-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RzwC8hDqCOrBX8eytcIaMplfksCB7m2mjns1XwezTUQuir8QFXkPTzVg+IPLuNRA h9JXgkjozBP8OASBJZQOVg== 0000927356-98-000361.txt : 19980323 0000927356-98-000361.hdr.sgml : 19980323 ACCESSION NUMBER: 0000927356-98-000361 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980320 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980320 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: QWEST COMMUNICATIONS INTERNATIONAL INC CENTRAL INDEX KEY: 0001037949 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 841339282 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-22609 FILM NUMBER: 98569735 BUSINESS ADDRESS: STREET 1: 555 17TH ST STE 1000 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3032911400 MAIL ADDRESS: STREET 1: 555 17TH STREET STE 100 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: QUEST COMMUNICATIONS INTERNATIONAL INC DATE OF NAME CHANGE: 19970416 8-K 1 FORM 8-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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): MARCH 20, 1998 QWEST COMMUNICATIONS INTERNATIONAL INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION) 000-22609 84-1339282 (COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.) 555 SEVENTEENTH STREET, SUITE 1000, DENVER, COLORADO 80202 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 303-291-1400 ---------------- NOT APPLICABLE (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 5. OTHER EVENTS In October 1997, Qwest Communications International Inc. ("Qwest") acquired SuperNet, Inc. ("SuperNet"), an internet service provider, for approximately $20.0 million in cash, including acquisition costs. In January 1998, Qwest signed a definitive merger agreement to acquire Phoenix Network, Inc. ("Phoenix"), a non-facilities-based reseller of long distance services. The transaction is subject to the approval of the Phoenix stockholders, the receipt of certain state and federal regulatory approvals and the satisfaction of other customary closing conditions. The meeting of Phoenix stockholders to consider approval of the acquisition is scheduled for March 30, 1998. In March 1998, Qwest signed a definitive merger agreement with LCI International Inc. ("LCI"), a communications services provider. The boards of directors of each company have approved the merger. The terms of the merger agreement call for the acquisition of all of LCI's outstanding common shares and the assumption of all of LCI's stock options by Qwest. The purchase price of the all-stock transaction is anticipated to be approximately $4.4 billion. The merger is intended to qualify as a tax-free reorganization and will be accounted for as a purchase. The transaction is subject to the approval of the LCI and Qwest stockholders, the receipt of certain regulatory approvals and the satisfaction of other customary closing conditions. Exhibit 99.1 attached hereto contains unaudited pro forma condensed combined financial statements of Qwest as of and for the period ended December 31, 1997, giving effect to the acquisition of SuperNet and the proposed acquisitions of Phoenix and LCI, as well as the issuance by Qwest in January 1998 of $450.5 million of 8.29% Senior Discount Notes. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (c) Exhibit 99.1 Unaudited Pro Forma Condensed Combined Financial Statements as of December 31, 1997 SIGNATURES 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 thereunto duly authorized. Qwest Communications International Inc. /s/ Robert S. Woodruff By: _________________________________ ROBERT S. WOODRUFF Executive Vice President--Finance, Chief Financial Officer and Treasurer DATE: March 20, 1998 2 EX-99.1 2 PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUD) EXHIBIT 99.1 PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997 (UNAUDITED) The unaudited pro forma condensed combined financial statements presented below are derived from the historical consolidated financial statements of Qwest Communications International Inc. ("Qwest"), SuperNet, Inc. ("SuperNet"), Phoenix Network, Inc. ("Phoenix"), and LCI International Inc. ("LCI"). The unaudited pro forma condensed combined balance sheet as of December 31, 1997 gives pro forma effect to (i) the proposed acquisition by Qwest of all the issued and outstanding shares of capital stock of Phoenix as if the acquisition had occurred on December 31, 1997; (ii) the proposed acquisition by Qwest of all the issued and outstanding shares of capital stock of LCI as if the acquisition had occurred on December 31, 1997; and (iii) the issuance in January 1998 by Qwest of $450,505,000 aggregate principal amount at maturity of 8.29% Senior Discount Notes (the "8.29% Notes") as if the issuance had occurred as of December 31, 1997. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 1997 gives pro forma effect to the acquisitions of SuperNet, Phoenix, and LCI as if such acquisitions had occurred on January 1, 1997. The unaudited pro forma condensed combined financial statements give effect to the acquisitions described above under the purchase method of accounting and are based on the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements presented on the following pages. The fair value of the consideration will be allocated to the assets and liabilities acquired based upon the fair values of such assets and liabilities at the date of each respective acquisition and may be revised for a period of up to one year. The preliminary estimates and assumptions as to the value of the assets of Phoenix and LCI to the combined company is based upon information available at the date of preparation of these unaudited pro forma condensed combined financial statements, and will be adjusted upon the final determination of such fair values. A final allocation of the purchase price to the Phoenix and LCI assets acquired and liabilities assumed is dependent upon analysis which has not progressed to a stage at which there is sufficient information to make such an allocation in these pro forma condensed combined financial statements. Qwest has undertaken a study to determine the allocation of the purchase price to the various assets acquired, including in-process research and development projects, and the liabilities assumed. To the extent that a portion of the purchase price is allocated to in-process research and development, a charge, which may be material to Qwest's results of operations, would be recognized in the period in which the proposed mergers occur. The unaudited pro forma condensed combined financial statements do not purport to represent what Qwest's results of operations or financial condition would have actually been or what operations would be if the transactions that give rise to the pro forma adjustments had occurred on the dates assumed. The unaudited pro forma condensed combined financial statements below should be read in conjunction with the historical consolidated financial statements and related notes thereto of Qwest, Phoenix, and LCI. 3 QWEST COMMUNICATIONS INTERNATIONAL INC. PRO FORMA CONDENSED COMBINED BALANCE SHEET DECEMBER 31, 1997 (AMOUNTS IN MILLIONS)
HISTORICAL PRO FORMA HISTORICAL PRO FORMA --------------- PRO FORMA COMBINED, ---------- PRO FORMA COMBINED, QWEST PHOENIX ADJUSTMENTS EXCLUDING LCI LCI ADJUSTMENTS INCLUDING LCI ------ ------- ----------- ------------- ---------- ----------- ------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........... $ 380 $-- 299 (6),(7) $ 679 $ -- $ 679 Other current assets... 344 12 356 271 13 (10) 640 ------ ---- --- ------ ------ ----- ------ Total current assets.. 724 12 299 1,035 271 13 1,319 Property and equipment, net.................... 615 3 618 671 1,289 Excess of cost over net assets acquired, net... 21 18 22 (3) 61 359 4,202 (10) 4,622 Intangible and other long-term assets, net.. 38 2 1 (7) 41 53 (33) (10) 61 ------ ---- --- ------ ------ ----- ------ Total assets............ $1,398 $ 35 322 $1,755 $1,354 4,182 $7,291 ====== ==== === ====== ====== ===== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities..... $ 315 $ 25 1 (2) $ 341 $ 288 183 (10) $ 812 Long-term debt.......... 630 -- 300 (6) 930 413 11 (10) 1,354 Other liabilities....... 71 -- 4 (2) 75 101 176 ------ ---- --- ------ ------ ----- ------ Total liabilities..... 1,016 25 305 1,346 802 194 2,342 Stockholders' equity: Preferred stock........ -- -- -- -- -- Common stock........... 2 -- 2 1 1 (10) 3 (1) (11) Additional paid-in capital............... 412 53 27 (2) 439 511 4,067 (10) 4,978 (53) (4) 472 (10) (511) (11) (Accumulated deficit) retained earnings..... (32) (43) 43 (4) (32) 40 (40) (11) (32) ------ ---- --- ------ ------ ----- ------ Total stockholders' equity............... 382 10 17 409 552 3,988 4,949 Commitments and contingencies.......... ------ ---- --- ------ ------ ----- ------ Total liabilities and stockholders' equity... $1,398 $ 35 322 $1,755 $1,354 4,182 $7,291 ====== ==== === ====== ====== ===== ======
See accompanying notes to unaudited pro forma condensed combined financial statements. 4 QWEST COMMUNICATIONS INTERNATIONAL INC. PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS TWELVE MONTHS ENDED DECEMBER 31, 1997 (AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
HISTORICAL PRO FORMA HISTORICAL PRO FORMA -------------- PRO FORMA COMBINED, ---------- PRO FORMA COMBINED, QWEST PHOENIX ADJUSTMENTS EXCLUDING LCI LCI ADJUSTMENTS INCLUDING LCI ----- ------- ----------- ------------- ---------- ----------- ------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) Revenue: Communications services.............. $ 115 $ 77 6 (8) $ 198 $1,642 $1,840 Network construction services.............. 581 -- 581 -- 581 ----- ---- --- ------ ------ --- ------ 696 77 6 779 1,642 2,421 ----- ---- --- ------ ------ --- ------ Operating expenses: Telecommunications services.............. 91 57 3 (8) 151 986 1,137 Network construction services.............. 397 -- 397 -- 397 Selling, general and administrative........ 91 30 2 (8) 123 417 540 Merger costs........... 45 (45) (12) -- Growth share and stock option plans.......... 73 -- 1 (8) 74 -- 74 Depreciation and amortization.......... 20 4 2 (5) 30 96 103 (13) 229 1 (8) 3 (9) ----- ---- --- ------ ------ --- ------ 672 91 12 775 1,544 58 2,377 ----- ---- --- ------ ------ --- ------ Earnings (loss) from operations............. 24 (14) (6) 4 98 (58) 44 Other (expense) income: Interest expense, net.. (7) (1) (8) (36) 1 (14) (43) Other income, net...... 7 -- 7 -- 7 ----- ---- --- ------ ------ --- ------ Earnings (loss) before income tax benefit.... 24 (15) (6) 3 62 (57) 8 Income tax expense...... 9 -- 9 31 12 (15) 52 ----- ---- --- ------ ------ --- ------ Net earnings (loss).... $ 15 $(15) (6) $ (6) $ 31 (69) $ (44) ===== ==== === ====== ====== === ====== Earnings (loss) per share--basic........... $0.08 $(0.03) $(0.15) ===== ====== ====== Earnings (loss) per share--diluted......... $0.07 $(0.03) $(0.15) ===== ====== ======
See accompanying notes to unaudited pro forma condensed combined financial statements. 5 NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1997 (UNAUDITED) (1) In January 1998, Qwest and Phoenix entered into the Agreement and Plan of Merger (the "Phoenix Merger Agreement"). The terms of the Phoenix Merger Agreement call for each outstanding share of Phoenix common stock to be exchanged for shares of Qwest common stock having an aggregate market value equal to $28.5 million, reduced by certain adjustments and limitations to approximately $26.8 million, and future payments of $4.0 million. The proposed acquisition is subject to certain closing conditions that include approval by the stockholders of Phoenix. On March 8, 1998, Qwest and LCI entered into the Agreement and Plan of Merger (the "LCI Merger Agreement"). The terms of the LCI Merger Agreement call for each share of LCI common stock to be exchanged for shares of Qwest common stock. The actual number of shares of Qwest common stock to be exchanged for each LCI share will be determined by dividing $42.00 by a volume weighted average of trading prices for Qwest common stock for a specified 15-day period prior to the closing, but will not be less than 1.0625 shares (if Qwest's average stock price exceeds $39.53) or more than 1.5583 shares (if Qwest's average stock price is less than $26.95). If Qwest's average stock price is less than $26.95, LCI may terminate the merger unless Qwest then agrees to exchange for each share of LCI the number of Qwest shares determined by dividing $42.00 by such average price. The proposed acquisition is subject to certain closing conditions that include approval by the stockholders of LCI. (2) Represents the purchase by Qwest of Phoenix's outstanding capital stock and the incurrence of related transaction costs. Additional information regarding the aggregate purchase price is set forth below (amounts in millions): Aggregate value of stock consideration................................. $27 Future payments........................................................ 4 Estimated direct costs of the acquisition.............................. 1 --- Aggregate purchase price to be allocated to net assets acquired........ $32 ===
(3) Represents the increase to Phoenix's intangible assets to reflect the preliminary allocation of the purchase price. For pro forma purposes, the intangible assets have been amortized over an assumed weighted average useful life of fifteen years. The actual purchase price allocation that will be made may differ from such assumptions, and the actual useful lives assigned to the intangible assets may differ from the assumed weighted average useful life used in preparing the pro forma condensed combined financial statements. (4) Represents the elimination of the historical equity of Phoenix. (5) Represents the amortization of intangible assets that results from the preliminary Phoenix purchase price allocation. Such amortization is calculated using an estimated weighted average useful life of 15 years. See note 3. (6) Represents the issuance in January 1998 by Qwest of 8.29% Senior Discount Notes (the "8.29% Notes"), yielding gross proceeds to Qwest of approximately $300 million. The 8.29% Notes will mature on February 1, 2008. (7) Represents debt issuance costs related to the 8.29% Notes. (8) On October 22, 1997, Qwest acquired from an unrelated third party all the outstanding shares of common stock, and common stock issued at the closing of the acquisition of SuperNet for $20.0 million in cash. The acquisition was accounted for using the purchase method of accounting, and the purchase price was allocated on that basis to the net assets acquired. The historical statement of operations of Qwest includes the operating results of SuperNet beginning October 22, 1997. This pro forma adjustment represents SuperNet's unaudited results of operations for the period January 1, 1997 to October 21, 1997. (9) Represents amortization for the period January 1, 1997 to October 21, 1997 of intangible assets that resulted from the SuperNet purchase price allocation, totaling approximately $19.2 million. 6 NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 (UNAUDITED) (10) Represents the purchase by Qwest of LCI's outstanding common stock, the assumption of certain liabilities, the incurrence of related transaction costs, and the initial allocation of the pro forma purchase price.
(AMOUNTS IN MILLIONS) Aggregate value of stock consideration(a).................... $4,068 Value of LCI outstanding stock options, to be assumed by Qwest(b).................................................... 472 Estimated direct costs of the acquisition.................... 10 ------ Pro forma purchase price..................................... 4,550 Net book value of net assets acquired........................ 552 ------ Excess of purchase price over net assets acquired............ $3,998 ====== Allocation of excess of purchase price over net assets acquired: Other intangible assets(d)................................. $ (33) Goodwill (net of existing goodwill)(e)..................... 4,202 Debt premium(f)............................................ (11) Change in control payments(c).............................. (38) Deferred federal income taxes(g)........................... 13 Other merger costs and liabilities(h)...................... (135) ------ Total........................................................ $3,998 ======
(a) Represents the estimated value of Qwest common stock issuable for the acquisition of the approximately 96.8 million shares of LCI common stock outstanding. Assuming an average trading price of $39.53, Qwest would issue approximately 102.9 million shares of common stock to acquire the LCI outstanding shares. (b) Represents the assumption by Qwest of the approximately 14.3 million stock options outstanding under LCI's stock option plans. (c) LCI has an agreement with an unrelated third-party sales agent (the "Sales Agent"), whereby the Sales Agent would receive a payment in the event of a change in control of LCI. The proposed acquisition of LCI by Qwest would constitute a change in control and trigger the change in control payment pursuant to this agreement. (d) Represents a reduction to certain other assets of LCI to reflect their fair value. (e) Represents the increase to LCI's intangible assets to reflect the preliminary allocation of the purchase price. For pro forma purposes, the intangible assets have been amortized over an assumed useful life of 40 years. The actual purchase price allocation that will be made may differ from such assumptions, and the actual useful lives assigned to the intangible assets may differ from the assumed useful life used in preparing the pro forma condensed combined financial statements. In addition, to the extent that a portion of the purchase price is allocated to in-process research and development, a charge which may be material to Qwest's results of operations, would be recognized in the period in which the Qwest/LCI merger occurs. (f) Represents the difference between the carrying value and the fair value of LCI's debt. (g) Represents net deferred income tax assets related to purchase accounting adjustments. (h) Represents estimated provisions for purchase commitments, duplicate facilities and equipment, severance costs, and LCI's costs related to the acquisition. (11) Represents the elimination of the historical equity of LCI. 7 NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1997 (UNAUDITED) (12) Represents the reversal of merger costs recognized by LCI in the acquisition of US Long Distance. (13) Represents the amortization of intangible assets that results from the preliminary LCI purchase price allocation, net of the reversal of amortization expense recognized on certain LCI intangible assets for which no purchase price has been assigned. Goodwill amortization is calculated using an estimated useful life of 40 years. See note 10. (14) Represents the amortization of debt premium over the 10-year life of the underlying debt. (15) Represents the assumed income tax effect of the pro forma adjustment relating to the reversal of LCI's historical merger costs and the amortization of debt premium. (16) Transactions among Qwest, SuperNet, Phoenix, and LCI are not significant. 8 -----END PRIVACY-ENHANCED MESSAGE-----