Qwest Communications International Inc.
(Exact name of registrant as specified in its charter)

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 ý No o.

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

This Quarterly Report on Form 10-Q/A is being filed as an amendment to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 to revise certain disclosures contained in the original Form 10-Q. Unless the passage of time has rendered incorrect as of the time of its original filing any other information contained in the original Form 10-Q, such information has not been updated in this Form 10-Q/A. To update all other information, we hereby incorporate by reference herein all information contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004, other than the financial statements and related footnotes thereto contained in such Forms.

Item
		Glossary of Terms
PART I—FINANCIAL INFORMATION
1.		Financial Statements
		Condensed Consolidated Statements of Operations—Three and six months ended June 30, 2003 and 2002 (unaudited)
		Condensed Consolidated Balance Sheets—June 30, 2003 (unaudited) and December 31, 2002
		Condensed Consolidated Statements of Cash Flows—Six months ended June 30, 2003 and 2002 (unaudited)
		Notes to Condensed Consolidated Financial Statements (unaudited)
2.		Management's Discussion and Analysis of Financial Condition and Results of Operations
3.		Quantitative and Qualitative Disclosures About Market Risk
4.		Controls and Procedures
PART II—OTHER INFORMATION
1.		Legal Proceedings
2.		Changes in Securities and Use of Proceeds
6.		Exhibits and Reports on Form 8-K
		Signature Page

Our industry uses many terms and acronyms that may not be familiar to you. To assist you in reading this document, we have provided below definitions of some of these terms referred to in our document.

The accompanying notes are an integral part of these condensed consolidated financial statements.

QWEST COMMUNICATIONS INTERNATIONAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(DOLLARS IN MILLIONS, SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of these condensed consolidated financial statements.

QWEST COMMUNICATIONS INTERNATIONAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED JUNE 30, 2003

(UNAUDITED)

The condensed consolidated interim financial statements are unaudited. Qwest Communications International Inc. ("Qwest," "we," "us," the "Company" and "our") prepared these condensed consolidated financial statements in accordance with the instructions for Form 10-Q. In compliance with those instructions, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") have been condensed or omitted.

In the third quarter of 2002, we entered into contracts for the sale of our directory publishing business. In November 2002, we closed the sale of our directory publishing business in seven of the 14 states in which we offered these services. In September 2003, we completed the sale of the directory publishing business in the remaining states. As a consequence, the results of operations of our directory publishing business are included in income from discontinued operations in our condensed consolidated statements of operations for all periods presented. See Note 4—Discontinued Operations including Assets Held for Sale.

We made certain reclassifications to prior balances to conform to the current year presentation. Also, in connection with the preparation of this Form 10-Q, we moved $124 million of tax expense we improperly reflected in our quarter ended June 30, 2002 consolidated financial statements (which are included in our annual report on Form 10-K for the year ended December 31, 2002 (the "2002 Form 10-K")) into our quarter ended September 30, 2002 consolidated financial statements. These statements include all the adjustments necessary to fairly present our condensed consolidated results of operations, financial position and cash flows as of June 30, 2003 and for all periods presented. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our 2002 Form 10-K. Due to the number of subsequent events and updates that have occurred since the end of the period covered by these condensed consolidated financial statements, for the convenience of the reader we have generally included these items in their related footnotes. The condensed consolidated results of operations for the three and six month periods ended June 30, 2003 and the statement of cash flows for the six month period ended June 30, 2003 are not necessarily indicative of the results or cash flows expected for the full year.

On January 1, 2003, we adopted Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs, generally referred to as asset retirement obligations. SFAS No. 143 requires entities to record the fair value of a legal liability for an asset retirement obligation required to be settled under law or written or oral contract. If a reasonable estimate of fair value can be made, the fair value of the liability will be recognized in the period it is incurred, or if not, in the period a reasonable estimate of fair value can be made. This cost is initially capitalized and then amortized over the estimated remaining useful life of the asset. We have determined that we have legal asset retirement obligations associated with the removal of a limited group of long-lived assets and recorded a cumulative effect of a change in accounting principle charge upon adoption of SFAS No. 143 of $28 million (liability of $43 million net of an asset of $15 million) as of January 1, 2003.

Prior to the adoption of SFAS No. 143, we have included in our group depreciation rates estimated net removal costs (removal costs less salvage). These costs have historically been reflected in the calculation of depreciation expense and therefore recognized in accumulated depreciation. When the assets were actually retired and removal costs were expended, the net removal costs were recorded as a reduction to accumulated depreciation. While SFAS No. 143 requires the recognition of a liability for asset retirement obligations that are legally binding, it precludes the recognition of a liability for asset retirement obligations that are not legally binding. Therefore, upon adoption of SFAS No. 143, we reversed the net removal costs within accumulated depreciation for those fixed assets where the removal costs exceeded the estimated salvage value and we did not have a legal removal obligation. This resulted in income from the cumulative effect of a change in accounting principle of $365 million pretax upon adoption of SFAS No. 143 on January 1, 2003. The net income impact for the six months ended June 30, 2003 is $206 million ($365 million less the $28 million of charges disclosed above, net of income taxes of $131 million).

On a going forward basis, the net costs of removal related to these assets will be charged to our consolidated statement of operations in the period in which the costs are incurred. As a result, the adoption of SFAS No. 143 is expected to decrease our depreciation expense on an annual basis by approximately $32 million and increase operating expenses related to the accretion of the fair value of our legal asset retirement obligations by approximately $6 million annually beginning January 1, 2003. Based on historical charges and activity through December 4, 2003 (the date of the original filing of this Form 10-Q), we believe that recurring removal costs will be approximately $35 million to $45 million annually which will be charged to our consolidated statement of operations as incurred.

In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123," ("SFAS No. 148"), which is effective for financial statements related to periods ending after December 15, 2002. SFAS No. 148 requires the following expanded disclosure regarding stock-based compensation. We account for our stock-based compensation arrangements under the intrinsic-value recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Under the intrinsic-value method, no compensation expense is recognized for options granted to employees when the strike price of those options equals or exceeds the value of the underlying security on the measurement date. Any excess of the stock price on the measurement date over the exercise price is recorded as deferred compensation and amortized over the service period during which the stock option award vests using the accelerated method described in FASB Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans".

Had compensation cost for our stock-based compensation plans been determined under the fair value method in accordance with the provisions of SFAS No. 123, "Accounting for Stock-Based

Compensation" ("SFAS No. 123"), our net (loss) income and basic and diluted (loss) income per share would have been changed to the pro forma amounts indicated below:

The pro forma amounts reflected above may not be representative of the effects on our reported net income or loss in future years because the number of future shares to be issued under these plans is not known and the assumptions used to determine the fair value can vary significantly.

The weighted average number of shares used for computing basic and diluted (loss) income per share for the three months ended June 30, 2003 and 2002 was 1.734 billion and 1.678 billion, respectively, and for the six months ended June 30, 2003 and 2002 was 1.720 billion and 1.672 billion, respectively. For the periods ended June 30, 2003 and 2002, the effect of approximately 129 million and 127 million, respectively, of outstanding stock options were excluded from the calculation of diluted (loss) income per share because the effect was anti-dilutive.

Effective June 30, 2002, pursuant to SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), a general deterioration of the telecommunications market, downward revisions to our expected future results of operations and other factors indicated that our investments in long-lived assets may have been impaired at that date. In accordance with SFAS No. 144, we performed an evaluation of the recoverability of the carrying value of our long-lived assets using gross undiscounted cash flow projections. For impairment analysis purposes, we grouped our property, plant and equipment and projected cash flows as follows: traditional telephone network, national fiber optic broadband network, international fiber optic broadband network, wireless network, web hosting and application service provider ("ASP") assets, assets held for sale and out-of-region digital subscriber line ("DSL") assets. Based on the gross undiscounted cash flow projections, we determined that all of our asset groups except our traditional telephone network were impaired at June 30, 2002. For those asset groups that were impaired, we then estimated the fair value using a variety of techniques which are presented in the table below. For those asset groups that were impaired, we determined that the fair values were less than our carrying amount by $10.613 billion in the aggregate of which $120 million has been reclassified to income from discontinued operations for

certain web hosting centers in our condensed consolidated statement of operations for the three and six months ended June 30, 2002.

Asset Group	Impairment Charge		Fair Value Methodology
	(Dollars in millions)
National fiber optic broadband network	$	8,505	Discounted cash flows
International fiber optic broadband network		685	Comparable market data
Wireless network		825	Comparable market data and discounted cash flows
Web hosting and ASP assets		88	Comparable market data
Assets held for sale		348	Comparable market data
Out-of-region DSL assets		42	Discounted cash flows

Total impairment charges	$	10,493

Calculating the estimated fair value of the asset groups as listed above involves significant judgments and a variety of assumptions. For calculating fair value based on discounted cash flows, we forecasted future operating results and future cash flows, which included long-term forecasts of revenue growth, gross margins and capital expenditures. We also used a discount rate based on an estimate of the weighted average cost of capital for the specific asset groups. Comparable market data was obtained by reviewing recent sales of similar asset types in third-party market transactions.

A brief description of the underlying business purpose of each of the asset groups that were impaired as a result of our analysis as of June 30, 2002 is as follows:

In accordance with SFAS No. 144, the fair value of the impaired assets becomes the new basis for accounting purposes. As such, approximately $1.9 billion in accumulated depreciation was eliminated in connection with the accounting for the impairments as of June 30, 2002. The impact of the impairments has reduced our annual depreciation and amortization expense by approximately $1.3 billion, effective July 1, 2002.

In addition, for the six months ended June 30, 2002, we recorded other asset impairment charges of $6 million associated with the write-down of other real estate assets that were held for sale.

In August 2003, we entered into a services agreement with a subsidiary of Sprint Corporation ("Sprint") that allows us to resell Sprint wireless services, including access to Sprint's nationwide PCS wireless network, to consumer and business customers, primarily within our local service area. We plan to begin offering these Sprint services under our brand name in early 2004. Our wireless customers who are currently being serviced through our proprietary wireless network will be transitioned at our cost onto Sprint's network. Due to the anticipated decrease in usage of our own wireless network following the transition of our customers onto Sprint's network, in the third quarter of 2003 we performed an evaluation of the recoverability of the carrying value of our long-lived wireless network assets.

In accordance with SFAS No. 144, we compared gross undiscounted cash flow projections to the carrying value of the long-lived wireless network assets and determined that certain asset groups were not expected to be recovered through future projected cash flows. For those asset groups that were not recoverable, we then estimated the fair value using market prices for similar assets. Cell sites, switches, related tools and equipment inventory and certain information technology systems that support the wireless network were determined to be impaired by $230 million.

Estimating the fair value of the asset groups involved significant judgment and a variety of assumptions. Comparable market data was obtained by reviewing recent sales of similar asset types.

On January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), which requires companies to cease amortizing goodwill and intangible assets which have indefinite useful lives. SFAS No. 142 also requires that goodwill and indefinite-lived intangible assets be reviewed for impairment upon adoption on January 1, 2002 and annually thereafter, or more often if events or circumstances warrant. Under SFAS No. 142, goodwill impairment may exist if the carrying value of the reporting unit to which it is allocated exceeds its estimated fair value.

Based on the transition provisions of SFAS No. 142, we reclassified the $50 million net carrying value of our assembled workforce intangible asset, which was recognized in connection with the June 30, 2000 acquisition of U S WEST, Inc. (the "Merger"), into goodwill effective January 1, 2002. The assembled workforce intangible asset no longer met the criteria for recognition as a separate intangible asset apart from goodwill. Amortization of goodwill, including the addition to goodwill from the reclassification of the assembled workforce intangible asset, ceased on January 1, 2002. We also ceased amortizing our intangible assets with indefinite lives, including trademarks, trade names and wireless spectrum licenses on January 1, 2002.

In accordance with SFAS No. 142, we performed a transitional impairment test of goodwill and intangible assets with indefinite lives as of January 1, 2002. The first step of the transitional test of impairment was performed by comparing the fair value of our reporting units to the carrying values of these reporting units to which goodwill was assigned. Because we do not maintain balance sheets at the reporting unit level, we allocated all assets and liabilities to each of the reporting units based on various methodologies that included specific identification and allocations based primarily on revenues, voice grade equivalents (the amount of capacity required to carry one telephone call) and relative number of employees. Goodwill was allocated to reporting units based on the relative fair value of each reporting unit. We did not allocate any goodwill to our wireless and directory publishing reporting units because they were not expected to benefit significantly from the synergies of the Merger and are not considered sources of the goodwill which arose from the Merger.

Upon implementation of SFAS No. 142, we identified 13 reporting units. Goodwill was allocated to four of these reporting units on a relative fair value basis. Reporting units that were non-revenue producing or that were not expected to benefit significantly from the synergies of the Merger were not

allocated goodwill. In addition, insignificant reporting units were not allocated goodwill. As discussed in Note 8—Segment Information, operating segments were changed in the fourth quarter of 2002 after goodwill had already been reduced to zero through impairments discussed in the following paragraphs.

We estimated the implied fair value of goodwill for each reporting unit by subtracting the fair value of the reporting unit's assets, including any unrecognized intangibles, from the total fair value of the reporting unit. The excess was deemed the implied fair value of goodwill. The implied fair value of the goodwill was then compared to the carrying amount of goodwill for the reporting unit. Based on this analysis, we recorded a charge for the cumulative effect of adopting SFAS No. 142 of $22.8 billion on January 1, 2002. This charge related to the reporting units in the table below:

Changes in market conditions, downward revisions to our projections of future operating results and other factors indicated that the carrying value of the remaining goodwill should be evaluated for impairment as of June 30, 2002. Based on the results of that impairment analysis, we determined that the remaining goodwill balance of $8.483 billion was impaired and we recorded an impairment charge on June 30, 2002 to write-off the remaining balance.

The following table presents the summarized results of operations for the periods indicated related to our discontinued operations. These results primarily relate to our directory publishing business. Our previously reported December 31, 2002 consolidated financial statements have been adjusted to reflect changes in the business units that comprise our discontinued operations.

		Three Months Ended June 30,				Six Months Ended June 30,
		2003		2002		2003		2002
		(Dollars in millions)
Revenue		$	234	$	414	$	471	$	827
Costs and expenses:
	Cost of services		72		143		151		291
	Selling, general and administrative		32		213		52		261
	Depreciation and amortization		—		13		—		26

Income from operations			130		45		268		249
	Other expense		35		—		65		—

Income before income taxes			95		45		203		249
	Income tax provision		34		17		76		96

Income from discontinued operations		$	61	$	28	$	127	$	153

The following table presents the condensed balance sheets related to our discontinued operations, primarily our directory publishing business, as of the dates presented.

	June 30, 2003		December 31, 2002
	(Dollars in millions)
Current assets held for sale	$	220	$	261
Property, plant and equipment—net		29		65
Other assets		17		21

Total assets held for sale	$	266	$	347

Current portion of liabilities associated with discontinued operations	$	152	$	246
Other long-term liabilities		37		50

Total liabilities associated with discontinued operations	$	189	$	296

During the second quarter of 2002, we began actively pursuing the sale of our directory publishing business. On November 8, 2002, we completed the first stage of the sale of our directory publishing business to a new entity formed by the private equity firms of The Carlyle Group and Welsh, Carson, Anderson & Stowe (the "Buyer") (the "Dex Sale"). The sales price for the first stage of the Dex Sale, which involved the sale of Dex operations in the states of Colorado, Iowa, Minnesota, Nebraska, New Mexico, North Dakota and South Dakota (the "Dex East business") was $2.75 billion and was paid in cash. We recognized a gain of $1.6 billion (net of $1.0 billion in income taxes) on the sale of the Dex East business.

Concurrent with the closing of the sale of the Dex East business, we entered into an advertising and telecommunications commitment agreement with the Buyer. Pursuant to that agreement, we agreed to purchase from the Buyer at least $20 million annually worth of advertising, at fair value, for 15 years and the Buyer agreed to exclusively purchase from us those telecommunication services that it uses from time to time during this same period, at market based rates, subject to availability.

We periodically review our network supplies against our usage requirements to identify potential excess supplies for disposal. During the second quarter of 2002, we identified $359 million of excess supplies and engaged a third-party broker to conduct a sale of those assets. An impairment charge of $342 million was recorded on June 30, 2002 to reduce the carrying amount of the supplies to their estimated fair value less cost to sell of $17 million. Fair value was based upon market values of similar equipment. The impairment charge of $342 million is included in asset impairment charges in our six months ended June 30, 2002 condensed consolidated statement of operations.

The sale of our directory publishing business in the remaining states of Arizona, Idaho, Montana, Oregon, Utah, Washington and Wyoming (the "Dex West business") was completed in September 2003. We received approximately $4.3 billion in gross sale proceeds related to the sale. We recognized a gain of $2.5 billion (net of $1.6 billion in income taxes) on the sale of the Dex West business.

In April 1999, pre-Merger Qwest and KPN Telecom B.V. ("KPN") formed KPNQwest, a joint venture to create a pan-European Internet Protocol ("IP")-based fiber optic broadband network linked to Qwest's network in North America for data and multimedia services. Because we have never had the ability to designate a majority of the members of the supervisory board or to vote a majority of the voting securities, we accounted for our investment in KPNQwest using the equity method of accounting for all periods presented.

In May 2002, KPNQwest filed for bankruptcy protection and ceased operations. We do not expect to recover any of our investment in KPNQwest and, as a result, we recorded losses of $576 million and $1.190 billion for the three and six months ended June 30, 2002, respectively, on our remaining investment in KPNQwest which is included in loss from continuing operations.

Our borrowings, net of discounts and premiums, consisted of the following for the dates indicated:

		June 30, 2003		December 31, 2002
		(Dollars in millions)
Current borrowings:
Short-term notes		$	750	$	750
Current portion of credit facility			321		750
Current portion of long-term borrowings			3		1,201
Current portion of capital lease obligations and other			68		85

	Total current borrowings	$	1,142	$	2,786

Long-term borrowings:
Long-term portion of credit facility		$	1,250	$	1,250
Long-term notes			20,009		18,438
Long-term capital lease obligations and other			76		66

	Total long-term borrowings	$	21,335	$	19,754

During the second quarter of 2003, we exchanged approximately 12 million shares of our common stock with an aggregate value of $47 million for $55 million face amount in Qwest Capital Funding ("QCF") notes. The trading prices for our shares at the time the exchange transactions were consummated ranged from $3.53 per share to $4.96 per share. As a result of these transactions, we recorded $8 million of gain on the debt extinguishment during the second quarter of 2003.

For the six months ended June 30, 2003, we exchanged approximately 31 million shares of our common stock with an aggregate value of $113 million for $142 million face amount in QCF notes. The trading prices for our shares at the time the exchange transactions were consummated ranged from $3.22 per share to $4.96 per share. We recorded $29 million of gain on the debt extinguishment for the above transactions during the six month period ended June 30, 2003.

During the three months ended June 30, 2003, we exchanged $188 million of new Qwest Services Corporation ("QSC") notes for $255 million face amount of QCF notes. For the six months ended June 30, 2003, we also exchanged $406 million of new QSC notes for $560 million face amount of QCF notes. The new QSC notes have interest rates ranging from 13% to 13.5% while the original QCF notes had interest rates ranging from 6.875% to 7.90%. These debt-for-debt exchanges were accounted for in accordance with the guidance in Emerging Issues Task Force Issue No. 96-19, "Debtor's Accounting for a Modification or Exchange of Debt Instruments". On the date of the exchanges, the present value of the cash flows under the terms of the revised debt instruments were compared to the

present value of the remaining cash flows under the original debt instruments. The cash flows were not considered "substantially" different to that of the exchanged debt; therefore, no gain was realized on the exchanges and the differences between the face amount of the new debt and the carrying amount of the exchanged debt of $62 million and $144 million for the three and six months ended June 30, 2003, respectively, are being amortized as credits to interest expense using the effective interest rate method over the life of the new debt.

On June 9, 2003, we entered into a senior term loan with two tranches for a total of $1.75 billion principal amount of indebtedness. The term loan consists of a $1.25 billion floating rate tranche, due in 2007, and a $500 million fixed rate tranche, due in 2010. The term loan is unsecured and ranks equally with all of our current indebtedness. The floating rate tranche is non-prepayable for two years and thereafter is subject to prepayment premiums through 2006. There are no mandatory prepayment requirements. The covenant and default terms are substantially the same as our other senior indebtedness. The net proceeds were used to refinance our debt due in 2003 and fund or refinance our investment in telecommunications assets. The floating rate tranche bears interest at London Interbank Offered Rates plus 4.75% (with a minimum interest rate of 6.50%) and the fixed rate tranche bears interest at 6.95% per annum. The interest rate on the floating rate tranche was 6.50% at June 30, 2003. The lenders funded the entire principal amount of the loan subject to the original issue discount for the floating rate tranche of 1.00% and for the fixed rate tranche of 1.652%. Also, in connection with this issuance, our obligation under the QSC credit facility ("QSC Credit Facility"), was paid down by $429 million to a balance of $1.57 billion.

On August 12, 2003, Qwest Dex, Inc. ("Dex"), our directory publishing subsidiary, paid in full the $750 million it owed under a term loan agreement consummated in August 2002.

On September 9, 2003, we completed the sale of the Dex West business. The gross proceeds from the sale of the Dex West business were $4.3 billion and were received in cash. We used $321 million of the cash proceeds to reduce our QSC Credit Facility obligation to $1.25 billion. We expect to use the balance of the proceeds from the Dex West sale to invest in telecommunications assets and/or to redeem other indebtedness.

Subsequent to June 30, 2003 and through December 3, 2003, we exchanged, through direct transactions, $312 million face amount of debt issued by QCF and Qwest Communications Corporation for $198 million in cash and for equity with an aggregate value of $89 million. We recorded a gain of $24 million related to these transactions.

On November 19, 2003, we commenced a tender offer for up to $2.25 billion in aggregate principal amount of our debt securities. The offer is being made for specified series of debt securities of Qwest Communications International, Inc., QCF and QSC. Of the $2.25 billion we are offering to repurchase, up to $625 million is allocated to debt securities maturing in 2005 through 2007, up to $1.3 billion is allocated to debt securities maturing in 2008 through 2011 and up to $325 million is allocated to debt securities maturing in 2014 through 2031. The offer period expires on December 19, 2003, unless our offer is extended or earlier terminated, and the offer includes an early participation incentive for holders who tender on or before December 4, 2003.

During the six months ended June 30, 2003, we identified planned employee reductions in various functional areas. As a result, we established a severance reserve and recorded a charge to our

condensed consolidated statement of operations of $25 million to cover the costs associated with these actions as more fully described below.

An analysis of activity associated with our 2003 restructuring reserve for the six months ended June 30, 2003 is as follows:

		2003 Provision		2003 Utilization		June 30, 2003 Balance
		(Dollars in millions)
Severance and employee-related charges		$	25		$	9		$	16

The 2003 restructuring includes charges of $25 million for severance benefits and other charges pursuant to established severance policies associated with a reduction in employees. We identified 750 employees from various functional areas to be terminated as part of this reduction. Through June 30, 2003, 300 of the planned reductions had been completed and $9 million of the restructuring reserve had been used for severance payments and enhanced pension benefits.

Other restructuring-related charges, primarily severance related, were $4 million and $5 million for the three and six months ended June 30, 2003, respectively.

During 2002, in response to shortfalls in employee reductions planned as part of the 2001 restructuring plan (as discussed below), and due to continued declines in our revenues and general economic conditions, we identified planned employee reductions in various functional areas and permanently abandoned a number of operating and administrative facilities. As a result, we established a restructuring reserve and recorded a charge to our condensed consolidated statement of operations to cover the costs associated with these actions.

An analysis of activity associated with our 2002 restructuring plan for the six months ended June 30, 2003 is as follows:

	January 1, 2003 Balance		2003 Provision		2003 Utilization		June 30, 2003 Balance
	(Dollars in millions)
Severance and employee-related charges	$	56	$	—	$	37	$	19
Contractual settlements, legal contingencies and lease losses		108		—		8		100

Total	$	164	$	—	$	45	$	119

During 2002, we identified approximately 4,500 employees from various functional areas to be terminated as part of this reduction. At June 30, 2003, 4,100 of the planned reductions had been accomplished and for the six months ended June 30, 2003, $37 million of the restructuring reserve had been used for severance payments and enhanced pension benefits. We expect the remaining employee reductions to be completed by December 31, 2003.

Also as part of the 2002 restructuring, we permanently abandoned 64 leased facilities and recorded a charge to restructuring and other charges in our consolidated statement of operations. The abandonment costs include rental payments due over the remaining terms of the leases, net of estimated sublease rentals, and estimated costs to terminate the leases. For the six months ended June 30, 2003 we utilized $8 million of the established reserves primarily for payments of amounts due under the leases. We expect the balance of the reserve to be utilized over the remaining terms of the leases, which are up to five years.

During the fourth quarter of 2001, a plan was approved to reduce employee levels, consolidate and sublease facilities, abandon certain capital projects and terminate certain operating leases. An analysis of activity associated with our 2001 plan for the six months ended June 30, 2003 is as follows:

	January 1, 2003 Balance		2003 Provision		2003 Utilization		June 30, 2003 Balance
	(Dollars in millions)
Severance and employee-related charges	$	16	$	—	$	1	$	15
Contractual settlements and legal contingencies		59		—		11		48
Lease losses, net of sublease income		286		—		11		275

Total	$	361	$	—	$	23	$	338

In 2001 we identified approximately 10,000 employees from various functional areas to be terminated as part of an employee reduction and accrued a restructuring reserve for severance benefits for those employees. At June 30, 2003, approximately 7,000 employees had been terminated. For the six months ended June 30, 2003, $1 million of the restructuring reserve had been used for severance payments, enhanced pension benefits and other employee-related outlays. In 2002, in response to this shortfall in planned employee terminations, we reviewed our manpower complement in other functional areas and identified employees to be terminated as part of another staffing reduction. These planned reductions are discussed above in connection with our 2002 restructuring activities.

Due to our staffing reduction and consolidation of our operations, we accrued a restructuring reserve associated with the expected termination of 40 operating lease agreements across the country. For the six months ended June 30, 2003 we utilized $11 million of the established reserve for payments associated with contract termination costs related to exiting these buildings.

As a result of the slowing economy and the excess capacity that existed for web hosting, we suspended our plans to build web hosting centers where construction had not begun and halted work on those sites that were under construction. We identified 10 web hosting centers that would be permanently abandoned. We expected to sublease the majority of the non-operational web hosting centers at rates less than our lease rates for the facilities. Certain of these leases are for terms of up to 20 years. As a result, in 2001 we established a restructuring reserve to cover the expected sublease losses. For the six months ended June 30, 2003, we utilized $11 million of the established reserve primarily for payments made on the web hosting center leases and contract termination costs.

As of June 30, 2003, total Merger-related accruals of $22 million are included on our condensed consolidated balance sheet. These relate primarily to outstanding legal liabilities. As the matters identified as contractual settlements and legal contingencies are resolved, any amounts due will be paid and charged against our remaining accrual. Any differences between amounts accrued and actual payments made will be reflected in Merger-related charges in our condensed consolidated statement of operations for the period in which the difference is identified.

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131") establishes standards for reporting information about operating segments in annual financial statements of public business enterprises and requires that those enterprises report selected information about operating segments in interim and annual financial reports issued to shareholders. Operating segments are components of an enterprise that engage in business activities from which revenues may

be earned and expenses may be incurred, and for which discrete financial information is available and regularly evaluated by the chief operating decision maker ("CODM") of an enterprise.

The CODM of a business represents the highest level of management who is responsible for the overall allocation of resources within the business and assessment of the performance of the business. Our CODM is our Chief Executive Officer. Set forth below is revenue and operating expense information for the three and six months ended June 30, 2003 and 2002 for our three operating segments at June 30, 2003: wireline services, wireless services and other services. Management evaluates the performance of each segment and allocates capital resources based on segment income as defined below. Until September 2003, we also operated a fourth segment, our directory publishing business, which as described in Note 4—Discontinued Operations including Assets Held for Sale, has been classified as discontinued operations in our condensed consolidated statements of operations and accordingly is not presented in our segment results below.

Segment income consists of each segment's revenues and direct expenses. Segment revenues are based on the types of products and services offered as described below. Direct administrative costs include sales, customer support, collections and marketing. Indirect administrative costs such as finance, information technology, real estate, legal, marketing services and human resources are included in the other services segment. We manage indirect administrative services costs centrally; consequently, the costs are not allocated to the wireline or wireless services segments. Similarly, depreciation, amortization, interest expense, interest income and other income (expense) are not allocated to either the wireline or wireless segments.

Our wireline services segment includes revenues from the provision of voice services, access services and data and Internet services. Voice services consist of local voice services (such as basic local exchange services, operator services, public telephone service, enhanced voice services and revenues from the sales of customer premises equipment ("CPE")) and long-distance voice services (such as IntraLATA and InterLATA long-distance services). Access services revenues are generated through our wholesale sales channel from switched-access service revenues (which are revenues generated principally from charges to interexchange carriers ("IXCs"), for use of our local network to connect their customers to their long-distance networks). An IXC is a telecommunications company that provides long-distance services to end-users by handling calls that are made from a phone exchange in one local access transport area ("LATA"), to an exchange in another LATA.

Data and Internet services include data services (such as traditional private lines, wholesale private lines, frame relay, asynchronous transfer mode ("ATM") and related CPE) and Internet services (such as DSL, dedicated Internet access ("DIA"), virtual private network ("VPN"), Internet dial access, web hosting, professional services and related CPE). Revenues from optical capacity transactions are also included in revenues from data services as is revenue from the provision of wholesale billing services. Depending on the product or service purchased, a customer may pay an up-front fee, a monthly fee, a usage charge or a combination of these fees and charges.

Our wireless services are provided through our wholly owned subsidiary, Qwest Wireless LLC, which holds 10 Megahertz licenses to provide PCS in most markets in our local service area. We offer wireless services to residential and business customers providing them the ability to use the same telephone number for their wireless phone as for their home or business phone. In August 2003, we entered into a services agreement with a subsidiary of Sprint that allows us to resell Sprint wireless services, including access to Sprint's nationwide PCS wireless network, to consumer and business customers, primarily within our local service area (see Note 2—Asset Impairment Charges).

Our other services segment consists of revenues and expenses from other operations and are centrally managed departments. Other services revenue is predominately derived from subleases of some of our real estate assets, such as space in our office buildings, warehouses and other properties. Our other services segment expenses include unallocated corporate expenses for indirect services such

as finance, information technology, real estate, legal, marketing services and human resources, which we centrally manage.

Information for all periods has been conformed to our June 30, 2003 presentation, as described above. Other than as already described herein, the accounting principles used are the same as those used in our condensed consolidated financial statements. The revenues shown below for each segment are derived from transactions with external customers. Internally, we do not separately track the total assets of our wireline or other segments. As such, total asset information for the three segments shown below is not presented.

			Three Months Ended June 30,						Six Months Ended June 30,
			2003			2002			2003			2002
			(Dollars in millions)
Operating revenues:
	Wireline services		$	3,435		$	3,701		$	6,896		$	7,478
	Wireless services			153			183			305			371
	Other services			8			27			19			45

		Total operating revenues	$	3,596		$	3,911		$	7,220		$	7,894

Operating expenses:
	Wireline services		$	1,831		$	2,238		$	3,693		$	4,309
	Wireless services			87			153			186			314
	Other services			695			673			1,378			1,359

		Total segment expenses	$	2,613		$	3,064		$	5,257		$	5,982

Segment income (loss):
	Wireline services		$	1,604		$	1,463		$	3,203		$	3,169
	Wireless services			66			30			119			57
	Other services			(687	)		(646	)		(1,359	)		(1,314	)

		Total segment income	$	983		$	847		$	1,963		$	1,912

Capital expenditures:
	Wireline		$	389		$	452		$	722		$	1,150
	Wireless			—			12			11			42
	Other			150			158			235			607

		Total capital expenditures		539			622			968			1,799
	Non-cash investing activities			(34	)		(23	)		(34	)		(29	)

		Total cash capital expenditures	$	505		$	599		$	934		$	1,770

The following table reconciles segment income to net (loss) income for the three and six months ended June 30, 2003 and 2002:

		Three Months Ended June 30,						Six Months Ended June 30,
		2003			2002			2003			2002
		(Dollars in millions)
Segment income		$	983		$	847		$	1,963		$	1,912
	Depreciation		(677	)		(940	)		(1,353	)		(1,881	)
	Other intangible assets amortization		(112	)		(192	)		(220	)		(365	)
	Goodwill impairment charge		—			(8,483	)		—			(8,483	)
	Asset impairment charges		—			(10,499	)		—			(10,499	)
	Restructuring and other charges (credits)		(17	)		5			(30	)		(26	)
	Total other expense—net		(381	)		(1,052	)		(760	)		(2,136	)
	Income tax benefit		79			2,856			155			3,045
	Income from discontinued operations, net of taxes		61			28			127			153
	Cumulative effect of changes in accounting principles, net of taxes		—			—			206			(22,800	)

Net (loss) income		$	(64	)	$	(17,430	)	$	88		$	(41,080	)

Set forth below is revenue information for the three and six months ended June 30, 2003 and 2002 for revenues derived from external customers for our products and services.

		Three Months Ended June 30,				Six Months Ended June 30,
		2003		2002		2003		2002
		(Dollars in millions)
Operating revenues:
	Local voice	$	1,731	$	1,889	$	3,507	$	3,808
	Long-distance		476		543		929		1,105
	Access		229		268		468		539

Total voice services			2,436		2,700		4,904		5,452
	Data and Internet services		999		1,001		1,992		2,026

Total wireline segment revenues			3,435		3,701		6,896		7,478
Wireless segment revenues			153		183		305		371
Other services revenues			8		27		19		45

	Total operating revenues	$	3,596	$	3,911	$	7,220	$	7,894

We provide a variety of telecommunications services on a national and international basis to global and national businesses, small businesses, governmental agencies and residential customers. It is impractical for us to provide revenue information about geographic areas.

We do not have any single major customer that provides more than 10 percent of the total of our revenues derived from external customers.

Supplemental disclosures of non-cash investing and financing activities are as follows:

	Six Months Ended June 30,
	2003		2002
	(Dollars in millions)
Retirement of debt in exchange for stock (see Note 6).	$	113	$	87
Assets acquired through capital leases		34		29
Receipt of Qwest common stock in satisfaction of outstanding receivable		—		13

During the six months ended June 30, 2003, we exchanged debt with a carrying value of $142 million that was issued by QCF. In exchange for the debt, we issued approximately 31 million shares of our common stock with a fair value of $113 million and recorded a $29 million gain on early retirement of debt.

During the first quarter of 2002, we exchanged debt with a carrying value of $96 million that was issued by QCF. In exchange for the debt, we issued approximately 9.88 million shares of our treasury stock with a fair value of $87 million and recorded a $9 million gain on early retirement of debt.

During the first quarter of 2002, we received approximately 278,000 shares of our common stock valued at $13 million from BellSouth Corporation in partial satisfaction of a $16 million receivable outstanding at December 31, 2001.

Other comprehensive (loss) income for the three and six months ended June 30, 2003 and 2002 was as follows:

		Three Months Ended June 30,						Six Months Ended June 30,
		2003			2002			2003			2002
		(Dollars in millions)
Net (loss) income		$	(64	)	$	(17,430	)	$	88		$	(41,080	)
Other comprehensive (loss) income:
	Net unrealized (losses) gains on available-for-sale marketable securities		—			(2	)		—			36
	Foreign currency translation		(2	)		47			(2	)		40
Income tax provision related to items of other comprehensive income			—			(17	)		—			(30	)

Comprehensive (loss) income		$	(66	)	$	(17,402	)	$	86		$	(41,034	)

Throughout this section, when we refer to a class action as "putative" it is because a class has been alleged, but not certified in that matter. Until and unless a class has been certified by the court, it has not been established that the named plaintiffs represent the class of plaintiffs they purport to represent. When we refer to a derivative action as "purported," it is because the plaintiff alleges that he or it has brought the claim on our behalf and the court has not yet ruled that the complaint meets the requirements for a proper derivative case.

In September 2003, we terminated our services arrangements with Calpoint, LLC ("Calpoint") and another service provider and settled certain claims of the parties. We agreed to pay $174 million to terminate these arrangements. However, we will continue to make payments to a trustee related to the Calpoint arrangements for 75% of an unconditional purchase obligation, and as a result, we recorded a liability of $346 million. We also recorded a reduction in a pre-existing deferred credit of $127 million in connection with the termination of the Calpoint arrangements. Our third quarter 2003 condensed consolidated financial statements reflect a net $393 million charge related to these terminations.

In July 2003, we entered into an information technology services agreement with International Business Machines Corporation ("IBM"), under which IBM provides us data center operations and technical support services. The term of the agreement is 10 years. The agreement allows us to terminate at our convenience, but would require us to pay IBM termination fees ranging from $146 million in the first year of the contract to $38 million in the seventh year. We expect to pay IBM approximately $82 million in fees under this agreement in 2003 and approximately $212 million in 2004, although these amounts may vary depending on our actual usage of IBM's services and other factors.

We have transferred optical capacity assets on our network primarily to other telecommunications service carriers in the form of indefeasible rights of use ("IRU") transactions involving specific channels on our "lit" network or specific dark fiber strands. These IRUs provide for the exclusive right to use a specified amount of capacity or fiber for a specified period reflecting the estimated useful life of the optical capacity asset, typically 20 years or more. Typically, at or before the end of the IRU term, ownership of the optical capacity asset will have passed to the customer. Our fiber optic broadband network is generally located in real property pursuant to an agreement with the property owner or another person with rights to the property. It is possible that we may lose our rights under one or more of such agreements, due to their termination or their expiration. If we lose any such rights of way and are unable to renew them, we may find it necessary to move or replace the affected portions of the network. However, we do not expect any material adverse impacts as a result of the loss of any such rights.

On April 3, 2002, the Securities and Exchange Commission ("SEC") issued an order of investigation that made formal an informal investigation initiated on March 8, 2002. We are continuing in our efforts to cooperate fully with the SEC in its investigation. The investigation includes, without limitation, inquiry into several specifically identified Qwest accounting practices and transactions and related disclosures that are the subject of the various adjustments and restatements described in our 2002 Form 10-K. The investigation also includes inquiry into disclosure and other issues related to transactions between us and certain of our vendors and certain investments in the securities of those vendors by individuals associated with us.

On July 9, 2002, we were informed by the U.S. Attorney's Office for the District of Colorado of a criminal investigation of us. We believe the U.S. Attorney's Office is investigating various matters that include the subjects of the investigation by the SEC. We are continuing in our efforts to cooperate fully with the U.S. Attorney's Office in its investigation.

laws in a complaint filed in United States District Court that, for purposes of the settlement, the defendant neither admits nor denies. We would expect such claims to address many of the accounting practices and transactions and related disclosures that are the subject of the various restatements we have made as well as additional transactions. In addition, any settlement with the SEC may also involve, among other things, the imposition of a civil penalty, the amount of which could be material, and the entry of a court order that would require, among other things, that we and our officers and directors comply with provisions of the federal securities laws as to which there have been allegations of prior violations.

In addition, as previously reported, the SEC has conducted an investigation concerning our earnings release for the fourth quarter and full year 2000 issued on January 24, 2001. The release provided pro forma normalized earnings information that excluded certain nonrecurring expense and income items resulting primarily from the Merger with U S WEST. On November 21, 2001, the SEC staff informed us of its intent to recommend that the SEC authorize an action against us that would allege we should have included in the earnings release a statement of our earnings in accordance with GAAP. As of December 4, 2003 (the date of the original filing of this Form 10-Q), no action had been taken by the SEC. However, we expect that if our current discussions with the staff of the SEC result in a settlement, such settlement will include allegations concerning the January 24, 2001 earnings release.

Also, as previously announced in July 2002 by the General Services Administration ("GSA"), the GSA is conducting a review of all contracts with us for purposes of determining present responsibility. Recently, the Inspector General of the GSA referred to the GSA Suspension/Debarment Official the question of whether Qwest should be considered for debarment. We have been informed that the basis for the referral is last February's indictment against four former employees in connection with a transaction with the Arizona School Facilities Board in June 2001 and a civil complaint filed the same day by the SEC against the same former employees and others relating to the Arizona School Facilities Board transaction and a transaction with Genuity, Inc. ("Genuity") in 2000. We are cooperating fully with the GSA and believe that we will remain a supplier of the government; however, if we are not allowed to be a supplier to the government, we would lose the ability to expand the services we could provide to a purchaser of telecommunications services that has historically represented between 2% and 3% of our consolidated annual revenue.

Since July 27, 2001, 13 putative class action complaints have been filed in federal district court in Colorado against us alleging violations of the federal securities laws. One of those cases has been dismissed. By court order, the remaining actions have been consolidated into a Consolidated Securities Action (the "Consolidated Securities Action"). Plaintiffs in the Consolidated Securities Action name as defendants in the Fourth Consolidated Amended Class Action Complaint ("Fourth Consolidated Complaint"), which was filed on or about August 21, 2002, us, our former Chairman and Chief Executive Officer, Joseph P. Nacchio, our former Chief Financial Officers, Robin R. Szeliga and Robert S. Woodruff, other of our former officers and current directors and Arthur Andersen LLP. The Fourth Consolidated Complaint is purportedly brought on behalf of purchasers of our publicly traded securities between May 24, 1999 and February 14, 2002, and alleges, among other things, that during the putative class period, we and certain of the individual defendants made materially false statements regarding the results of our operations in violation of section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), that certain of the individual defendants are liable as control persons under section 20(a) of the Exchange Act, and that during the putative class period, certain of the individual defendants sold some of their shares of our common stock in violation of section 20A of the Exchange Act. The Fourth Consolidated Complaint also alleges that our financial results during the putative class period and statements regarding those results were false and misleading due to the alleged: (i) overstatement of revenue, (ii) understatement of costs, (iii) manipulation of employee benefits in

order to increase profitability and (iv) misstatement of certain assets and liabilities. The Fourth Consolidated Complaint further alleges that we and certain of the individual defendants violated Section 11 of the Securities Act of 1933, as amended (the "1933 Act"), and that certain of the individual defendants are liable as control persons under Section 15 of the 1933 Act by preparing and disseminating false registration statements and prospectuses for: (1) the registration of 897,907,706 shares of our common stock to be issued to U S WEST shareholders dated June 21, 1999, as amended August 13, 1999 and September 17, 1999; (2) the exchange of $3.25 billion of our notes dated July 12, 2001; and (3) the exchange of $3.75 billion of our notes dated October 30, 2001. The Fourth Consolidated Complaint seeks unspecified compensatory damages and other relief. However, lead counsel for the plaintiffs has indicated that plaintiffs will seek damages in the billions of dollars. On September 20, 2002, both we and the individual defendants filed motions to dismiss the Fourth Consolidated Complaint. Those motions are currently pending before the court. On November 4, 2002, lead plaintiffs in the consolidated securities action filed a motion for a temporary restraining order and preliminary injunction seeking to enjoin the Dex Sale or, in the alternative, to place the proceeds of such sale in a constructive trust for the benefit of the plaintiffs. The court denied both motions.

On October 22, 2001, an alleged derivative lawsuit was filed in the United States District Court for the District of Colorado, naming as defendants each of the then members of our Board of Directors, and naming us as a nominal defendant. The derivative complaint is based upon the allegations made in the consolidated securities action and alleges, among other things, that the Board members intentionally or negligently breached their fiduciary duties to us by failing to oversee implementation of securities laws that prohibit insider trading. The derivative complaint also alleges that the Board members breached their fiduciary duties to us by causing or permitting us to commit alleged securities violations, thus (i) causing us to be sued for such violations, and (ii) subjecting us to adverse publicity, increasing our cost of raising capital and impairing earnings. The derivative complaint further alleges that certain directors sold shares between April 26, 2001 and May 15, 2001 using non-public information about us. On or about October 31, 2001, the court filed an order consolidating this derivative lawsuit with the consolidated securities action. In December 2001, the derivative lawsuit was stayed, pending further order of the court, based on the fact that the merits of the derivative lawsuit are intertwined with the resolution of the consolidated securities action. In March 2002, plaintiffs filed a first amended derivative complaint. The first amended derivative complaint adds allegations relating to the disclosures of our consolidated financial results from April 2000 through February 2002. On or about November 5, 2002, plaintiffs filed a second amended derivative complaint. The second amended complaint adds as defendants to the lawsuit certain former officers, including Robin R. Szeliga, Robert S. Woodruff and others. The second amended complaint contains allegations in addition to those set forth in the prior complaints, stating, among other things that (i) certain officers and/or directors traded our stock while in the possession of inside information, and (ii) certain officers and/or directors caused the restatement of more than $1 billion in revenue by concealing improper accounting practices. Plaintiffs seek, among other remedies, disgorgement of alleged insider trading profits. The lawsuit remains stayed.

On March 6, 2002, an alleged derivative lawsuit was filed in the District Court for the City and County of Denver, naming as defendants each of the then members of our Board of Directors, certain former officers of ours and Arthur Andersen LLP. We are named as a nominal defendant. The derivative complaint is based upon the allegations made in the consolidated securities action and alleges that the Board members intentionally or recklessly breached their fiduciary duties to us by causing or allowing us to issue financial disclosures that were false or misleading. Plaintiffs seek unspecified damages on our behalf against the defendants. On July 2, 2002, this state court derivative lawsuit was stayed pending further order of the court. On or about August 1, 2003, the plaintiffs filed an amended derivative complaint, which does not contain claims against our former officers and Arthur Andersen, but continues to assert claims against the Board defendants. In the amended complaint, the plaintiffs allege, among other things, that the individual defendants abdicated their duty to implement

and maintain an adequate internal accounting control system and thus allegedly violated (i) their fiduciary duties of loyalty and good faith; (ii) GAAP; and (iii) our Audit Committee's charter (which requires, among other things, that our Audit Committee serve as an independent and objective party to monitor our financial reporting and internal control system). The amended complaint also states new claims against Mr. Nacchio for his alleged breach of fiduciary duties. Plaintiffs seek a court order requiring that Mr. Nacchio disgorge to us all of his 2001 compensation, including salary, bonus, long-term incentive payouts and stock options. In addition, the plaintiffs contend that Mr. Nacchio breached his fiduciary duties to us by virtue of his sales of our stock allegedly made using his knowledge of material non-public information. The plaintiffs seek the imposition of a constructive trust on any profits Mr. Nacchio obtained by virtue of these sales.

Since March 2002, seven putative class action suits were filed in federal district court in Colorado purportedly on behalf of all participants and beneficiaries of the Qwest Savings and Investment Plan and predecessor plans (the "Plan") from March 7, 1999 until the present. By court order, five of these putative class actions have been consolidated, and the claims made by the plaintiff in the sixth case were subsequently included in the Second Amended and Consolidated Complaint described below (the "consolidated ERISA action"). We expect the seventh putative class action to be consolidated with the other cases since it asserts substantially the same claims. The consolidated amended complaint filed on July 5, 2002 names as defendants, among others, us, several former and current directors, officers and employees, Qwest Asset Management, the Plan's Investment Committee and the Plan Administrative Committee of the pre-Merger Qwest Communications 401(k) Savings Plan. Plaintiffs filed a Second Amended and Consolidated Complaint on May 21, 2003, naming as additional defendants a former employee and Qwest's Plan Design Committee. The consolidated ERISA action, which is brought under the Employee Retirement Income Security Act ("ERISA"), alleges, among other things, that the defendants breached fiduciary duties to the Plan members by allegedly excessively concentrating the Plan's assets invested in our stock, requiring certain participants in the Plan to hold the matching contributions received from us in the Qwest Shares Fund, failing to disclose to the participants the alleged accounting improprieties that are the subject of the consolidated securities action, failing to investigate the prudence of investing in our stock, continuing to offer our stock as an investment option under the Plan, failing to investigate the effect of the U S WEST Merger on Plan assets and then failing to vote the Plan's shares against it, preventing plan participants from acquiring our stock during certain periods and, as against some of the individual defendants, capitalizing on their private knowledge of our financial condition to reap profits in stock sales. Plaintiffs seek equitable and declaratory relief, along with attorneys' fees and costs and restitution. Plaintiffs moved for class certification on January 15, 2003, and we have opposed that motion, which is pending before the court. Defendants filed motions to dismiss on August 22, 2002. Those motions are also pending before the court.

On June 27, 2002, a putative class action was filed in the District Court for the County of Boulder against us, The Anschutz Family Investment Co., Philip Anschutz, Joseph P. Nacchio and Robin R. Szeliga on behalf of purchasers of our stock between June 28, 2000 and June 27, 2002 and owners of U S WEST stock on June 28, 2000. The complaint alleges, among other things, that we and the individual defendants issued false and misleading statements and engaged in improper accounting practices in order to accomplish the U S WEST Merger, to make us appear successful and to inflate the value of our stock. The complaint asserts claims under Sections 11, 12, 15 and 17 of the 1933 Act. The complaint seeks unspecified monetary damages, disgorgement of illegal gains and other relief. On July 31, 2002, the defendants removed this state court action to federal district court in Colorado and subsequently moved to consolidate this action with the consolidated securities action identified above. The plaintiffs have moved to remand the lawsuit back to state court. Defendants have opposed that motion, which is pending before the court.

On August 9, 2002, an alleged derivative lawsuit was filed in the Court of Chancery of the State of Delaware, naming as defendants each of the then members of our Board of Directors and our current

Chief Financial Officer, Oren G. Shaffer, and naming us as a nominal defendant. On or about September 16, 2002, an amended complaint was filed in the action, naming the same defendants except Mr. Shaffer, who is no longer a defendant in the action. A separate alleged derivative lawsuit was filed in the Court of Chancery of the State of Delaware on or about August 28, 2002. That lawsuit names as defendants our former Chairman and Chief Executive Officer, Joseph P. Nacchio, our former Chief Financial Officer, Robert S. Woodruff, former Board member, Marilyn Carlson Nelson, and each of the then members of our Board of Directors and names us as a nominal defendant. On October 30, 2002, these two alleged derivative lawsuits were consolidated, and an Amended Complaint (the "Second Amended Complaint") was later filed on or about January 23, 2003, and names as defendants the current members of our Board of Directors, former Board member Hank Brown, our former Chief Executive Officer, Joseph P. Nacchio, and our former Chief Financial Officer, Robert Woodruff, and names us as a nominal defendant. In the Second Amended Complaint, the plaintiffs allege, among other things, that the individual defendants (i) breached their fiduciary duties by allegedly engaging in illegal insider trading in our stock; (ii) failed to ensure compliance with federal and state disclosure, anti-fraud and insider trading laws within Qwest, resulting in exposure to us; (iii) appropriated corporate opportunities, wasted corporate assets and self-dealt in connection with investments in initial public offering securities through our investment bankers; and (iv) improperly awarded severance payments of $13 million to our former Chief Executive Officer, Mr. Nacchio. The plaintiffs seek recovery of incentive compensation alleged wrongfully paid to certain defendants, all severance payments made to Messrs. Nacchio and Woodruff and all costs including legal and accounting fees. Plaintiffs have also requested, among other things, that the individual defendants compensate us for any insider-trading profits. Plaintiffs likewise allege that we are entitled to contribution and indemnification by each of the individual defendants. Plaintiffs request that the court cancel all unexercised stock options awarded to Messrs. Nacchio and Woodruff to which they were not entitled, that the defendants return to us all salaries and other remuneration paid to them by us during the time they breached their fiduciary duties and that the court order the defendants to enforce policies, practices and procedures on behalf of us designed to detect and prevent illegal conduct by our employees and representatives. On March 17, 2003, defendants moved to dismiss the Second Amended Complaint, or, in the alternative, to stay the action. That motion is pending before the court.

On November 22, 2002, plaintiff Stephen Weseley IRA Rollover filed a purported derivative lawsuit in Denver District Court, naming as defendants each of the then members of our Board of Directors, certain of our former officers, Anschutz Company and us as a nominal defendant. Plaintiff alleges, among other things, that the director defendants breached their fiduciary duties to us and damaged us by deliberately in bad faith or recklessly (i) implementing a sham system of internal controls completely inadequate to ensure proper recognition of revenue; (ii) causing us to issue false and misleading statements and financial results to the market regarding our earnings, revenues, business and investments; (iii) exposing us to massive liability for securities fraud; (iv) damaging our reputation; and (v) trading our shares while in possession of material, non-public information regarding our true financial condition. The complaint purports to state causes of action for breach of fiduciary duty, gross negligence, unjust enrichment against some of our former officers and breach of contract and breach of the duty of loyalty/insider trader trading against several of our former officers and former and current directors. On or about January 7, 2003, plaintiff's counsel filed a proposed amended complaint which substitutes a new plaintiff, Thomas R. Strauss, and adds another former officer as a defendant. In the amended complaint, plaintiff seeks (i) disgorgement of bonuses and other incentive compensation paid to certain defendants; (ii) disgorgement of any profits that certain defendants made by virtue of their alleged trading on material, inside information; and (iii) other damages. By order dated January 9, 2003, the court permitted the substitution and Strauss became the plaintiff in this lawsuit under the amended complaint.

On December 10, 2002, the California State Teachers' Retirement System ("CalSTRS") filed suit against us, certain of our former officers and certain of our current directors and several other

defendants, including Arthur Andersen LLP and several investment banks, in the Superior Court of the State of California in and for the County of San Francisco. CalSTRS alleges that the defendants engaged in fraudulent conduct that caused CalSTRS to lose in excess of $150 million invested in our equity and debt securities. The complaint alleges, among other things that in press releases and other public statements, defendants represented that we were one of the highest revenue producing telecommunications companies in the world, with highly favorable results and prospects. CalSTRS alleges that defendants were engaged, however, "in a scheme to falsely inflate Qwest's revenues and decrease its expenses so that Qwest would appear more successful than it actually was." The complaint purported to state causes of action against us for (i) violation of California Corporations Code Section 25400 et seq. (securities laws) (seeking, among other damages, the difference between the price at which CalSTRS sold our notes and stock and their true value); (ii) violation of California Corporations Code Section 17200 et seq. (unfair competition); (iii) fraud, deceit and concealment; and (iv) breach of fiduciary duty. Among other requested relief, CalSTRS seeks compensatory, special and punitive damages, restitution, pre-judgment interest and costs. We and the individual defendants filed a demurrer, seeking dismissal of all claims. In response, the plaintiff voluntarily dismissed the unfair competition claim but maintained the balance of the complaint. The court denied the demurrer as to the California securities law and fraud claims, but dismissed the breach of fiduciary duty claim against us with leave to amend. The court also dismissed the claims against Robert S. Woodruff and Robin R. Szeliga on jurisdictional grounds. On or about July 25, 2003, plaintiff filed a First Amended Complaint. The material allegations remain largely the same, but plaintiff no longer alleged claims against Mr. Woodruff and Ms. Szeliga following the court's dismissal of the claims against them, and reasserted its claim against us for breach of fiduciary duty as an allegation of aiding and abetting breach of fiduciary duty. We filed a second demurrer to that claim, and on November 7, 2003, the court dismissed that claim without leave to amend.

On November 27, 2002, the State of New Jersey (Treasury Department, Division of Investment) ("New Jersey"), filed a lawsuit similar to the CalSTRS action in New Jersey Superior Court, Mercer County. On October 17, 2003, New Jersey filed an amended complaint, alleging, among other things, that we, certain of our former officers and certain current directors and Arthur Andersen LLP caused our stock to trade at artificially inflated prices by employing improper accounting practices, and by issuing false statements about our business, revenues and profits. As a result, New Jersey contends that it incurred tens of millions of dollars in losses. New Jersey's complaint purports to state causes of action against us for: (i) fraud; (ii) negligent misrepresentation; and (iii) civil conspiracy. Among other requested relief, New Jersey seeks from the defendants, jointly and severally, compensatory, consequential, incidental and punitive damages. On November 17, 2003, we filed a motion to dismiss. That motion is pending before the court.

On January 10, 2003, the State Universities Retirement System of Illinois ("SURSI") filed a lawsuit similar to the CalSTRS and New Jersey lawsuits in the Circuit Court of Cook County, Illinois. SURSI filed suit against us, certain of our former officers and certain current directors and several other defendants, including Arthur Andersen LLP and several investment banks. On October 29, 2003, SURSI filed a second amended complaint, dropping (i) certain individual and corporate defendants, and (ii) its claim under the Illinois Consumer Fraud and Deceptive Business Practice Act. The second amended complaint alleges that defendants engaged in fraudulent conduct that caused it to lose in excess of $12.5 million invested in our common stock and debt and equity securities. The complaint alleges, among other things that in press releases and other public statements, defendants represented that we were one of the highest revenue producing telecommunications companies in the world, with highly favorable results and prospects. SURSI alleges that defendants were engaged, however, in a scheme to falsely inflate our revenues and decrease our expenses by, among other allegations, improper conduct related to transactions with the Arizona School Facilities Board, Genuity, Calpoint, KMC, KPNQwest, and Koninklijke KPN, N.V. The complaint purports to state causes of action against us under: (i) the Illinois Securities Act; (ii) common law fraud; (iii) common law negligent misrepresentation; and (iv) Section 11 of the 1933 Act. SURSI seeks, among other relief, punitive and exemplary damages, costs, equitable relief including an injunction to freeze or prevent disposition of the defendants' assets and disgorgement.

The consolidated securities action, the consolidated ERISA action, and the CalSTRS, New Jersey and SURSI actions described above present material and significant risk to us. Some of the allegations in these lawsuits include many of the same subjects that the SEC and U.S. Attorney's Office are investigating. Moreover, the size, scope and nature of our recent restatements of our financial statements for fiscal 2001 and 2000 affect the risks presented by these investigations and actions, as these matters involve, among other things, our prior accounting practices and related disclosures. Plaintiffs in certain of the securities actions have alleged the restatement of items in support of their claims. While we intend to defend against these matters vigorously, the ultimate outcomes of these cases are very uncertain, and we can give no assurance as to the impacts on our financial results or financial condition as a result of these matters. Each of these cases is in a preliminary phase. None of the plaintiffs or the defendants has advanced evidence concerning possible recoverable damages, and we have not yet conducted discovery on these and other relevant issues. Thus, we are unable at this time to estimate reasonably a range of loss that we would incur if the plaintiffs in one or more of these lawsuits were to prevail. Any settlement of or judgment on one or more of these claims could be material, and we cannot give any assurance that we would have the resources available to pay such judgments. Also, in the event of an adverse outcome of one or more of these matters, our ability to meet our debt service obligations and our financial condition could be materially and adversely affected.

On February 14, 2002, the Minnesota Department of Commerce filed a formal complaint against us with the Minnesota Public Utilities Commission alleging that we, in contravention of federal and state law, failed to file interconnection agreements with the Minnesota Commission relating to certain of our wholesale customers, and thereby allegedly discriminated against other competitive local exchange carriers ("CLECs"). On October 21, 2002, the Minnesota Commission adopted in full a proposal by an administrative law judge that we committed 26 individual violations of federal law by failing to file, as required under Section 252 of the 1996 Telecommunications Act, 26 distinct provisions found in 12 separate agreements with individual CLECs for regulated services in Minnesota. The order also found that we agreed to provide and did provide to McLeod USA Incorporated ("McLeod") and Eschelon Telecom, Inc. ("Eschelon"), discounts on regulated wholesale services of up to 10% that were not made available to other CLECs, thereby unlawfully discriminating against them. The order found we also violated state law, that the harm caused by our conduct extended to both customers and competitors, and that the damages to CLECs would amount to several million dollars for Minnesota alone.

On February 28, 2003, the Minnesota Commission issued its initial, written decision imposing fines and penalties, which was later revised on April 8, 2003 to include a fine of nearly $26 million and ordered us to:

The Minnesota Commission issued its final, written decision setting forth the penalties described above on May 21, 2003. The Minnesota Commission decision would require a penalty payment to the state of approximately $26 million and payments of carrier credits of approximately $18 million. Of the $18 million, about $3 million has been released by the carriers in bankruptcy proceedings. On June 19, 2003, we appealed the Minnesota Commission's orders to the United States District Court for the District of Minnesota. On August 25, 2004, the District Court issued its order. The Court affirmed the Commission's order requiring Qwest to pay the $26 million penalty. The Court reversed and vacated that portion ruling on the credits finding that the Commission did not have the authority to order such remedies. The Commission and carriers have appealed the credit issue to the United States Court of Appeals for the Eighth Circuit, and Qwest has cross-appealed the penalty issue. The appeal is pending.

Arizona, Colorado, New Mexico, Washington, Iowa and South Dakota have also initiated formal proceedings regarding our alleged failure to file required agreements in those states. On July 25, 2003, we entered into a settlement with the staff of the Arizona Corporation Commission to settle this and several other proceedings. The proposed settlement, which must be approved by the Arizona Commission, requires that we provide approximately $21 million in consideration in the form of a voluntary contribution to the Arizona State Treasury, contributions to certain organizations and/or infrastructure investments and refunds in the form of bill credits to CLECs. On December 1, 2003, an administrative law judge issued a recommended decision denying the proposed settlement. The judge also recommended final orders requiring us to pay approximately $11 million in penalties and to issue credits to CLECs for a 24-month period from October 2000 to September 2002 equal to 10% of all wholesale intrastate services performed by us. We plan to file exceptions to the recommended decisions with the full Arizona Commission. New Mexico has issued an order providing its interpretation of the standard for filing these agreements, identified certain of our contracts as coming within that standard and opened a separate docket to consider further proceedings. Colorado has also opened an investigation into these matters. On June 26, 2003, we received from the Federal Communications Commission ("FCC") a letter of inquiry seeking information about these matters. We submitted our initial response to this inquiry on July 31, 2003. The proceedings and investigations in New Mexico, Colorado, Washington and at the FCC could result in the imposition of fines and other penalties against us that could be material. Iowa and South Dakota have concluded their inquiries resulting in no imposition of penalties or obligations to issue credits to CLECs in those states.

Illuminet, Inc., a traffic aggregator, and several of its customers have filed complaints with regulatory agencies in Idaho, Nebraska, Iowa, North Dakota and New Mexico, alleging that they are entitled to refunds due to our purported improper implementation of tariffs governing certain signaling services we provide in those states. The commissions in Idaho and Nebraska have ruled in favor of Illuminet and awarded it $1.5 million and $4.8 million, respectively. We sought reconsideration in both states, which was denied and subsequently perfected appeals in both states. The proceedings in the other states and in states where Illuminet has not yet filed complaints could result in agency decisions requiring additional refunds.

Qwest disclosed matters to the FCC in connection with our 2002 compliance audit and otherwise, including a change in traffic flow related to wholesale transport for operator services traffic and certain toll-free traffic, certain bill mis-labeling for commercial credit card bills and certain billing errors for public telephone services originating in South Dakota for toll free services and certain marketing issues related to long-distance services in Arizona. If the FCC institutes an investigation into the latter categories of matters, it could result in the imposition of fines and other penalties against us.

We have other regulatory actions pending in local regulatory jurisdictions which call for price decreases, refunds or both. These actions are generally routine and incidental to our business.

In January 2001, an amended purported class action complaint was filed in Denver District Court against us and certain current and former officers and directors on behalf of stockholders of U S WEST. The complaint alleges that we have a duty to pay a quarterly dividend to U S WEST stockholders of record as of June 30, 2000. Plaintiffs further claim that the defendants attempted to avoid paying the dividend by changing the record date from June 30, 2000 to July 10, 2000. In September 2002, we filed a motion for summary judgment on all claims. Plaintiffs filed a cross-motion for summary judgment on their breach of contract claims only. On July 15, 2003, the court denied both summary judgment motions.

From time to time, we receive complaints and become subject to investigations regarding "slamming" (the practice of changing long-distance carriers without the customer's consent), "cramming" (the practice of charging a consumer for goods or services that the consumer has not authorized or ordered) and other sales practices. In December 2001, an administrative law judge recommended to the California Public Utilities Commission that we be assessed a $38 million penalty for alleged slamming and cramming violations. On October 24, 2002, the full California Commission issued a decision reducing the fine to $20.3 million. We appealed that decision, and the appeal was unsuccessful. Through August 2003, we resolved allegations and complaints of slamming and cramming with the Attorneys General for the states of Arizona, Colorado, Florida, Idaho, Oregon, Utah and Washington. In each of those states, we agreed to comply with certain terms governing our sales practices and to pay each of the states between $200,000 and $3.75 million. We may become subject to other investigations or complaints in the future, and any such complaints or investigations could result in further legal action and the imposition of fines, penalties or damage awards.

Several purported class actions were filed in various courts against us on behalf of landowners in Alabama, California, Colorado, Georgia, Illinois, Indiana, Kansas, Louisiana, Mississippi, Missouri, North Carolina, Oregon, South Carolina, Tennessee and Texas. Class certification was denied in the Louisiana proceeding and, subsequently, summary judgment was granted in our favor. A new Louisiana class action complaint has recently been filed. Class certification was also denied in the California proceeding, although plaintiffs have filed a motion for reconsideration. Class certification was granted in the Illinois proceeding. Class certification has not been resolved yet in the other proceedings. The complaints challenge our right to install our fiber optic cable in railroad rights-of-way and in Colorado, Illinois and Texas and also challenge our right to install fiber optic cable in utility and pipeline rights-of-way. In Alabama, the complaint challenges our right to install fiber optic cable in any right-of-way, including public highways. The complaints allege that the railroads, utilities and pipeline companies own a limited property right-of-way that did not include the right to permit us to install our fiber optic cable on the plaintiff's property. The Indiana action purports to be on behalf of a national class of landowners adjacent to railroad rights-of-way over which our network passes. The Alabama, California, Colorado, Georgia, Kansas, Louisiana, Mississippi, Missouri, North Carolina, Oregon, South Carolina, Tennessee and Texas actions purport to be on behalf of a class of such landowners in those states, respectively. The Illinois action purports to be on behalf of landowners adjacent to railroad rights-of-way over which our network passes in Illinois, Iowa, Kentucky, Michigan, Minnesota, Nebraska, Ohio and Wisconsin. Plaintiffs in the Illinois action have filed a motion to expand the class to a nationwide class. The complaints seek damages on theories of trespass and unjust enrichment, as well as punitive damages. Together with some of the other telecommunication carrier defendants, in September 2002, we filed a proposed settlement of all these matters in the United States District Court for the Northern District of Illinois. On July 25, 2003, the court granted preliminary approval of the settlement and entered an order enjoining competing class action claims, except those in Louisiana. The settlement and the court's injunction are opposed by some, but not all, of the plaintiffs' counsel and are on appeal before the Seventh Circuit Court of Appeals. At this time, we cannot determine whether such settlement will be ultimately approved or the final cost of the settlement if it is approved.

On October 31, 2002, Richard and Marcia Grand, co-trustees of the R.M. Grand Revocable Living Trust, dated January 25, 1991, filed a lawsuit in Arizona Superior Court alleging that the defendants violated state and federal securities laws and engaged in fraudulent behavior in connection with an investment by the plaintiff in securities of KPNQwest. We are a defendant in this lawsuit along with Qwest B.V., Joseph Nacchio and John McMaster, the former President and Chief Executive Officer of KPNQwest. The plaintiff trust claims to have lost $10 million in its investment in KPNQwest.

We have built our international network outside North America primarily by entering into long-term agreements to acquire optical capacity assets. We have also acquired some capacity from other telecommunications service carriers within North America under similar contracts. Several of the companies from which we have acquired capacity appear to be in financial difficulty or have filed for bankruptcy protection. Bankruptcy courts have wide discretion and could deny us the continued use of the assets under the optical capacity agreements without relieving us of our obligation to make payments or requiring the refund of amounts previously paid. If such an event were to occur, we would be required to write-off the cost of the related optical capacity assets and accrue a loss based on the remaining obligation, if any. We believe that we are taking appropriate actions to protect our investments and maintain on-going use of the acquired optical capacity assets. At this time, it is too early to determine what effect the bankruptcies will have with respect to the acquired capacity or our ability to use this acquired optical capacity.

The Internal Revenue Service ("IRS") has proposed a tax adjustment for tax years 1994 through 1996. The principal issue involves our allocation of costs between long-term contracts with customers for the installation of conduit or fiber optic cable and additional conduit or fiber optic cable retained by us. The IRS disputes our allocation of the costs between us and third parties for whom we were building similar network assets during the same time period. Similar claims have been asserted against us with respect to 1997 and 1998, and it is possible that claims could be made against us for other periods. We are contesting these claims and do not believe they will be successful. Even if they are, we believe that any significant tax obligations will be substantially offset as a result of available net operating losses and tax sharing arrangements. However, the ultimate effect of these claims is uncertain.

We intend to defend against these matters vigorously. However, the ultimate outcomes of these matters are uncertain and we can give no assurance as to whether or not they will have a material effect on our financial results.

We frequently receive offers to take licenses for patent and other intellectual rights, including rights held by competitors in the telecommunications industry, in exchange for royalties or other substantial consideration. We also regularly are the subject of allegations that our products or services infringe upon various intellectual property rights, and receive demands that we discontinue the alleged infringement. We normally investigate such offers and allegations and respond appropriately, including defending our self vigorously when appropriate. There can be no assurance that, if one or more of these allegations proved to have merit and involved significant rights, damages or royalties, this would not have a material adverse effect on us. Although the ultimate resolution of these claims is uncertain, we do not expect any material adverse impacts as a result of the resolution of these matters.

In most cases, we have included subsequent events that arose after the balance sheet date of June 30, 2003 in the applicable footnotes. Some subsequent events that do not fall into the context of any of the above footnotes have been set forth in this Note 12.

Since August 2001, we have been in several disputes with Touch America, Inc. ("Touch America") relating to, among other things, various billing, reimbursement and other commercial disputes and allegations by Touch America that we violated certain state and federal antitrust and other laws. Touch America and we recently agreed to resolve all of these matters in a settlement agreement that was approved by the United States Bankruptcy Court for the District of Delaware on November 13, 2003, and which became a final order on November 24, 2003. The settlement agreement, as approved by the Bankruptcy Court, provides for: (a) the mutual general release of claims, except for bills for services provided after September 1, 2003; (b) the termination of all proceedings pending before the FCC, and all litigation between Touch America and us; (c) Touch America's forgiveness of a $23 million obligation due from us to Touch America; (d) the adjustment to zero by Touch America and us of all accounts payable and receivable for services delivered from one to the other prior to September 1, 2003; (e) our forgiveness of a $10 million loan to Touch America under a debtor in possession financing agreement; (f) Touch America's agreement to continue to provide or contract for the provisioning of services currently provided to us; (g) our agreement to purchase certain fiber assets necessary to our in-region operations from Touch America for a total price of $8 million; (h) our agreement to purchase certain Frame/ATM assets and customers from Touch America; (i) our agreement to give Touch America $3 million in billing credits; and (j) Touch America's agreement to reject and abandon a lit fiber IRU Qwest sold to Touch America in 2000.

As disclosed in our 2002 Form 10-K, we have been involved in discussions to resolve disputes with several of our insurance carriers over their attempts to rescind or otherwise deny coverage under our director and officer ("D&O") liability insurance policies and employee benefit plan fiduciary liability insurance policies. The insurance policies that the carriers sought to rescind or otherwise deny coverage comprised: (i) the Qwest D&O Liability Runoff Program (for the policy period June 30, 2000 to June 30, 2006), which otherwise provided coverage of up to $250 million for claims that at least in part involve conduct pre-dating the U S WEST Merger; (ii) the Qwest D&O Liability Ongoing Program (for the policy period June 30, 2000 to June 30, 2003), which otherwise provided coverage of up to $250 million for claims exclusively involving post-Merger conduct; and (iii) the Qwest Fiduciary Liability Program (for the policy period June 12, 1998 to June 30, 2003), which otherwise provided coverage of up to $100 million for claims in connection with Employee Benefit Plans. The insurance carriers sought to rescind these policies and any coverage that these policies could provide for, among other things, the consolidated securities action, the actions by CalSTRS, New Jersey and SURSI, the Colorado (federal and state) and Delaware derivative actions, the consolidated ERISA action, the SEC investigation and the U.S. Attorney's Office investigation, which are described above. These matters involve conduct that could give rise to coverage under policies with collective limits of $350 million.

We reached a settlement of these disputes with the carriers on November 12, 2003, which involved, among other things, an additional payment by us of $157.5 million, and in return, the carriers paid into trust $350 million. Of the $350 million, $150 million is available to reimburse us for defense costs incurred by us in connection with, among other matters, the investigations and securities and derivative actions described above. The remaining $200 million is set aside to cover our losses and the losses of current and former directors and officers and others who released the carriers in connection with the settlement.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless the context requires otherwise, references in this report to "Qwest," "we," "us" and "our" refer to Qwest Communications International Inc. and its consolidated subsidiaries.

Our annual report on Form 10-K for fiscal 2002, or our 2002 Form 10-K, was filed in October 2003 and contains, among other things, our restated consolidated financial statements for the years ended December 31, 2001 and 2000. In connection with this restatement, we performed an analysis of our previously issued consolidated financial statements for 2001 and 2000 and the quarter ended March 31, 2002 and identified a number of errors. This restatement resulted in, among other things, an aggregate reduction in revenue of approximately $2.5 billion and an aggregate increase in net loss of approximately $2.7 billion, including the impact for the three months ended March 31, 2002. The net impact of the restatement is summarized as follows:

	December 31, 2001
(Dollars in millions except per share amounts)	Revenue		Pre-Tax Loss		Net Loss		Loss Per Share
Previously reported	$	19,695		$	(3,958	)	$	(4,023	)	$	(2.42	)
Net restatements		(1,543	)		(2,497	)		(1,580	)		(0.95	)
Reclassification of previously reported extraordinary item		—			(106	)		—			—
Reclassification for discontinued operations		(1,628	)		(834	)		—			—

As restated	$	16,524		$	(7,395	)	$	(5,603	)	$	(3.37	)

	December 31, 2000
(Dollars in millions except per share amounts)	Revenue		Pre-Tax Loss		Net Loss		Loss Per Share
Previously reported	$	16,610		$	126		$	(81	)	$	(0.06	)
Net restatements		(945	)		(1,432	)		(956	)		(0.76	)
Reclassification for discontinued operations		(1,517	)		(728	)		—			—

As restated	$	14,148		$	(2,034	)	$	(1,037	)	$	(0.82	)

Additionally, we recorded a $353 million adjustment to reduce January 1, 2000 beginning retained earnings related to our restatement of our directory publishing revenues and costs and the related deferred income tax effects.

The restatements involve, among other matters, revenue recognition issues related to optical capacity asset transactions, equipment sales, directory publishing and purchase accounting. A complete description of the nature and reason for the individually significant restatement items is included in Note 3 to our December 31, 2002 financial statements included in Item 8 of our 2002 Form 10-K/A and in Note 2 to our March 31, 2003 financial statements, included in Item 1 of our Form 10-Q for the quarter ended March 31, 2003.

While our restatement of revenue and net loss is attributable primarily to misinterpretations or misapplications of GAAP, we believe that many of the restatement adjustments were the result of certain ineffective internal control policies and procedures.

We have not amended our prior filings to reflect the restatement. As a result, the information previously filed in our annual reports on Form 10-K for fiscal years 2001 and 2000, our quarterly reports on Form 10-Q for the quarterly periods included in those fiscal years and for the quarter ended March 31, 2002 and any current reports on Form 8-K, or other disclosures, containing fiscal years 2002, 2001 or 2000 information filed or made prior to the filing of our 2002 Form 10-K on October 16, 2003 should not be relied upon.

Our operating revenues are generated from our wireline, wireless and other segments. We market and sell our products and services to consumer and business customers. In general, our business customers fall into the following categories: (1) small businesses; (2) national and global businesses; (3) governmental entities; and (4) public and private educational institutions. We also provide our products and services to other telecommunications providers on a wholesale basis.

Our wireline segment includes revenues from the provision of voice services and data and Internet services. Voice services revenue consists of revenues from local voice services, long-distance voice services and access services. Depending on the product or service purchased, a customer may pay an up-front fee, a monthly fee, a usage charge or a combination of these. Please note that we have slightly modified our presentation of wireline revenues as compared to the presentation in our annual report on Form 10-K for the year ended December 31, 2002, or our 2002 Form 10-K. Within each of the revenue categories described below, we now present the channel from which the revenue was received, from consumer, business or wholesale. Also, in this Form 10-Q, we now present our wireline revenues on the basis of the following categories:

Our wireless services are provided through our wholly owned subsidiary, Qwest Wireless LLC, which holds 10 Megahertz licenses to provide personal communications service, or PCS, in most markets in our local service area. We offer wireless services to residential and business customers, providing them the ability to use the same telephone number for their wireless phone as for their home or business phone.

In August 2003, we entered into a services agreement with a subsidiary of Sprint Corporation that allows us to resell Sprint wireless services, including access to Sprint's nationwide PCS wireless network, to consumer and business customers, primarily within our local service area. We plan to begin offering these Sprint services under our brand name in early 2004. Our wireless customers who are currently being serviced through our proprietary wireless network will be transitioned at our cost onto Sprint's network. We evaluated both the operational effects of this new wholesale wireless arrangement and the financial effects; and, due to the anticipated decrease in usage of our own wireless network, we recorded a charge related to an impairment of our wireless network of $230 million in the third quarter of 2003.

Other services revenue is predominately derived from subleases related to our unused real estate assets, such as space in our office buildings, warehouses and other properties.

Our wholly owned subsidiary, Qwest Dex, Inc., previously published telephone directories in our local service area. Virtually all of Dex's revenues were derived from the sale of advertising in its various directories. During 2002, we entered into an agreement to sell our entire directory publishing business to a third party for approximately $7.05 billion. The sale was divided into two phases, the first of which closed in November 2002. At this closing, we received approximately $2.75 billion of gross proceeds.

The second phase closed in September 2003. At this closing, we received approximately $4.3 billion of gross proceeds. The results of operations from our directory publishing business for all periods presented are included in income from discontinued operations in our condensed consolidated statements of operations and, accordingly, the results of operations for all periods discussed below do not include the operating revenues or expenses of Dex. For more information regarding the sale of Dex, see Note 4—Discontinued Operations including Assets Held for Sale to our condensed consolidated financial statements in Item 1 of this report.

Our results continue to be impacted by a number of factors influencing the telecommunications industry and our local service area. First, the competitive landscape is changing. We continue to face competition from cable telephony and are experiencing greater competition from competitive local exchange carriers, or CLECs. CLECs are increasing their use of unbundled network element-platform, or UNE-P, to gain a relative cost advantage for local voice services. In addition, technology substitution from wireless and DSL continues to erode our local service revenues. As a result of competition and technology substitution, we will continue to lose high margin local service revenues. We expect to partially offset these revenue losses by expanding our DSL coverage and offering new long-distance services, an expanded wireless offering, enhanced data and Internet services and video services. These expanded service offerings provide us the ability to retain and reacquire customers; however, revenues and margins from local services will continue to be pressured as the result of mandated UNE-P pricing. Additionally, industry wide excess capacity and competition have worked to reduce overall operating margins. Finally, our results continue to be impacted by adverse regulatory decisions related to the competitive landscape for both our local and long-distance services. We will continue to manage costs aggressively to help offset these impacts and expect improvement in our in-region long-distance margins as we migrate traffic onto our own proprietary network.

In general, we expect to see a continued decline in wireline related revenues as a result of competition and a decrease in demand for access lines. Our competitors have accelerated their use of UNE-P to deliver wireline voice services. During 2003 and for the foreseeable future, the offering of UNE-P services has and will continue to cause downward pressure on our revenues and will result in incremental retail access line losses. In addition, access lines are expected to continue decreasing primarily because of technology substitution, including wireless and cable substitution for wireline telephony, and cable modem substitution for DIA and dial-up services. The loss of access lines will likely be exacerbated by a recent decision of the Federal Communications Commission, or FCC, requiring the portability of wireline phone numbers to wireless phones. We expect to partially offset these revenue losses by bundling our DSL, long-distance, wireless and video offerings to our customers.

We have experienced a decrease in wireline revenues associated with long-distance voice services out-of-region (i.e., outside of our local service area) due to competitive pressures, reduced usage by customers and a shift in product mix. Out-of-region competition has expanded from traditional competitors such as AT&T Corp., MCI Communications Corporation and Sprint to other regional bell operating companies. We expect out-of-region long-distance revenue losses to continue due to competition. In addition, we previously shifted our product mix by de-emphasizing certain long-distance products due to margin concerns and the inability to use our proprietary network assets to provide InterLATA services in all states within our local service area.

We expect to see a continuing decline in wholesale switched-access revenues due primarily to pricing changes and volume declines. Historically more than 50% of the switched-access revenue declines were attributable to pricing declines. Volumes also fell in 2002 and the first six months of 2003 due to UNE-P substitutions by interexchange carriers, competition from wireless

and wireline providers and general declines in long-distance usage. We expect that switched-access revenues will continue to decline as a result of these pricing and volume impacts.

We have also begun to experience and expect increased competitive pressure from telecommunications providers either emerging from bankruptcy protection or reorganizing their capital structure to more effectively compete against us. As a result of these increased competitive pressures, we have been and may continue to be forced to respond with less profitable product offerings and pricing plans in order to retain and attract customers. These pressures could adversely affect our operating results and financial performance.

In November 2003, we met certain FCC requirements that permitted us to begin providing InterLATA long-distance voice services and certain data and Internet services within our local service area using our own proprietary network assets. Prior to this date, we were allowed to provide these services in our local service area only as a reseller of telecommunications services. As a result, we expect that our costs of providing these services will decrease beginning in the fourth quarter of 2003.

Beginning in 2002, we have reduced capital expenditures and expect to continue at a reduced level for the foreseeable future. Given the current business environment, as discussed in Item 1 of our 2002 Form 10-K, we believe that our current level of capital expenditures will sustain our business at existing levels and support our anticipated core growth requirements in areas such as in our DSL, long-distance and VoIP products The reduced levels of capital expenditures have contributed to our ability to reduce interest-bearing debt.

During 2002, we began to experience net subscriber losses due to our decision to de-emphasize marketing of wireless services and changes to customer credit requirements, coupled with intense industry competition and the impact of the economic slowdown. These same factors have continued in 2003, and we expect that the continued loss of subscribers will cause wireless revenues to decline during the remainder of 2003.

In August 2003, we entered into a services agreement with a subsidiary of Sprint that allows us to resell Sprint wireless services, including access to Sprint's nationwide PCS wireless network, to consumer and business customers, primarily within our local service area. Prior to entering this arrangement, we concluded that our wireless services were provided at a competitive disadvantage to other national wireless carriers because our wireless network was limited to areas within our 14-state region, which did not allow for our customers to use their wireless service in a cost effective manner when they traveled out of these areas. Our wireless network also had certain technological capability limitations compared to other wireless carriers. This new arrangement will enable us to utilize Sprint's nationwide digital wireless network to offer our customers new voice and data capabilities, but it does not give us exclusive rights to resell Sprint service within our 14-state region. We expect this arrangement, along with an expansion of distribution channels and a resumption of wireless marketing efforts, to have a positive impact on future wireless revenues. Although we expect our gross margins specific to the arrangement with Sprint will be lower, we expect the reduced margin to be offset by increased sales and lower network expenses, on a company-wide basis, than would have been incurred without this agreement. We plan to begin offering these Sprint services under our brand name in early 2004.

Our net income for the six months ended June 30, 2003 was impacted by a $206 million net increase related to the adoption of SFAS No. 143 on January 1, 2003. See further discussion in Note 1—Basis of presentation to our condensed consolidated financial statements in Item 1 of this report.

The following analysis is organized in a way that provides the information required, while highlighting the information that we believe will be instructive for understanding the relevant trends of our business going forward. We have expanded the presentation of "Operating Revenues" from our 2002 Form 10-K by including revenue results for each of our customer channels: business, consumer and wholesale for the wireline segment. The segment discussions reflect the way we report financial information to our Chief Executive Officer.

Operating Revenue—Comparison of Three Months Ended June 30, 2003 and June 30, 2002

		Three Months Ended June 30, 2003
		Business		Consumer		Wholesale		Total
		(Dollars in millions)
Operating revenue
Local voice		$	562	$	985	$	184	$	1,731
Long-distance			198		69		209		476
Access			22		26		181		229

	Total voice services		782		1,080		574		2,436
Data and Internet services			592		56		351		999

	Total wireline segment revenues	$	1,374	$	1,136	$	925	$	3,435

Wireless segment revenues									153
Other services									8

	Total operating revenues							$	3,596

		Three Months Ended June 30, 2002
		Business		Consumer		Wholesale		Total
		(Dollars in millions)
Operating revenue
Local voice		$	602	$	1,068	$	219	$	1,889
Long-distance			206		90		247		543
Access			21		26		221		268

	Total voice services		829		1,184		687		2,700
Data and Internet services			569		58		374		1,001

	Total wireline segment revenues	$	1,398	$	1,242	$	1,061	$	3,701

Wireless segment revenues									183
Other services									27

	Total operating revenues							$	3,911

		Increase (Decrease)
		Business			Consumer			Wholesale			Total			%
		(Dollars in millions)
Operating revenue changes
Local voice		$	(40	)	$	(83	)	$	(35	)	$	(158	)	(8	)%
Long-distance			(8	)		(21	)		(38	)		(67	)	(12	)%
Access			1			—			(40	)		(39	)	(15	)%

	Total voice services		(47	)		(104	)		(113	)		(264	)	(10	)%
Data and Internet services			23			(2	)		(23	)		(2	)	0	%

	Total wireline segment revenues	$	(24	)	$	(106	)	$	(136	)	$	(266	)	(7	)%

Wireless segment revenues												(30	)	(16	)%
Other services												(19	)	(70	)%

	Total operating revenues										$	(315	)	(8	)%

Total Operating Revenue—Three months ended June 30, 2003 as compared to the three months ended June 30, 2002

Total operating revenues decreased $315 million, or 8%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002, primarily due to declines in voice services revenues and wireless revenues. Voice services revenue declines were driven primarily by access line reductions and the de-emphasis of certain long-distance services, and wireless revenue declines were driven primarily by a reduction in the number of subscribers.

Voice Services—Three months ended June 30, 2003 as compared to the three months ended June 30, 2002

Voice services revenues decreased $264 million, or 10%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. The voice services decrease was the result of decreases in local voice services revenues and long-distance services revenues, as described in more detail below.

For the three months ended June 30, 2003 as compared to the three months ended June 30, 2002, local voice revenues declined $158 million, or 8%. Consumer local voice services declined $83 million primarily because of the loss of 741,000 access lines, or a 7% decrease, between June 30, 2002 and June 30, 2003, and the corresponding decline in usage of certain calling features. Business local voice services revenue declined $40 million which was caused primarily by access line losses of 237,000 and mandated regulatory rate declines. These access line losses were driven by weak demand in our local service area, technology substitution to wireless and broadband services and competition. We are experiencing competition in both the business and consumer markets from both facility and non-facility-based providers such as cable companies providing telephony services, CLECs and other telecommunications providers reselling our services. A wholesale local voice services decline of $35 million was associated with reductions in demand for services such as collocation, public telephone services and operator services partially offset by increases in UNE-P revenue. The wholesale declines were primarily driven by the soft telecommunications market and wireless substitution of public telephones.

For the three months ended June 30, 2003 as compared to the three months ended June 30, 2002, long-distance voice revenues declined $67 million, or 12%. Throughout 2003 and 2002, we evaluated specific long-distance products sold outside of our local service area. Based upon this evaluation, we de-emphasized and stopped promoting certain products including InterLATA long-distance in the consumer, business and wholesale markets, and consumer and business IntraLATA long-distance. In addition, we also experienced lower long-distance pricing due to competitive pressures and a shift in the product mix in all three customer channels. These factors combined to reduce wholesale long-distance revenues by $38 million, consumer long-distance revenues by $21 million and business long-distance revenues by $8 million for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002.

Access services revenues decreased $39 million, or 15%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. Pricing declines occurred due to regulatory actions. Volumes also fell in 2002 and the first three months of 2003 due to general declines in long-distance usage and UNE-P substitution.

Data and Internet services—Three months ended June 30, 2003 as compared to the three months ended June 30, 2002

Data and Internet services revenues remained relatively flat for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. Business data and Internet service revenues increased $23 million primarily due to increases in private line ISDN and dial services revenues. Wholesale data and Internet services revenues declined $23 million due to lower data

revenues primarily as the result of regulatory pricing actions and the bankruptcy of large customers such as Touch America, Inc. and MCI.

Wireless—Three months ended June 30, 2003 as compared to the three months ended June 30, 2002

Wireless services revenues decreased $30 million, or 16%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. The decrease is due to our strategic decision to de-emphasize marketing of wireless services on a stand-alone basis coupled with intense industry competition resulting in a reduction in the number of customers of 163,000, or 15%, between June 30, 2003 and June 30, 2002.

		Six Months Ended June 30, 2003
		Business		Consumer		Wholesale		Total
		(Dollars in millions)
Operating revenue
Local voice		$	1,141	$	2,004	$	362	$	3,507
Long-distance			403		133		393		929
Access			41		51		376		468

	Total voice services		1,585		2,188		1,131		4,904
Data and Internet services			1,171		113		708		1,992

	Total wireline segment revenues	$	2,756	$	2,301	$	1,839	$	6,896

Wireless segment revenues									305
Other services									19

	Total operating revenues							$	7,220

		Six Months Ended June 30, 2002
		Business		Consumer		Wholesale		Total
		(Dollars in millions)
Operating revenue
Local voice		$	1,228	$	2,145	$	435	$	3,808
Long-distance			404		190		511		1,105
Access			37		41		461		539

	Total voice services		1,669		2,376		1,407		5,452
Data and Internet services			1,139		116		771		2,026

	Total wireline segment revenues	$	2,808	$	2,492	$	2,178	$	7,478

Wireless segment revenues									371
Other services									45

Total operating revenues								$	7,894

		Increase / Decrease
		Business			Consumer			Wholesale			Total			%
		(Dollars in millions)
Operating revenue changes
Local voice		$	(87	)	$	(141	)	$	(73	)	$	(301	)	(8	)%
Long-distance			(1	)		(57	)		(118	)		(176	)	(16	)%
Access			4			10			(85	)		(71	)	(13	)%

	Total voice services		(84	)		(188	)		(276	)		(548	)	(10	)%
Data and Internet services			32			(3	)		(63	)		(34	)	(2	)%

	Total wireline segment revenues	$	(52	)	$	(191	)	$	(339	)	$	(582	)	(8	)%

Wireless segment revenues												(66	)	(18	)%
Other services												(26	)	(58	)%

	Total operating revenues										$	(674	)	(9	)%

Total Operating Revenue—Six months ended June 30, 2003 as compared to the six months ended June 30, 2002

Total operating revenues decreased $674 million, or 9%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002, primarily due to declines in voice services revenues and wireless revenues. Voice services revenues declines were driven primarily by access line reductions and the de-emphasis of certain long-distance services, and wireless revenue declines were driven primarily by a reduction in the number of subscribers.

Voice Services—Six months ended June 30, 2003 as compared to the six months ended June 30, 2002

Voice services revenues decreased $548 million, or 10%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. The voice services decrease was the result of decreases in local voice and long-distance services revenues.

For the six months ended June 30, 2003 as compared to the six months ended June 30, 2002, local voice revenues declined $301 million, or 8%. Consumer local voice services revenue declined $141 million, primarily associated with access line declines of 741,000, or 7%, and the associated lower purchases of certain features and reduced installation and repair charges. Business local voice services revenue declined $87 million, and was primarily associated with access line declines of 237,000, reduced sales of enhanced and complex voice services and mandated regulatory rate declines. The lower local voice revenues were driven by weak demand in our local service area, technology substitution to wireless and broadband services and competition. We are experiencing competition in both the business and consumer markets from both facility and non facility-based providers such as cable companies providing telephony services, CLECs and other telecommunications providers reselling our services. The wholesale local services decline of $73 million was associated with reductions in demand for services such as operator services, collocation and public telephone services and was partially offset by increases in UNE-P revenue. The wholesale declines were primarily driven by the soft telecommunications market and wireless substitution of public telephones.

For the six months ended June 30, 2003 as compared to the six months ended June 30, 2002 long-distance voice revenues declined $176 million, or 16%. Throughout 2003 and 2002, we evaluated specific long-distance products sold primarily outside of our local service area. Based upon this evaluation, we de-emphasized and stopped promoting certain products including InterLATA long-distance in the consumer and wholesale markets and consumer IntraLATA long-distance. In addition, we also decreased long-distance pricing due to competitive pressures and a shift in the product mix in all three customer channels. These factors combined to reduce wholesale long-distance voice revenues by $118 million for the six months ended June 30, 2003 as compared to the six months

ended June 30, 2002. Consumer long-distance services declined by $57 million reflecting the de-emphasis of out-of-region long-distance revenue partially offset by growth of in-region long-distance revenue during 2003.

Access services revenues declined $71 million, or 13%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. Pricing decreases occurred due to regulatory actions. Volumes also fell in 2002 and the first six months of 2003 due to UNE-P substitution and general declines in long-distance usage.

Data and Internet services—Six months ended June 30, 2003 as compared to the six months ended June 30, 2002

Data and Internet services and other revenues declined $34 million, or 2%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. Business data and Internet services revenues increased $32 million primarily due to private line, ISDN and dial services revenues. Wholesale data and Internet services revenues declined $63 million due to lower data revenues primarily as the result of regulatory pricing actions and the bankruptcy of large customers such as Touch America and MCI.

Wireless—Six months ended June 30, 2003 as compared to the six months ended June 30, 2002

Wireless services revenues decreased $66 million, or 18%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. The decrease is due to our strategic decision to de-emphasize marketing of wireless services on a stand-alone basis coupled with intense industry competition resulting in a customer decline of 163,000, or 15%.

The following table shows a breakdown of cost of sales by major component for the three and six months ended June 30, 2003 and 2002:

Cost of Sales—Three months ended June 30, 2003 as compared to the three months ended June 30, 2002

Cost of sales includes: facility costs, network costs, salaries and wages, benefits, materials and supplies, contracted engineering services, computer systems support and the cost of CPE sold. Facility costs are third-party telecommunications expenses we incur to connect customers to our network, or to end-user product platforms not owned by us both in-region and out-of-region. Network costs include third-party expenses to repair and maintain the network and supplies to provide services to customers.

Total cost of sales decreased $149 million, or 9%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. Cost of sales declined due to lower sales volumes, which are discussed below.

Employee and service-related costs, such as salaries and wages, benefits, commissions, overtime and third-party customer service increased $18 million, or 4%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. The increase is primarily due to increased benefit costs, taxes and a decrease in the pension credits. Additionally, lower salaries and wages due to lower staffing requirements were offset by an increase in overtime costs and higher employee incentive compensation costs.

Facility costs decreased $109 million, or 14%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. The decrease is related to lower out-of-region long-distance volumes and expanded network optimization efforts.

Non-employee related costs, such as real estate, cost of sales for CPE and reciprocal compensation payments decreased $49 million, or 23%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. The change is attributable to a decrease of $51 million in CPE costs associated with lower volumes and improved inventory management and lower external commissions.

Cost of sales, as a percent of revenue, was 40% for the three months ended June 30, 2003, compared to 41% for the three months ended June 30, 2002. The decrease was driven by the factors described above.

Cost of Sales—Six months ended June 30, 2003 as compared to the six months ended June 30, 2002

Total cost of sales decreased $180 million, or 6%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002, as discussed below.

Facility costs decreased $87 million, or 6%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. The decrease is a result of lower out-of-region long-distance volumes and reduced third-party network costs.

Our network costs decreased $28 million, or 14%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. We reduced our reliance on third-party contractors to provide network maintenance services by shifting this work to our employees.

Non-employee related costs, such as real estate, cost of sales for CPE and reciprocal compensation payments decreased $68 million, or 17%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. The change is attributable to decreased CPE costs of $55 million, associated with lower volumes and improved inventory management.

Cost of sales, as a percent of revenue, was 40% for the six months ended June 30, 2003 compared to 39% for the six months ended June 30, 2002. The percentage increase is primarily due to revenue declines associated with product mix shifts and pricing declines.

The following table shows a breakdown of SG&A by major component for the three and six months ended June 30, 2003 and 2002:

SG&A—Three months ended June 30, 2003 as compared to the three months ended June 30, 2002

SG&A expenses include taxes other than income taxes, bad debt charges, salaries and wages not directly attributable to the provision of products or services, employee benefits, sales commissions, rent for administrative space, marketing and advertising, professional service fees and computer systems support.

SG&A, as a percent of revenue, was 32% for the three months ended June 30, 2003 compared to 37% for the three months ended June 30, 2002. Total SG&A decreased $302 million, or 21%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. Both the percentage decrease and the absolute dollar decrease were driven by lower costs associated with entering the long-distance market and reduced bad debt expense.

Employee and service-related costs, such as salaries and wages, benefits, sales commissions, overtime and professional fees (such as telemarketing and customer service costs) decreased $80 million, or 11%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. A decrease in professional fees of $75 million was primarily due to lower costs associated with re-entering the InterLATA long-distance market, reduced payments to third-party service providers as we re-incorporated certain previously outsourced customer service functions in the wireless services segment and lower volumes in the wireless segment. Employee costs also decreased by $67 million due to lower staffing and lower commission payments. Partially offsetting these decreases was an increase of $60 million due to the combination of increased incentive compensation costs and

increased benefits costs as a result of a decrease in our net pension credit as discussed below in Combined Pension and Post-Retirement Benefits.

Property and other taxes decreased $16 million, or 12%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. Reduced property and other taxes resulted from changes in property tax estimates.

Bad debt expense decreased $161 million, or 69%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. Bad debt decreased as a percentage of revenue to 2.0% for the three months ended June 30, 2003 from 6.0% for the three months ended June 30, 2002. The decrease was primarily caused by bad debt expense we recognized in the second quarter of 2002 related to potential collection issues with MCI and other large wholesale customers. MCI subsequently filed for bankruptcy protection.

Non-employee related costs decreased $45 million, or 12%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. The change was driven by a $71 million decrease in marketing and advertising costs, lower software purchases, lower external commissions and other cost reduction efforts. The decreases were offset by a $36 million shift of information technology resources to maintenance activities from those activities that were eligible for capitalization.

SG&A—Six months ended June 30, 2003 as compared to the six months ended June 30, 2002

SG&A, as a percent of revenue, was 33% for the six months ended June 30, 2003 compared to 37% for the six months ended June 30, 2002. Total SG&A decreased $545 million, or 19%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. The decrease relates primarily to lower staffing requirements, lower professional fees associated with re-entering the InterLATA long-distance market, lower bad debt expense and lower marketing and advertising expenses.

Employee and service-related costs, such as salaries and wages, benefits, sales commissions, overtime and professional fees (such as telemarketing and customer service costs), decreased $154 million, or 11%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. The decrease in salaries and wages of $63 million was primarily due to staffing reductions totaling 4,800 employees. Commission payments also decreased by $34 million. The decrease in professional fees of $199 million was primarily due to lower costs associated with re-entering the InterLATA long-distance market, reduced payments to third-party service providers as we re-incorporated certain previously outsourced customer service functions in the wireless services segment and lower volumes in the wireless segment. Partially offsetting these decreases was an increase of $139 million due to the combination of increased incentive compensation costs and increased benefits costs, mainly as a result of a decrease in the pension credit.

Property and other taxes decreased $77 million, or 24%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. Reduced property and other taxes resulted from changes in property tax estimates and increased sales tax estimates in the first six months of 2002.

Bad debt expense decreased $168 million, or 49%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. Bad debt decreased as a percentage of revenue to 2.4% for the six months ended June 30, 2003 from 4.3% for the same period in 2002. The decrease was primarily caused by bad debt expense we recorded in 2002 associated with uncollectible receivables from MCI and other large wholesale customers.

Non-employee related costs, such as marketing and advertising, rent for administrative space and software expenses, decreased $146 million, or 18%, for the six months ended June 30, 2003 as

compared to the six months ended June 30, 2002. The change was driven by $173 million reduction in marketing and advertising, purchased software and real estate expenses.

Our results include post-retirement benefit expenses, net of pension credits, of $56 million in the second quarter of 2003, a pension credit, net of post-retirement benefit expenses, of $9 million in the second quarter of 2002, post-retirement benefit expenses, net of pension credits, of $113 million in the six months ended June 30, 2003 and a pension credit, net of post-retirement benefit expenses, of $25 million in the six months ended June 30, 2002. Absent these expenses or credits our net loss in the applicable period would have been higher or lower by these amounts. The net pension expense or credit is a function of the amount of pension and post-retirement benefits earned, interest on projected benefit obligations, amortization of costs and credits from prior benefit changes and the expected return on the assets held in the various plans. The net pension expense or credit is allocated partially to cost of sales with the remaining balance included in SG&A.

The change to a net benefit expense in the three and six months ended June 30, 2003 from a net pension credit in the three and six months ended June 30, 2002 is primarily due to decreased return on investments in the benefit trusts and increased medical costs for plan participants. Costs of both our pension plan and our healthcare plans are expected to continue to rise in the short and long term due to lower expected returns on plan assets based on our evaluation of current and expected market conditions and anticipated continuing double digit annual percentage increases in the overall cost of health care and prescription drugs.

Depreciation expense for the three months ended June 30, 2003 decreased by $263 million, or 28%, compared to the three months ended June 30, 2002. For the six months ended June 30, 2003, depreciation expense decreased $528 million, or 28%, compared to the same period of 2002. The decrease in both the three and six month periods was primarily the result of the $10.5 billion impairment charge we recorded as of June 30, 2002 and the resulting decrease in the depreciable basis of our fixed assets as discussed below.

Amortization expense for the three months ended June 30, 2003 decreased by $80 million, or 42%, compared to the same period of 2002. For the six months ended June 30, 2003, amortization expense decreased $145 million, or 40%, compared to the same period of 2002. The decrease for both the three and six month periods was primarily the result of the charge we recorded as of June 30, 2002 related to the impairment of our assets, which included an impairment charge of approximately $1.2 billion to other intangible assets with finite lives, reducing their amortizable basis by that amount.

As discussed in Note 3—Goodwill and Other Intangible Assets to the condensed consolidated financial statements in Item 1 of this report, on January 1, 2002 we adopted the provisions of Statement of Financial Accounting Standards, or SFAS, No. 142, "Goodwill and Other Intangible Assets," or SFAS No. 142. Prior to the adoption of SFAS No. 142, we reviewed our goodwill and other intangibles with indefinite lives for potential impairment based on the fair value of our entire enterprise using undiscounted cash flows. SFAS No. 142 requires that goodwill impairments be assessed based on allocating our goodwill to reporting units and comparing the net book value of the reporting unit to its estimated fair value. A reporting unit is an operating segment or one level below. SFAS No. 142 required us to perform a transitional impairment test on January 1, 2002.

In accordance with SFAS No. 142, we performed a transitional impairment test of goodwill and intangible assets with indefinite lives as of January 1, 2002. Based on this analysis, we recorded a charge for the cumulative effect of adopting SFAS No. 142 of $22.8 billion on January 1, 2002. Changes in market conditions, downward revisions to our projections of future operating results and other factors indicated that the carrying value of the remaining goodwill should be evaluated for impairment as of June 30, 2002. Based on the results of that impairment analysis, we determined that the remaining goodwill balance of $8.483 billion was completely impaired and we recorded an impairment charge on June 30, 2002 to write-off the remaining balance.

Effective June 30, 2002, pursuant to SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," or SFAS No. 144, a general deterioration of the telecommunications market, downward revisions to our expected future results and other factors indicated that our investments in our long-lived assets may have been impaired at that date. In accordance with SFAS No. 144, we performed an evaluation of the recoverability of the carrying value of our long-lived assets using gross undiscounted cash flow projections. For impairment analysis purposes, we grouped our property, plant and equipment and projected cash flows as follows: traditional telephone network; national fiber optic broadband network; international fiber optic broadband network; wireless network; web hosting and application service provider assets; certain assets held for sale and out-of-region DSL. Based on the gross undiscounted cash flow projections, we determined that all of our asset groups, except our traditional telephone network, were impaired at June 30, 2002. For those asset groups that were impaired, we then estimated the fair value using a variety of techniques. At June 30, 2002, we determined that the fair values were less than our carrying amounts by $10.493 billion in the aggregate.

In accordance with SFAS No. 144, the fair value of the impaired assets becomes the new basis for accounting purposes. As such, approximately $1.9 billion in accumulated depreciation was eliminated in connection with the accounting for the impairments. The impact of the 2002 impairment has reduced our annual depreciation and amortization expense by approximately $1.3 billion, effective July 1, 2002.

A summary of restructuring and other charges, which includes the reversal of Merger-related reserves in 2002, recorded to our condensed consolidated statements of operations for the three and six months ended June 30, 2003 and 2002 is as follows:

During the six months ended June 30, 2003, we identified planned employee reductions in various functional areas and ceased use of a number of operating and administrative facilities. As a result, we

established a reserve and recorded a charge to our condensed consolidated statement of operations of $25 million to cover the costs associated with these actions as more fully described below.

The 2003 activities included charges of $25 million for severance benefits and other charges pursuant to established severance policies associated with a reduction in employees. We identified 750 employees from various functional areas to be terminated as part of this reduction. At June 30, 2003, 300 of the planned reductions had been completed, and $9 million of the restructuring reserve had been used for severance payments and enhanced pension benefits.

As a result of these restructuring charges, we expect to realize cost savings of approximately $50 million in 2004.

During the fourth quarter of 2001, in order to streamline our business and consolidate operations in response to lower customer demand resulting from a decline in economic conditions, we implemented plans to reduce the number of employees, consolidate and sublease facilities, abandon certain capital projects and terminate certain operating leases. We incurred restructuring and other charges totaling $61 million for the six months ended June 30, 2002.

A number of our web hosting centers were leased from third parties through synthetic lease arrangements as discussed in Note 7—Restructuring and Merger-Related Charges to our condensed consolidated financial statements in Item 1 of this report. In March 2002, we exercised our option under synthetic lease facilities through which the web hosting centers were financed and purchased the buildings. We paid $254 million to acquire the buildings pursuant to these options. We assessed the fair value of the buildings based on other comparable market activity and determined the guaranteed residual value under the synthetic lease facilities exceeded the fair value by $94 million. Consequently, we recorded a charge of $61 million to increase the estimated costs of exiting these facilities, net of an expected sublease loss recorded in 2001.

We considered those costs that were incremental and directly related to the June 30, 2000 acquisition of U S WEST, Inc., or the Merger, to be "Merger-related." During the six months ended June 30, 2002, we reversed $35 million of the Merger-related accrual. The reversal resulted from favorable developments in the matters underlying contractual settlements and legal contingencies. As of June 30, 2003 total Merger-related accruals of $22 million are included on our condensed consolidated balance sheet. These relate primarily to outstanding legal contingencies. As the matters identified as contract settlement and general legal contingencies are resolved, any amounts due will be paid and charged against our remaining accrual. Any differences between amounts accrued and actual payments made will be reflected in Merger-related charges included in restructuring and other charges (credits) in our condensed consolidated statement of operations for the period in which the difference is identified.

Other expense—net includes interest expense, net of capitalized interest; investment write-downs; gains and losses on the sales of investments and fixed assets; gains and losses on early retirement of

debt; our share of the investee's income or losses and impairment of investments accounted for under the equity method of accounting and interest income.

Interest expense—net. Interest expense—net, was $884 million for the six months ended June 30, 2003, compared to $874 million for the six months ended June 30, 2002. Total interest-bearing debt decreased approximately $3.8 billion from June 30, 2002 to June 30, 2003, however, interest expense remained flat due to higher interest rates on our debt.

Losses and impairment of investment in KPNQwest. In May 2002, KPNQwest filed for bankruptcy protection and ceased operations. We do not expect to recover any of our investment in KPNQwest and, as a result, in the second quarter of 2002, we wrote-off our remaining $576 million investment in KPNQwest, which brought the total losses and impairments recognized related to our investment in KPNQwest to $1.190 billion for the six months ended June 30, 2002.

Gain on early retirement of debt. For the three months ended June 30, 2003, we exchanged $55 million face amount of debt for common stock with an aggregate value of $47 million resulting in a gain of $8 million. For the six months ended June 30, 2003, we exchanged $142 million face amount of debt for equity with an aggregate value of $113 million. These transactions resulted in a gain of $29 million for the six months ended June 30, 2003.

Other (income) expense—net. Included in other income for the three and six months ended June 30, 2003 are gains totaling $45 million and $82 million, respectively, related to the early termination of services contracts and indefeasible rights of use, or IRU, arrangements with certain customers. Under these arrangements, we received cash upfront and were recognizing revenue over the multi-year terms of the related agreements. In these cases where the customers elected to terminate the agreements prior to their contractual end and we had no continuing obligations, we recognized the remaining portion of the deferred revenue as of the termination date.

Our continuing operations effective income tax benefit rate was 38.7% for the three months ended June 30, 2003, compared to 14.1% for the same period in 2002. On a year-to-date basis, our continuing operations effective income tax benefit rate was 38.8% in 2003 compared to 14.2% for the first six months of 2002. For the 2002 periods, our effective benefit rate was impacted by non-deductible charges related to the impairment of our goodwill and the impairment of our investment with KPNQwest which were recorded in the first and second quarters of 2002. Additionally, in the second quarter of 2002, we recorded a non-cash charge of approximately $1.7 billion to establish a valuation allowance against the net federal and state deferred tax assets created by the significant impairment charge we recorded for property, plant and equipment.

Income from discontinued operations for the three months ended June 30, 2003 increased to $61 million, from $28 million for the same period ended in 2002. This was primarily due to a charge of $120 million for impairment of long-lived assets recorded in June of 2002 regarding certain web hosting centers which are a part of our discontinued operations. Income from discontinued operations decreased to $127 million for the six months ended June 30, 2003 from $153 million for the same period ended 2002. This decrease was primarily due to lower revenues in 2003 from our directory publishing business, Dex, which we sold a substantial portion of during the fourth quarter of 2002. On November 8, 2002 we completed the sale of the Dex East business for $2.75 billion in cash.

Set forth below is revenue and operating expense information for the three and six months ended June 30, 2003 and 2002 for our three operating segments at June 30, 2003: wireline, wireless and other services. Management evaluates the performance of each segment and allocates capital resources based on segment income as defined below. Until September 2003, we also operated a fourth segment, our directory publishing business, which as described in Note 4—Discontinued Operations including Assets Held for Sale to our condensed consolidated financial statements in Item 1 of this report, has been classified as discontinued operations in our condensed consolidated statements of operations in Item 1 of this report and accordingly is not presented in our segment results below.

Segment income consists of each segment's revenues and direct expenses. Segment revenues are based on the types of products and services offered as described in results of operations above. Direct administrative costs include sales, customer support, collections and marketing. Indirect administrative costs such as finance, information technology, real estate, legal, marketing services and human resources are included in the other services segment. We manage indirect administrative services costs centrally; consequently, the costs are not allocated to the wireline or wireless services segments. Similarly depreciation, amortization, interest expense, interest income and other income (expense) are not allocated to either the wireline or wireless segments.

Since certain expenses have not been allocated to the segments, we have disclosed segment expenses without distinguishing between cost of sales and SG&A.

For a discussion of wireline revenues please see Results of Operations—Operating Revenue above. Since it is expected to continue to be by far the largest component of our business, this segment will continue to be our primary focus going forward.

The following table sets forth additional expense information as to the composition of wireline expenses for the three and six months ended June 30, 2003 and 2002.

Wireline Expenses—Three months ended June 30, 2003 as compared to the three months ended June 30, 2002

Segment operating expenses for the wireline services segment decreased $407 million, or 18%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. The decrease is primarily attributable to decreases in facility costs and bad debt expenses.

Employee and service-related costs, such as salaries and wages, benefits, commissions and overtime, declined $50 million, or 6%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. The decrease was due to decreased salaries and wages of $32 million related to staffing reductions totaling approximately 4,500 employees and lower commissions of $25 million due to fewer sales representatives and lower sales.

Bad debt expense decreased $133 million, or 69%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. During the second quarter of 2002, we recognized bad debt expense for potential collection issues associated with MCI and other large wholesale customers. MCI subsequently filed for bankruptcy protection.

Non-employee related costs, such as marketing and advertising, rent, software expense, cost of sales of CPE and reciprocal compensation payments, decreased $112 million, or 30%, for the three months ended June 30, 2003 as compared with the three months ended June 30, 2002. The change is primarily attributable to a $80 million reduction in marketing and advertising expenses, CPE costs associated with lower volumes and improved inventory management and lower external commissions associated with lower revenues.

Wireline Expenses—Six months ended June 30, 2003 as compared to the six months ended June 30, 2002

Segment operating expenses for the wireline services segment decreased $616 million, or 14%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002.

Employee and service-related costs, such as salaries and wages, benefits, commissions and overtime, declined $170 million, or 10%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. The decrease was due primarily to decreased salaries and wages of $96 million related to staffing reductions totaling approximately 4,500 employees. In addition, we experienced lower commission costs due to lower sales and fewer sales representatives.

Facility costs decreased $87 million, or 6%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002 as the result of lower out-of-region long-distance volumes and lower third-party network costs.

Bad debt expense decreased $134 million, or 49%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. During the second quarter of 2002, we recognized $194 million of bad debt expense for potential collection issues associated with MCI and other large wholesale customers. MCI subsequently filed for bankruptcy protection.

Non-employee related costs, such as network real estate, cost of sales for CPE and reciprocal compensation payments, decreased $216 million, or 30%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. The change was primarily due to a $196 million decrease in marketing and advertising costs, lower CPE costs associated with lower volumes, improved inventory management, lower external commissions associated with lower revenues and other cost reduction efforts.

For a discussion of wireless revenues please see Results of Operations—Operating Revenue—Wireless above.

The following table sets forth additional expense information as to the composition of wireless expenses for the three and six months ended June 30, 2003 and 2002:

Wireless Expenses—Three months ended June 30, 2003 as compared to the three months ended June 30, 2002

Wireless services expenses declined $66 million, or 43%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002.

Employee and service-related costs, such as salaries and wages, benefits, commissions, overtime, telemarketing and customer service costs, decreased $23 million, or 43%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. The decrease was primarily due to reduced sales activity.

Bad debt expense decreased $22 million, or 69%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. The decrease in bad debt expense can be attributed to lower customer acquisitions and tighter credit policies.

Non-employee related costs, such as real estate and marketing and advertising expense, decreased $15 million, or 48%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. The decrease primarily relates to lower marketing and advertising costs associated with our strategic decision to de-emphasize the sale of wireless services on a stand-alone basis.

Wireless Expenses—Six months ended June 30, 2003 as compared to the six months ended June 30, 2002

Segment operating expenses for the wireless services segment declined $128 million, or 41%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002.

Employee and service-related costs, such as salaries and wages, benefits, commissions, overtime, telemarketing and customer service costs, decreased $59 million, or 49%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. The decrease was primarily due to reduced sales activity.

Bad debt expense decreased $27 million, or 46%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. The decrease in bad debt expense can be attributed to lower customer acquisitions and tighter credit policies.

Non-employee related costs, such as real estate and marketing and advertising, decreased $28 million, or 46%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. The decrease relates primarily to lower marketing and advertising costs associated with our strategic decision to de-emphasize the sale of wireless services on a stand-alone basis.

As previously noted, the other services segment includes unallocated corporate expenses for functions such as finance, information technology, legal, marketing services, real estate and human resources, which we centrally manage. The following table sets forth additional expense information to provide greater detail as to the composition of other services expenses for the three and six months ended June 30, 2003 and 2002.

Other Services Expenses—Three months ended June 30, 2003 as compared to the three months ended June 30, 2002

Segment operating expenses for the other services segment increased $22 million, or 3%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002.

Non-employee related costs increased $33 million, or 31%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. The change was driven by increases of $45 million in information technology resources to maintenance activities from development activities that were eligible for capitalization. This increase was offset by $17 million reduction in software related expense.

Other Services Expenses—Six months ended June 30, 2003 as compared to the six months ended June 30, 2002

Segment operating expenses for the other services segment remained relatively flat for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002.

Employee and service-related costs, such as salaries and wages, benefits and overtime, increased $78 million, or 13%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. The increase is primarily due to increased incentive compensation costs and a reduction in the net pension credit as discussed in Combined Pension and Post-Retirement Benefits. The increases were partially offset by decreased professional fees due to lower costs related to re-entry into the long-distance market.

Real estate costs decreased $15 million, or 7%, for the six months ended June 30, 2003 compared with the six months ended June 30, 2002 due to reduced administrative space needs attributable to lower staffing requirements.

Property and other taxes decreased $78 million, or 25%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. Reduced property and other taxes resulted from changes in property tax estimates and increased sales tax estimates in the first six months of 2002.

Non-employee related costs increased $34 million, or 15%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. The change was driven by increases of $149 million in information technology resources to maintenance activities from development activities that were eligible for capitalization. This increase was partially offset by $67 million reduction in software purchases.

Our working capital, or current assets less current liabilities, increased $1.9 billion to $1.4 billion at June 30, 2003 from a deficit of ($487) million at December 31, 2002. The increase in this position was due to the replacement of approximately $1.5 billion of current debt with $1.75 billion of a new long-term senior term loan completed on June 9, 2003.

As of September 30, 2003, June 30, 2003 and December 31, 2002, our consolidated debt was $21.27 million, $22.48 billion and $22.54 billion, respectively. In addition, our unrestricted cash balances were approximately $6.1 billion, $2.8 billion and $2.3 billion, as of the same dates. We expect to use our cash primarily to invest in telecommunications assets and/or to redeem indebtedness. To preserve

capital and maintain liquidity, we invest with financial institutions deemed to be of sound financial condition and in high quality and relatively risk-free investment products. Our cash investment policy limits the concentration of investments with specific financial institutions or among certain products and includes criteria related to credit worthiness of any particular investment. Recently, we have taken the following measures to improve our near-term liquidity and our capital structure and generally reduce financial risk:

Even if we are successful in our de-leveraging efforts, we may need to obtain additional financing to meet our debt service obligations if operations do not improve, if revenue and operating cash flow declines are worse than expected, if economic conditions do not improve or if we become subject to significant judgments and/or settlement in connection with the resolution of one or more matters described under Securities Actions and Derivative Actions in Note 11—Commitments and Contingencies to our condensed consolidated financial statements in Item 1 of this report. In the event of an adverse outcome in one or more of these matters, we could be required to make significant payments that we do not have the resources to make. The magnitude of any settlements or judgments resulting from these actions could materially and adversely affect our ability to meet our debt service obligations and affect our financial condition potentially impacting our credit ratings, our ability to access capital markets and our compliance with debt covenants. In addition, the magnitude of any settlements or judgments may cause us to draw down significantly on cash balances, which might force us to obtain additional financing or explore other methods to generate cash. Such actions could include issuing additional securities or asset sales. However, we believe that cash flows from operations, our current cash position and continued access to capital markets will allow us to meet our business requirements, including debt service, for the foreseeable future.

Operating Activities. We generated cash from operating activities of $1.275 billion and $1.376 billion for the six months ended June 30, 2003 and 2002, respectively, or a decrease of $101 million. For the six months ended June 30, 2003, cash from operating activities was negatively affected by a decrease in deferred revenue and customer deposits of $201 million and reduced revenues. For the six months ended June 30, 2002 cash from operating activities was negatively affected by a decrease in accounts payable and accrued expenses of $170 million and a reduction of $282 million of restructuring and Merger-related reserves. Offsetting these negative effects for the six months ended June 30, 2002 were improvements in various working capital components amounting to $238 million.

Our bad debt expense has decreased to 2.4% of our total operating revenues for the six months ended June 30, 2003 compared to 4.3% for the same period ended 2002. The decrease was primarily caused by bad debt expense we recorded in 2002 associated with uncollectible receivables from MCI and other large wholesale customers.

The wireline segment produces significant operating cash flows, which, with continued access to capital markets, are expected to continue to be sufficient to cover its operating expenses, as well as the operating expenses of our wireless segment and general corporate overhead.

We do not anticipate a requirement to make any significant contributions to our retirement plans in 2003.

Investing Activities. Cash used in investing activities was $956 million and $2.511 billion for the six months ended June 30, 2003 and 2002, respectively, or a decrease of $1.555 billion. Cash used in investing activities for the six months ended June 30, 2003 was primarily for capital expenditures of $934 million as compared to capital expenditures of $1.770 billion for the six months ended June 30, 2002. This decrease in capital expenditures of $836 million was the result of our decision to reduce our expansion efforts as a result of the general economic downturn and reduced customer demand. Cash used in investing activities for the six months ended June 30, 2002 also included a $750 million dollar payment held in escrow for future debt payments. This escrow payment, classified as a prepaid asset at June 30, 2002, was required as part of our syndicated credit facility, or Credit Facility, agreement and the funds were disbursed in July of 2002 to pay scheduled maturities.

		For the Six months Ended,
		2003			2002
		(Dollars in millions)
Wireline		$	722		$	1,150
Wireless			11			42
Other			235			607

	Total capital expenditures		968			1,799
Non-cash investing activities			(34	)		(29	)

	Total cash capital expenditures	$	934		$	1,770

We have spent significant resources in extending and improving our network, but as a result of the significant downturn in the telecommunications industry and in the general economy, when we reviewed our property, plant and equipment for a potential impairment in 2002, we found that the fair value of our national and international fiber optic broadband networks had decreased significantly. As such, we recorded an impairment charge in 2002 of $10.5 billion relating to the impairment of these and other assets. See Note 2—Asset Impairment Charges to our condensed consolidated financial statements in Item 1 of this report for additional information.

Capital Expenditure Forecast. Our current capital expenditure forecast for 2003 is estimated to be less than $2.5 billion with the majority being used in our wireline segment. Given the current business environment as discussed in Item 1 of our 2002 Form 10-K, we believe that our current level of capital expenditures will sustain our business at existing levels and support our anticipated core growth requirements in areas such as in our DSL, long-distance and VoIP products. The reduced levels of capital expenditures, beginning in 2002, have contributed to our ability to reduce interest-bearing debt.

Financing Activities. Cash provided by financing activities was $12 million for the six months ended June 30, 2003 and $1.286 billion for the same period ended 2002. As of June 30, 2003, we had no unused credit capacity available to us under the Qwest Services Corporation, or QSC, credit facility, or QSC Credit Facility. At June 30, 2003 we were in compliance with all provisions or covenants of our

borrowings. Under the QSC Credit Facility, we have obtained a waiver for non-compliance to provide certain quarterly financial information to the lenders. The waiver extended the compliance date for the first and second quarter financial information for 2003 to December 31, 2003.

During the second quarter of 2003, we exchanged approximately 12 million shares of our common stock with an aggregate value of $47 million for $55 million face amount in Qwest Capital Funding, or QCF, notes and recorded a $8 million gain on the debt extinguishment. We also exchanged $188 million of new QSC notes for $255 million face amount of QCF notes. For the six months ended June 30, 2003, we exchanged approximately 31 million shares of our common stock with an aggregate value of $113 million for $142 million face amount in QCF notes and recorded $29 million of gain on the debt extinguishment. We also exchanged $406 million of new QSC notes for $560 million face amount of QCF notes. All of the debt-for-debt exchanges described above involved new QSC notes with interest rates ranging from 13% to 13.5% while the original QCF notes had interest rates ranging from 6.875% to 7.90%. See Note 6—Borrowings to our condensed consolidated financial statements in Item 1 of this report for a discussion of our exchange transactions.

The floating rate tranche bears interest at London Interbank Offered Rates, or LIBOR, plus 4.75% (with a minimum interest rate of 6.50%) and the fixed rate tranche bears interest at 6.95% per annum. The interest rate on the floating rate tranche was 6.50% at June 30, 2003. The lenders funded the entire principal amount of the loan subject to the original issue discount for the floating rate tranche of 1.00% and for the fixed rate tranche of 1.652%. Also, in connection with this issuance, we reduced our obligation under the QSC Credit Facility by $429 million to a balance of $1.57 billion.

Recent Developments Impacting Commitments. In September 2003, we terminated our services arrangements with Calpoint, LLC and another vendor and settled certain claims of the parties. We agreed to pay $174 million to terminate these arrangements. However, we will continue to make payments to a trustee related to the Calpoint arrangements for 75% of the unconditional purchase obligation. This obligation will be paid to the trustee ratably through 2006. In connection with these transactions, our third quarter 2003 condensed consolidated financial statements reflect a liability of $346 million and a pretax charge of $393 million. In addition, we expect to realize a cash savings of approximately $118 million in 2004 as a result of these restructurings and additional cash savings through 2006.

In July 2003, we entered into an information technology services agreement with International Business Machines Corporation, or IBM, under which IBM provides us data center operations and technical support services. The term of the agreement is 10 years. The agreement allows us to terminate at our convenience, but would require us to pay IBM termination fees ranging from $146 million in the first year of the contract to $38 million in the seventh year. We expect to pay IBM approximately $82 million in fees under this agreement in 2003 and approximately $212 million in 2004, although these amounts may vary depending on our actual usage of IBM's services and other factors.

Letters of Credit and Guarantees. At June 30, 2003, we had letters of credit of approximately $68 million and guarantees of approximately $2 million.

Contingencies. We are a defendant in a number of legal actions and the subject of a number of investigations by federal and state agencies. Certain of these matters present significant risk to us. We are unable at this time to estimate reasonably a range of loss that we would incur if the plaintiffs in one or more of these lawsuits were to prevail. While we intend to defend against these matters vigorously, the ultimate outcomes of these matters are very uncertain, and we can give no assurance as to the impacts on our financial results or financial condition as a result of these matters. For a description of these legal actions, please see Note 11—Commitments and Contingencies to our condensed consolidated financial statements in Item 1 of this report.

The following describes developments impacting our liquidity and capital resources from June 30, 2003 through December 4, 2003 (the date of the original filing of this Form 10-Q).

On August 12, 2003, we used cash to payoff the $750 million balance of a borrowing by Dex under a term loan agreement.

On September 9, 2003, we completed the sale of the Dex West business. The gross proceeds from the sale of the Dex West business were approximately $4.3 billion and were received in cash. We used $321 million of the cash proceeds to reduce our obligation under the QSC Credit Facility to $1.25 billion, and we expect to use the balance to invest in telecommunications assets and/or to redeem other indebtedness.

On November 19, 2003, we commenced a tender offer for up to $2.25 billion in aggregate principal amount of our debt securities. The offer is being made for specified series of debt securities of Qwest Communications International Inc., QCF and QSC. Of the $2.25 billion we are offering to repurchase, up to $625 million is allocated to debt securities maturing in 2005 through 2007, up to $1.3 billion is allocated to debt securities maturing in 2008 through 2011 and up to $325 million is allocated to debt securities maturing in 2014 through 2031. The offer period expires on December 19, 2003, unless our offer is extended or earlier terminated, and the offer includes an early participation incentive for holders who tender on or before December 4, 2003.

We are exposed to market risks arising from changes in interest rates. The objective of our interest rate risk management program is to manage the level and volatility of our interest expense. We may employ derivative financial instruments to manage our interest rate risk exposure. We may also employ financial derivatives to hedge foreign currency exposures associated with particular debt. We do not hold any derivatives for other than hedging purposes.

As of June 30, 2003 and December 31, 2002, approximately $3.0 billion and $2.2 billion, respectively, of floating-rate debt was exposed to changes in interest rates. This exposure is linked to LIBOR. A hypothetical increase of one-percentage point in LIBOR rates would increase annual pre-tax interest expense by $30 million. As of June 30, 2003 and December 31, 2002, we also had approximately $3 million and $1.2 billion, respectively, of long-term fixed rate debt obligations maturing in the following 12 months. Any new debt obtained to refinance this debt would be exposed to changes in interest rates. A hypothetical 10% change in the interest rates on this debt would not have had a

material effect on our earnings. We had $19.5 billion and $19.0 billion of long-term fixed rate debt at June 30, 2003 and December 31, 2002, respectively. A 100 basis point increase in the interest rates on this debt would result in a decrease in the fair value of these instruments of $0.9 billion and $0.7 billion at June 30, 2003 and December 31, 2002, respectively. A 100 basis point decrease in the interest rates on this debt would result in an increase in the fair value of these instruments of $1.1 billion and $0.8 billion at June 30, 2003 and December 31, 2002, respectively.

As of June 30, 2003, Qwest had $2.76 billion of cash invested in money market and other short-term investments. Most cash investments are invested at floating rates. As interest rates change, so will the interest income derived from these accounts.

This Form 10-Q/A contains or incorporates by reference "forward-looking statements," as that term is used in federal securities laws, about our financial condition, results of operations and business. These statements include, among others:

These statements may be made expressly in this document or may be incorporated by reference to other documents we will file with the Securities and Exchange Commission, or SEC. You can find many of these statements by looking for words such as "believes," "expects," "anticipates," "estimates," or similar expressions used in this report or incorporated by reference in this report.

These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those statements. Some of these risks are described below under "Risk Factors". These risk factors should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We do not undertake any 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 of this report or to reflect the occurrence of unanticipated events. Further, the information contained in this document is a statement of our intention as of the date of this filing and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general and our assumptions as of such date. We may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.

Continued downturn in the economy in our local service area could affect our operating results.

Our operations in our local service area of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming, from which we derive a substantial portion of our revenues, have been impacted by the continued weakness in that region's economy. Because customers have less discretionary income, demand for second lines or additional services has declined. This economic downturn in our local service area has also led to an increased customer disconnection rate. In addition, several of the companies with which we do business appear to be in financial difficulty or have filed for bankruptcy protection. Some of these have requested renegotiation of long-term agreements with us because of their financial circumstances and because they believe the terms of these agreements are no longer appropriate for their needs. Our revenues have been and are likely to continue to be adversely affected by the loss or reduction of business with many of our customers as a result of this downturn and our continued efforts to accommodate our customers' needs in this changing business environment.

We believe that our local service area's economy lagged the national economy in entering the downturn and may follow the national economy in recovery by an indeterminate period. This continued economic slowdown will affect demand for our products and services within our local service area.

We face pressure on profit margins as a result of increasing competition, including product substitution, which could adversely affect our operating results and financial performance.

We compete in a rapidly evolving and highly competitive market, and we expect competition to intensify. We have faced greater competition in our core local business from cable companies, wireless providers (including ourselves), facilities-based providers using their own networks as well as those leasing parts of our network (unbundled network elements, or UNEs) and resellers. Regulatory developments have generally increased competitive pressures on our business, such as the recent decision allowing for number portability from wireline to wireless phones.

One of the primary reasons we continue to experience loss of access lines is the intense competition from cable and wireless providers offering a substitute for our traditional voice and data services. We are implementing new strategies for enhancing our video and wireless offerings. However, it will be difficult to effectively execute our strategy in the face of increasing competition. For example, our recently announced wireless strategy of reselling Sprint wireless services to our customers is untested. We may not be able to effectively integrate Sprint's services into our product offerings, and it may require greater resources than we anticipate to operate as a wireless reseller. Also, while we recently entered into strategic marketing arrangements with Echostar and DIRECTV to bundle their satellite television products and services with our traditional telecommunications, data and Internet offerings, our video offering remains limited to select markets in our local service area. If we are unable to effectively implement our strategy for improving video and wireless solutions, both our wireless and our traditional telephone businesses may be adversely affected.

We have also begun to experience and expect further increased competitive pressure from telecommunications providers either emerging from bankruptcy protection or reorganizing their capital structure to more effectively compete against us. As a result of these increased competitive pressures, we have been and may continue to be forced to respond with lower profit margin product offerings and pricing schemes that allow us to retain and attract customers. These pressures could adversely affect our operating results and financial performance.

Our ability to compete will depend, in part, on our ability to provide competitive InterLATA services.

In order to successfully compete, we believe we need to be able to offer a ubiquitous long-distance service utilizing our proprietary telecommunications network assets. Even though various InterLATA restrictions on our long-distance operations have now been eliminated, until recently our long-distance operations were subject to various regulatory constraints. For example, we were restricted from fully utilizing our proprietary telecommunications assets in the provision of InterLATA services in our local service area until we completed additional steps required by the FCC. Although these restrictions are generally no longer applicable, the roll-out of many of our products and services within our local service area has been delayed, which has placed us at a competitive disadvantage in capturing market share.

Rapid changes in technology and markets could require substantial expenditure of financial and other resources in excess of contemplated levels, and any inability to respond to those changes could reduce our market share.

The telecommunications industry is experiencing significant technological changes, and our ability to execute on our business plans and compete depends upon our ability to develop new products and accelerate the deployment of advanced new services, such as broadband data, wireless and video services. The development and deployment of new products could require substantial expenditure of financial and other resources in excess of contemplated levels. If we are not able to develop new products to keep pace with technological advances, or if such products are not widely accepted by customers, our ability to compete could be adversely affected and our market share could decline. Any inability to keep up with changes in technology and markets could also adversely affect the trading price of our securities and our ability to service our debt.

If we are not able to stem the loss of our access lines or grow other areas of our business to compensate for these losses, our revenue will continue to decline.

Our revenue decline over the past few years is largely attributable to our continued loss of access lines, which is a result of increased competition and technology substitution (such as wireless and cable substitution for wireline telephony). We are seeking to improve our competitive position through product bundling and other sales and marketing initiatives. However, we may not be successful in these efforts. If we are not successful and our revenue declines materially without corresponding cost reductions, this will cause a material deterioration to our results of operations and financial condition and adversely affect our ability to service debt and pay other obligations.

Any adverse outcome of investigations currently being conducted by the SEC and the U.S. Attorney's Office or the assessment being undertaken by the General Services Administration, or GSA, could have a material adverse impact on us, on the trading price for our securities and on our ability to access the capital markets.

On April 3, 2002, the SEC issued an order of investigation that made formal an informal investigation initiated on March 8, 2002. We are continuing in our efforts to cooperate fully with the SEC in its investigation. The investigation includes, without limitation, inquiry into several specifically identified Qwest accounting practices and transactions and related disclosures that are the subject of the various adjustments and restatements described in our 2002 Form 10-K. The investigation also includes inquiry into disclosure and other issues related to transactions between us and certain of our vendors and certain investments in the securities of those vendors by individuals associated with us.

On July 9, 2002, we were informed by the U.S. Attorney's Office for the District of Colorado of a criminal investigation of Qwest. We believe the U.S. Attorney's Office is investigating various matters that include the subjects of the investigation by the SEC.

While we are continuing in our efforts to cooperate fully with the SEC and the U.S. Attorney's Office in each of their respective investigations, we cannot predict the outcome of those investigations. We have engaged in discussions with the SEC staff in an effort to resolve the issues raised in the SEC's investigation of Qwest. Such discussions are preliminary and we cannot predict the likelihood of whether those discussions will result in a settlement and, if so, the terms of such settlement. However, settlements typically involve, among other things, the SEC making claims under the federal securities laws in a complaint filed in United States District Court that, for purposes of the settlement, the defendant neither admits nor denies. We would expect such claims to address many of the accounting practices and transactions and related disclosures that are the subject of the various restatements we have made as well as additional transactions. In addition, any settlement with the SEC may also involve, among other things, the imposition of a civil penalty, the amount of which could be material, and the entry of a court order that would require, among other things, that we and our officers and directors comply with provisions of the federal securities laws as to which there have been allegations of prior violations.

In addition, as previously reported, the SEC has conducted an investigation concerning our earnings release for the fourth quarter and full year 2000 issued on January 24, 2001. The release provided pro forma normalized earnings information that excluded certain nonrecurring expense and income items resulting primarily from the Merger with U S WEST, Inc. On November 21, 2001, the SEC staff informed us of its intent to recommend that the SEC authorize an action against us that would allege we should have included in the earnings release a statement of our earnings in accordance with generally accepted accounting principles in the United States of America, or GAAP. As of December 4, 2003 (the date of the original filing of this Form 10-Q), no action had been taken by the SEC. However, we expect that if our current discussions with the staff of the SEC result in a settlement, such settlement would include allegations concerning the January 24, 2001 earnings release.

Also, the GSA is conducting a review of all contracts with us for purposes of determining present responsibility. Recently, the Inspector General of the GSA referred to the GSA Suspension/Debarment Official the question of whether Qwest should be considered for debarment. We are cooperating fully with the GSA and believe that we will remain a supplier of the government; however, if we are not allowed to be a supplier to the government, we would lose the ability to expand the services we could provide to a purchaser of telecommunications services that has historically represented between 2% and 3% of our consolidated annual revenue.

An adverse outcome with respect to one or more of the SEC investigations, the U.S. Attorney's Office investigation or the GSA evaluation could have material and significant adverse impact upon us.

Major lawsuits have been brought against us involving our accounting practices and other matters. The outcomes of these lawsuits may have a material adverse effect on our business, financial condition and operating results.

Several lawsuits have been filed against us, as well as certain of our past and present officers and directors. These lawsuits include putative class action lawsuits in which the plaintiffs allege numerous violations of securities laws. In one of these actions, lead counsel for the plaintiffs has indicated that plaintiffs will seek damages in the billions of dollars. For a description of these legal actions, please see Note 11—Commitments and Contingencies to our condensed consolidated financial statements in Item 1 of this report.

The consolidated securities action, the consolidated ERISA action, and the California State Teachers' Retirement System, State of New Jersey (Treasury Department, Division of Investment) and State Universities Retirement System of Illinois actions described in Note 11—Commitments and Contingencies to the condensed consolidated financial statements in Item 1 of this report present

material and significant risk to us. Some of the allegations in these lawsuits include many of the same subjects that the SEC and U.S. Attorney's Office are investigating. Moreover, the size, scope and nature of our recent restatements affect the risk presented by these investigations and actions, as these matters involve, among other things, our prior accounting practices and related disclosures. Plaintiffs in certain of the securities actions have alleged the restatement of items in support of their claims. While we intend to defend against these matters vigorously, the ultimate outcomes of these cases are very uncertain, and we can give no assurance as to the impacts on our financial results or financial condition as a result of these matters. Each of these cases is in a preliminary phase. None of the plaintiffs or the defendants has advanced evidence concerning possible recoverable damages, and we have not yet conducted discovery on these and other relevant issues. Thus, we are unable at this time to estimate reasonably a range of loss that we would incur if the plaintiffs in one or more of these lawsuits were to prevail. Any settlement of or judgment on one or more of these claims could be material, and we cannot give any assurance that we would have the resources available to pay such judgments. Also, our ability to meet our debt service obligations and our financial condition could be materially and adversely affected.

Further, given the size and nature of our business, we are subject from time to time to various other lawsuits which, depending on their outcome, may have a material adverse effect on our financial position. Thus, we can give no assurances as to the impacts on our financial results or financial condition as a result of these matters.

Increased scrutiny of financial disclosure, particularly in the telecommunications industry in which we operate, could reduce investor confidence and affect our business opportunities, and any restatement of our earnings as stated in this filing could limit our ability to access the capital markets and could increase litigation risks.

As a result of our accounting issues and the increased scrutiny of financial disclosure, investor confidence in us has suffered and could suffer further. Congress, the SEC, other government authorities and the media are intensely scrutinizing a number of financial reporting issues and practices. In addition to the SEC investigation discussed earlier, we have reported that the SEC has investigated our earnings release for the fourth quarter and full year 2000 and the staff of the SEC has decided to recommend an action against us alleging we should also have included in the earnings release a statement of our GAAP earnings. Although all businesses face uncertainty with respect to how the U.S. financial disclosure regime may be impacted by this process, particular attention has been focused recently on the telecommunications industry. Congressional hearings held in 2002, for example, related to the telecommunications industry practice of accounting for IRUs, as well as the appropriateness and consistency of pro forma financial information disclosure. Some of our former and current officers and directors have testified at these hearings concerning IRUs and other matters.

The existence of this heightened scrutiny and these pending investigations could adversely affect investor confidence and cause the trading price for our securities to decline.

We operate in a highly regulated industry, and are therefore exposed to restrictions on our manner of doing business and a variety of claims relating to such regulation.

Our operations are subject to extensive federal regulation, including the Communications Act of 1934, as amended, and FCC regulations thereunder. We are also subject to the applicable laws and regulations of various states, including regulation by Public Utility Commissions, or PUCs, and other state agencies. Federal laws and FCC regulations apply to interstate telecommunications (including international telecommunications that originate or terminate in the United States), while state regulatory authorities have jurisdiction over telecommunications that originate and terminate within the same state. Generally, we must obtain and maintain certificates of authority from regulatory bodies in

most states where we offer intrastate services and must obtain prior regulatory approval of tariffs for our intrastate services in most of these jurisdictions.

Regulation of the telecommunications industry is changing rapidly, and the regulatory environment varies substantially from state to state. All of our operations are also subject to a variety of environmental, safety, health and other governmental regulations. There can be no assurance that future regulatory, judicial or legislative activities will not have a material adverse effect on our operations, or that domestic or international regulators or third parties will not raise material issues with regard to our compliance or noncompliance with applicable regulations.

We monitor our compliance with federal, state and local regulations governing the discharge and disposal of hazardous and environmentally sensitive materials, including the emission of electromagnetic radiation. Although we believe that we are in compliance with such regulations, any such discharge, disposal or emission might expose us to claims or actions that could have a material adverse effect on our business, financial condition and operating results.

Our high debt levels and the restrictive terms of our debt instruments pose risks to our viability and may make us more vulnerable to adverse economic and competitive conditions, as well as other adverse developments.

We are highly leveraged. As of September 30, 2003, our consolidated debt was approximately $21.3 billion. A significant amount of our debt obligations come due over the next few years. While we currently believe we will have the financial resources to meet our obligations when they come due, we cannot anticipate what our future condition will be. We may have unexpected costs and liabilities and we may have limited access to financing.

We have recently taken the following measures to improve our near-term liquidity and our capital structure and generally reduce financial risk:

However, even if we are successful in our de-leveraging efforts, we may need to obtain additional financing to meet our debt service obligations if operations do not improve, if revenue and operating cash flow declines are worse than expected, if economic conditions do not improve, or if we become subject to significant judgments and/or settlements in connection with the resolution of one or more matters described under Securities Actions and Derivative Actions in Note 11—Commitments and Contingencies to our condensed consolidated financial statements in Item 1 of this report.

The QSC Credit Facility also includes financial maintenance covenants with which we must comply. Any failure to do so could result in an event of default and an acceleration of our outstanding debt obligations. If we fail to repay indebtedness in respect of the QSC Credit Facility or any of our other indebtedness when due, or fail to comply with the financial maintenance covenants contained in the QSC Credit Facility, the applicable creditors or their representatives could declare the entire amount

owed under such indebtedness immediately due and payable. Any such event could adversely affect our ability to conduct business or access the capital markets and could adversely impact our credit ratings.

Additionally, the degree to which we are leveraged may have important limiting consequences, including the following:

We may be unable to significantly reduce the substantial capital requirements or operating expenses necessary to continue to operate our business, which may in turn affect our operating results.

We anticipate that our capital requirements relating to maintaining and routinely upgrading our network will continue to be significant in the coming years. We also may be unable to significantly reduce the operating expenses associated with our future contractual cash obligations, including future purchase commitments, which may in turn affect our operating results. While we believe that our current level of capital expenditures will meet both our maintenance and our core growth, if circumstances underlying our expectations change, we may be unable to further significantly reduce such capital requirements or operating expenses, even if revenue is decreasing. Such nondiscretionary capital outlays may lessen our ability to compete with other providers who face less significant spending requirements.

If we are unable to renegotiate a significant portion of our future purchase commitments, we may suffer related losses.

As of December 31, 2002, our aggregate future purchase commitments totaled $4.5 billion. We entered into these commitments, which obligate us to purchase network services and capacity, hardware or advertising from other vendors, with the expectation that we would use these commitments in association with projected revenues. We currently do not expect to generate revenues in the near-term that are sufficient to offset the costs associated with some of these commitments. Although we are attempting to renegotiate and restructure certain of these contracts, there can be no assurance that we will be successful in all of our renegotiation efforts. If we cannot renegotiate or restructure a significant portion of these contracts on terms that are favorable to us, we will continue to have substantial ongoing expenses without sufficient revenues to offset the expenses related to these arrangements. In addition, we may incur substantial losses in connection with these restructurings and renegotiations.

Declines in the value of pension plan assets could require us to provide significant amounts of funding for our pension plans.

While we do not expect to be required to make material cash contributions to our defined benefit pension plan in the near-term based upon current actuarial analyses and forecasts, a further significant decline in the value of pension plan assets in the future or unfavorable changes in laws or regulations that govern pension plan funding could materially change the timing and amount of required pension

funding. As a result, we may be required to fund our benefit plans with cash from operations, perhaps by a material amount.

If we pursue and are involved in any business combinations, our financial condition could be affected.

On a regular and on-going basis, we review and evaluate other businesses and opportunities for business combinations that would be strategically beneficial. As a result, we may be involved in negotiations or discussions that, if they were to result in a transaction, could have a material effect on our financial condition (including short-term or long-term liquidity) or short-term or long-term results of operations.

If conditions or assumptions differ from the judgments, assumptions or estimates used in our critical accounting policies, the accuracy of our financial statements and related disclosures could be affected.

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Our critical accounting policies, which are described in our 2002 Form 10-K, describe the significant accounting policies and methods used in the preparation of our condensed consolidated financial statements. These accounting policies are considered "critical" because they require judgments, assumptions and estimates that materially impact our consolidated financial statements and related disclosures. As a result, if future events differ significantly from the judgments, assumptions and estimates in our critical accounting policies or different assumptions are used in the future, such events or assumptions could have a material impact on our consolidated financial statements and related disclosures.

Taxing authorities may determine we owe additional taxes relating to various matters, which could adversely affect our financial results.

As a significant taxpayer, historically we have been subject to frequent and regular audits from the Internal Revenue Service, or the IRS, as well as from state and local tax authorities. These audits could subject us to risk due to adverse positions that may be taken by these tax authorities.

For example, the IRS has proposed a tax adjustment for tax years 1994 through 1996. The principal issue involves our allocation of costs between long-term contracts with customers for the installation of conduit or fiber optic cable and additional conduit or fiber optic cable retained by us. The IRS disputes our allocation of the costs between us and third parties for whom we were building similar network assets during the same time period. Similar claims have been asserted against us with respect to 1997 and 1998, and it is possible that claims could be made against us for other periods. We are contesting these claims and do not believe the IRS will be successful. Even if they are, we believe that any significant tax obligations will be substantially offset as a result of available net operating losses and tax sharing agreements. However, the ultimate effect of these claims is uncertain.

Also, as a member of an affiliated group filing a consolidated U.S. federal income tax return, we could be severally liable for tax examinations and adjustments not directly applicable to current members of the Qwest affiliated group. Tax sharing agreements have been executed between us and previous affiliates, and we believe the liabilities (if any) arising from adjustments to tax liability would be borne by the affiliated group member determined to have a deficiency under the terms and conditions of such agreements and applicable tax law. We have not provided for the liability of former affiliated members in our financial statements.

As a result of the restatement of our financial results, previously filed returns and reports may be required by legal, regulatory or administrative provisions to be amended to reflect the tax related

impacts (if any) of such restatements. Where legal, regulatory or administrative rules would require or allow us to amend our previous tax filings, we intend to comply with our obligations under applicable law. To the extent that tax authorities do not accept the tax consequences of restatement entries, liabilities for taxes could differ materially from what has been recorded in our consolidated financial statements.

While we believe we have adequately provided for taxes associated with these restatements, risks and contingencies, tax audits and examinations may result in liabilities that differ materially from those we have recorded in our consolidated financial statements.

If we fail to extend or renegotiate our collective bargaining contracts with our labor unions as they expire from time to time, or if our unionized employees were to engage in a strike or other work stoppage, our business and operating results could be materially harmed.

We are a party to collective bargaining contracts with our labor unions, which represent a significant number of our employees. Although we believe that our relations with our employees are satisfactory, no assurance can be given that we will be able to successfully extend or renegotiate our collective bargaining agreements as they expire from time to time. If we fail to extend or renegotiate our collective bargaining agreements, if disputes with our unions arise, or if our unionized workers engage in a strike or other work stoppage, we could incur higher ongoing labor costs or experience a significant disruption of operations, which could have a material adverse effect on our business. We recently reached agreements with the Communications Workers of America and the International Brotherhood of Electrical Workers on new two-year labor contracts. Each of these agreements was ratified by union members, went into effect on August 17, 2003 and expires on August 13, 2005.

In recent years, the capital markets have experienced extreme price and volume fluctuations. The overall market and the trading price of our securities may fluctuate greatly. The trading price of our securities may be significantly affected by various factors, including:

The information under the caption "Risk Management" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" is incorporated herein by reference.

The effectiveness of our or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events and the inability to eliminate misconduct completely. As a result, although our disclosure controls and procedures are designed to provide reasonable assurance of achieving their effectiveness, there can be no assurance that our disclosure controls and procedures will detect all errors or fraud.

As reported more fully in our 2002 Form 10-K/A, we learned during 2002 of certain deficiencies in our internal controls related to each of the following:

In October 2003, in connection with the delivery of the Statement on Auditing Standards No. 61 report on the audit of our financial statements for 2002 and our restated financial statements for 2001 and 2000, KPMG reported to management and the Audit Committee reportable conditions consistent with the items described above and characterized them as material weaknesses. The reportable conditions specifically cited by KPMG were an inadequate control environment, inadequate control activities, inadequate financial information and reporting processes, and inadequate controls for non-routine transactions.

As reported in our 2002 Form 10-K/A, we have taken, during the second half of 2002 and the first half of 2003, many measures to improve the effectiveness of our internal controls. Though it may take some time to realize all of the benefits from the measures we have taken, we believe that our internal controls are improving and that there is no reason to believe that the financial statements included in this report are not fairly stated in all material respects.

We completed on October 16, 2003, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2003. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that these procedures and controls were effective at June 30, 2003.

The items set forth below were changes made in whole or in part during the quarterly period covered by this report in our internal controls over financial reporting that materially affected, or were reasonably likely to materially affect, our internal controls over financial reporting:

The information set forth above under Note 11—Commitments and Contingencies contained in the "Notes to Condensed Consolidated Financial Statements" included in this Quarterly Report on Form 10-Q/A is hereby incorporated by reference.

During the three months ended June 30, 2003, we issued approximately 12 million shares of our common stock out of treasury that were not registered under the Securities Act of 1933, as amended, in reliance on an exemption pursuant to Section 3(a)(9) of that Act. These shares of common stock were issued in a number of separately and privately negotiated direct exchange transactions occurring on various dates throughout the quarter for approximately $47 million in face amount of debt issued by QCF, a wholly owned subsidiary, and guaranteed by Qwest. The trading prices for our shares at the time the exchange transactions were consummated ranged from $3.53 per share to $4.96 per share. No underwriters or underwriting discounts or commissions were involved.

Exhibits identified in parentheses below are on file with the SEC and are incorporated herein by reference. All other exhibits are provided as part of this electronic submission.

Exhibit Number		Description
(2.1)		Separation Agreement, dated June 5, 1998, between U S WEST, Inc. (renamed "MediaOne Group, Inc.") ("MediaOne Group") and USW-C, Inc (renamed U S WEST, Inc.) ("U S WEST") (incorporated by reference to U S WEST's Current Report on Form 8-K/A dated June 26, 1998, File No. 1-14087).
(2.2)		Amendment to the Separation Agreement between MediaOne Group and U S WEST dated June 12, 1998 (incorporated by reference to U S WEST's Annual Report on Form 10-K/A for the year ended December 31, 1998, File No. 1-14087).
(3.1)		Restated Certificate of Incorporation of Qwest (incorporated by reference to Qwest's Registration Statement on Form S-4/A, filed September 17, 1999, File No. 333-81149).
(3.2)***		Amended and Restated Bylaws of Qwest, adopted as of July 1, 2002.
(4.1)		Indenture, dated as of October 15, 1997, with Bankers Trust Company (including form of Qwest's 9.47% Senior Discount Notes due 2007 and 9.47% Series B Senior Discount Notes due 2007 as an exhibit thereto)(incorporated by reference to exhibit 4.1 of Qwest's Form S-4 as declared effective on January 5, 1998, File No. 333-42847).
(4.2)**		Indenture, dated as of August 28, 1997, with Bankers Trust Company (including form of Qwest's 10⁷/8% Series B Senior Discount Notes due 2007 as an exhibit thereto).
(4.3)**		Indenture, dated as of January 29, 1998, with Bankers Trust Company (including form of Qwest's 8.29% Senior Discount Notes due 2008 and 8.29% Series B Senior Discount Notes due 2008 as an exhibit thereto).

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.

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Delaware (State or other jurisdiction of incorporation or organization)		84-1339282 (I.R.S. Employer Identification No.)
1801 California Street, Denver, Colorado (Address of principal executive offices)		80202 (Zip code)
(303) 992-1400 (Registrant's telephone number, including area code)
N/A (Former name, former address and former fiscal year, if changed since last report)

		June 30, 2003			December 31, 2002
		(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents	$	2,761		$	2,253
	Restricted cash		12			26
	Accounts receivable—net		2,048			2,327
	Inventories		75			68
	Deferred income taxes		867			898
	Prepaid and other assets		444			489
	Assets held for sale		266			347

Total current assets			6,473			6,408
Property, plant and equipment—net			18,835			19,003
Other intangible assets—net			1,585			1,612
Deferred income taxes			360			398
Other assets			1,971			1,924

Total assets		$	29,224		$	29,345

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
	Current borrowings	$	1,142		$	2,786
	Accounts payable		807			906
	Accrued expenses and other current liabilities		2,084			2,008
	Deferred revenue and customer deposits		720			773
	Restructuring reserves		95			104
	Merger-related reserve		22			22
	Liabilities associated with discontinued operations		189			296

Total current liabilities			5,059			6,895
Long-term borrowings (net of unamortized debt discount of $8 and $129, respectively)			21,335			19,754
Post-retirement and other post-employment benefit obligations			3,103			3,075
Deferred revenue			809			957
Restructuring reserves			378			421
Other long-term liabilities			1,109			1,073

	Total liabilities		31,793			32,175
Commitments and contingencies (Note 11)
Stockholders' deficit:
	Preferred stock—$1.00 par value, 200 million shares authorized, none issued and outstanding		—			—
	Common stock—$0.01 par value, 5 billion shares authorized, 1,740,093 and 1,713,592 issued; 1,739,260 and 1,699,115 outstanding		17			17
	Additional paid-in capital		42,796			43,225
	Treasury stock		(14	)		(618	)
	Accumulated deficit		(45,351	)		(45,439	)
	Accumulated other comprehensive loss		(17	)		(15	)

Total stockholders' deficit			(2,569	)		(2,830	)

Total liabilities and stockholders' deficit		$	29,224		$	29,345

				Six Months Ended June 30,
				2003			2002
OPERATING ACTIVITIES
Net income (loss)				$	88		$	(41,080	)
	Adjustments to net income (loss):
		Income from discontinued operations—net of tax			(127	)		(153	)
		Depreciation and amortization			1,573			2,246
		Loss on sale of investments and investment write-downs—net			9			1,265
		Provision for bad debts			172			340
		Cumulative effect of changes in accounting principles			(206	)		22,800
		Goodwill impairment charge			—			8,483
		Asset impairment charges			—			10,499
		Deferred income taxes			(139	)		(2,757	)
		Gain on early retirement of debt			(29	)		(9	)
		Other non-cash charges			98			226
	Changes in operating assets and liabilities:
		Accounts receivable			107			46
		Inventories			(22	)		65
		Prepaid and other current assets			52			69
		Accounts payable and accrued expenses			(19	)		(170	)
		Deferred revenue and customer deposits			(201	)		9
		Restructuring reserves			(52	)		(222	)
		Merger-related reserve			—			(60	)
		Other long-term assets and liabilities			(29	)		(221	)

			Cash provided by operating activities		1,275			1,376

INVESTING ACTIVITIES
	Expenditures for property, plant and equipment				(934	)		(1,770	)
	Investment in escrow account				—			(750	)
	Proceeds from sale of equity securities				—			11
	Proceeds from sale of equipment				—			62
	Other				(22	)		(64	)

			Cash used for investing activities		(956	)		(2,511	)

FINANCING ACTIVITIES
	Proceeds from long-term borrowings				1,729			1,476
	Repayments of long-term borrowings				(1,675	)		(236	)
	Net proceeds from short-term debt				—			97
	Proceeds from issuance of common stock				—			14
	Repurchase of stock				—			(11	)
	Debt issuance costs				(42	)		(54	)

			Cash provided by financing activities		12			1,286

CASH AND CASH EQUIVALENTS
	Increase in cash				331			151
	Net cash generated by discontinued operations				177			347
	Beginning balance				2,253			186

	Ending balance			$	2,761		$	684

		Three Months Ended June 30,						Six Months Ended June 30,
		2003			2002			2003			2002
		(Dollars in millions, except per share amounts)
Net (loss) income:
	As reported	$	(64	)	$	(17,430	)	$	88		$	(41,080	)
	Add: Stock-option-based employee compensation expense included in reported net (loss) income, net of related tax effects		1			57			2			58
	Deduct: Total stock-option-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects		(27	)		(71	)		(55	)		(104	)

	Pro forma	$	(90	)	$	(17,444	)	$	35		$	(41,126	)

Net (loss) income per share:
	As reported—basic and diluted	$	(0.04	)	$	(10.39	)	$	0.05		$	(24.57	)
	Pro forma—basic and diluted	$	(0.05	)	$	(10.40	)	$	0.02		$	(24.59	)

Reporting Unit		Impairment Charge
		(Dollars in millions)
Global		$	5,151
National			2,147
Consumer			4,856
Wholesale			10,646

	Total	$	22,800

	Three Months Ended June 30,											Six Months Ended June 30,
	2003			2002			Increase/ (Decrease)			%		2003			2002			Increase/ (Decrease)			%
	(Dollars in millions, except per share amounts)
Operating revenues	$	3,596		$	3,911		$	(315	)	(8	)%	$	7,220		$	7,894		$	(674	)	(9	)%
Operating expenses, excluding goodwill and asset impairment charges		3,419			4,191			(772	)	(18	)%		6,860			8,254			(1,394	)	(17	)%
Goodwill impairment charge		—			8,483			(8,483	)	(100	)%		—			8,483			(8,483	)	(100	)%
Asset impairment charges		—			10,499			(10,499	)	(100	)%		—			10,499			(10,499	)	(100	)%

Operating income (loss)		177			(19,262	)		19,439		101	%		360			(19,342	)		19,702		102	%
Other expense—net		381			1,052			(671	)	(64	)%		760			2,136			(1,376	)	(64	)%

Loss before income taxes, discontinued operations and cumulative effect of changes in accounting principles		(204	)		(20,314	)		20,110		99	%		(400	)		(21,478	)		21,078		98	%
Income tax benefit		79			2,856			(2,777	)	(97	)%		155			3,045			(2,890	)	(95	)%

Loss from continuing operations		(125	)		(17,458	)		17,333		99	%		(245	)		(18,433	)		18,188		99	%
Income from discontinued operations, net of tax		61			28			33		118	%		127			153			(26	)	(17	)%

Loss before cumulative effect of changes in accounting principles		(64	)		(17,430	)		17,366		100	%		(118	)		(18,280	)		18,162		99	%
Cumulative effect of changes in accounting principles, net of tax		—			—			—		—			206			(22,800	)		23,006		101	%

Net (loss) income	$	(64	)	$	(17,430	)	$	17,366		100	%	$	88		$	(41,080	)	$	41,168		100	%

Basic and diluted (loss) income per share	$	(0.04	)	$	(10.39	)	$	10.35		nm		$	0.05		$	(24.57	)	$	24.62		nm

		Three Months Ended June 30,									Six Months Ended June 30,
		2003		2002		Decrease			%		2003		2002		Decrease			%
		(Dollars in millions)
Employee and service-related costs		$	631	$	711	$	(80	)	(11	)%	$	1,272	$	1,426	$	(154	)	(11	)%
Property and other taxes			115		131		(16	)	(12	)%		241		318		(77	)	(24	)%
Bad debt			72		233		(161	)	(69	)%		172		340		(168	)	(49	)%
Non-employee related costs			346		391		(45	)	(12	)%		685		831		(146	)	(18	)%

	Total SG&A	$	1,164	$	1,466	$	(302	)	(21	)%	$	2,370	$	2,915	$	(545	)	(19	)%

		Three Months Ended June 30,										Six Months Ended June 30,
		2003			2002		Change			%		2003			2002			Change			%
		(Dollars in millions)
Interest expense—net		$	444		$	450	$	(6	)	(1	)%	$	884		$	874		$	10		1	%
Losses and impairment of investment in KPNQwest			—			576		(576	)	(100	)%		—			1,190			(1,190	)	(100	)%
Loss on sale of investments and other investment write-downs			3			6		(3	)	(50	)%		9			75			(66	)	(88	)%
Gain on early retirement of debt			(8	)		—		(8	)	nm			(29	)		(9	)		(20	)	(222	)%
Other (income) expense—net			(58	)		20		(78	)	390	%		(104	)		6			(110	)	nm

	Total other expense—net	$	381		$	1,052	$	(671	)	(64	)%	$	760		$	2,136		$	(1,376	)	(64	)%

(4.4)		Indenture, dated as of November 4, 1998, with Bankers Trust Company (including form of Qwest's 7.50% Senior Discount Notes due 2008 and 7.50% Series B Senior Discount Notes due 2008 as an exhibit thereto) (incorporated by reference to Qwest's Registration Statement on Form S-4, filed February 2, 1999, File No. 333-71603).
(4.5)		Indenture, dated as of November 27, 1998, with Bankers Trust Company (including form of Qwest's 7.25% Senior Discount Notes due 2008 and 7.25% Series B Senior Discount Notes due 2008 as an exhibit thereto) (incorporated by reference to Qwest's Registration Statement on Form S-4, filed February 2, 1999, File No. 333-71603).
(4.6)		Indenture, dated as of June 23, 1997, between LCI International, Inc. and First Trust National Association, as trustee, providing for the issuance of Senior Debt Securities, including Resolutions of the Pricing Committee of the Board of Directors establishing the terms of the 7.25% Senior Notes due June 15, 2007 (incorporated by reference to LCI's Current Report on Form 8-K, dated June 23, 1997, File No. 0-21602).
(4.7)		Indenture, dated as of June 29, 1998, by and among U S WEST Capital Funding, Inc., U S WEST, Inc., and The First National Bank of Chicago (now known as Bank One Trust Company, National Association), as Trustee (incorporated by reference to U S WEST's Current Report on Form 8-K, dated November 18, 1998, File No. 1-14087).
(4.8)		First Supplemental Indenture, dated as of June 30, 2000, by and among U S WEST Capital Funding, Inc., U S WEST, Inc., Qwest, and Bank One Trust Company, as Trustee (incorporated by reference to Qwest's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).
(4.9)		First Supplemental Indenture, dated as of February 16, 2001, to the Indenture, dated as of January 29, 1998, with Bankers Trust Company (including form of Qwest's 8.29% Senior Discount Notes due 2008 and 8.29% Series B Senior Discount Notes due 2008 as an exhibit thereto) (incorporated by reference to Qwest's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001).
(4.10)		First Supplemental Indenture, dated as of February 16, 2001, to the Indenture, dated as of October 15, 1997, with Bankers Trust Company (including form of Qwest's 9.47% Senior Discount Notes due 2007 and 9.47% Series B Senior Discount Notes due 2007 as an exhibit thereto) (incorporated by reference to Qwest's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001).
(4.11)		First Supplemental Indenture, dated as of February 16, 2001, to the Indenture, dated as of August 28, 1997, with Bankers Trust Company (including form of Qwest's 10⁷/8% Series B Senior Discount Notes due 2007 as an exhibit thereto) (incorporated by reference to Qwest's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001).
(4.12)		Indenture, dated as of December 26, 2002, between Qwest, Qwest Services Corporation, Qwest Capital Funding, Inc. and Bank One Trust Company, N.A., as Trustee (incorporated by reference to Qwest's Current Report on Form 8-K filed on January 10, 2003, File No. 1-15577).
(10.1)		Growth Share Plan, as amended, effective October 1, 1996 (incorporated by reference to Qwest's Form S-1 as declared effective on June 23, 1997, File No. 333-25391).*
(10.2)		Equity Incentive Plan, as amended (incorporated by reference to Qwest's 2000 Proxy Statement for the Annual Meeting of Stockholders).*

(10.3)		Employee Stock Purchase Plan (incorporated by reference to Qwest's 2001 Proxy Statement for the Annual Meeting of Stockholders).*
(10.4)***		Nonqualified Employee Stock Purchase Plan.*
(10.5)		Deferred Compensation Plan (incorporated by reference to Qwest's Annual Report on Form 10-K for the year ended December 31, 1998).*
(10.6)**		Equity Compensation Plan for Non-Employee Directors.*
(10.7)		Deferred Compensation Plan for Nonemployee Directors (incorporated by reference to Qwest's Annual Report on Form 10-K for the year ended December 31, 2000).*
(10.8)		401-K Plan (incorporated by reference to Qwest's Annual Report on Form 10-K for the year ended December 31, 1998).*
(10.9)		Registration Rights Agreement, dated as of April 18, 1999, with Anschutz Company and Anschutz Family Investment Company LLC (incorporated by reference to Qwest's Current Report on Form 8-K/A, filed April 28, 1999).
(10.10)		Common Stock Purchase Agreement, dated as of April 19, 1999, with BellSouth Enterprises, Inc. (incorporated by reference to Qwest's Current Report on Form 8-K/A, filed April 28, 1999).
(10.11)		Securities Purchase Agreement, dated January 16, 2001, with BellSouth Corporation (incorporated by reference to Qwest's Annual Report on Form 10-K for the year ended December 31, 2000).
(10.12)		Employee Matters Agreement between MediaOne Group and U S WEST, dated June 5, 1998 (incorporated by reference to U S WEST's Current Report on Form 8-K/A, dated June 26, 1998, File No. 1-14087).
(10.13)		Tax Sharing Agreement between MediaOne Group and U S WEST, dated June 5, 1998 (incorporated by reference to U S WEST's Current Report on Form 8-K/A, dated June 26, 1998, File No. 1-14087).
(10.14)		Purchase Agreement, dated July 3, 2000, among Qwest, Qwest Capital Funding, Inc. and Salomon Smith Barney Inc. (incorporated by reference to Qwest's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).
(10.15)		Purchase Agreement, dated August 16, 2000, among Qwest, Qwest Capital Funding, Inc., Salomon Smith Barney Inc. and Lehman Brothers Inc., as Representatives of the several initial purchasers listed therein (incorporated by reference to Qwest's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).
(10.16)		Purchase Agreement, dated February 7, 2001, among Qwest, Qwest Capital Funding, Inc., Banc of America Securities LLC and Chase Securities Inc. as Representatives of the several initial purchasers listed therein (incorporated by reference to Qwest's Annual Report on Form 10-K for the year ended December 31, 2000).
(10.17)		Purchase Agreement, dated July 25, 2001, among Qwest, Qwest Capital Funding, Inc., Lehman Brothers Inc. and Merrill Lynch & Co., Inc., as Representatives of the several initial purchasers listed therein (incorporated by reference to Qwest's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001).

(10.18)		Registration Rights Agreement, dated July 30, 2001, among Qwest, Qwest Capital Funding, Inc., Lehman Brothers Inc. and Merrill Lynch & Co., Inc., as Representatives of the several initial purchasers listed therein (incorporated by reference to Qwest's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001).
(10.19)		Registration Rights Agreement, dated as of December 26, 2002, among Qwest, Qwest Services Corporation, Qwest Capital Funding, Inc. and Bank One Trust Company, N.A., as Trustee (incorporated by reference to Qwest's Current Report on Form 8-K, dated January 10, 2003, File No. 1-15577).
(10.20)		Purchase Agreement, dated as of August 19, 2002, between Qwest, Qwest Service Corporation, Qwest Dex, Inc., and Dex Holdings LLC (incorporated by reference to Qwest's Current Report on Form 8-K, dated August 22, 2002, File No. 1-15577).
(10.21)		Purchase Agreement, dated as of August 19, 2002, between Qwest, Qwest Service Corporation, Qwest Dex, Inc., and Dex Holdings LLC (incorporated by reference to Qwest's Current Report on Form 8-K, dated August 22, 2002, File No. 1-15577).
(10.22)		Second Amended and Restated Credit Agreement, dated as of August 30, 2002, by and among Qwest, Qwest Services Corporation, Qwest Dex Holdings, Inc., Qwest Dex, Inc., the Banks listed therein and Bank of America, N.A., as Agent (incorporated by reference to Qwest's Current Report on Form 8-K, dated September 5, 2002, File No. 1-15577).
(10.23)		Term Loan Agreement, dated as of August 30, 2002, by and among Qwest Services Corporation, Qwest Dex Holdings, Inc., Qwest Dex, Inc., the Lenders listed therein and Bank of America, N.A., as Agent (incorporated by reference to Qwest's Current Report on Form 8-K, dated September 5, 2002, File No. 1-15577).
(10.24)		Security and Pledge Agreement, dated as of August 30, 2002, by and among Qwest Services Corporation, Qwest Dex Holdings, Inc., Qwest Dex, Inc. and Bank of America, N.A., as Agent (incorporated by reference to Qwest's Current Report on Form 8-K, dated September 5, 2002, File No. 1-15577).
(10.25)		Amendment No. 1, dated as of November 6, 2002, to Second Amended and Restated Credit Agreement dated as of August 30, 2002, by and among Qwest, Qwest Services Corporation, Qwest Dex Holdings, Inc., Qwest Dex, Inc., the Banks listed therein and Bank of America, N.A., as Agent (incorporated by reference to Qwest's Current Report on Form 8-K, dated November 26, 2002, File No. 1-15577).
(10.26)		Term Loan Agreement, dated as of June 9, 2003, by and among Qwest Corporation, the Lenders listed therein, and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, as sole book-runner, joint lead arranger and syndication agent, and Credit Suisse First Boston, acting through its Cayman Islands branch as joint lead arranger and administrative agent, and Deutsche Bank Trust Company Americas, as documentation agent and Deutsche Bank Securities, Inc. as arranger (incorporated by reference to Qwest's Current Report on Form 8-K, dated June 10, 2003, File No. 1-15577).
(10.27)		Amended and Restated Employment Agreement, dated January 1, 2002, by and between Qwest Services Corporation and Afshin Mohebbi (incorporated by reference to Qwest's Annual Report on Form 10-K for the year ended December 31, 2001).*

(10.28)***		Promissory Note, dated March 18, 2002, payable by Afshin Mohebbi to Qwest Communications International Inc.
(10.29)		Employment Agreement, dated October 24, 2001, by and between Qwest and Joseph P. Nacchio (incorporated by reference to Qwest's Annual Report on Form 10-K for the year ended December 31, 2001).*
(10.30)***		Resignation and Consulting Agreement, dated June 16, 2002, by and between Qwest and Joseph P. Nacchio*
(10.31)		Letter Agreement, dated October 6, 1998, by and between Qwest and Drake Tempest (incorporated by reference to Qwest's Annual Report on Form 10-K for the year ended December 31, 2000).*
(10.32)***		Letter Agreement, dated October 31, 2001, by and between Qwest and Drake Tempest.*
(10.33)***		Severance Agreement and General Release, dated November 14, 2002, by and between Drake S. Tempest and Qwest Services Corporation.*
(10.34)***		Separation Date Release Agreement, dated December 6, 2002, by and between Drake S. Tempest and Qwest Services Corporation.
(10.35)***		Employment Agreement, dated May 14, 2003, by and between Richard C. Notebaert and Qwest Services Corporation.*
(10.36)***		Employment Agreement, dated May 14, 2003, by and between Oren G. Shaffer and Qwest Services Corporation.*
(10.37)***		Retention Agreement, dated May 8, 2002, by and between Qwest and Richard N. Baer.*
(10.38)***		Severance Agreement, dated July 21, 2003, by and between Qwest and Richard N. Baer.*
(10.39)***		Severance Agreement, dated July 21, 2003, by and between Qwest and Clifford S. Holtz.*
(10.40)***		Letter Agreement, dated April 19, 2001, by and between Qwest and Annette M. Jacobs.*
(10.41)***		Severance Agreement and General Release, dated September 17, 2003, by and between Qwest and Annette M. Jacobs.*
(10.42)***		Letter Agreement, dated August 20, 2003, by and between Qwest and Paula Kruger.*
(10.43)***		Severance Agreement, dated September 8, 2003, by and between Qwest and Paula Kruger.*
(10.44)		Aircraft Time Sharing Agreement, dated November 11, 2003, by and between Qwest Resources, Inc. and Richard C. Notebaert (incorporated by reference to Qwest's Form 10-Q for the quarter ended September 30, 2003).

31.1		Chief Executive Officer Certification.
31.2		Chief Financial Officer Certification.
32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	QWEST COMMUNICATIONS INTERNATIONAL INC.
	By:	/s/ OREN G. SHAFFER Oren G. Shaffer Vice Chairman and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)
November 5, 2004

Date: November 5, 2004
/s/ RICHARD C. NOTEBAERT Richard C. Notebaert Chairman and Chief Executive Officer

Dated: November 5, 2004	By:		/s/ RICHARD C. NOTEBAERT Richard C. Notebaert Chairman and Chief Executive Officer
Dated: November 5, 2004	By:		/s/ OREN G. SHAFFER Oren G. Shaffer Vice Chairman and Chief Financial Officer