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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 1O-Q

(Mark One)

Commission File No. 000-50040

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

No Change
(Former name, former address and former fiscal year, if changed since last report)

     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 o

     Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes x   No o

     Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x   No o

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

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WilTel Communications Group, Inc.
Forward-Looking Statements

     Certain matters discussed in this report, excluding historical information, include “forward-looking statements,” which are statements that discuss the expected future results of the Company based on current and pending business operations. The Company 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 the Company 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 the Company’s actual results to differ materially from those projected. Also note that projections are necessarily speculative in nature, and it is often the case that one or more significant assumptions in projections do not materialize. Therefore, projections should not be relied upon as fact.

     In addition to risk factors set forth in the Company’s other filings with the SEC, the following important factors could cause actual results to differ materially from any results projected, forecasted, estimated, or budgeted:

     A default in the Exit Credit Agreement could result in lenders seizing the Company’s assets.

     The Company could default on its obligations under the Exit Credit Agreement. An event of default could include failing to achieve certain financial covenants required by the Exit Credit Agreement. Since the Exit Credit Agreement represents debt secured by assets of the Company, if the Company is not able to comply with the financial covenants contained in the Exit Credit Agreement or obtain a waiver for the failure to comply with such covenants from the Company’s lenders, a default could potentially result in the Company’s assets being seized by its lenders.

     The Company may continue to operate at a loss.

     The Company has historically operated at a loss. The Company may continue to incur negative operating cash flow and net losses as a result of low prices or higher costs and may not be able to realize revenues from products and services that exceed its operating costs. Factors that may impact the Company’s profitability include its ability to manage cash, make capital expenditures, generate operating cash flow, raise capital in a cost-effective way, meet debt obligations, and manage operating costs and capital spending without limiting revenue growth.

     Continuing weakness in the economy and the telecommunications industry may impact the Company.

     The continuation of the downturn in the United States economy and, in particular, the telecommunications industry, may have a significant impact on the Company. Several of the Company’s competitors and customers have filed for protection under the bankruptcy laws and the Company may be unable to collect receivables due to bankruptcies and business difficulties among its customers. Oversupply of capacity and an ongoing downward trend in bandwidth prices may continue if the Company’s competitors do not successfully consolidate. Even if they do successfully consolidate, they may do so to the detriment of the Company. Competitors who successfully complete restructuring or bankruptcy reorganization processes or who introduce new product offerings may put the Company at a competitive disadvantage.

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WilTel Communications Group, Inc.
Forward-Looking Statements – (Continued)

      The Company may not be able to adapt to changes in the industry or with customers.

      The Company relies on advanced technology in its business and, as a result, faces multiple risks. The Company may not be able to introduce new products or technologies to keep up with rapid and significant changes and developments in the telecommunications industry. The Company may not be able to adequately adapt to such developments or the cost of adapting to such developments may not be economically justifiable for the Company.

     The Company may not be able to deploy sophisticated technologies on a local-to-global basis or to expand and enhance its network in response to customer demands and industry changes. In addition, the introduction of new products or technologies may reduce the cost or increase the supply of certain services similar to those that the Company provides or plans to provide.

     The Company may not be able to adapt to regulatory or other governmental conditions.

     The Company is subject to significant regulation at the federal, state, local and international levels. Changes or uncertainties in the regulations applicable to the Company and the telecommunications industry or delays in receiving required regulatory approvals may result in higher costs and lower revenue for the Company. Regulatory constraints, especially in light of the unavailability of capital, may further hinder “last mile” development and slow the growth in demand for bandwidth at the retail level, negatively impacting the Company’s ability to sell bandwidth at the wholesale level. Further, changes in communications, trade, monetary, fiscal and tax policies in the United States and in foreign markets, including Asia, Europe and South America, may negatively impact the Company’s results of operations.

     A significant portion of the Company’s revenues is derived from a small number of high volume customers.

     The Company relies on a small number of high-volume customers to generate revenues and the loss of such customers could have adverse consequences for the Company. The Company could lose its existing customers to competitors or to business failures. In particular, the strategic alliance with SBC is a significant source of revenue for the Company. Loss of this strategic alliance, pricing pressures, or SBC’s inability to obtain regulatory approval to provide long-distance telecommunications services within markets in which it currently provides local services would be extremely detrimental to the Company.

     The Company is dependent on a limited number of suppliers and on other capacity providers.

     The Company currently depends on critical services and equipment from a small number of suppliers. As a result, the loss of even a single supplier could have a material adverse effect on its business. There is no guarantee that these suppliers will continue to offer the services and equipment required by the Company (which may result in an increase in the Company’s capital requirements) or that they will continue to do business with the Company. If the Company cannot obtain adequate replacement equipment or services from its suppliers or acceptable alternate vendors, the Company could experience a material impact on its financial condition and operating results. In addition, the Company relies on other providers for network capacity beyond what it provides over its own network and there is a risk that current capacity providers may cease to provide capacity at economically justifiable rates.

     Network failure and delays may result in loss of customers or potential liability to the Company.

     The Company’s network uses a collection of communications equipment, software, operating protocols, and proprietary applications for the transportation of data among multiple locations. Given the complexity of the network, it is possible that there could be material disruptions in the Company’s ability to timely turn up service requests, minimize service interruptions, and meet requirements of customer service level agreements. Network failures and delays may also result from natural disasters and power outages. Network failures or delays in data delivery could cause service interruptions resulting in possible losses to the Company’s customers. Such failures or delays may expose the Company to claims by its customers and may result in the loss of customers.

     The loss of highly qualified personnel may negatively affect the Company’s results of operations.

     The Company relies on its key personnel and skilled employees and there is a risk that the loss of a significant number of key personnel could have negative effects on the Company’s results of operations. The Company may

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WilTel Communications Group, Inc.
Forward-Looking Statements – (Continued)

not be able to attract and hire highly skilled personnel necessary to carry out its business plan. There is also a risk that management may not be able to adopt an organizational structure that meets its objectives, including managing costs and attracting and retaining key employees.

     Current and future legal proceedings may have a material impact on the Company.

     Current and future legal and administrative claims and proceedings against the Company may have severe negative effects on the Company (see Part II, Item 1. “Legal Proceedings,” below). In addition, the Company may be unable to collect proceeds from the sale of the Solutions business, especially in light of ongoing disputes with Platinum Equity (see Part II, Item 1. “Legal Proceedings,” below).

     The Company may not be able to execute its business plan.

     The respective operating segments of the Company may be unable to successfully implement new or enhanced key systems, such as order entry systems and service delivery systems, within currently estimated time frames and budgets, which may negatively affect the Company’s business and profitability. The Company may not be able to successfully market capacity on its network or, if it is successful at marketing its capacity, the Company may not be able to derive adequate revenues.

     Terrorist attacks or war may adversely affect the Company’s financial condition and operating results.

     The occurrence of terrorist attacks or armed conflicts may directly impact the Company’s facilities or the facilities of the Company’s suppliers or customers. In addition, such attacks or conflicts may result in increased volatility in the United States and global financial markets. Any of these occurrences could potentially have a material impact on the Company’s financial condition and operating results.

     The Company may not be able to maintain adequate insurance.

     Insurance rates and the standards for underwriting may be influenced by numerous factors outside of the Company’s control. For instance, there has been an increase in insurance rates as a result of the September 11, 2001, terrorist attacks and related events. It is possible that the Company may not be able to maintain, at economically justifiable rates, its existing policies of insurance. It is also possible that the Company may be unable to obtain new policies of insurance that are deemed necessary to manage its risks.

     The Company may be unable to acquire or maintain rights-of-way necessary for its network.

     The utilization of the Company’s network depends on maintaining rights-of-way from third parties. The Company may be unable to maintain, in a cost-effective manner, the necessary rights-of-way for its network, resulting in the loss of a substantial number of rights-of-way or the incurrence of significant future expenditures to remove facilities and find viable alternatives upon expiration or termination of such rights-of-way.

     Uncertainty or negative publicity may negatively affect the Company’s business.

     There is a possibility that uncertainty or adverse publicity concerning the Company, or negative perceptions about the industry as a whole, could hinder the Company’s ability to obtain new customers or may undermine its commercial relationship with existing customers. Despite a successful reorganization, current and potential customers may associate the Company’s bankruptcy with negative business implications and misunderstand (or fail to recognize) the state of the Company’s finances and future prospects.

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WilTel Communications Group, Inc.

Condensed Consolidated Balance Sheets
(Unaudited)

See accompanying notes.

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WilTel Communications Group, Inc.

Condensed Consolidated Statements of Operations
(Unaudited)

See accompanying notes.

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WilTel Communications Group, Inc.

See accompanying notes.

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WilTel Communications Group, Inc.

Notes to Condensed Consolidated Financial Statements
(Unaudited)

1.

Basis of Presentation

     On April 22, 2002, Williams Communications Group, Inc. (“WCG”) and CG Austria, Inc. (collectively, the “Debtors”) commenced proceedings under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). Pursuant to the terms of a plan of reorganization (the “Plan”), WilTel Communications Group, Inc. (“WilTel” and, together with its direct and indirect subsidiaries, the “Company”) emerged on October 15, 2002 as the successor to WCG.

     The Company implemented fresh start accounting under the provisions of Statement of Position (“SOP”) 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code,” effective October 31, 2002 to coincide with its normal monthly financial closing cycle. The financial results have been separately presented under the label “Successor Company” for first quarter 2003 and December 31, 2002 and “Predecessor Company” for first quarter 2002 as required by SOP 90-7. The Successor Company is also referred to as “WilTel” and the Predecessor Company is also referred to as “WCG”. As a result of implementing fresh start accounting, the Successor Company financial statements are not comparable to the Predecessor Company financial statements.

     The Successor Company and Predecessor Company interim financial statements presented in this Form 10-Q are based on the results of operations and financial position of WilTel and its direct and indirect subsidiaries and WCG and its direct and indirect subsidiaries, respectively. The interim condensed consolidated financial statements do not include all notes in annual financial statements and therefore should be read in conjunction with the consolidated financial statements and notes thereto in WilTel’s Annual Report on Form 10-K for the year ended December 31, 2002. The financial statements have not been audited by independent auditors but include all normal recurring adjustments and others, which, in the opinion of the Company’s management, are necessary to present fairly the Company’s financial position as of March 31, 2003 and its results of operations and cash flows for the three months ended March 31, 2003 and 2002.

2.

Segment Revenues and Profit (Loss)

     The Company evaluates performance based upon segment profit (loss) from operations, which represents earnings before interest, income taxes, depreciation and amortization 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 segment profit (loss) from operations to loss from operations is provided below. Intercompany sales are generally accounted for as if the sales were to unaffiliated third parties. The following tables present certain financial information concerning the Company’s reportable segments.

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WilTel Communications Group, Inc.

Notes to Condensed Consolidated Financial Statements – (Continued)
(Unaudited)

Successor Company:

Predecessor Company: