Telecommunications Systems, Inc. (filed as Exhibit 10.37
                            to the Equity Registration Statement, Amendment No. 1,
                            dated May 27, 1999)
         10.36*          -- System Use and Service Agreement between WilTel, Inc.,
                            and Vyvx, Inc., effective as of January 1, 1994 (filed as
                            Exhibit 10.38 to the Equity Registration Statement,
                            Amendment No. 1, dated May 27, 1999)
         10.37*          -- Administrative Services Agreement dated September 30,
                            1999, between WCG and its Subsidiaries as identified
                            therein and TWC and its Subsidiaries as identified
                            therein (filed as Exhibit 10.1 to the October 1999 8-K)
         10.38*          -- Service Agreement September 30, 1999, between Williams
                            Information Services Corporation ("WISC") and WCG (filed
                            as Exhibit 10.2 to the October 1999 8-K)
         10.39*          -- Tax Sharing Agreement dated September 30, 1999, between
                            TWC and WCG (filed as Exhibit 10.3 to the October 1999
                            8-K)
         10.40*          -- Indemnification Agreement dated September 1, 1999,
                            between TWC and WCG (filed as Exhibit 10.4 to the October
                            1999 8-K)
         10.41*          -- Rights Agreement between WCG and The Bank of New York,
                            Rights Agent, dated as of September 30, 1999 (filed as
                            Exhibit 10.5 to the October 1999 8-K)
         10.42*          -- Registration Rights Agreement dated September 30, 1999,
                            between TWC and WCG (filed as Exhibit 10.6 to the October
                            1999 8-K)
         10.43*          -- Separation Agreement dated September 30, 1999, between
                            TWC and WCG (filed as Exhibit 10.7 to the October 1999
                            8-K)
</Table>

                                       IV-5
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.44*          -- Call option agreement by and among Williams Holdings of
                            Delaware, Inc., Williams International Company, Williams
                            International Telecom Limited, and WCG dated May 27, 1999
                            (filed as Exhibit 10.46 to the Equity Registration
                            Statement, Amendment No. 1, dated May 27, 1999)
         10.45*          -- Cross License Agreement dated September 30, 1999, between
                            WISC, TWC, and WCG (filed as Exhibit 10.8 to the October
                            1999 8-K)
         10.46*          -- Technical, Management and Administrative Service
                            Agreement dated May 27, 1999, between Williams
                            International Company and WCG (filed as Exhibit 10.9 to
                            the October 1999 8-K)
         10.47*          -- The Williams Companies, Inc. 1996 Stock Plan (filed as
                            Exhibit 10.49 to the Equity Registration Statement,
                            Amendment No. 1, dated May 27, 1999)
         10.48*          -- The Williams Companies, Inc. Stock Plan for Nonofficer
                            Employees (filed as Exhibit 10.50 to the Equity
                            Registration Statement, Amendment No. 1, dated May 27,
                            1999)
         10.49*          -- Williams Communications Stock Plan (filed as Exhibit
                            10.51 to the Equity Registration Statement, Amendment No.
                            1, dated May 27, 1999)
         10.50*          -- Williams Communications Group, Inc. 1999 Stock Plan
                            (filed as Exhibit 10.52 to the Equity Registration
                            Statement, Amendment No. 3, dated July 12, 1999)
         10.51*          -- Williams Pension Plan (filed as Exhibit 10.53 to the
                            Equity Registration Statement, Amendment No. 1, dated May
                            27, 1999)
         10.52*          -- Solutions LLC Pension Plan (filed as Exhibit 10.54 to the
                            Equity Registration Statement, Amendment No. 1, dated May
                            27, 1999)
         10.53*          -- Williams Communications Change in Control Severance Plan
                            (filed as Exhibit 10.55 to the Equity Registration
                            Statement, Amendment No. 3, dated July 12, 1999)
         10.54*          -- Stock Purchase Agreement by and between Williams
                            Communications, Inc. Conferencing Acquisition Corporation
                            and Genesys, S.A. dated as of June 30, 1999 (filed as
                            Exhibit 10.56 to the Equity Registration Statement,
                            Amendment No. 6, dated August 18, 1999)
         10.55*          -- Loan agreement dated as of September 8, 1999, between
                            Williams Communications, Inc. and TWC (filed as Exhibit
                            10.57 to the Equity Registration Statement, Amendment No.
                            8, dated September 29, 1999)
         10.56*          -- Williams Communications, Inc. Senior Credit Facilities
                            Commitment Letter, dated June 2, 1999. (filed as Exhibit
                            10.58 to the Equity Registration Statement, Amendment No.
                            4, July 14, 1999)
         10.57*          -- Credit Agreement dated as of September 8, 1999, among
                            Williams Communications, Inc., WCG, the Lenders party
                            thereto, Bank of America, N.A. as Administrative Agent,
                            and The Chase Manhattan Bank as Syndication Agent (filed
                            as Exhibit 10.60 to the Equity Registration Statement,
                            Amendment No. 8, dated September 29, 1999)
         10.58*          -- Intercreditor Agreement dated as of September 8, 1999,
                            among TWC, WCG, Williams Communications, Inc., and Bank
                            of America, N.A. as Administrative Agent (filed as
                            Exhibit 10.61 the Equity Registration Statement,
                            Amendment No. 8, dated September 29, 1999)
</Table>

                                       IV-6
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.59*          -- Subsidiary Guarantee dated as of September 8, 1999, of
                            each of Critical Connections, Inc., WCS Communications
                            Systems, Inc., WCS Microwave Services, Inc., WCS, Inc.,
                            Williams Communications of Virginia, Inc., Williams
                            International Ventures Company, Williams Learning
                            Network, Inc., Williams Local Network, Inc., and Williams
                            Wireless, Inc., in favor of Bank of America, N.A. as
                            Administrative Agent (filed as Exhibit 10.62 to the
                            Equity Registration Statement, Amendment No. 8, dated
                            September 29, 1999)
         10.60*          -- Securities Purchase Agreement Amendment and Addendum
                            dated as of September 24, 1999, among TWC, WCG, and SBC
                            Communications, Inc. (filed as Exhibit 10.64 to the
                            Equity Registration Statement, Amendment No. 8, dated
                            September 29, 1999)
         10.61*          -- Amendment No. 1 dated as of December 31, 1999, to Credit
                            Agreement dated as of September 8, 1999, among Williams
                            Communications, Inc. ("WCI"), WCG, the Lenders party
                            thereto, and Bank of America, N.A., The Chase Manhattan
                            Bank, Bank of Montreal, and The Bank of New York, as
                            agents thereunder (filed as Exhibit 10.60.1 to the
                            Quarterly Report on Form 10-Q for the quarterly period
                            ended June 30, 2000, as filed on August 10, 2000)
         10.62*          -- Amendment No. 2 dated as of December 31, 1999, to Credit
                            Agreement dated as of September 8, 1999, among WCI, WCG,
                            the Lenders party thereto, and Bank of America, N.A., The
                            Chase Manhattan Bank, Bank of Montreal, and The Bank of
                            New York, as agents thereunder (filed as Exhibit 10.60.2
                            to the Quarterly Report on Form 10-Q for the quarterly
                            period ended June 30, 2000, as filed on August 10, 2000)
         10.63*          -- Amended and Restated Credit Agreement dated as of
                            September 1, 2000, to the Credit Agreement dated as of
                            September 8, 1999, among WCI, WCG, the lenders party
                            thereto and Bank of America, N.A., The Chase Manhattan
                            Bank, Bank of Montreal, and The Bank of New York, as
                            agents thereunder (filed as Exhibit 10.63 to the October
                            2000 S-4)
         10.64*          -- Sale and Purchase Agreement by and among Williams
                            Communications, LLC, Williams Learning Network, Inc.,
                            Williams Communications Solutions, LLC, Platinum Equity,
                            LLC, WCS Acquisition Corporation, and WCS Acquisition
                            LLC, dated as of January 29, 2001 (filed as Exhibit 10.64
                            to the Annual Report on Form 10-K for the year ended
                            December 31, 2000, as filed on March 12, 2001).
         10.65*          -- Amended and Restated Separation Agreement dated April 23,
                            2001, by and between TWC and WCG (filed as Exhibit 99.1
                            to the Current Report on Form 8-K dated May 3, 2001, (the
                            "May 3, 2001, 8-K"))
         10.66*          -- Amended and Restated Administrative Services Agreement
                            dated April 23, 2001, between TWC, those certain
                            subsidiaries of TWC collectively referred to as the
                            "Williams Subsidiaries," WCG and those certain
                            subsidiaries of WCG listed collectively as the
                            "Communications Subsidiaries" (filed as Exhibit 99.2 to
                            the May 3, 2001, 8-K)
         10.67*          -- Tax Sharing Agreement entered into as of the 30th day of
                            September, 1999, and amended and restated as of the 23rd
                            day of April 2001, by and between TWC and WCG (filed as
                            Exhibit 99.3 to the May 3, 2001, 8-K)
</Table>

                                       IV-7
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.68*          -- Amended and Restated Indemnification Agreement dated
                            April 23, 2001, by and between TWC and WCG (filed as
                            Exhibit 99.4 to the May 3, 2001, 8-K)
         10.69*          -- Shareholder Agreement dated April 23, 2001, by and
                            between TWC and WCG (filed as Exhibit 99.5 to the May 3,
                            2001, 8-K)
         10.70*          -- Amended and Restated Employee Benefits Agreement dated
                            April 23, 2001, by and between TWC and WCG (filed as
                            Exhibit 99.6 to the May 3, 2001, 8-K)
         10.71*          -- Deferral Letter dated April 23, 2001, by and between TWC
                            and WCG (filed as Exhibit 99.7 to the May 3, 2001, 8-K)
         10.72*          -- Amendment No. 4 dated March 14, 2001, to the Amended and
                            Restated Credit Agreement dated September 8, 1999, among
                            Williams Communications, LLC, WCG, the Lenders party
                            thereto, Bank of America, N.A., as Administrative Agent,
                            and The Chase Manhattan Bank as Syndication Agent (filed
                            as Exhibit 10.72 to the Quarterly Report on Form 10-Q for
                            the quarter ended March 31, 2001, as filed on May 10,
                            2001)
         10.73*          -- Amendment No. 5 dated April 25, 2001, to the Amended and
                            Restated Credit Agreement dated September 8, 1999, among
                            Williams Communications, LLC, WCG, the Lenders party
                            thereto, Bank of America, N.A., as Administrative Agent,
                            and The Chase Manhattan Bank as Syndication Agent (filed
                            as Exhibit 10.73 to the Quarterly Report on Form 10-Q for
                            the quarter ended March 31, 2001, as filed on May 10,
                            2001)
         10.74*          -- Participation Agreement dated March 22, 2001, by and
                            among TWC, WCG, Williams Communications, LLC, WCG Note
                            Trust, WCG Note Corp., Inc., Williams Share Trust, United
                            States Trust Company of New York, and Wilmington Trust
                            Company (filed as Exhibit 10.74 to the Quarterly Report
                            on Form 10-Q for the quarter ended March 31, 2001, as
                            filed on May 10, 2001)
         10.75*          -- Indenture dated March 28, 2001, among WCG Note Trust, WCG
                            Note Corp., Inc., and United States Trust Company of New
                            York, as Indenture Trustee and Securities Intermediary
                            (filed as Exhibit 10.75 to the Quarterly Report on Form
                            10-Q for the quarter ended March 31, 2001, as filed on
                            May 10, 2001)
         10.76*          -- Indenture dated March 28, 2001, between the Company and
                            United States Trust Company of New York, as Trustee
                            (filed as Exhibit 10.76 to the Quarterly Report on Form
                            10-Q for the quarter ended March 31, 2001, as filed on
                            May 10, 2001)
         10.77*          -- WCG Note Remarketing and Registration Rights Agreement
                            dated March 28, 2001, between TWC, WCG, Williams
                            Communications, LLC, WCG Note Trust, United States Trust
                            Company of New York, as Indenture Trustee and WCG Note
                            Indenture Trustee, and Credit Suisse First Boston
                            Corporation, as Initial WCG Note Remarketing Agent (filed
                            as Exhibit 10.77 to the Quarterly Report on Form 10-Q for
                            the quarter ended March 31, 2001, as filed on May 10,
                            2001)
</Table>

                                       IV-8
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.78*          -- Sale and Purchase Agreement dated as of March 26, 2001,
                            by and among WCS, Inc., Williams Communications, LLC, and
                            TELUS Communications Inc. (filed as Exhibit 10.78 to the
                            Quarterly Report on Form 10-Q for the quarter ended June
                            30, 2001, as filed on August 10, 2001)
         10.79*          -- Option Agreement dated as of February 12, 2001, by and
                            among Williams Communications, LLC, Williams
                            International Telecom Limited, and Telecom Americas, Ltd.
                            (filed as Exhibit 10.79 to the Quarterly Report on Form
                            10-Q for the quarter ended June 30, 2001, as filed on
                            August 10, 2001)
         10.80*          -- Agreement dated as of May 23, 2001, by and among Telecom
                            Americas, Ltd., Williams International Telecom Limited,
                            Williams Communications, LLC, and America Movil, S.A. de
                            C.V. (filed as Exhibit 10.80 to the Quarterly Report on
                            Form 10-Q for the quarter ended June 30, 2001, as filed
                            on August 10, 2001)
         10.81*          -- Stock Purchase Agreement dated as of June 24, 2001, by
                            and among iBEAM Broadcasting Corporation, Williams
                            Communications, LLC, Allen & Company Incorporated, and
                            Lunn iBEAM, LLC (filed as Exhibit 10.81 to the Quarterly
                            Report on Form 10-Q for the quarter ended June 30, 2001,
                            as filed on August 10, 2001)
         10.82*          -- Stockholders Agreement dated as of July 10, 2001, by and
                            among Williams Communications, LLC, iBEAM Broadcasting
                            Corporation, the other stockholders of iBEAM Broadcasting
                            Corporation, and certain other parties (filed as Exhibit
                            10.82 to the Quarterly Report on Form 10-Q for the
                            quarter ended June 30, 2001, as filed on August 10, 2001)
         10.83*          -- Agreement of Purchase and Sale among Williams Technology
                            Center, LLC, as Seller, Williams Headquarters Building
                            Company, as Purchaser, and Williams Communications, LLC,
                            as Guarantor executed effective as of September 13, 2001
                            (filed as Exhibit 10.83 to the Quarterly Report on Form
                            10-Q for the quarter ended September 30, 2001, as filed
                            on November 14, 2001)
         10.84*          -- Amendment and Consent dated as of August 24, 2001, with
                            respect to Williams Communications, LLC, Securitized
                            Asset Defeasance Program (filed as Exhibit 10.84 to the
                            Quarterly Report on Form 10-Q for the quarter ended
                            September 30, 2001, as filed on November 14, 2001)
         10.85*          -- Amendment No. 1 to Security Agreement dated September 17,
                            2001, among Williams Communications, LLC, WCG, the
                            Subsidiary Loan Parties party thereto, and Bank of
                            America, N.A. as Administrative Agent (filed as Exhibit
                            10.85 to the Quarterly Report on Form 10-Q for the
                            quarter ended September 30, 2001, as filed on November
                            14, 2001)
         10.86*          -- Interim Agreement by and among Winstar Wireless, Inc.,
                            Winstar Communications, Inc., and Williams
                            Communications, LLC (f/k/a Williams Communications, Inc.)
                            as of the Effective Date of June 30, 2001 (filed as
                            Exhibit 10.86 to the Quarterly Report on Form 10-Q for
                            the quarter ended September 30, 2001, as filed on
                            November 14, 2001)
</Table>

                                       IV-9
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.87*          -- Amendment Number One to Wireless Fiber(SM) IRU Agreement
                            by and between Winstar Wireless, Inc., and Williams
                            Communications, Inc. created on August 15, 2001 (filed as
                            Exhibit 10.87 to the Quarterly Report on Form 10-Q for
                            the quarter ended September 30, 2001, as filed on
                            November 14, 2001)
         10.88*          -- Option Agreement made and entered into as of the August
                            27, 2001, by and between Williams Communications, LLC,
                            and Winstar Wireless, Inc. including the IRU Agreement
                            between Winstar Wireless, Inc., and Williams
                            Communications, LLC (filed as Exhibit 10.88 to the
                            Quarterly Report on Form 10-Q for the quarter ended
                            September 30, 2001, as filed on November 14, 2001)
         10.89*          -- Master Lease entered into by and among Williams
                            Headquarters Building Company, Williams Technology
                            Center, and Williams Communications, LLC effective
                            September 13, 2001 (filed as Exhibit 10.89 to the
                            Quarterly Report on Form 10-Q for the quarter ended
                            September 30, 2001, as filed on November 14, 2001)
         10.90*          -- Security Agreement among Williams Communications, LLC,
                            WCG, The Subsidiary Loan Parties, and Bank of America,
                            N.A., dated April 23, 2001 (filed as Exhibit 10.90 to the
                            Quarterly Report on Form 10-Q for the quarter ended
                            September 30, 2001, as filed on November 14, 2001)
         10.91           -- Asset Sale Agreement dated as of October 11, 2001, by and
                            between iBeam Broadcasting Corporation and Williams
                            Communications, LLC
         10.92           -- Debtor-in-Possession Credit and Security Agreement dated
                            as of October 11, 2001, by and between iBeam Broadcasting
                            Corporation and Williams Communications, LLC
         10.93           -- Fee Letter dated October 11, 2001, from Williams
                            Communications, LLC to iBeam Broadcasting Corporation
         10.94           -- Side Letter Agreement dated October 19, 2001, to the
                            Amended and Restated Credit Agreement dated September 8,
                            1999, among Williams Communications, LLC, WCG, the
                            Lenders party thereto, Bank of America, N.A., as
                            Administrative Agent, and The Chase Manhattan Bank as
                            Syndication Agent
         10.95           -- Amendment No. 6 dated October 30, 2001, to the Amended
                            and Restated Credit Agreement dated September 8, 1999,
                            among Williams Communications, LLC, WCG, the Lenders
                            party thereto, Bank of America, N.A., as Administrative
                            Agent, and The Chase Manhattan Bank as Syndication Agent
         10.96           -- Asset Purchase Agreement by and between CoreExpress,
                            Inc., and Williams Communications, LLC, dated as of
                            October 31, 2001
         10.97           -- Amendment dated December 3, 2001, to Asset Purchase
                            Agreement by and between CoreExpress, Inc., and Williams
                            Communications, LLC, dated as of October 31, 2001
         10.98           -- First Amendment dated as of December 7, 2001, to the
                            Asset Sale Agreement dated as of October 11, 2001, by and
                            between iBeam Broadcasting Corporation and Williams
                            Communications, LLC
</Table>

                                      IV-10
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.99           -- Amendment No. 1 dated December 7, 2001, to
                            Debtor-in-Possession Term Credit and Security Agreement
                            dated as of October 11, 2001, by and between iBeam
                            Broadcasting Corporation and Williams Communications, LLC
         10.100          -- Private Foreclosure Sale Agreement dated as of December
                            20, 2001, among Williams Communications, LLC,
                            (Purchaser); CoreExpress, Inc. (Debtor); Cisco Systems
                            Capital Corporation, Cisco Systems, Inc., Nortel
                            Networks, Inc., UMB Bank & Trust, N.A., and Morgan
                            Stanley & Co. (Senior Secured Parties); and Juniper
                            Networks Credit Corporation, Commercial and Municipal
                            Financial Corporation, Sumner Group, Inc., CIT
                            Technologies Corporation d/b/a Technology Rentals and
                            Services, Inc., Sunrise Leasing Corporation d/b/a Cisco
                            Systems Capital Corporation, and Hewlett-Packard Co.
                            (Purchase Money Lenders)
         10.101          -- Amendment No. 1 dated January 14, 2002, to Side Letter
                            Agreement dated October 19, 2001, to the Amended and
                            Restated Credit Agreement dated September 8, 1999, among
                            Williams Communications, LLC, WCG, the Lenders party
                            thereto, Bank of America, N.A., as Administrative Agent,
                            and The Chase Manhattan Bank as Syndication Agent
         10.102          -- Amendment No. 2 dated January 28, 2002, to Side Letter
                            Agreement dated October 19, 2001, to the Amended and
                            Restated Credit Agreement dated September 8, 1999, among
                            Williams Communications, LLC, WCG, the Lenders party
                            thereto, Bank of America, N.A., as Administrative Agent,
                            and The Chase Manhattan Bank as Syndication Agent
         10.103          -- Amendment No. 3 dated February 28, 2002, to Side Letter
                            Agreement dated October 19, 2001, to the Amended and
                            Restated Credit Agreement dated September 8, 1999, among
                            Williams Communications, LLC, WCG, the Lenders party
                            thereto, Bank of America, N.A., as Administrative Agent,
                            and The Chase Manhattan Bank as Syndication Agent
         10.104          -- Amendment No. 4 dated March 27, 2002, to Side Letter
                            Agreement dated September 8, 1999, among Williams
                            Communications, LLC, WCG, the Lenders party thereto, Bank
                            of America, N.A., as Administrative Agent, and The Chase
                            Manhattan Bank as Syndication Agent
         12              -- Statement re: Computation of Ratios
         21              -- Subsidiaries of the Registrant
         23              -- Consent of Ernst & Young, LLP
         24              -- Power of Attorney
</Table>

---------------

* Previously filed with the Securities and Exchange Commission as part of the
  filing indicated, and incorporated herein by reference.

     (b) WCG filed Current Reports on Form 8-K on October 12 and November 2,
2001, respectively, that reported significant events under Item 5 of the Form,
and on December 13, 2001, that reported an acquisition of assets under Item 2 of
the Form.

                                      IV-11
<PAGE>

                WILLIAMS COMMUNICATIONS GROUP, INC. -- (PARENT)

          SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                             (DOLLARS IN THOUSANDS)

BALANCE SHEETS

<Table>
<Caption>
                                                                  DECEMBER 31,
                                                            -------------------------
                                                               2001          2000
                                                            -----------   -----------
<S>                                                         <C>           <C>
ASSETS
  Current assets..........................................  $       761   $        --
  Investments:
     Equity in wholly-owned subsidiary....................   (5,613,313)   (1,450,499)
     Receivable from wholly-owned subsidiary..............    8,519,891     5,925,310
  Unamortized debt issuance costs.........................       52,735        74,633
                                                            -----------   -----------
           Total assets...................................  $ 2,960,074   $ 4,549,444
                                                            ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
     Accounts payable.....................................  $   100,000   $        --
     Due to wholly-owned subsidiary.......................       36,437            --
     Interest accrued.....................................       88,133       104,118
     Preferred stock dividends accrued....................        3,516         4,734
  Long-term debt:
     Senior redeemable notes..............................    2,438,692     2,986,598
     Wholly-owned subsidiary..............................    1,500,000            --
  6.75% redeemable cumulative convertible preferred
     stock................................................      242,338       240,722
STOCKHOLDERS' EQUITY (DEFICIT):
     Class A common stock.................................        4,910           682
     Class B common stock.................................           --         3,954
     Capital in excess of par value.......................    3,862,465     2,659,136
     Accumulated deficit..................................   (5,304,906)   (1,494,549)
     Accumulated other comprehensive income (loss)........      (11,511)       44,049
                                                            -----------   -----------
           Total stockholders' equity (deficit)...........   (1,449,042)    1,213,272
                                                            -----------   -----------
           Total liabilities and stockholders' equity
             (deficit)....................................  $ 2,960,074   $ 4,549,444
                                                            ===========   ===========
</Table>

                                       V-1
<PAGE>
                WILLIAMS COMMUNICATIONS GROUP, INC. -- (PARENT)

   SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
                             (DOLLARS IN THOUSANDS)

STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                        YEAR ENDED DECEMBER 31,
                                                  -----------------------------------
                                                     2001         2000        1999
                                                  -----------   ---------   ---------
<S>                                               <C>           <C>         <C>
Interest accrued................................  $  (331,529)  $(271,532)  $ (52,630)
Intercompany interest income....................      331,529     271,532      52,630
                                                  -----------   ---------   ---------
Income from continuing operations before equity
  in net loss of wholly-owned subsidiary........           --          --          --
Equity in net loss of wholly-owned subsidiary...   (4,107,253)   (277,688)   (328,312)
                                                  -----------   ---------   ---------
Loss from continuing operations.................   (4,107,253)   (277,688)   (328,312)
Loss from discontinued operations...............           --    (540,000)    (31,389)
                                                  -----------   ---------   ---------
Loss before extraordinary gain..................   (4,107,253)   (817,688)   (359,701)
Extraordinary gain..............................      296,896          --          --
                                                  -----------   ---------   ---------
Net loss........................................   (3,810,357)   (817,688)   (359,701)
Preferred stock dividends and amortization of
  preferred stock issuance costs................      (17,568)     (4,956)         --
                                                  -----------   ---------   ---------
Net loss attributable to common stockholders....  $(3,827,925)  $(822,644)  $(359,701)
                                                  ===========   =========   =========
</Table>

STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                       YEAR ENDED DECEMBER 31,
                                               ---------------------------------------
                                                  2001          2000          1999
                                               -----------   -----------   -----------
<S>                                            <C>           <C>           <C>
Net cash provided by operating activities....  $        --   $        --   $        --
FINANCING ACTIVITIES
  Change in receivable from wholly-owned
     subsidiary..............................   (1,261,289)   (1,214,869)   (3,491,517)
  Proceeds from long-term debt...............    1,500,000       996,982     1,988,735
  Purchase of long-term debt.................     (239,539)           --            --
  Proceeds from issuance of common stock, net
     of expenses.............................       18,904         4,166     1,468,085
  Proceeds from issuance of preferred stock,
     net of expenses.........................           --       240,500            --
  Debt issuance costs........................           --       (26,779)      (56,593)
  Capital contributions from The Williams
     Companies, Inc..........................           --            --        91,290
  Preferred stock dividends paid.............      (18,076)           --            --
                                               -----------   -----------   -----------
                                                        --            --            --
                                               -----------   -----------   -----------
Increase in cash and cash equivalents........           --            --            --
Cash and cash equivalents at beginning of
  period.....................................           --            --            --
                                               -----------   -----------   -----------
Cash and cash equivalents at end of period...  $        --   $        --   $        --
                                               ===========   ===========   ===========
</Table>

                                       V-2
<PAGE>

                WILLIAMS COMMUNICATIONS GROUP, INC. -- (PARENT)

          SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    NOTES TO CONDENSED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

     Williams Communications Group, Inc. -- (Parent) (WCG (Parent)) owns 100% of
the equity of its operating subsidiary, Williams Communications, LLC (WCL). In
WCG (Parent)'s financial statements, WCG (Parent)'s investment in the equity of
wholly-owned subsidiary is stated at cost plus equity in undistributed losses of
WCL since the date of acquisition. WCG (Parent)'s share of net loss of its
wholly-owned unconsolidated subsidiary is included in consolidated net loss
using the equity method. WCG (Parent) financial statements should be read in
conjunction with Williams Communications Group, Inc.'s (WCG) consolidated
financial statements.

     WCG has experienced significant losses in 2001 and expects to incur
additional losses in 2002. In addition, WCG is not generating positive cash flow
from its operations nor is it expected to in 2002. As of December 31, 2001, WCG
had cash and short-term liquid investments of approximately $1.0 billion and
long-term debt of $975.0 million owed to its bank group (see Note 12 in the
consolidated financial statements for a complete discussion of all of WCG's
debt). In October 2001, because WCG did not have an immediate need to raise
additional cash and because of generally weak market conditions, WCG and its
bank group agreed to defer until 2003 a covenant that would have otherwise
required WCG to raise $224 million in cash, of which at least $150 million had
to be in the form of equity, by December 31, 2001. At that time, WCG also agreed
to work jointly with its bank group and the bank group's financial advisor to
perform a more comprehensive review of its credit facility. This review and
resulting amendments to the credit facility were expected to be completed in
January 2002. However, on January 29, 2002, the banks, through their
administrative agent, informed WCG that, in their view, WCG may be in default
under the terms of its credit facility, and the banks reserved their rights
accordingly. The possible default related to the fact that, due to negative
developments in the telecommunications industry and the value of WCG's assets,
the banks questioned whether WCG could confirm the representations and
warranties included in the credit facility. The banks also have reserved their
right to claim that the purchase by WCG of its senior redeemable notes in 2001
violated the terms of the credit facility. Because of the potential adverse
consequences to WCG if the banks were to conclude and notify WCG of a default
and attempt to accelerate its indebtedness, which could result in cross-defaults
under other material agreements and securities and foreclosure on substantially
all of WCG's assets upon which the banks have a lien, WCG agreed to develop a
comprehensive plan for restructuring and de-leveraging its balance sheet.
Through a series of agreements, the negotiation period with WCG's bank group has
been extended to April 26, 2002. In developing this plan, WCG, in consultation
with financial and legal advisors, has considered various restructuring
alternatives, the ultimate outcome of which will be influenced by stakeholders
of WCG.

     As a result of these factors, WCG is evaluating restructuring options in an
effort to develop a comprehensive plan to restructure and de-leverage its
balance sheet by reducing the amount of its indebtedness outstanding. Among the
options is reorganization under Chapter 11 of the U.S. Bankruptcy Code. WCG has
not committed to a Chapter 11 reorganization or any other option. WCG is
evaluating a Chapter 11 reorganization as a means to maximize enterprise value,
support the uninterrupted continuation of the business and minimize the damage
to customer and vendor relationships. Although WCG believes that, if it chooses
to reorganize under Chapter 11, these objectives can be furthered by the
negotiation of a plan of reorganization prior to filing for bankruptcy
protection with some or all of its stakeholders, WCG cannot assure that it can
negotiate a consensual plan of restructuring prior to any filing or at all.

                                       V-3
<PAGE>
                WILLIAMS COMMUNICATIONS GROUP, INC. -- (PARENT)

          SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
             NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

     WCG is engaged in discussions with representatives of three of its major
stakeholders, The Williams Companies, Inc. (TWC), certain holders of its senior
redeemable notes and its bank group, regarding the restructuring. The option
pursued by WCG will depend in part on the outcome of these discussions. To
successfully restructure, WCG must obtain the agreement of at least some of its
major stakeholders, each of which may view its own interest to be in conflict
with the others. WCG believes that preserving the value of the enterprise is
best effected by an expedited resolution to the restructuring process. However,
WCG cannot provide assurance that it will be able to effect a restructuring. The
Chapter 11 reorganization currently being evaluated would likely result in
substantial, if not total, dilution of WCG's shareholders.

     As detailed above and as reflected in WCG's report from its independent
public accountants, certain of WCG's creditors have informed WCG that in their
view, WCG may be in default under the terms of its credit facility. This
condition raises substantial doubt about WCG's ability to continue as a going
concern. Certain of WCG's debt agreements require that its annual financial
statements be accompanied by an opinion from its independent public accountants
that does not contain a "going concern" explanatory paragraph. Non compliance
with this term is an event of default. As a result of the inclusion of the going
concern explanatory paragraph in that report, WCG will not be able to satisfy
this term in the agreements. In addition, WCG anticipates that it may be in
default under other covenants in 2002. Consequently, unless WCG is able to
obtain a waiver of or amendment to this and certain other covenants in its
credit facility or refinance the indebtedness under its credit facility by April
30, 2002, an "Event of Default" will occur under the terms of the credit
facility. If an Event of Default occurs, the lenders under the credit facility
would not be obligated to make additional advances under the credit facility;
would be entitled to declare all amounts outstanding under the credit facility,
including accrued interest or other obligations, to be immediately due and
payable; and would be entitled to proceed against the collateral granted to them
to secure the debt under the credit facility. Substantially all of the assets of
WCG are pledged as collateral under the credit facility. Unless WCG is able to
obtain a waiver of or amendment to certain covenants in the credit facility,
cross-defaults could occur making substantially all of WCG's other long-term
debt due. In addition, WCG (Parent) anticipates making use of the 30-day grace
period for interest payments totaling approximately $91 million that would be
due on April 1, 2002 on approximately $1.7 billion face value of its senior
redeemable notes. If WCG (Parent) does not make the required payments within the
grace period, cross-defaults may give the senior redeemable noteholders and
other creditors the right to seek remedies. WCG does not have existing liquidity
sufficient to pay all amounts that would become due as a result of defaults
under the credit facility or the senior redeemable notes and, thus, would have
to find other means of liquidity, enter into separate agreements to restructure
its debt agreements, or file a voluntary petition under Chapter 11 of the U.S.
Bankruptcy Code in order to avoid the material adverse effects associated with
creditors foreclosing or exercising other remedies. These material adverse
effects could also include issuing debt, issuing equity, selling assets or
significantly reducing operations on terms that are not favorable to WCG.

     The accompanying condensed financial statements have been prepared on a
going concern basis of accounting, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
appropriateness of using the going concern basis is dependent upon, among other
things, the successful restructuring of WCG's balance sheet, future profitable
operations and the ability to generate sufficient cash from its operations and
financing arrangements to meet its obligations. Management believes that the
restructuring plan that it is developing, if

                                       V-4
<PAGE>
                WILLIAMS COMMUNICATIONS GROUP, INC. -- (PARENT)

          SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
             NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

successfully implemented, along with cash generated from its operations, will
provide sufficient liquidity to allow WCG to operate as a going concern.
However, there can be no assurance that the sources of liquidity will be
available or sufficient to meet WCG's needs, and accordingly, there is
substantial doubt about WCG's ability to continue as a going concern. The
condensed financial statements do not include any adjustments relating to
recoverability and classification of recorded asset amounts or the amount and
classification of liabilities that might be necessary should WCG be unable to
continue as a going concern.

2. RECEIVABLE FROM WHOLLY-OWNED SUBSIDIARY

     WCG (Parent)'s receivable from WCL consists of an eight-year promissory
note entered into on November 1, 1999. The note consists of $2.7 billion of
interest-bearing advances to WCL which bear interest at a rate equal to WCG's
senior redeemable notes described below, $1.5 billion of interest-bearing
advances to WCL which bear interest at a rate equal to the WCG Note described
below, $100.0 million of interest-bearing advances to WCL which bear interest at
a rate equal to the other financing arrangements with TWC described below and
$4.2 billion of non-interest bearing advances to WCL.

3. LONG-TERM DEBT

     Long-term debt as of December 31 consists of the following:

<Table>
<Caption>
                                                         2001         2000
                                                      ----------   ----------
                                                          (IN THOUSANDS)
<S>                                                   <C>          <C>
Senior redeemable notes, 10.70% -- 11.875%, due
  2007 -- 2010......................................  $2,438,692   $2,986,598
WCG Note due 2008...................................   1,500,000           --
</Table>

  Senior redeemable notes

     In the second half of 2001, a wholly-owned subsidiary of WCG purchased
$551.0 million of WCG (Parent's) senior redeemable notes in the open market at
an average price of 43% of face value. The purchase resulted in an extraordinary
gain of $296.9 million (net of a zero provision for income taxes) including the
recognition of deferred costs and debt discounts related to the purchased senior
redeemable notes.

     WCG (Parent) anticipates making use of the 30-day grace period for interest
payments totaling approximately $91 million that would be due on April 1, 2002
on approximately $1.7 billion face value of its senior redeemable notes. If WCG
(Parent) does not make the required payments within the grace period,
cross-defaults may give the senior redeemable noteholders and other creditors
the right to seek remedies.

  WCG Note

     In March 2001, WCG Note Trust, which is wholly-owned by WCL, a wholly-owned
subsidiary of WCG (Parent), issued approximately $1.4 billion of 8.25% senior
secured notes in a private placement. The notes are due March 15, 2004 with the
principal payment due in full at maturity and interest payments due
semi-annually in arrears on March 15 and September 15 of each year beginning
September 15, 2001. The notes may be repaid at varying redemption premiums or
make-whole prices, as defined.

                                       V-5
<PAGE>
                WILLIAMS COMMUNICATIONS GROUP, INC. -- (PARENT)

          SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
             NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

     The senior secured notes are backed by the WCG Note due 2008 of $1.5
billion note issued by WCG (Parent) to WCG Note Trust. The WCG Note issued by
WCG (Parent) will mature on March 31, 2008, and will bear interest at an annual
rate of 8.25% until September 15, 2003, at which time the interest rate will be
reset in accordance with the terms of such note. Interest on this note is
payable semiannually one business day prior to the interest payment dates with
respect to the senior secured notes. Under the terms of the note issued by WCG
(Parent) to WCG Note Trust, principal payments under the senior secured notes
will be met by remarketing to the public by September 2003 the note issued by
WCG (Parent) to WCG Note Trust to enable a sale at a price which will generate
proceeds sufficient to redeem the senior secured notes.

     In March 2002, TWC secured the consents of holders of the senior secured
notes guaranteed by TWC to amend a provision that would have caused the
acceleration of the notes in the event of a WCG bankruptcy or other events. The
amendment affirmed TWC's obligations for all payments under the notes and allows
TWC to fund the payments from any available sources. WCG is obligated to
reimburse TWC for the payments discussed above with the exception of the March
and September 2002 interest payments totaling approximately $115 million. WCG
Note Trust's obligation to reimburse TWC is secured by the $1.5 billion WCG Note
issued by WCG (Parent) to WCG Note Trust. Consequently, to the extent TWC makes
payments under these notes for which it is entitled to reimbursement, TWC will
have an unsecured claim against WCG.

  Asset defeasance program

     In 1998, WCG entered into an operating lease agreement covering a portion
of its fiber-optic network referred to as an asset defeasance program (ADP). The
total cost of the network assets covered by the lease agreement was $750
million. TWC guaranteed WCG's obligations under the lease. This obligation is
secured by the assets under the asset defeasance program. Interest on the debt
obligation was primarily based on average daily commercial paper rates and
effective in February 2002, interest is primarily based on the Prime rate.

     Pursuant to an agreement among WCG (Parent), WCL, TWC and the
administrative agent for WCG's bank group, TWC was obligated to fund the
purchase price of the network assets covered by the asset defeasance program. In
exchange for making that payment, TWC is entitled to receive debt from WCG
(Parent) in the amount of approximately $750 million that is subordinate to, and
neither matures nor requires any payments to be made earlier than one year after
the maturity of, WCL's credit facility. On March 29, 2002, TWC funded the
purchase price, the ADP assets were transferred to WCG, the asset defeasance
program was terminated and WCG (Parent) tendered an unsecured note to TWC for
approximately $750 million. TWC has reserved its rights with respect to the
transaction.

  Other financing arrangements

     As of December 31, 2001, WCG (Parent) owes TWC approximately $100 million
for various normal course services which is included in accounts payable. By
agreement with TWC, WCG (Parent) elected to defer payment of these payables
until September 15, 2002 at an interest rate of 8.25%.

4. GUARANTEE

     In September 1999, WCL entered into a $1.05 billion long-term credit
facility with various banks and in April 2001, WCL closed an add-on of $450
million to its credit facility. WCG

                                       V-6
<PAGE>
                WILLIAMS COMMUNICATIONS GROUP, INC. -- (PARENT)

          SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
             NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

(Parent) is a guarantor under this long-term credit facility. As of December 31,
2001, $975.0 million was outstanding under this facility. The long-term credit
facility restricts WCL's ability to transfer funds and pay dividends to WCG
(Parent). However, these restrictions allow WCL to transfer funds to WCG
(Parent) for regularly scheduled interest payments with respect to the senior
redeemable notes, WCG Note, as well as certain other payments as outlined in the
long-term credit facility agreement. The long-term credit facility expires in
September 2006.

5. DIVIDENDS FROM SUBSIDIARY

     WCG (Parent) did not receive any cash dividends in 2001, 2000 and 1999,
respectively, from its subsidiary, WCL.

                                       V-7
<PAGE>

                      WILLIAMS COMMUNICATIONS GROUP, INC.

              SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS(a)
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                       ADDITIONS
                                                 ---------------------
                                                 CHARGED TO
                                     BEGINNING   COSTS AND                               ENDING
                                      BALANCE     EXPENSES    OTHER(C)   DEDUCTIONS(B)   BALANCE
                                     ---------   ----------   --------   -------------   -------
<S>                                  <C>         <C>          <C>        <C>             <C>
Allowance for doubtful accounts:
  2001.............................   $21,501     $26,020      $8,551       $14,710      $41,362
  2000.............................     8,843       9,959       6,650         3,951       21,501
  1999.............................     1,536       1,066       9,275         3,034        8,843
</Table>

---------------

(a)  Deducted from related assets.

(b)  Represents balances written off, net of recoveries and reclassifications.

(c)  Primarily relates to acquisitions of businesses and billing adjustments.

                                       V-8
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          WILLIAMS COMMUNICATIONS GROUP, INC.
                                          (REGISTRANT)

                                          By:   /s/ P. DAVID NEWSOME, JR.
                                            ------------------------------------
                                                   P. David Newsome, Jr.
                                                      Attorney-in-fact

Dated: April 1, 2002

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.

<Table>
<Caption>
                    SIGNATURE                        TITLE
                    ---------                        -----
<C>     <C>                                          <S>

              /s/ HOWARD E. JANZEN*                  Chairman of the Board, President, and Chief
 ------------------------------------------------    Executive Officer (principal executive officer)
                 Howard E. Janzen

              /s/ SCOTT E. SCHUBERT*                 Chief Financial Officer (principal financial
 ------------------------------------------------    officer)
                Scott E. Schubert

                 /s/ KEN KINNEAR*                    Chief Accounting Officer (principal accounting
 ------------------------------------------------    officer)
                   Ken Kinnear

               /s/ PETER C. MEINIG*                  Director
 ------------------------------------------------
                 Peter C. Meinig

               /s/ MORGAN O'BRIEN*                   Director
 ------------------------------------------------
                  Morgan O'Brien

                /s/ JOHN A. CRAIG*                   Director
 ------------------------------------------------
                  John A. Craig

            /s/ JULIUS W. ERVING, II*                Director
 ------------------------------------------------
               Julius W. Erving, II

              /s/ H. BRIAN THOMPSON*                 Director
 ------------------------------------------------
                H. Brian Thompson

              /s/ ROBERT W. LAWLESS*                 Director
 ------------------------------------------------
                Robert W. Lawless


 *By:           /s/ P. DAVID NEWSOME, JR.
        -----------------------------------------
                  P. David Newsome, Jr.
                     Attorney-in-fact
</Table>

Dated: April 1, 2002
<PAGE>

                                 EXHIBIT INDEX

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
          3.1*           -- Restated Certificate of Incorporation of WCG (filed as
                            Exhibit 3.1 to the Current Report on Form 8-K dated
                            October 1, 1999 (the "October 1999 8-K"))
          3.2*           -- Restated By-laws of WCG (filed as Exhibit 3.2 to the
                            October 1999 8-K)
          3.3*           -- Restated By-laws of WCG as of September 27, 2001 (filed
                            as Exhibit 3.3 to the Quarterly Report on Form 10-Q for
                            the quarter ended September 30, 2001, as filed on
                            November 14, 2001)
          4.1*           -- Specimen certificate of common stock (filed as Exhibit
                            4.1 to Registration Statement No. 333-76007 on Form S-1
                            relating to an equity offering (the "Equity Registration
                            Statement"), dated April 9, 1999)
          4.2*           -- Certificate of designation of Series A Junior
                            Participating Preferred Stock (filed as Exhibit 4.1 to
                            the October 1999 8-K)
          4.3*           -- Specimen certificate of Class B common stock (filed as
                            Exhibit 4.2 to the Equity Registration Statement dated
                            April 9, 1999)
          4.4*           -- Indenture governing notes dated October 6, 1999, between
                            WCG and The Bank of New York, Trustee (filed as Exhibit
                            4.2 to the October 1999 8-K)
          4.5*           -- Indenture dated as of August 8, 2000, between WCG and The
                            Bank of New York, as trustee relating to the 11.70%
                            Senior Redeemable Notes due 2008 and the 11.875% Senior
                            Redeemable Notes due 2010 (filed as Exhibit 4.1 to the
                            S-4 dated October 12, 2000 (the "October 2000 S-4"))
          4.6*           -- Registration Rights Agreement dated as of August 8, 2000
                            between WCG and the initial purchasers (filed as Exhibit
                            4.2 to the October 2000 S-4)
          4.7*           -- Certificate of Designation of 6.75% Redeemable Cumulative
                            Convertible Preferred Stock (filed as Exhibit 4.4 to the
                            October 2000 S-4)
         10.1*           -- Securities Purchase Agreement among WCG, The Williams
                            Companies, Inc. ("TWC")and Telefonos de Mexico, S.A. de
                            C.V., dated May 25, 1999 (filed as Exhibit 10.1 to the
                            Equity Registration Statement, Amendment No. 1, dated May
                            27, 1999)
         10.2*           -- Amended and Restated Alliance Agreement Between Telefonos
                            de Mexico, S.A. de C.V., and Williams Communications,
                            Inc., dated May 25, 1999 (filed as Exhibit 10.2 to the
                            Equity Registration Statement, Amendment No. 8, dated
                            September 29, 1999)
         10.3*           -- Securities Purchase Agreement dated as of May 24, 1999,
                            by and among WCG, TWC, and Intel Corporation (filed as
                            Exhibit 10.3 to the Equity Registration Statement,
                            Amendment No. 3, dated July 12, 1999)
         10.4*           -- Master Alliance Agreement Between Intel Internet Data
                            Services and Williams Communications, Inc., dated as of
                            May 24, 1999 (filed as Exhibit 10.4 to the Equity
                            Registration Statement, Amendment No. 1, dated May 27,
                            1999)
         10.5*           -- Fiber Lease Agreement between Metromedia Fiber Network
                            Services, Inc., and Williams Communications, Inc., dated
                            September 16, 1999 (filed as Exhibit 10.5 to the Equity
                            Registration Statement, Amendment No. 8, dated September
                            29, 1999)
</Table>
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.6*           -- Fiber Lease Agreement between Williams Communications,
                            Inc., and Metromedia Fiber National Network Services,
                            Inc., dated September 16, 1999 (filed as Exhibit 10.6 to
                            the Equity Registration Statement, Amendment No. 8, dated
                            September 29, 1999)
         10.7*           -- Shareholders Agreement by and among Metrogas S.A.,
                            Williams International Telecom (Chile) Limited, and
                            Metrocom S.A., dated March 30, 1999, and Letter Agreement
                            dated March 30, 1999 (filed as Exhibit 10.8 the Equity
                            Registration Statement, Amendment No. 3, dated July 29,
                            1999)
         10.8*           -- Share Purchase Agreement by and Among Lightel, S.A.
                            Technologia de Informacao, Williams International ATL
                            Limited, Johi Representacoes Ltda, and ATL-Algar Telecom
                            Leste, S.A., dated as of March 25, 1999 (filed as Exhibit
                            10.9 to the Equity Registration Statement, Amendment No.
                            1, dated May 27, 1999)
         10.9*           -- Master Alliance Agreement between SBC Communications Inc.
                            and Williams Communications, Inc., dated February 8, 1999
                            (filed as Exhibit 10.10 the Equity Registration
                            Statement, Amendment No. 1, dated May 27, 1999)
         10.10*          -- Transport Services Agreement dated February 8, 1999,
                            between Southwestern Bell Communication Services, Inc.,
                            and Williams Communications, Inc. (filed as Exhibit 10.11
                            to the Equity Registration Statement, Amendment No. 1,
                            dated May 27, 1999)
         10.11*          -- Securities Purchase Agreement dated February 8, 1999,
                            between SBC Communications Inc. and WCG (filed as Exhibit
                            10.12 to the Equity Registration Statement, Amendment No.
                            1, dated May 27, 1999)
         10.12*          -- Amended and Restated Lease for Bank of Oklahoma Tower, as
                            of January 1, 1999, by and between Williams Headquarters
                            Building Company and TWC (filed as Exhibit 10.14 the
                            Equity Registration Statement, Amendment No. 1, dated May
                            27, 1999)
         10.13*          -- Lease as of January 1, 1999, for Williams Technology
                            Center, by and between Williams Headquarters Building
                            Company and WCG (filed as Exhibit 10.15 to the Equity
                            Registration Statement, Amendment No. 1, dated May 27,
                            1999)
         10.14*          -- Lease as of January 1, 1999, for Williams Resource
                            Center, by and between Williams Headquarters Building
                            Company and WCG (filed as Exhibit 10.16 the Equity
                            Registration Statement, Amendment No. 1, dated May 27,
                            1999)
         10.15*          -- Wireless Fiber IRU Agreement by and between WinStar
                            Wireless, Inc., and Williams Communications, Inc.,
                            effective as of December 17, 1998 (filed as Exhibit 10.17
                            to the Equity Registration Statement, Amendment No. 1,
                            dated July 12, 1999)
         10.16*          -- IRU Agreement between WinStar Wireless, Inc., and
                            Williams Communications, Inc., dated December 17, 1998
                            (long haul), together with Clarification Agreement
                            effective as of December 17, 1998, and Side Agreement
                            dated March 31, 1999 (filed as Exhibit 10.18 to the
                            Equity Registration Statement, Amendment No. 1, dated May
                            27, 1999)
         10.17*          -- UtiliCom Networks, Inc., Note and Warrant Purchase
                            Agreement dated December 15, 1998 (filed as Exhibit 10.19
                            to the Equity Registration Statement, Amendment No. 3,
                            dated July 12, 1999)
</Table>
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.18*          -- Consolidated IRU Agreement by and among IXC Carrier,
                            Inc., Vyvx, Inc., and The WilTech Group, dated December
                            9, 1998, and Amendment No. 4, dated December 22, 1998
                            (filed as Exhibit 10.20 to the Equity Registration
                            Statement, Amendment No. 2, dated July 6, 1999)
         10.19*          -- Stock Purchase Agreement for CNG Computer Networking
                            Group Inc. by and among The Sellers (1310038 Ontario
                            Inc., George Johnston, Hayden Marcus, The H. Marcus
                            Family Trust, and Gary White), WilTel Communications
                            (Canada), Inc., and Williams Communications Solutions,
                            LLC, dated October 13, 1998 (filed as Exhibit 10.21 to
                            the Equity Registration Statement, Amendment No. 6, dated
                            August 18, 1999)
         10.20*          -- Preferred Stock Purchase by and among UniDial Holdings,
                            Inc., and Williams Communications, Inc., dated October 2,
                            1998 (filed as Exhibit 10.22 to the Equity Registration
                            Statement, Amendment No. 6, dated August 18, 1999)
         10.21*          -- Amended and Restated Lease between State Street Bank &
                            Trust Co. of Connecticut, National Association, as
                            Lessor, and Williams Communications, Inc., as Lessee, as
                            of September 2, 1998 (filed as Exhibit 10.23 to the
                            Equity Registration Statement, Amendment No. 3, dated
                            July 12, 1999)
         10.22*          -- Amended and Restated Participation Agreement dated as of
                            September 2, 1998, among Williams Communications, Inc.;
                            State Street Bank & Trust Company of Conn., National
                            Association, as Trustee; Note Holders and Certificate
                            holders; APA Purchasers; State Street Bank & Trust Co.,
                            as Collateral Agent; Citibank, N.A., as agent, with
                            Citibank, N.A. and Bank of Montreal as Co-Arrangers;
                            Royal Bank of Canada, as Documentation Agent; and Bank of
                            America, The Chase Manhattan Bank, and Toronto Dominion,
                            as Managing Agents (filed as Exhibit 10.24 to the Equity
                            Registration, Amendment No. 1, dated May 27, 1999)
         10.23*          -- Capacity Purchase Agreement between Williams
                            Communications, Inc., and Intermedia Communications,
                            Inc., dated January 5, 1998, and Amendment dated August
                            5, 1998 (filed as Exhibit 10.25 to the Equity
                            Registration Statement, Amendment No. 6, dated August 18,
                            1999)
         10.24*          -- Settlement and Release Agreement by and between WorldCom
                            Network Services, Inc., and Williams Communications,
                            Inc., dated July 1, 1998 (filed as Exhibit 10.26 to the
                            Equity Registration Statement, Amendment No. 6, dated
                            August 18, 1999)
         10.25*          -- Umbrella Agreement by and among DownTown Utilities Pty
                            Limited, WilTel Communications Pty Limited, Spectrum
                            Network Systems Limited, CitiPower Pty, Energy Australia,
                            South East Queensland Electricity Corporation Limited,
                            Williams Holdings of Delaware Inc., and Williams
                            International Services Company, dated June 19, 1998
                            (filed as Exhibit 10.27 to the Equity Registration
                            Statement, Amendment No. 1, dated May 27, 1999)
         10.26*          -- Carrier Services Agreement between Vyvx, Inc., and U S
                            WEST Communications, Inc., dated January 5, 1998, and
                            Amendment No. 1, dated June 14, 1999 (filed as Exhibit
                            10.28 to the Equity Registration Statement, Amendment No.
                            1, dated May 27, 1999)
</Table>
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.27*          -- Distributorship Agreement by and between Northern Telecom
                            Limited and WilTel Communications, L.L.C., dated January
                            1, 1998 (filed as Exhibit 10.29 to the Equity
                            Registration Statement, Amendment No. 6, dated August 18,
                            1999)
         10.28*          -- Common Stock and Warrant Purchase Agreement by and
                            between Concentric Network Corporation and WCG, dated
                            July 25, 1997 (filed as Exhibit 10.30 to the Equity
                            Registration, Amendment No. 1, dated May 27, 1999)
         10.29*          -- Note and Warrant Purchase Agreement by and between
                            Concentric Network Corporation and WCG, dated June 19,
                            1997 (filed as Exhibit 10.31 to the Equity Registration
                            Statement, Amendment No. 3, dated July 12, 1999)
         10.30*          -- Limited Liability Company Agreement of WilTel
                            Communications, LLC, by and between WCG and Northern
                            Telecom, Inc., dated April 30, 1997 (filed as Exhibit
                            10.32 to the Equity Registration Statement, Amendment No.
                            6, dated August 18, 1999)
         10.31*          -- Share Purchase Agreement for TTS Meridian Systems Inc. by
                            and among Northern Telecom Limited, WilTel
                            Communications, LLC, and 1228966 Ontario Inc., dated
                            April 30, 1997 (filed as Exhibit 10.33 to the Equity
                            Registration Statement, Amendment No. 6 dated August 18,
                            1999)
         10.32*          -- Formation Agreement by and between Northern Telecom, Inc.
                            and WCG dated April 1, 1997 (filed as Exhibit 10.34 to
                            the Equity Registration Statement, Amendment No. 6, dated
                            August 18, 1999)
         10.33*          -- Purchase Agreement among ABC Industria e Comercio
                            S.A. -- ABC INCO, Lightel S.A. Tecnologia da Informacao,
                            Algar S.A. -- Empreendimentos e Participacoes, and
                            Williams International Telecom Limited, dated January 21,
                            1997 (filed as Exhibit 10.35 to the Equity Registration
                            Statement, Amendment No. 1, dated May 27, 1999)
         10.34*          -- Subscription and Shareholders Agreement among Lightel
                            S.A. Tecnologia da Informacao, Algar
                            S.A. -- Empreendimentos e Participacoes, and Williams
                            International Telecom Limited, dated January 21, 1997
                            (filed as Exhibit 10.36 to the Equity Registration
                            Statement, Amendment 1, dated May 27, 1999)
         10.35*          -- Sublease Agreement as of June 1, 1996, by and between
                            Transcontinental Gas Pipeline Company and Williams
                            Telecommunications Systems, Inc. (filed as Exhibit 10.37
                            to the Equity Registration Statement, Amendment No. 1,
                            dated May 27, 1999)
         10.36*          -- System Use and Service Agreement between WilTel, Inc.,
                            and Vyvx, Inc., effective as of January 1, 1994 (filed as
                            Exhibit 10.38 to the Equity Registration Statement,
                            Amendment No. 1, dated May 27, 1999)
         10.37*          -- Administrative Services Agreement dated September 30,
                            1999, between WCG and its Subsidiaries as identified
                            therein and TWC and its Subsidiaries as identified
                            therein (filed as Exhibit 10.1 to the October 1999 8-K)
         10.38*          -- Service Agreement September 30, 1999, between Williams
                            Information Services Corporation ("WISC") and WCG (filed
                            as Exhibit 10.2 to the October 1999 8-K)
         10.39*          -- Tax Sharing Agreement dated September 30, 1999, between
                            TWC and WCG (filed as Exhibit 10.3 to the October 1999
                            8-K)
</Table>
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.40*          -- Indemnification Agreement dated September 1, 1999,
                            between TWC and WCG (filed as Exhibit 10.4 to the October
                            1999 8-K)
         10.41*          -- Rights Agreement between WCG and The Bank of New York,
                            Rights Agent, dated as of September 30, 1999 (filed as
                            Exhibit 10.5 to the October 1999 8-K)
         10.42*          -- Registration Rights Agreement dated September 30, 1999,
                            between TWC and WCG (filed as Exhibit 10.6 to the October
                            1999 8-K)
         10.43*          -- Separation Agreement dated September 30, 1999, between
                            TWC and WCG (filed as Exhibit 10.7 to the October 1999
                            8-K)
         10.44*          -- Call option agreement by and among Williams Holdings of
                            Delaware, Inc., Williams International Company, Williams
                            International Telecom Limited, and WCG dated May 27, 1999
                            (filed as Exhibit 10.46 to the Equity Registration
                            Statement, Amendment No. 1, dated May 27, 1999)
         10.45*          -- Cross License Agreement dated September 30, 1999, between
                            WISC, TWC, and WCG (filed as Exhibit 10.8 to the October
                            1999 8-K)
         10.46*          -- Technical, Management and Administrative Service
                            Agreement dated May 27, 1999, between Williams
                            International Company and WCG (filed as Exhibit 10.9 to
                            the October 1999 8-K)
         10.47*          -- The Williams Companies, Inc. 1996 Stock Plan (filed as
                            Exhibit 10.49 to the Equity Registration Statement,
                            Amendment No. 1, dated May 27, 1999)
         10.48*          -- The Williams Companies, Inc. Stock Plan for Nonofficer
                            Employees (filed as Exhibit 10.50 to the Equity
                            Registration Statement, Amendment No. 1, dated May 27,
                            1999)
         10.49*          -- Williams Communications Stock Plan (filed as Exhibit
                            10.51 to the Equity Registration Statement, Amendment No.
                            1, dated May 27, 1999)
         10.50*          -- Williams Communications Group, Inc. 1999 Stock Plan
                            (filed as Exhibit 10.52 to the Equity Registration
                            Statement, Amendment No. 3, dated July 12, 1999)
         10.51*          -- Williams Pension Plan (filed as Exhibit 10.53 to the
                            Equity Registration Statement, Amendment No. 1, dated May
                            27, 1999)
         10.52*          -- Solutions LLC Pension Plan (filed as Exhibit 10.54 to the
                            Equity Registration Statement, Amendment No. 1, dated May
                            27, 1999)
         10.53*          -- Williams Communications Change in Control Severance Plan
                            (filed as Exhibit 10.55 to the Equity Registration
                            Statement, Amendment No. 3, dated July 12, 1999)
         10.54*          -- Stock Purchase Agreement by and between Williams
                            Communications, Inc. Conferencing Acquisition Corporation
                            and Genesys, S.A. dated as of June 30, 1999 (filed as
                            Exhibit 10.56 to the Equity Registration Statement,
                            Amendment No. 6, dated August 18, 1999)
         10.55*          -- Loan agreement dated as of September 8, 1999, between
                            Williams Communications, Inc. and TWC (filed as Exhibit
                            10.57 to the Equity Registration Statement, Amendment No.
                            8, dated September 29, 1999)
         10.56*          -- Williams Communications, Inc. Senior Credit Facilities
                            Commitment Letter, dated June 2, 1999. (filed as Exhibit
                            10.58 to the Equity Registration Statement, Amendment No.
                            4, July 14, 1999)
</Table>
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.57*          -- Credit Agreement dated as of September 8, 1999, among
                            Williams Communications, Inc., WCG, the Lenders party
                            thereto, Bank of America, N.A. as Administrative Agent,
                            and The Chase Manhattan Bank as Syndication Agent (filed
                            as Exhibit 10.60 to the Equity Registration Statement,
                            Amendment No. 8, dated September 29, 1999)
         10.58*          -- Intercreditor Agreement dated as of September 8, 1999,
                            among TWC, WCG, Williams Communications, Inc., and Bank
                            of America, N.A. as Administrative Agent (filed as
                            Exhibit 10.61 the Equity Registration Statement,
                            Amendment No. 8, dated September 29, 1999)
         10.59*          -- Subsidiary Guarantee dated as of September 8, 1999, of
                            each of Critical Connections, Inc., WCS Communications
                            Systems, Inc., WCS Microwave Services, Inc., WCS, Inc.,
                            Williams Communications of Virginia, Inc., Williams
                            International Ventures Company, Williams Learning
                            Network, Inc., Williams Local Network, Inc., and Williams
                            Wireless, Inc., in favor of Bank of America, N.A. as
                            Administrative Agent (filed as Exhibit 10.62 to the
                            Equity Registration Statement, Amendment No. 8, dated
                            September 29, 1999)
         10.60*          -- Securities Purchase Agreement Amendment and Addendum
                            dated as of September 24, 1999, among TWC, WCG, and SBC
                            Communications, Inc. (filed as Exhibit 10.64 to the
                            Equity Registration Statement, Amendment No. 8, dated
                            September 29, 1999)
         10.61*          -- Amendment No. 1 dated as of December 31, 1999, to Credit
                            Agreement dated as of September 8, 1999, among Williams
                            Communications, Inc. ("WCI"), WCG, the Lenders party
                            thereto, and Bank of America, N.A., The Chase Manhattan
                            Bank, Bank of Montreal, and The Bank of New York, as
                            agents thereunder (filed as Exhibit 10.60.1 to the
                            Quarterly Report on Form 10-Q for the quarterly period
                            ended June 30, 2000, as filed on August 10, 2000)
         10.62*          -- Amendment No. 2 dated as of December 31, 1999, to Credit
                            Agreement dated as of September 8, 1999, among WCI, WCG,
                            the Lenders party thereto, and Bank of America, N.A., The
                            Chase Manhattan Bank, Bank of Montreal, and The Bank of
                            New York, as agents thereunder (filed as Exhibit 10.60.2
                            to the Quarterly Report on Form 10-Q for the quarterly
                            period ended June 30, 2000, as filed on August 10, 2000)
         10.63*          -- Amended and Restated Credit Agreement dated as of
                            September 1, 2000, to the Credit Agreement dated as of
                            September 8, 1999, among WCI, WCG, the lenders party
                            thereto and Bank of America, N.A., The Chase Manhattan
                            Bank, Bank of Montreal, and The Bank of New York, as
                            agents thereunder (filed as Exhibit 10.63 to the October
                            2000 S-4)
         10.64*          -- Sale and Purchase Agreement by and among Williams
                            Communications, LLC, Williams Learning Network, Inc.,
                            Williams Communications Solutions, LLC, Platinum Equity,
                            LLC, WCS Acquisition Corporation, and WCS Acquisition
                            LLC, dated as of January 29, 2001 (filed as Exhibit 10.64
                            to the Annual Report on Form 10-K for the year ended
                            December 31, 2000, as filed on March 12, 2001).
         10.65*          -- Amended and Restated Separation Agreement dated April 23,
                            2001, by and between TWC and WCG (filed as Exhibit 99.1
                            to the Current Report on Form 8-K dated May 3, 2001, (the
                            "May 3, 2001, 8-K"))
</Table>
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.66*          -- Amended and Restated Administrative Services Agreement
                            dated April 23, 2001, between TWC, those certain
                            subsidiaries of TWC collectively referred to as the
                            "Williams Subsidiaries," WCG and those certain
                            subsidiaries of WCG listed collectively as the
                            "Communications Subsidiaries" (filed as Exhibit 99.2 to
                            the May 3, 2001, 8-K)
         10.67*          -- Tax Sharing Agreement entered into as of the 30th day of
                            September, 1999, and amended and restated as of the 23rd
                            day of April 2001, by and between TWC and WCG (filed as
                            Exhibit 99.3 to the May 3, 2001, 8-K)
         10.68*          -- Amended and Restated Indemnification Agreement dated
                            April 23, 2001, by and between TWC and WCG (filed as
                            Exhibit 99.4 to the May 3, 2001, 8-K)
         10.69*          -- Shareholder Agreement dated April 23, 2001, by and
                            between TWC and WCG (filed as Exhibit 99.5 to the May 3,
                            2001, 8-K)
         10.70*          -- Amended and Restated Employee Benefits Agreement dated
                            April 23, 2001, by and between TWC and WCG (filed as
                            Exhibit 99.6 to the May 3, 2001, 8-K)
         10.71*          -- Deferral Letter dated April 23, 2001, by and between TWC
                            and WCG (filed as Exhibit 99.7 to the May 3, 2001, 8-K)
         10.72*          -- Amendment No. 4 dated March 14, 2001, to the Amended and
                            Restated Credit Agreement dated September 8, 1999, among
                            Williams Communications, LLC, WCG, the Lenders party
                            thereto, Bank of America, N.A., as Administrative Agent,
                            and The Chase Manhattan Bank as Syndication Agent (filed
                            as Exhibit 10.72 to the Quarterly Report on Form 10-Q for
                            the quarter ended March 31, 2001, as filed on May 10,
                            2001)
         10.73*          -- Amendment No. 5 dated April 25, 2001, to the Amended and
                            Restated Credit Agreement dated September 8, 1999, among
                            Williams Communications, LLC, WCG, the Lenders party
                            thereto, Bank of America, N.A., as Administrative Agent,
                            and The Chase Manhattan Bank as Syndication Agent (filed
                            as Exhibit 10.73 to the Quarterly Report on Form 10-Q for
                            the quarter ended March 31, 2001, as filed on May 10,
                            2001)
         10.74*          -- Participation Agreement dated March 22, 2001, by and
                            among TWC, WCG, Williams Communications, LLC, WCG Note
                            Trust, WCG Note Corp., Inc., Williams Share Trust, United
                            States Trust Company of New York, and Wilmington Trust
                            Company (filed as Exhibit 10.74 to the Quarterly Report
                            on Form 10-Q for the quarter ended March 31, 2001, as
                            filed on May 10, 2001)
         10.75*          -- Indenture dated March 28, 2001, among WCG Note Trust, WCG
                            Note Corp., Inc., and United States Trust Company of New
                            York, as Indenture Trustee and Securities Intermediary
                            (filed as Exhibit 10.75 to the Quarterly Report on Form
                            10-Q for the quarter ended March 31, 2001, as filed on
                            May 10, 2001)
         10.76*          -- Indenture dated March 28, 2001, between the Company and
                            United States Trust Company of New York, as Trustee
                            (filed as Exhibit 10.76 to the Quarterly Report on Form
                            10-Q for the quarter ended March 31, 2001, as filed on
                            May 10, 2001)
</Table>
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.77*          -- WCG Note Remarketing and Registration Rights Agreement
                            dated March 28, 2001, between TWC., WCG, Williams
                            Communications, LLC, WCG Note Trust, United States Trust
                            Company of New York, as Indenture Trustee and WCG Note
                            Indenture Trustee, and Credit Suisse First Boston
                            Corporation, as Initial WCG Note Remarketing Agent (filed
                            as Exhibit 10.77 to the Quarterly Report on Form 10-Q for
                            the quarter ended March 31, 2001, as filed on May 10,
                            2001)
         10.78*          -- Sale and Purchase Agreement dated as of March 26, 2001,
                            by and among WCS, Inc., Williams Communications, LLC, and
                            TELUS Communications Inc. (filed as Exhibit 10.78 to the
                            Quarterly Report on Form 10-Q for the quarter ended June
                            30, 2001, as filed on August 10, 2001)
         10.79*          -- Option Agreement dated as of February 12, 2001, by and
                            among Williams Communications, LLC, Williams
                            International Telecom Limited, and Telecom Americas, Ltd.
                            (filed as Exhibit 10.79 to the Quarterly Report on Form
                            10-Q for the quarter ended June 30, 2001, as filed on
                            August 10, 2001)
         10.80*          -- Agreement dated as of May 23, 2001, by and among Telecom
                            Americas, Ltd., Williams International Telecom Limited,
                            Williams Communications, LLC, and America Movil, S.A. de
                            C.V. (filed as Exhibit 10.80 to the Quarterly Report on
                            Form 10-Q for the quarter ended June 30, 2001, as filed
                            on August 10, 2001)
         10.81*          -- Stock Purchase Agreement dated as of June 24, 2001, by
                            and among iBEAM Broadcasting Corporation, Williams
                            Communications, LLC, Allen & Company Incorporated, and
                            Lunn iBEAM, LLC (filed as Exhibit 10.81 to the Quarterly
                            Report on Form 10-Q for the quarter ended June 30, 2001,
                            as filed on August 10, 2001)
         10.82*          -- Stockholders Agreement dated as of July 10, 2001, by and
                            among Williams Communications, LLC, iBEAM Broadcasting
                            Corporation, the other stockholders of iBEAM Broadcasting
                            Corporation, and certain other parties (filed as Exhibit
                            10.82 to the Quarterly Report on Form 10-Q for the
                            quarter ended June 30, 2001, as filed on August 10, 2001)
         10.83*          -- Agreement of Purchase and Sale among Williams Technology
                            Center, LLC, as Seller, Williams Headquarters Building
                            Company, as Purchaser, and Williams Communications, LLC,
                            as Guarantor executed effective as of September 13, 2001
                            (filed as Exhibit 10.83 to the Quarterly Report on Form
                            10-Q for the quarter ended September 30, 2001, as filed
                            on November 14, 2001)
         10.84*          -- Amendment and Consent dated as of August 24, 2001, with
                            respect to Williams Communications, LLC, Securitized
                            Asset Defeasance Program (filed as Exhibit 10.84 to the
                            Quarterly Report on Form 10-Q for the quarter ended
                            September 30, 2001, as filed on November 14, 2001)
         10.85*          -- Amendment No. 1 to Security Agreement dated September 17,
                            2001, among Williams Communications, LLC, WCG, the
                            Subsidiary Loan Parties party thereto, and Bank of
                            America, N.A. as Administrative Agent (filed as Exhibit
                            10.85 to the Quarterly Report on Form 10-Q for the
                            quarter ended September 30, 2001, as filed on November
                            14, 2001)
</Table>
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.86*          -- Interim Agreement by and among Winstar Wireless, Inc.,
                            Winstar Communications, Inc., and Williams
                            Communications, LLC (f/k/a Williams Communications, Inc.)
                            as of the Effective Date of June 30, 2001 (filed as
                            Exhibit 10.86 to the Quarterly Report on Form 10-Q for
                            the quarter ended September 30, 2001, as filed on
                            November 14, 2001)
         10.87*          -- Amendment Number One to Wireless Fiber(SM) IRU Agreement
                            by and between Winstar Wireless, Inc., and Williams
                            Communications, Inc. created on August 15, 2001 (filed as
                            Exhibit 10.87 to the Quarterly Report on Form 10-Q for
                            the quarter ended September 30, 2001, as filed on
                            November 14, 2001)
         10.88*          -- Option Agreement made and entered into as of the August
                            27, 2001, by and between Williams Communications, LLC,
                            and Winstar Wireless, Inc. including the IRU Agreement
                            between Winstar Wireless, Inc., and Williams
                            Communications, LLC (filed as Exhibit 10.88 to the
                            Quarterly Report on Form 10-Q for the quarter ended
                            September 30, 2001, as filed on November 14, 2001)
         10.89*          -- Master Lease entered into by and among Williams
                            Headquarters Building Company, Williams Technology
                            Center, and Williams Communications, LLC effective
                            September 13, 2001 (filed as Exhibit 10.89 to the
                            Quarterly Report on Form 10-Q for the quarter ended
                            September 30, 2001, as filed on November 14, 2001)
         10.90*          -- Security Agreement among Williams Communications, LLC,
                            WCG Inc., The Subsidiary Loan Parties, and Bank of
                            America, N.A., dated April 23, 2001 (filed as Exhibit
                            10.90 to the Quarterly Report on Form 10-Q for the
                            quarter ended September 30, 2001, as filed on November
                            14, 2001)
         10.91           -- Asset Sale Agreement dated as of October 11, 2001, by and
                            between iBeam Broadcasting Corporation and Williams
                            Communications, LLC
         10.92           -- Debtor-in-Possession Credit and Security Agreement dated
                            as of October 11, 2001, by and between iBeam Broadcasting
                            Corporation and Williams Communications, LLC
         10.93           -- Fee Letter dated October 11, 2001, from Williams
                            Communications, LLC to iBeam Broadcasting Corporation
         10.94           -- Side Letter Agreement dated October 19, 2001, to the
                            Amended and Restated Credit Agreement dated September 8,
                            1999, among Williams Communications, LLC, WCG, the
                            Lenders party thereto, Bank of America, N.A., as
                            Administrative Agent, and The Chase Manhattan Bank as
                            Syndication Agent
         10.95           -- Amendment No. 6 dated October 30, 2001, to the Amended
                            and Restated Credit Agreement dated September 8, 1999,
                            among Williams Communications, LLC, WCG, the Lenders
                            party thereto, Bank of America, N.A., as Administrative
                            Agent, and The Chase Manhattan Bank as Syndication Agent
         10.96           -- Asset Purchase Agreement by and between CoreExpress,
                            Inc., and Williams Communications, LLC, dated as of
                            October 31, 2001
         10.97           -- Amendment dated December 3, 2001, to Asset Purchase
                            Agreement by and between CoreExpress, Inc., and Williams
                            Communications, LLC, dated as of October 31, 2001
</Table>
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.98           -- First Amendment dated as of December 7, 2001, to the
                            Asset Sale Agreement dated as of October 11, 2001, by and
                            between iBeam Broadcasting Corporation and Williams
                            Communications, LLC
         10.99           -- Amendment No. 1 dated December 7, 2001, to
                            Debtor-in-Possession Term Credit and Security Agreement
                            dated as of October 11, 2001, by and between iBeam
                            Broadcasting Corporation and Williams Communications, LLC
         10.100          -- Private Foreclosure Sale Agreement dated as of December
                            20, 2001, among Williams Communications, LLC,
                            (Purchaser); CoreExpress, Inc. (Debtor); Cisco Systems
                            Capital Corporation, Cisco Systems, Inc., Nortel
                            Networks, Inc., UMB Bank & Trust, N.A., and Morgan
                            Stanley & Co. (Senior Secured Parties); and Juniper
                            Networks Credit Corporation, Commercial and Municipal
                            Financial Corporation, Sumner Group, Inc., CIT
                            Technologies Corporation d/b/a Technology Rentals and
                            Services, Inc., Sunrise Leasing Corporation d/b/a Cisco
                            Systems Capital Corporation, and Hewlett-Packard Co.
                            (Purchase Money Lenders)
         10.101          -- Amendment No. 1 dated January 14, 2002, to Side Letter
                            Agreement dated October 19, 2001, to the Amended and
                            Restated Credit Agreement dated September 8, 1999, among
                            Williams Communications, LLC, WCG, the Lenders party
                            thereto, Bank of America, N.A., as Administrative Agent,
                            and The Chase Manhattan Bank as Syndication Agent
         10.102          -- Amendment No. 2 dated January 28, 2002, to Side Letter
                            Agreement dated October 19, 2001, to the Amended and
                            Restated Credit Agreement dated September 8, 1999, among
                            Williams Communications, LLC, WCG, the Lenders party
                            thereto, Bank of America, N.A., as Administrative Agent,
                            and The Chase Manhattan Bank as Syndication Agent
         10.103          -- Amendment No. 3 dated February 28, 2002, to Side Letter
                            Agreement dated October 19, 2001, to the Amended and
                            Restated Credit Agreement dated September 8, 1999, among
                            Williams Communications, LLC, WCG, the Lenders party
                            thereto, Bank of America, N.A., as Administrative Agent,
                            and The Chase Manhattan Bank as Syndication Agent
         10.104          -- Amendment No. 4 dated March 27, 2002, to Side Letter
                            Agreement dated September 8, 1999, among Williams
                            Communications, LLC, WCG, the Lenders party thereto, Bank
                            of America, N.A., as Administrative Agent, and The Chase
                            Manhattan Bank as Syndication Agent
         12              -- Statement re: Computation of Ratios
         21              -- Subsidiaries of the Registrant
         23              -- Consent of Ernst & Young, LLP
         24              -- Power of Attorney
</Table>

---------------

* Previously filed with the Securities and Exchange Commission as part of the
  filing indicated, and incorporated herein by reference.