<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 7, 2000
Williams Communications Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-15343 73-1462856
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
One Williams Center, Tulsa, Oklahoma 74172
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: 918-573-2000
Not Applicable
(Former name or former address, if changed since last report)
<PAGE> 2
Item 5. Other Events.
On February 7, 2000, Williams Communications Group, Inc., (the
"Company") reported unaudited fourth-quarter revenues of $524 million.
Item 7. Financial Statements and Exhibits.
The Company files the following exhibit as part of this report:
Exhibit 99. Copy of the Company's press release, dated
February 7, 2000, publicly announcing the revenues
reported herein.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WILLIAMS COMMUNICATIONS GROUP, INC.
Date: March 6, 2000 /s/ SHAWNA L. GEHRES
---------------------------------------------
Name: Shawna L. Gehres
Title: Corporate Secretary
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
99 Copy of the Company's press release, dated February 7, 2000,
publicly announcing the revenues reported herein.
</TABLE>
<PAGE> 1
EXHIBIT 99
NEWS RELEASE [WILLIAMS LOGO]
NYSE:WCG
================================================================================
Date: Feb. 7, 2000
Contact: Gil Broyles (Media) David Cordeiro (Investors)
Williams Communications Williams Communications
Group, Inc. Group, Inc.
(918) 573-4740 (918) 573-3142
[email protected] [email protected]
WILLIAMS COMMUNICATIONS REPORTS FOURTH QUARTER 1999 RESULTS
Strong Demand for Network Services Helps Establish New Company Revenue Marks
Both for the Fourth Quarter and Full Year
TULSA, Okla. -- Williams Communications Group, Inc. (NYSE: WCG) today
reported unaudited fourth-quarter revenues of $524 million, pushing its annual
revenues to more than $2 billion for the first time. This growth in revenue was
led by the network business, which saw 1999 capacity revenues more than double
versus the prior year.
Williams Communications, which is entering the final phase of its
accelerated national fiber-optic network construction, reported an EBITDA loss
of $50.7 million and a net loss of $74 million, or 16 cents per share, for the
quarter ended Dec. 31.
"The fourth quarter was significant on many fronts for our network
business," said Howard Janzen, president and chief executive officer of Williams
Communications. "We began the quarter with the largest initial financing in U.S.
telecom history; we met all key construction milestones established as part of
our accelerated network build-out, and we finished with our highest-ever
quarterly network revenues, reflecting exceptionally strong demand for leased
capacity.
"In addition, we further strengthened our technology leadership in
network capacity and throughput while announcing groundbreaking tests with
companies like Corvis and Avici to establish new standards for speed and
capacity on a national fiber-optic network."
OPERATIONAL HIGHLIGHTS FOR THE FOURTH QUARTER
At the end of 1999, some 26,000 route miles of Williams
Communications' Multi-Service Broadband Network(TM) was in place - approximately
24,000 miles of that network lit and linked to more than 100 cities across the
United States. Along the network, 80 data centers have been completed, including
"super centers" located in key markets and featuring 50,000 square feet or more
of available rack space to accommodate rapidly increasing customer demand for
co-location of equipment. The end-of-year 2000 objective is to complete a
33,000-route-mile network, featuring more than 150 carrier-class data centers
connecting 125 major cities in the U.S.
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Reflecting an expanding market for carrier class customers, Williams
Communications' book of business continued to build with major transactions
announced during the fourth quarter. Intermedia Communications acquired a fully
meshed high-speed backbone from Williams to support its nationwide Internet
Protocol network. Prism Communication Services, Inc., signed a $130 million
network and services agreement to support its integrated network services.
Worldwide Fiber Inc. signed a $26.5 million agreement for fiber capacity and
services. The trend of large transactions continued in January with
multi-million dollar network agreements with Adelphia Business Solutions, Axient
Communications, Inc., Teleglobe, Inc., and others.
Continuing to push the technology frontier as the century ended,
Williams Communications signed a three-year agreement with Ciena Corp. to deploy
the market's first intelligent optical core switch. In separate contracts,
Williams Communications also signed agreements during the fourth quarter to
acquire Sycamore's intelligent optical network products; Sonus Networks'
carrier-class packet telephony solution and Cisco Systems, Inc.'s, private line
gateway.
Also in the final quarter of 1999, Williams Communications rolled out
several new services to provide its customers a competitive edge. Among these
were a suite of voice and Internet protocol products and the industry-leading
Williams Optical Wave Service(TM). This ability to lease individual wavelengths
provides customers an important alternative to dark fiber and capacity services.
FINANCIAL HIGHLIGHTS FOR THE FOURTH QUARTER
Unaudited network revenue of $120.5 million established a new
benchmark, increasing $34.5 million or 40 percent versus the third quarter of
1999. Network EBITDA for the quarter was a loss of $29.4 million, essentially no
change versus the third quarter. Contributing to the revenue increase was a $19
million increase in network traffic revenue, which totaled $82 million for the
fourth quarter. Included in this total was the first full quarter of revenue
from voice traffic, amounting to $11 million. Gross margins, excluding dark
fiber sales, reflected a loss of $7.3 million in the quarter, an improvement
from the third quarter of 1999. Selling, general and administrative expenses
increased to $39 million, largely due to increased staffing to support the voice
launch and the growth in data services.
Williams Communications' solutions business reported a $25 million
EBITDA loss for the quarter, largely reflecting several items outside normal
operations. Revenue fell $4.5 million from the third quarter of 1999 as Y2K
concerns prompted several customers to defer purchases of new systems and
upgrades into the first quarter of 2000. Fourth-quarter items negatively
impacting expenses included incremental costs associated with the conversion to
new common operating and financial systems ($7.9 million), a greater provision
for doubtful accounts ($10 million), and inventory valuation and commission
adjustments ($5.4 million).
The company's strategic investments group reported EBITDA of $3.7
million for the fourth quarter versus a third-quarter loss of $5.4 million. The
improvement resulted from dividends received of $9.4 million from one of its
cost-based international telecommunications investments.
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Capital expenditures for the quarter were $680.4 million, including
$612.4 million related to the network build-out. Excluded from these totals is
an additional $203 million spent through the company's asset defeasance program.
For the year, Williams Communications' total 1999 revenues of $2
billion represent an increase of nearly 17 percent from the $1.7 billion
recorded for all of 1998. The network business saw revenue more than double from
$195 million for all of 1998 to $404 million in 1999.
ABOUT WILLIAMS COMMUNICATIONS GROUP, INC. (NYSE:WCG)
Williams Communications is North America's only exclusively
carrier-focused fiber-optic network and the largest independent source of
end-to-end integrated business communications solutions -- data, voice or video.
Based in Tulsa, Okla., Williams Communications has 9,000 employees primarily in
North America, with offices in Europe and Asia and investments in South America
and Australia. Approximately 85 percent of WCG stock is held by Williams
(NYSE:WMB), which in 1985 became the first energy company to harness its core
competency as a builder of networks to enable competition in the communications
industry.
Additional information, including detailed fourth-quarter financial
data, is available at www.williams.com and www.williamscommunications.com.
###
EBITDA represents earnings before interest, income taxes, depreciation and
amortization and other non-recurring or non-cash items, such as equity earnings
or losses and minority interest.
All trademarks are the property of their respective owners. Portions of this
document may constitute "forward-looking statements" as defined by federal law.
Although the company believes any such statements are based on reasonable
assumptions, there is no assurance that actual outcomes will not be materially
different. Any such statements are made in reliance on the "safe harbor"
protections provided under the Private Securities Reform Act of 1995. Additional
information about issues that could lead to material changes in performance is
contained in the company's annual reports filed with the Securities and Exchange
Commission.
This news release is not an offer to sell, nor the solicitation of an offer to
buy, any securities. Any offer will be made only by means of a prospectus
registered with the Securities and Exchange Commission.
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FINANCIAL HIGHLIGHTS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Years ended
December 31, December 31,
---------------------------- ---------------------------
(Thousands, except per-share amounts) 1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 523,517 $ 508,623 $ 2,022,996 $ 1,733,469
EBITDA $ (50,666) $ (71,353) $ (126,082) $ (82,973)
Loss from operations $ 103,362) $ (96,316) $ (304,370) $ (193,204)
Equity earnings (losses) $ (8,293) $ 121 $ (36,440) $ (7,908)
Net loss $ (74,023) $ (79,885) $ (359,701) $ (185,729)
Basic and diluted loss per share:
Net loss $ (.16) $ (.20) $ (.87) $ (.47)
Weighted average
shares outstanding 463,615 395,435 412,620 395,435
Pro forma basic and diluted loss per share:
Net loss NA $ (.17) $ (.78) $ (.40)
Weighted average
shares outstanding NA 463,539 463,539 463,539
</TABLE>
EBITDA represents earnings before interest, income taxes, depreciation and
amortization and other non-recurring or non-cash items, such as equity earnings
or losses and minority interest. Included in the computation of the fourth
quarter and year ended 1999 EBITDA are dividends received of $9.4 million from
one of its cost-based international telecommunications investments. Excluded
from the computation of the fourth quarter 1999 EBITDA are charges of $5.5
million in other expense related to exiting a venture in the strategic
investments unit involved in providing wireless remote monitoring and meter
reading equipment and related services to industrial and commercial customers
and $1.7 million in other expense related to additional expenses related to the
sale of our audio and video conferencing and closed-circuit broadcasting
services businesses. Excluded from the computation of the year ended December
31, 1999 EBITDA are charges of $5.5 million discussed above, $28.4 million in
other expense related to the sale of our audio and video conferencing and
closed-circuit broadcasting services businesses and $2.6 million in selling,
general and administrative expenses related to the impact of converting WMB
options and shares to WCG options and shares in conjunction with the initial
public offering. Excluded from the computation of the year ended December 31,
1998 EBITDA are charges of $23.2 million in other expense related to exiting a
venture in Strategic Investments involved in the transmission of business
information for news and educational purposes. EBITDA is used by management and
certain investors as an indicator of a company's historical ability to service
existing debt. Management believes that an increase in EBITDA is an indicator of
improved ability to service existing debt, to sustain potential future increases
in debt and to satisfy capital requirements. However, EBITDA is not intended to
represent cash flows for the period, nor has it been presented as an alternative
to either operating income, as determined by generally accepted accounting
principles, or as an indicator of operating performance or cash flows from
operating, investing and financing activities, as determined by generally
accepted accounting principles, and is thus susceptible to varying calculations.
EBITDA as presented may not be comparable to other similarly titled measures of
other companies.
4
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CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Years ended
December 31, December 31,
-------------------------- --------------------------
(Thousands, except per-share amounts) 1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 523,517 $ 508,623 $ 2,022,996 $ 1,733,469
Operating expenses:
Cost of sales 415,664 398,793 1,572,744 1,294,583
Selling, general and admin. 156,068 161,460 558,652 489,173
Provision for doubtful accounts 11,262 16,139 28,390 21,591
Depreciation and amortization 36,099 24,963 132,437 87,081
Other 7,786 3,584 35,143 34,245
----------- ----------- ----------- -----------
Total operating expenses 626,879 604,939 2,327,366 1,926,673
LOSS FROM OPERATIONS (103,362) (96,316) (304,370) (193,204)
Interest accrued (78,096) (7,434) (136,730) (18,650)
Interest capitalized 23,767 1,678 39,518 11,182
Equity earnings (losses) (8,293) 121 (36,440) (7,908)
Investing income 25,280 398 30,009 1,931
Dividends received from
cost-based investments 9,397 -- 9,397 --
Minority interest in loss
of subsidiaries 12,295 19,407 31,503 15,645
Other income (loss), net 234 139 (359) 178
----------- ----------- ----------- -----------
Loss before income taxes (118,778) (82,007) (367,472) (190,826)
Benefit for income taxes 44,755 2,122 7,771 5,097
----------- ----------- ----------- -----------
NET LOSS $ (74,023) $ (79,885) $ (359,701) $ (185,729)
----------- ----------- ----------- -----------
Basic and diluted loss per share:
Net loss $ (.16) $ (.20) $ (.87) $ (.47)
Weighted average
shares outstanding 463,615 395,435 412,620 395,435
Pro forma basic and diluted loss per share:
Net loss NA $ (.17) $ (.78) $ (.40)
Weighted average
shares outstanding NA 463,539 463,539 463,539
----------- ----------- ----------- -----------
</TABLE>
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NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
1. BASIS OF PRESENTATION
In April 1999, Williams Communications Group, Inc. (WCG) filed a registration
statement with the Securities and Exchange Commission for an initial equity
offering along with a registration statement for high yield public debt. The
registration statements were declared effective in September, 1999. Proceeds
from the offerings were received in October, 1999 and consisted of approximately
$1.94 billion from the high yield offering and approximately $1.48 billion from
the equity offering. Included in the equity offering proceeds are amounts from
concurrent investors including SBC Communications of $438.5 million for a 4.36%
ownership in WCG, $200 million from Intel for a 2.0% ownership in WCG and $100
million from Telephonos de Mexico for a 1.0% ownership in WCG. The remaining
equity proceeds received represent a 7.34% ownership. The Williams Companies,
Inc. retained an 85.3% ownership. The proceeds from the equity and high yield
offerings are to be used primarily to develop and light the Williams Network and
repay portions of debt. In addition, the proceeds will be used to fund operating
losses, for working capital and for general corporate purposes.
In connection with the equity offering, WCG converted its existing 1,000 shares
of common stock outstanding to 395,434,965 shares of newly created class B
common stock. The equity offering sold 68,104,451 class A common shares.
Pro-forma per share data is presented for the three months ended December 31,
1998 and the years ended December 31, 1999 and 1998, giving effect to
463,539,416 shares of capital stock outstanding after the equity offering and
concurrent investments discussed above which occurred in October, 1999.
WCG is organized into three operating segments as follows: (1) Network, which
includes fiber optic construction, transmission and management services, (2)
Solutions, which includes distribution and integration of communications
equipment for voice and data networks, (3) Strategic Investments, which includes
Vyvx services (video, advertising distribution, and other multimedia
transmission services via terrestrial and satellite links for the broadcast
industry), audio and video conferencing services and closed circuit video
broadcasting services for businesses (See note 3 below) and investments in
domestic and foreign communications companies.
2. SEGMENT REVENUES AND LOSS
Segment revenues and loss for the three months and years ended December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DEC. 31, 1999 Strategic
(thousands) Network Solutions Investments Eliminations Total
--------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Segment revenues $ 120,541 $ 354,547 $ 59,118 $ (10,689) $ 523,517
--------- --------- --------- --------- ----------
Segment loss:
Loss from operations (45,350) (38,712) (19,300) -- (103,362)
Equity earnings(losses) 1,109 -- (9,402) -- (8,293)
Add back-allocated
charges from parent 999 1,920 297 -- 3,216
--------- --------- --------- --------- ----------
TOTAL SEGMENT LOSS $ (43,242) $ (36,792) $ (28,405) $ -- $ (108,439)
========= ========= ========= ========= ==========
THREE MONTHS ENDED
DEC. 31, 1998
(thousands)
Segment revenues $ 109,408 $ 350,415 $ 61,417 $ (12,617) $ 508,623
Segment loss:
Loss from operations (1,180) (68,189) (26,947) -- (96,316)
Equity earnings -- -- 121 -- 121
Add back-allocated
charges from parent 225 1,033 301 -- 1,559
--------- --------- --------- --------- ----------
TOTAL SEGMENT LOSS $ (955) $ (67,156) $ (26,525) $ -- $ (94,636)
========= ========= ========= ========= ==========
</TABLE>
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NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
2. SEGMENT REVENUES AND LOSS (continued)
<TABLE>
<CAPTION>
YEAR ENDED DEC.31,1999 Strategic
(thousands) Network Solutions Investments Eliminations Total
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Segment revenues $ 403,964 $ 1,406,043 $ 256,564 $ (43,575) $ 2,022,996
Segment loss:
Loss from operations (134,560) (72,750) (97,060) -- (304,370)
Equity earnings(losses) 1,236 -- (37,676) -- (36,440)
Add back-allocated
charges from parent 3,827 8,198 1,162 -- 13,187
----------- ----------- ----------- ----------- -----------
TOTAL SEGMENT LOSS $ (129,497) $ (64,552) $ (133,574) $ -- $ (327,623)
=========== =========== =========== =========== ===========
YEAR ENDED DEC.31,1998
(thousands)
Segment revenues $ 194,936 $ 1,367,404 $ 221,410 $ (50,281) $ 1,733,469
Segment loss:
Loss from operations (27,716) (58,966) (106,522) -- (193,204)
Equity losses -- -- (7,908) -- (7,908)
Add back-allocated
charges from parent 1,409 8,435 1,810 -- 11,654
----------- ----------- ----------- ----------- -----------
TOTAL SEGMENT LOSS $ (26,307) $ (50,531) $ (112,620) $ -- $ (189,458)
=========== =========== =========== =========== ===========
</TABLE>
3. ASSET SALES AND WRITE-OFFS
Included in the fourth quarter of 1999 in other operating expenses as part of
Strategic Investments' segment loss is a $5.5 million loss related to
management's decision to exit a business involved in providing wireless remote
monitoring and meter reading equipment and related services to industrial and
commercial customers. The loss consists of $4.7 million of writing off the net
assets of the business and exit costs of $.8 million consisting of $.4 million
of contractual obligations and $.4 million of employee-related costs.
During the second quarter of 1999, management determined that the businesses
within Strategic Investments that provided 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. WCG recognized a pre-tax loss of $28.4
million, including an additional $1.7 million in the fourth quarter of 1999,
consisting of a $24.4 million impairment of the assets to fair value based on
the net sales proceeds and exit costs of $3.9 million consisting of $3.6 million
of contractual obligations and $.3 million of employee-related costs related to
the sales of 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 the assets for the
three months ended December 31, 1998 was $7.8 million, and loss from operations
for the years ended December 31, 1999 and 1998 was $10.2 million and $22.6
million, respectively.
Included in the third quarter of 1998 in other operating expenses as part of
Strategic Investments' segment loss is a $23.2 million loss related to
abandoning an investment in a venture involved in the technology and
transmission of business information for news and educational purposes. The loss
occurred as a result of WCG's re-evaluation and decision to exit the venture as
WCG decided against making further investments in the venture. WCG abandoned its
entire ownership interest in the venture in 1998. The loss primarily consisted
of $17.0 million from writing off the entire carrying amount of the investment
and $5.0 million from the
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recognition of contractual obligations that will continue after the abandonment.
WCG's share of losses from the venture accounted for under the equity method was
$3.7 million for the year ended December 31, 1998.
4. RECENT ACCOUNTING STANDARDS
In June 1999, The Financial Accounting Standards Board (the FASB) issued
Interpretation No. 43, "Real Estate Sales, an interpretation of FASB Statement
No. 66." The interpretation is effective for sales of real estate with property
improvements or integral equipment entered into after June 30, 1999. Under this
interpretation, 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 no longer appropriate for
dark fiber leases and therefore these transactions will be 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.
<TABLE>
<CAPTION>
OPERATING STATISTICS
(UNAUDITED) At December 31,
1999 1998
--------- ---------
<S> <C> <C>
Planned route miles:
Single fiber network route miles 9,700
Other route miles wholly owned 9,500
Route miles under the asset defeasance program 3,270
Route miles jointly owned 1,520
Route miles through dark fiber rights 9,130
-------- -------
Total planned route miles 33,120
======== =======
Planned retained fiber miles 400,000
Route miles in operation 20,223 16,260
Route miles lit 23,713 16,705
Cable miles in the ground 25,679 18,671
</TABLE>
Route miles are actual miles of the path over which fiber optic cable is
installed.
Planned route miles are the total route miles that we expect the Williams
network to traverse upon completion.
Single fiber network route miles are the route miles traversed by the single
fiber optic strand that Williams excluded from the sale of its original network
to LDDS in 1995.
Other route miles wholly owned are those other route miles that we wholly own or
will wholly own and either have constructed or plan to construct along our
rights of way. Rights of way are rights to install fiber optic cable along
routes owned by other parties.
Route miles under our asset defeasance program are those route miles that we are
in the process of constructing over our rights of way under our asset defeasance
program, and which we will lease upon completion. The asset defeasance program
provides cash which we may use, as agent for a trust, to buy and install fiber
optic cable and equipment in order to construct portions of our network.
Route miles jointly owned are those route miles which we jointly own or will
jointly own.
Route miles through dark fiber rights are those route miles over which we plan
to obtain rights in dark fiber.
Planned retained fiber miles are those fiber miles of our completed network that
we expect to retain for our use in serving our customers. Fiber miles are
calculated by multiplying the route miles traversed over a given segment by the
number of fibers contained within that segment.
8
