-----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, SuFQPNynq368KDjREDPxRzt1CYdp5OEfK4elIClts/eEHqHSJ5KGtcv48CLaA/ro lZelavsqAo22Dj008QKH7g== 0001019056-01-500284.txt : 20010727 0001019056-01-500284.hdr.sgml : 20010727 ACCESSION NUMBER: 0001019056-01-500284 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010724 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010726 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: 001-15577 FILM NUMBER: 1689222 BUSINESS ADDRESS: STREET 1: 1801 CALIFORNIA ST CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3039921400 MAIL ADDRESS: STREET 1: 1801 CALIFORNIA ST CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: QUEST COMMUNICATIONS INTERNATIONAL INC DATE OF NAME CHANGE: 19970416 8-K 1 qw8k-earn.txt 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): July 24, 2001 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.) 1801 California Street Denver, Colorado 80202 -------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 303-992-1400 Not applicable ------------------------------------------------------------- (Former name or former address, if changed since last report) ITEM 5. Other Events On July 24, 2001, Qwest Communications International Inc. ("Qwest") reported its financial results for the 2nd quarter of 2001. A copy of the press release announcing the same is attached as Exhibit 99.1 to this Current Report on Form 8-K. On July 24, 2001, Qwest also hosted a conference call with media, analysts, investors and other interested persons during which it discussed, among other things, its business and operations, its announced financial results and its expected financial results for future periods. As previously announced, the webcast of the call (live and replay) is accessible on Qwest's website. On the call Qwest announced the following (all numbers are approximate): o Based on its results, it expected that revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) for 2001 would be within the previously announced ranges, possibly near the lower end of those ranges due to economic slowing. Its previous guidance was for revenues of $21.3 billion to $21.5 billion and EBITDA of $8.5 billion to $8.6 billion. These expectations are based upon certain assumptions, including, among others, that the economy in general is not significantly weaker in the second half of 2001, and that it continues to effectively manage its cost structure. o It expected capital expenditures in 2002 to decrease to approximately $7.5 billion due to increased asset utilization, effective vendor management, and reduced activity in 2002 and future years for Section 271 approval, service improvements and the CLEC buildout. o It is targeting wireless annual revenue growth of 70% to 80% in 2001 compared to 2000 and expected between 1.3 million and 1.4 million wireless customers at the end of 2001. o Based on current expectations, it was targeting annual growth for 2002 compared to 2001 in the 14% to 15% range for revenue and 16% to 17% range for EBITDA. These expectations are based upon certain assumptions, including, among others, that the economy in general has a modest recovery, and it generates an incremental $200 million in out-of-region DLEC/CLEC revenue and $350 million of in-region interLATA revenue during 2001. o It expected that it would achieve its CAGR (compounded annual growth rate) targets of 15+% for revenue and 17+% for EBITDA from 2000 to 2005. 2 o It believed it could achieve a $2 billion annualized revenue run rate for in-region long distance service within the first year it received Section 271 approval in all of its 14 states. o With respect to the status of its Section 271 approval process, it expects to file its first application with the FCC for approval later this year, to file the remaining applications in late 2001 and early 2002, and to receive approval for all states by mid-2002. o It had achieved 15% to 20% of the total expense synergies it had anticipated to achieve from 2000 to 2005 in connection with the acquisition of U S WEST ahead of the original schedule. The Company sees further opportunity to streamline operations resulting in additional cost savings. o It expected EBITDA margins would increase slightly during the second half of 2001. o It expected cash EPS (earnings per share) in 2001 of $1.10 to $1.20 and in 2002 in a range around $1.40. o It expected it would need between $1.5 billion and $2.0 billion in additional debt before becoming cash flow positive. o Following Qwest's $3.05 billion write down of its investment in KPNQwest, amortization of intangible assets will be reduced by approximately $84 billion per quarter. Going forward, intangible amortization expense is expected to be near $308 million per quarter (down from $392 million in the second quarter). 3 Forward Looking Statements Warning - ---------------------------------- This Current Report on Form 8-K contains projections and other forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to the documents filed by Qwest with the Securities and Exchange Commission, specifically the most recent reports which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements, including potential fluctuations in quarterly results, volatility of Qwest's stock price, intense competition in the communications services market, changes in demand for Qwest's products and services, dependence on new product development and acceleration of the deployment of advanced new services, such as broadband data, wireless and video services, which could require substantial expenditure of financial and other resources in excess of contemplated levels, higher than anticipated employee levels, capital expenditures and operating expenses, rapid and significant changes in technology and markets, rapid and significant changes in technology and markets, adverse changes in the regulatory or legislative environment affecting Qwest's business and delays in Qwest's ability to provide interLATA services within its 14-state local service territory, failure to maintain rights of way, and failure to achieve the projected synergies and financial results expected to result from the acquisition of U S WEST, Inc. timely or at all and difficulties in combining the operations of Qwest and U S WEST. The information contained in this Current Report on Form 8-K is a statement of Qwest's present intention and is based upon, among other things, the existing regulatory environment, industry conditions and market conditions and prices. Qwest may change its intentions, at any time and without notice, based upon any changes in such factors, in Qwest's assumptions or otherwise. This Current Report on Form 8-K includes analysts' estimates and other information prepared by third parties for which Qwest assumes no responsibility. Qwest undertakes no obligation to review or confirm analysts' expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. By including any information in this Current Report on Form 8-K, Qwest does not necessarily acknowledge that disclosure of such information is required by applicable law or that the information is material. ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits Exhibit 99.1 Press release dated July 24, 2001. 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Qwest has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. QWEST COMMUNICATIONS INTERNATIONAL INC. DATE: July 25, 2001 By: /s/ YASH A. RANA -------------------- Yash A. Rana Vice President 5 EXHIBIT INDEX Exhibit 99.1 Press release dated July 24, 2001. 6 EX-99.1 2 ex99-1.txt EXHIBIT 99.1 RIDE THE LIGHT QWEST [GRAPHIC OMITTED] QWEST COMMUNICATIONS REPORTS STRONG SECOND QUARTER 2001 RESULTS DRIVEN BY GROWTH IN COMMERCIAL, INTERNET AND DATA REVENUES Quarterly Revenue Grew Over 12 Percent Versus Pro Forma 2000 Second quarter results compared with pro forma second quarter 2000: o Total revenue grew 12.2 percent to $5.22 billion o Pro forma normalized net income was $128 million, or $0.08 per diluted share o Internet and data services revenue grew about 41 percent and represents more than 27 percent of total revenue o Commercial revenue increased 26.7 percent with market share gains in global business services and wholesale markets o Total EBITDA grew 13.1 percent to $2.03 billion compared with pro forma normalized EBITDA in second quarter 2000 Reported second quarter results compared with second quarter 2000: o Total revenue of $5.22 billion grew 51.4 percent, while EBITDA of $2.03 billion increased 30.1 percent o One-time and merger-related charges of $3.72 billion, pre-tax, primarily comprised of non-cash, non-operating write-downs in equity holdings of other companies o Net loss of ($3.31) billion or ($1.99) per share compared to a net loss of ($121) million or ($0.14) per share in the second quarter of 2000 Operational results: o DSL customers grew 105 percent to 360,000 customers over second quarter 2000 o Leadership changes in consumer, small business and wireless units drove record sales for those units in June o Strong quarter for wholesale services led by Internet services and optical network services Note to investors: Pro forma normalized information regarding Qwest's results from operations is provided as a complement to reported results provided in accordance with accounting principles generally accepted in the United States (GAAP). The condensed consolidated pro forma normalized statements give retroactive effect as though the merger of Qwest and U S WEST, Inc. had occurred as of the beginning of the periods presented. Shares outstanding and earnings per share have been restated to give retroactive effect to the exchange ratio resulting from the Merger. In addition, results have been adjusted to eliminate the impact of non-recurring items, such as merger costs, a depreciation adjustment on access lines returned to service, gains/losses on the sale of investments, change in the market value of investments, the write-down of investments, elimination of in-region long-distance activity, and a tax true-up on merger-related expenses. Certain re-classifications have been made to prior periods to conform to the current presentation. 7 DENVER, July 24, 2001 -- Qwest Communications International Inc. (NYSE: Q), the broadband communications company, today announced strong revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter of 2001. Total second quarter revenue increased to $5.22 billion, a 12.2 percent increase versus pro forma second quarter 2000 revenue. Second quarter EBITDA grew 13.1 percent on a pro forma normalized basis to $2.03 billion. In addition, Qwest recorded pro forma normalized net income of $128 million, or $0.08 per diluted share. Qwest has met or exceeded the consensus of analysts' estimates for the 17th consecutive quarter. "We are pleased with our overall results achieved during the quarter. The Qwest team demonstrated its ability to continue strong revenue and EBITDA growth by leveraging our unique and diverse market position in challenging economic conditions," said Joseph P. Nacchio, Qwest chairman and CEO. "We are encouraged by strong growth in our commercial unit and by recent operational improvements, driven by new business leadership. These factors are key to our growth through the remainder of the year." Reported in accordance with generally accepted accounting principles (GAAP), Qwest's revenue increased 51.4 percent; EBITDA grew 30.1 percent over reported second quarter 2000 results; and Qwest recorded a net loss of ($3.31) billion or ($1.99) per share for the second quarter 2001. The GAAP-based results include $3.72 billion in pre-tax one-time charges. The one-time items include $3.11 billion in non-cash investment write-downs principally comprised of the company's holdings in KPNQwest; $415 million in merger-related charges; a non-cash charge of $222 million for additional depreciation on access lines previously held for sale; and $27 million in other one-time gains (net). These one-time items are excluded from the pro forma normalized results presented in Attachment A to this news release. On July 20, 2001, Qwest terminated its agreement with Citizens Communications Company to sell access lines and related properties and ceased actively marketing all access lines held for sale. As a result, a cumulative depreciation catch-up of $222 million was recorded in the second quarter. Commercial services revenues increased 26.7 percent to $2.90 billion, driven by a robust demand for Qwest's broadband Internet, data and Internet Protocol (IP) services. Internet, data and IP services grew about 41 percent in the quarter as compared with the second quarter of the previous year. Strong demand for Qwest's domestic and international wholesale and global business services led to continued market share gain, which offset the impact of the slowing economy on local service revenues. The company's small business and consumer units reported services revenue growth of 4.4 percent, or two percent including out-of-region long-distance service results. Second quarter EBITDA, on a pro forma normalized basis grew 13.1 percent to $2.03 billion as EBITDA margins expanded 40 basis points from 38.5 percent in second quarter 2000 to 38.9 percent in second quarter 2001. This increase in EBITDA margin resulted from tight cost controls and productivity improvements. "We are pleased with the continued execution of our financial and operational plans. Qwest's ability to adjust to market conditions and deliver revenue growth demonstrates the value of our brand and our diverse asset portfolio," said Robin R. Szeliga, Qwest executive vice president of finance and CFO. "We achieved strong revenue and EBITDA growth for the quarter as we continued our focused 8 execution of the company's growth strategies. Additionally, we will continue to streamline the company's cost structure and achieve operational efficiencies." On a pro forma normalized basis, the company recorded second quarter net earnings of $128 million, or $0.08 per diluted share, compared to net earnings of $255 million, or $0.15 per diluted share, a year ago. The decrease reflects increases in both interest expense and depreciation driven by Qwest's growth-stimulated capital program and the amortization impact from merger-related purchase accounting. Pro forma normalized cash earnings per diluted share, which excludes amortization, were $0.29 for the second quarter of 2001 versus $0.32 in the second quarter of 2000. For the full year 2001, Qwest expects to achieve total revenues of $21.3 billion to $21.5 billion and EBITDA of $8.5 billion to $8.6 billion. Qwest also expects to spend between $8.8 billion and $9.0 billion of capital in 2001. Yesterday, Qwest proposed commencing a private placement of approximately $3.0 billion in notes to refinance commercial paper and other debt. COMMERCIAL, SMALL BUSINESS AND CONSUMER MARKETS Commercial revenues grew 26.7 percent compared to the second quarter 2000. Global business markets sales were strong, led by demand for IP-access services, including dedicated Internet access (DIA), virtual private network (VPN) services, and Internet dial ports. Data and IP sales comprised 70 percent of the total global business markets contracted sales in the second quarter 2001, compared with more than 60 percent in the first quarter. In the second quarter, Qwest continued to grow its share in large, national market accounts with new contracts from such companies as Microsoft's MSN, Kaiser Permanente and Fifth Third Bank. Qwest also won new business in the government and education sectors during the quarter, including the U. S. Mint, State of Maryland, State of Louisiana, the University of Missouri System and California State University. Commercial wholesale revenues were sparked by strong demand for Internet and optical network capacity worldwide. Contributing to this demand was a "flight to safety" spurred by reported and perceived difficulties of many new carriers. Wholesale revenue from Qwest's 14-state local service territory benefited from strong demand for private line and access services stimulated in part by local competition. Small business sales generated a 5.3 percent sequential growth and hit an all-time monthly high in June, reflecting the initial success of a newly formed business unit focused on the small business market. More than 30 percent of Qwest consumer customers subscribe to bundled services including Internet access, voice messaging, caller identification, voice messaging and additional lines -- a 12 percent increase over the second quarter of 2000. There is significant opportunity for further bundling of DSL and wireless services as only two percent of customers have bought fully integrated communications services bundles. The addition of long-distance service to the bundle, following Federal Communications Commission's approval for Qwest to re-enter the long-distance business in the 14-state local service area, represents an additional, significant revenue growth opportunity. Wireless services revenues grew 20 percent sequentially or 51 percent year-over-year to more than $181 million in the second quarter of 2001. Qwest wireless customers totaled over one million at the end of the quarter. Average 9 revenue per user increased to $52 from $50 in the first quarter of 2001 as Qwest focused on high-value customers and exited the low-usage, pre-paid business. In June, the wireless business unit, under new leadership, benefited from promotional and marketing activities by winning nearly 95,000 new (gross) customers--a record monthly number. This puts Qwest Wireless on track to achieve between 70 percent to 80 percent annual revenue growth. INTERNET, DATA and IP SERVICES Second quarter Internet, data and IP services revenues grew about 41 percent over the second quarter 2000. Internet and data revenues represent more than 27 percent of total revenue. Strong growth was realized in the following areas: Web hosting and related services, dedicated Internet access (DIA), DSL, virtual private network (VPN), and Internet professional services. Digital Subscriber Line (DSL) growth remained strong with an increase of more than 105 percent annually to approximately 360,000 customers. The number of DSL customers is expected to hit 500,000 by the end of 2001. Qwest and Microsoft during the quarter formed a five-year strategic alliance to combine premium MSN Internet Access, content and services with Qwest's broadband Internet network and telecommunications services for 10 million consumer homes in Qwest's local service area. Qwest will exclusively market MSN Internet Access and services alone or in bundles of services to new and existing customers starting later this summer. In addition, MSN will purchase from Qwest; broadband capacity, digital subscriber lines (DSL), dial ports, and billing and collections services to support the delivery of its content solutions and services to consumers. NETWORK EXPANSION The company extended its global network to more than 113,000 route miles (4.5 million fiber miles) through 7,000-miles of fiber-optic routes in Asia and the Middle East that provide customers with seamless global connectivity on Qwest facilities. Qwest acquired these new routes through transactions with other carriers, taking advantage of favorable pricing for existing assets. In addition, Qwest beat its goal of operating local broadband networks in 25 major markets outside its 14-state local service territory seven months ahead of schedule. SERVICE IMPROVEMENT J.D. Power and Associates has named Qwest number one in customer satisfaction among residential long-distance customers nationwide who spend more than $50 monthly. The survey measured customer satisfaction across a number of key attributes including service, product quality and value. The study also cited Qwest for significant improvement in the past year in resolving customer questions with one call. During the quarter, Qwest continued to see the best customer service results in seven years in key areas for residential and small business customers, including installations, repairs and out-of-service response intervals. Total customer complaints in the second quarter were down 18 percent as compared with the same period a year ago. This is the fourth consecutive quarter of service improvements. Conference Call Today As previously announced, Qwest will host a conference call for investors and the media today at 9 a.m. (EDT), featuring Joseph P. Nacchio, Qwest chairman and CEO, and Robin R. Szeliga, Qwest executive vice president of finance and CFO. The call may be heard on the Web at www.qwest/com/about/investor/meetings. 10 About Qwest Qwest Communications International Inc. (NYSE: Q) is a leader in reliable, scalable and secure broadband data, voice and image communications for businesses and consumers. The Qwest Macro Capacity(R) Fiber Network, designed with the newest optical networking equipment for speed and efficiency, spans more than 113,000 miles globally. For more information, please visit the Qwest web site at www.qwest.com. # # # This release may contain projections and other forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to the documents filed by Qwest with the Securities and Exchange Commission, specifically the most recent reports which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements, including potential fluctuations in quarterly results, volatility of Qwest's stock price, intense competition in the communications services market, changes in demand for Qwest's products and services, dependence on new product development and acceleration of the deployment of advanced new services, such as broadband data, wireless and video services, which could require substantial expenditure of financial and other resources in excess of contemplated levels, higher than anticipated employee levels, capital expenditures and operating expenses, rapid and significant changes in technology and markets, adverse changes in the regulatory or legislative environment affecting Qwest's business and delays in Qwest's ability to provide interLATA services within its 14-state local service territory, failure to maintain rights of way, and failure to achieve the projected synergies and financial results expected to result from the acquisition of U S WEST timely or at all and difficulties in combining the operations of Qwest and U S WEST. This release may include analysts' estimates and other information prepared by third parties for which Qwest assumes no responsibility. Qwest undertakes no obligation to review or confirm analysts' expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The Qwest logo is a registered trademark of, and CyberCenter is a service mark of, Qwest Communications International Inc. in the U.S. and certain other countries. Contacts: Media Contact: Investor Contact: -------------- ----------------- Tyler Gronbach Lee Wolfe 303-992-2155 800-567-7296 tyler.gronbach@qwest.com IR@qwest.com 11
ATTACHMENT A QWEST COMMUNICATIONS INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)(2) - PRO FORMA NORMALIZED (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, ----------------- % ------------------ % 2001 2000 Change 2001 2000 Change - ------------------------------------------ ------- ------- ------- ------- ------- ------- OPERATING REVENUES Commercial services $ 2,898 $ 2,287 26.7 $ 5,647 $ 4,460 26.6 Consumer and small business services 1,708 1,675 2.0 3,392 3,315 2.3 Directory services 348 331 5.1 690 678 1.8 Switched access services 268 361 (25.8) 544 718 (24.2) ------- ------- ------- ------- Total operating revenues 5,222 4,654 12.2 10,273 9,171 12.0 OPERATING EXPENSES Cost of services 1,850 1,516 22.0 3,646 3,019 20.8 Selling, general and administrative 1,343 1,344 (0.1) 2,601 2,634 (1.3) ------- ------- ------- ------- EBITDA 2,029 1,794 13.1 4,026 3,518 14.4 Depreciation 865 650 33.1 1,697 1,275 33.1 Goodwill and other intangible amortization 392 317 23.7 711 634 12.1 ------- ------- ------- ------- Operating income 772 827 (6.7) 1,618 1,609 0.6 OTHER EXPENSE Interest expense 343 244 40.6 681 493 38.1 Other expense - net 14 15 (6.7) 34 19 78.9 ------- ------- ------- ------- Total other expense - net 357 259 37.8 715 512 39.6 ------- ------- ------- ------- Income before income taxes 415 568 (26.9) 903 1,097 (17.7) Income tax provision 287 313 (8.3) 557 603 (7.6) ------- ------- ------- ------- NET INCOME $ 128 $ 255 (49.8) $ 346 $ 494 (30.0) ======= ======= ======= ======= Basic earnings per share $ 0.08 $ 0.16 (50.0) $ 0.21 $ 0.30 (30.0) ======= ======= ======= ======= Basic average shares outstanding 1,661 1,641 1.2 1,659 1,635 1.5 ======= ======= ======= ======= Diluted earnings per share $ 0.08 $ 0.15 (46.7) $ 0.21 $ 0.29 (27.6) ======= ======= ======= ======= Diluted average shares outstanding 1,674 1,684 (0.6) 1,674 1,681 (0.4) ======= ======= ======= ======= Diluted cash earnings per share $ 0.29 $ 0.32 (9.4) $ 0.59 $ 0.63 (6.3) ======= ======= ======= =======
(1) The consolidated pro forma normalized statements give retroactive effect as though the merger of Qwest and U S WEST had occurred as of the beginning of the periods presented. Shares outstanding and earnings per share have been restated to give retroactive effect to the exchange ratio resulting from the Merger. In addition, results have been adjusted to eliminate the impacts of non-recurring items, such as merger costs, a depreciation adjustment for access lines returned to service, gains/losses on the sale of investments, change in the market value of financial instruments, the write-down of investments, elimination of in-region long-distance activity, and a tax true-up on Merger- related expenses. The Merger has been accounted for as a purchase transaction. Certain reclassifications have been made to prior periods to conform to current presentation. (2) Diluted cash earnings per share represent diluted earnings per share adjusted to add back the after-tax amortization of goodwill and other intangible assets resulting from the Merger. 12
ATTACHMENT B QWEST COMMUNICATIONS INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)(2) (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, -------------------- % -------------------- % 2001 2000 Change 2001 2000 Change - ------------------------------------------------ -------- -------- -------- -------- -------- -------- OPERATING REVENUES Commercial services $ 2,898 $ 1,252 131.5 $ 5,647 $ 2,459 129.6 Consumer and small business services 1,708 1,506 13.4 3,392 2,972 14.1 Directory services 348 331 5.1 690 678 1.8 Switched access services 268 361 (25.8) 544 718 (24.2) -------- -------- -------- -------- Total operating revenues 5,222 3,450 51.4 10,273 6,827 50.5 OPERATING EXPENSES Cost of services 1,850 830 122.9 3,646 1,695 115.1 Selling, general and administrative 1,343 1,061 26.6 2,601 2,066 25.9 -------- -------- -------- -------- EBITDA 2,029 1,559 30.1 4,026 3,066 31.3 Depreciation 865 600 44.2 1,697 1,186 43.1 Depreciation adjustment for access lines returned to service 222 -- -- 222 -- -- Goodwill and other intangible amortization 392 -- -- 711 -- -- Merger-related and other one-time charges 415 291 42.6 624 306 103.9 -------- -------- -------- -------- Operating income 135 668 (79.8) 772 1,574 (51.0) OTHER EXPENSE/(INCOME) Interest expense 343 207 65.7 681 418 62.9 Change in market value of financial instruments 23 639 (96.4) -- 768 (100.0) Gain on sales of rural exchanges (50) -- -- (50) -- -- Gain on sales of investments -- -- -- -- (79) (100.0) Investment write-downs 3,108 -- -- 3,247 -- -- Other expense - net 14 15 (6.7) 34 14 142.9 -------- -------- -------- -------- Total other expense - net 3,438 861 299.3 3,912 1,121 249.0 -------- -------- -------- -------- (Loss) income before income taxes and extraordinary item (3,303) (193) 1,611.4 (3,140) 453 (793.2) Income tax provision (benefit) 3 (72) (104.2) 147 170 (13.5) -------- -------- -------- -------- Net (loss) income before extraordinary item $ (3,306) $ (121) 2,632.2 $ (3,287) $ 283 (1,261.5) -------- -------- -------- -------- Extraordinary item - early retirement of debt, net of tax -- -- -- (65) -- -- -------- -------- -------- -------- NET (LOSS) INCOME $ (3,306) $ (121) 2,632.2 $ (3,352) $ 283 (1,284.5) ======== ======== ======== ======== Basic (loss) earnings per share $ (1.99) $ (0.14) 1,321.4 $ (2.02) $ 0.32 (731.3) ======== ======== ======== ======== Basic average shares outstanding 1,661 887 87.3 1,659 882 88.1 ======== ======== ======== ======== Diluted (loss) earnings per share $ (1.99) $ (0.14) 1,321.4 $ (2.02) $ 0.32 (731.3) ======== ======== ======== ======== Diluted average shares outstanding 1,661 887 87.3 1,659 895 85.4 ======== ======== ======== ======== Dividends per share $ 0.05 $ -- -- $ 0.05 $ 0.31 (83.9) ======== ======== ======== ========
(1) The condensed consolidated statements of operations reflect the results of operations for the merged Qwest entity for the three and six months ended June 30, 2001. For the three and six months ended June 30, 2000, the amounts reflect the results of operations for U S WEST, Inc. only (the accounting acquirer in the Merger). (2) Earnings(loss) per share gives effect to the 1.72932 exchange ratio. 13
ATTACHMENT C QWEST COMMUNICATIONS INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)(2) - PRO FORMA NORMALIZED (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) Three Months Ended Three Months Ended June 30, 2001 June 30, 2000 ------------------------------------ ------------------------------------ As Pro Forma Pro Forma As Pro Forma Pro Forma Reported Normalized Normalized Reported Normalized Normalized Results Adjustments Results Results Adjustments Results - ------------------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- OPERATING REVENUES Commercial services $ 2,898 $ -- $ 2,898 $ 1,252 $ 1,035 $ 2,287 Consumer and small business services 1,708 -- 1,708 1,506 169 1,675 Directory services 348 -- 348 331 -- 331 Switched access services 268 -- 268 361 -- 361 ---------- ---------- ---------- ---------- ---------- ---------- Total operating revenues 5,222 -- 5,222 3,450 1,204 4,654 OPERATING EXPENSES Cost of services 1,850 -- 1,850 830 686 1,516 Selling, general and administrative 1,343 -- 1,343 1,061 283 1,344 ---------- ---------- ---------- ---------- ---------- ---------- EBITDA 2,029 -- 2,029 1,559 235 1,794 Depreciation 865 -- 865 600 50 650 Depreciation adjustment for access lines returned to service 222 (222) -- -- -- -- Goodwill and other intangible amortization 392 -- 392 -- 317 317 Merger-related and other one-time charges 415 (415) -- 291 (291) -- ---------- ---------- ---------- ---------- ---------- ---------- Operating income 135 637 772 668 159 827 OTHER EXPENSE/(INCOME) Interest expense 343 -- 343 207 37 244 Change in market value of financial instruments 23 (23) -- 639 (639) -- Gain on sales of rural exchanges (50) 50 -- -- -- -- Investment write-downs 3,108 (3,108) -- -- -- -- Other expense - net 14 -- 14 15 -- 15 ---------- ---------- ---------- ---------- ---------- ---------- Total other expense - net 3,438 (3,081) 357 861 (602) 259 ---------- ---------- ---------- ---------- ---------- ---------- (Loss) income before income taxes (3,303) 3,718 415 (193) 761 568 Income tax provision (benefit) 3 284 287 (72) 385 313 ---------- ---------- ---------- ---------- ---------- ---------- NET (LOSS) INCOME $ (3,306) $ 3,434 $ 128 $ (121) $ 376 $ 255 ========== ========== ========== ========== ========== ========== Basic (loss) earnings per share $ (1.99) $ 0.08 $ (0.14) $ 0.16 ========== ========== ========== ========== Basic average shares outstanding 1,661 1,661 887 1,641 ========== ========== ========== ========== Diluted (loss) earnings per share $ (1.99) $ 0.08 $ (0.14) $ 0.15 ========== ========== ========== ========== Diluted average shares outstanding 1,661 1,674 887 1,684 ========== ========== ========== ========== Diluted cash earnings per share $ 0.29 $ 0.32 ========== ==========
(1) The consolidated pro forma normalized statements give retroactive effect as though the merger of Qwest and U S WEST had occurred as of the beginning of the periods presented. Shares outstanding and earnings per share have been restated to give retroactive effect to the exchange ratio resulting from the Merger. In addition, results have been adjusted to eliminate the impacts of non-recurring items, such as merger costs, a depreciation adjustment for access lines returned to service, gains/losses on the sale of investments, change in the market value of financial instruments, the write-down of investments, elimination of in-region long-distance activity, and a tax true-up on Merger- related expenses. The Merger has been accounted for as a purchase transaction. Certain reclassifications have been made to prior periods to conform to current presentation. (2) Diluted cash earnings per share represent diluted earnings per share adjusted to add back the after-tax amortization of goodwill and other intangible assets resulting from the Merger. 14
ATTACHMENT D QWEST COMMUNICATIONS INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)(2) - PRO FORMA NORMALIZED (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) Six Months Ended Six Months Ended June 30, 2001 June 30, 2000 ------------------------------------ ------------------------------------ As Pro Forma Pro Forma As Pro Forma Pro Forma Reported Normalized Normalized Reported Normalized Normalized Results Adjustments Results Results Adjustments Results - ---------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING REVENUES Commercial services $ 5,647 $ -- $ 5,647 $ 2,459 $ 2,001 $ 4,460 Consumer and small business services 3,392 -- 3,392 2,972 343 3,315 Directory services 690 -- 690 678 -- 678 Switched access services 544 -- 544 718 -- 718 ---------- ---------- ---------- ---------- ---------- ---------- Total operating revenues 10,273 -- 10,273 6,827 2,344 9,171 OPERATING EXPENSES Cost of services 3,646 -- 3,646 1,695 1,324 3,019 Selling, general and administrative 2,601 -- 2,601 2,066 568 2,634 ---------- ---------- ---------- ---------- ---------- ---------- EBITDA 4,026 -- 4,026 3,066 452 3,518 Depreciation 1,697 -- 1,697 1,186 89 1,275 Depreciation adjustment for access lines returned to service 222 (222) -- -- -- -- Goodwill and other intangible amortization 711 -- 711 -- 634 634 Merger-related and other one-time charges 624 (624) -- 306 (306) -- ---------- ---------- ---------- ---------- ---------- ---------- Operating income 772 846 1,618 1,574 35 1,609 OTHER EXPENSE/(INCOME) Interest expense 681 -- 681 418 75 493 Change in market value of financial instruments -- -- -- 768 (768) -- Gain on sales of rural exchanges (50) 50 -- -- -- -- Gain on sales of investments -- -- -- (79) 79 -- Investment write-downs 3,247 (3,247) -- -- -- -- Other expense - net 34 -- 34 14 5 19 ---------- ---------- ---------- ---------- ---------- ---------- Total other expense - net 3,912 (3,197) 715 1,121 (609) 512 ---------- ---------- ---------- ---------- ---------- ---------- (Loss) income before income taxes and extraordinary item (3,140) 4,043 903 453 644 1,097 Income tax provision 147 410 557 170 433 603 ---------- ---------- ---------- ---------- ---------- ---------- Net (loss) income before extraordinary item $ (3,287) $ 3,633 $ 346 $ 283 $ 211 $ 494 ---------- ---------- ---------- ---------- ---------- ---------- Extraordinary item - early retirement of debt, net of tax (65) 65 -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- NET (LOSS) INCOME $ (3,352) $ 3,698 $ 346 $ 283 $ 211 $ 494 ========== ========== ========== ========== ========== ========== Basic (loss) earnings per share $ (2.02) $ 0.21 $ 0.32 $ 0.30 ========== ========== ========== ========== Basic average shares outstanding 1,659 1,659 882 1,635 ========== ========== ========== ========== Diluted (loss) earnings per share $ (2.02) $ 0.21 $ 0.32 $ 0.29 ========== ========== ========== ========== Diluted average shares outstanding 1,659 1,674 895 1,681 ========== ========== ========== ========== Diluted cash earnings per share $ 0.59 $ 0.63 ========== ==========
(1) The consolidated pro forma normalized statements give retroactive effect as though the merger of Qwest and U S WEST had occurred as of the beginning of the periods presented. Shares outstanding and earnings per share have been restated to give retroactive effect to the exchange ratio resulting from the Merger. In addition, results have been adjusted to eliminate the impacts of non-recurring items, such as merger costs, a depreciation adjustment for access lines returned to service, gains/losses on the sale of investments, change in the market value of financial instruments, the write-down of investments, elimination of in-region long-distance activity, and a tax true-up on Merger-related expenses. The Merger has been accounted for as a purchase transaction. Certain reclassifications have been made to prior periods to conform to current presentation. (2) Diluted cash earnings per share represent diluted earnings per share adjusted to add back the after-tax amortization of goodwill and other intangible assets resulting from the Merger. 15 ATTACHMENT E QWEST COMMUNICATIONS INTERNATIONAL INC. SELECTED CONSOLIDATED DATA 2000-2001
As of and for the Three Months Ended June 30, ----------------------- % 2001 2000 Change ---------- ---------- ---------- DSL (in 14-state region): Subscribers (thousands) 360 175 105.7 DSL equipped central offices 303 277 9.4 Subscribers per equipped central office 1,187 633 87.5 Wireless/PCS: Revenues (millions) $ 181 $ 120 50.8 Subscribers (thousands) 1,002 653 53.4 ARPU (dollars) $ 52 $ 55 (5.5) Penetration 5.26% 4.33% 21.5 Capital expenditures (millions) $ 2,616 $ 2,521 3.8 Access lines (thousands): Business 6,252 5,973 4.7 Consumer 11,788 11,980 (1.6) ---------- ---------- ---------- Total access lines 18,040 17,953 0.5 ========== ========== ========== Voice grade equivalent access lines (thousands): Business 39,261 27,648 42.0 Consumer 12,786 12,424 2.9 ---------- ---------- ---------- Total voice grade equivalents 52,047 40,072 29.9 ========== ========== ==========
16 ATTACHMENT F QWEST COMMUNICATIONS INTERNATIONAL INC. CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN MILLIONS) (UNAUDITED)
June 30, December 31, 2001 2000 - ---------------------------------------------------- ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 516 $ 154 Accounts receivable - net 4,842 4,235 Inventories and supplies 352 275 Prepaid and other 707 535 ---------- ---------- Total current assets 6,417 5,199 Property, plant and equipment - net 29,050 25,760 Investments 1,571 8,186 Goodwill and intangibles - net 34,688 32,327 Other assets - net 2,180 2,029 ---------- ---------- Total assets $ 73,906 $ 73,501 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 5,859 $ 3,645 Accounts payable 2,426 2,049 Accrued expenses 3,272 3,806 Advance billings and customer deposits 383 393 ---------- ---------- Total current liabilities 11,940 9,893 Long-term borrowings 17,575 15,421 Post-retirement and other post-employment benefit obligations 2,927 2,735 Deferred taxes, credits and other 4,178 4,148 Stockholders' equity 37,286 41,304 ---------- ---------- Total liabilities and stockholders' equity $ 73,906 $ 73,501 ========== ==========
17 ATTACHMENT G QWEST COMMUNICATIONS INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (1) (DOLLARS IN MILLIONS) (UNAUDITED)
Six Months Ended June 30, ----------------------- 2001 2000 ---------- ---------- Cash provided by operating activities $ 2,307 $ 1,799 INVESTING ACTIVITIES Expenditures for property, plant and equipment (5,559) (2,702) Proceeds from sale of Global Crossing Ltd. common stock -- 1,140 Cash from acquisition -- 407 Other 91 (206) ---------- ---------- Cash used for investing activities (5,468) (1,361) ---------- ---------- FINANCING ACTIVITIES Net proceeds from current borrowings 2,296 89 Proceeds from issuance of long-term borrowings - net 3,238 992 Repayments of long-term borrowings (1,102) (270) Costs relating to the early retirement of debt (106) -- Proceeds from issuances of common stock 280 115 Repurchase of stock (1,000) -- Dividends paid on common stock (83) (542) ---------- ---------- Cash provided by financing activities 3,523 384 ---------- ---------- CASH AND CASH EQUIVALENTS Increase 362 822 Beginning balance 154 78 ---------- ---------- Ending balance $ 516 $ 900 ========== ==========
(1) The condensed consolidated statements of cash flows reflect the cash flow activities for the merged Qwest entity for the six months ended June 30, 2001. For the six months ended June 30 ,2000, the amounts reflect the cash flow activities for U S WEST, Inc. only (the accounting acquirer in the Merger). 18 -----END PRIVACY-ENHANCED MESSAGE-----