CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | ||||
In Millions, except Share data in Thousands | 3 Months Ended
Jun. 30, 2009 | 3 Months Ended
Jun. 30, 2008 | 6 Months Ended
Jun. 30, 2009 | 6 Months Ended
Jun. 30, 2008 |
Statements of Operations | ||||
Operating revenue | $3,090 | $3,382 | $6,263 | $6,781 |
Operating expenses: | ||||
Cost of sales (exclusive of depreciation and amortization) | 934 | 1,149 | 1,862 | 2,330 |
Selling | 494 | 532 | 1,042 | 1,082 |
General, administrative and other operating | 593 | 559 | 1,168 | 1,131 |
Depreciation and amortization | 578 | 578 | 1,151 | 1,154 |
Total operating expenses | 2,599 | 2,818 | 5,223 | 5,697 |
Operating income | 491 | 564 | 1,040 | 1,084 |
Other expense (income) - net: | ||||
Interest expense on long-term borrowings and capital leases - net | 276 | 270 | 536 | 542 |
Other - net | (2) | (4) | (11) | (1) |
Total other expense (income) - net | 274 | 266 | 525 | 541 |
Income before income taxes | 217 | 298 | 515 | 543 |
Income tax expense | 5 | 118 | 97 | 213 |
Net income | $212 | $180 | $418 | $330 |
Earnings per common share: | ||||
Basic (in dollars per share) | 0.12 | 0.1 | 0.24 | 0.19 |
Diluted (in dollars per share) | 0.12 | 0.1 | 0.24 | 0.19 |
Weighted average common shares outstanding: | ||||
Basic (in shares) | 1,707,928 | 1,742,294 | 1,705,016 | 1,752,743 |
Diluted (in shares) | 1,722,770 | 1,744,961 | 1,715,252 | 1,756,722 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | ||
In Millions | Jun. 30, 2009
| Dec. 31, 2008
|
Current assets: | ||
Cash and cash equivalents | $1,796 | $565 |
Accounts receivable - net of allowance of $129 at both dates | 1,331 | 1,465 |
Deferred income taxes - net | 576 | 572 |
Prepaid expenses and other | 345 | 368 |
Total current assets | 4,048 | 2,970 |
Property, plant and equipment - net | 12,622 | 13,045 |
Capitalized software - net | 885 | 875 |
Deferred income taxes - net | 2,063 | 2,168 |
Other | 608 | 1,083 |
Total assets | 20,226 | 20,141 |
Current liabilities: | ||
Current portion of long-term borrowings | 1,085 | 820 |
Accounts payable | 767 | 820 |
Accrued expenses and other | 1,385 | 1,641 |
Deferred revenue and advance billings | 551 | 572 |
Total current liabilities | 3,788 | 3,853 |
Long-term borrowings - net of unamortized debt discount and other of $296 and $270, respectively | 13,038 | 12,735 |
Post-retirement and other post-employment benefits obligations - net | 2,466 | 2,457 |
Pension obligations - net | 793 | 775 |
Deferred revenue | 509 | 519 |
Other | 683 | 1,188 |
Total liabilities | 21,277 | 21,527 |
Stockholders' deficit: | ||
Preferred stock - $1.00 par value, 200 million shares authorized; none issued or outstanding | 0 | 0 |
Common stock - $0.01 par value, 5 billion shares authorized; 1,731,361 and 1,713,521 shares issued, respectively | 17 | 17 |
Additional paid-in capital | 42,222 | 42,167 |
Treasury stock - 7,867 and 6,767 shares, respectively (including 44 shares and 62 shares, respectively, held in rabbi trust) | (22) | (20) |
Accumulated deficit | (42,783) | (43,063) |
Accumulated other comprehensive loss | (485) | (487) |
Total stockholders' deficit | (1,051) | (1,386) |
Total liabilities and stockholders' deficit | $20,226 | $20,141 |
1_CONDENSED CONSOLIDATED BALANC
CONDENSED CONSOLIDATED BALANCE SHEETS PARENTHETICAL DISCLOSURES (USD $) | ||
In Millions, except Share data | Jun. 30, 2009
| Dec. 31, 2008
|
Balance Sheets | ||
Accounts receivable allowance for doubtful accounts of $129 at both dates | $129 | $129 |
Long-term borrowings - unamortized debt discount and other of $296 and $270, respectively | $296 | $270 |
Preferred stock, par value (in dollars per share) | $1 | $1 |
Preferred stock, shares authorized (in shares) | 200,000,000 | 200,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | 0.01 | 0.01 |
Common stock, shares authorized (in shares) | 5,000,000,000 | 5,000,000,000 |
Common stock, shares issued (in shares) | 1,731,361,000 | 1,713,521,000 |
Treasury stock, shares (in shares) | 7,867,000 | 6,767,000 |
Treasury stock - shares held in rabbi trust (in shares) | 44,000 | 62,000 |
2_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | ||
In Millions | 6 Months Ended
Jun. 30, 2009 | 6 Months Ended
Jun. 30, 2008 |
Operating activities: | ||
Net income | $418 | $330 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 1,151 | 1,154 |
Deferred income taxes | 92 | 209 |
Provision for bad debt - net | 84 | 69 |
Other non-cash charges - net | 65 | 72 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 57 | (54) |
Prepaid expenses and other current assets | 9 | 39 |
Accounts payable and accrued expenses and other current liabilities | (173) | (375) |
Deferred revenue and advance billings | (38) | (17) |
Other non-current assets and liabilities | (3) | (130) |
Cash provided by operating activities | 1,662 | 1,297 |
Investing activities: | ||
Expenditures for property, plant and equipment and capitalized software | (682) | (950) |
Proceeds from sale of investment securities | 5 | 42 |
Other | (7) | 7 |
Cash used for investing activities | (684) | (901) |
Financing activities: | ||
Proceeds from long-term borrowings | 738 | |
Repayments of long-term borrowings, including current maturities | (248) | (23) |
Proceeds from issuances of common stock | 34 | 17 |
Dividends paid | (274) | (282) |
Repurchases of common stock | (258) | |
Other | 3 | 3 |
Cash provided by (used for) financing activities | 253 | (543) |
Cash and cash equivalents: | ||
Increase (decrease) in cash and cash equivalents | 1,231 | (147) |
Beginning balance | 565 | 902 |
Ending balance | $1,796 | $755 |
Basis Of Presentation
Basis Of Presentation | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Condensed Consolidated Financial Statements | |
Basis of Presentation | Note1: Basis of Presentation The condensed consolidated balance sheet as of December31, 2008, which was derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of and for the three and six months ended June30, 2009 have been prepared in accordance with the instructions for Form10-Q. In compliance with those instructions, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. We believe that the disclosures made are adequate such that the information presented is not misleading. We have evaluated subsequent events through July29, 2009, the date these financial statements were issued. We have reclassified certain prior year revenue and expense amounts presented in our Quarterly Report on Form10-Q for the three and six months ended June30, 2008 to conform to the current period presentation and to the presentation of the full year 2008 results of operations included in our Annual Report on Form10-K for the year ended December31, 2008. In the opinion of management, these statements include all normal recurring adjustments necessary to fairly present our condensed consolidated results of operations, financial position and cash flows as of June30, 2009 and for all periods presented. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form10-K for the year ended December31, 2008. The condensed consolidated results of operations for the three and six months ended June30, 2009 and the condensed consolidated statement of cash flows for the six months ended June30, 2009 are not necessarily indicative of the results or cash flows expected for the full year. Use of Estimates Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions we made when accounting for items and matters such as, but not limited to, investments, long-term contracts, customer retention patterns, allowance for doubtful accounts, depreciation, amortization, asset valuations, internal labor capitalization rates, recoverability of assets (including deferred tax assets), impairment assessments, pension, post-retirement and other post-employment benefits, taxes, reserves and other provisions and contingencies are reasonable, based on information available at the time they were made. These estimates, judgments and assumptions can affect the reported amounts of assets, liabilities and components of equity as of the dates of the condensed consolidated balance sheets, as well as the reported amounts of revenue, expenses and components of cash flows during the periods presented in our condensed consolidated statements of operations and our condensed consolidated statements of cash flows. We also make estimates in our asses |
Earnings Per Common Share
Earnings Per Common Share | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Condensed Consolidated Financial Statements | |
Earnings Per Common Share | Note2: Earnings Per Common Share Basic earnings per common share excludes dilution and is computed by dividing net income allocated to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per common share reflects the potential dilution that could occur if certain outstanding stock options are exercised and certain performance shares require payout in common stock. The following is a reconciliation of the number of shares used in the basic and diluted earnings per common share computations for the three and six months ended June30, 2009 and 2008: Three Months Ended June30, Six Months Ended June30, 2009 2008 2009 2008 (Dollars in millions except per share amounts, shares in thousands) Net income allocated to common shareholders $ 211 $ 180 $ 415 $ 329 Basic weighted average common shares outstanding 1,707,928 1,742,294 1,705,016 1,752,743 Dilutive effect of options with strike prices equal to or less than the average price of our common stock, calculated using the treasury stock method 899 2,456 460 3,842 Dilutive effect of performance shares 13,943 211 9,776 137 Diluted weighted average common shares outstanding 1,722,770 1,744,961 1,715,252 1,756,722 Earnings per common share: Basic $ 0.12 $ 0.10 $ 0.24 $ 0.19 Diluted $ 0.12 $ 0.10 $ 0.24 $ 0.19 We had weighted average unvested restricted stock grants outstanding of approximately 13million shares and 11million shares during the three and six months ended June30, 2009, respectively, and 8million shares and 7million shares during the three and six months ended June30, 2008, respectively. These shares are excluded from the earnings per common share calculation, and these shareholders have their own earnings per share calculation whereby they were allocated net income of approximately $1million and $3million for the three and six months ended June30, 2009, respectively. For the three months ended June30, 2008 these shares were allocated less than $1million of net income for the purposes of calculating basic and diluted earnings per share and approximately $1million for the purposes of calculating basic and diluted earnings per share for the six months ended June30, 2008. The following is a summary of the securities that could potentially dilute basic earnings per common share, but have been excluded from the computations of diluted earnings per common share for the three and six months ended June30, 2009 and 2008: Three Months Ended June30, Six Months Ended June30, 2009 2008 2009 2008 (Shares in thousands) Outstanding options to purchase common stock excluded because the strike prices of the options exceeded the average price of common stock during the period 54,903 56,385 59,885 51,751 Outstanding options to purchase common stock excluded because the market-based vesting conditions ha |
Fair Value of Financial Instrum
Fair Value of Financial Instruments | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Condensed Consolidated Financial Statements | |
Fair Value of Financial Instruments | Note3: Fair Value of Financial Instruments Our financial instruments consist of cash and cash equivalents, certain of our current and non-current investments (consisting of auction rate securities and an investment fund), accounts receivable, accounts payable, interest rate hedges and long-term notes including the current portion. The carrying values of cash and cash equivalents, accounts receivable and accounts payable, interest rate hedges, the investment fund, and auction rate securities approximate their fair values. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the inputs used following the fair value hierarchy set forth by the FASB in SFAS No.157 (ASC 820-1). The table below presents the fair values for certain of our current and non-current investments, interest rate hedges and long-term notes including the current portion, as well as the input levels used to determine these fair values as of June30, 2009 and December31, 2008: Fair value as of Level June30, 2009 December31, 2008 (Dollars in millions) Assets: Auction rate securities 3 $ 93 $ 90 Investment fund 3 13 20 Total assets $ 106 $ 110 Liabilities: Long-term notes, including the current portion 1 2 $ 13,040 $ 11,043 Interest rate hedges 3 7 8 Total liabilities $ 13,047 $ 11,051 The three levels of the FASB fair value hierarchy are as follows: Input Level Description of Input Level1 Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. Level2 Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level3 Inputs are generally unobservable and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. We determined the fair value of our auction rate securities using a discounted cash flow model that takes into consideration the interest rate of the securities, the probability that we will be able to sell the securities in an auction or that the securities will be redeemed early, the probability that a default will occur and its severity, a discount rate and other factors. We determined the f |
Investments
Investments | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Condensed Consolidated Financial Statements | |
Investments | Note4: Investments As of June30, 2009 and December31, 2008, our investments included auction rate securities of $93million and $90million, respectively, which are classified as non-current, available-for-sale investments and are included in other non-current assets at their estimated fair value on our condensed consolidated balance sheets. Auction rate securities are generally long-term debt instruments that provide liquidity through a Dutch auction process that resets the applicable interest rate at pre-determined calendar intervals, generally every 28days. This mechanism generally allows existing investors to rollover their holdings and continue to own their respective securities or liquidate their holdings by selling their securities at par value. Prior to August 2007, we invested in these securities for short periods of time as part of our cash management program. However, the uncertainties in the credit markets have prevented us and other investors from liquidating holdings of these securities in auctions since the third quarter of 2007. These securities: are structured obligations of special purpose reinsurance entities associated with life insurance companies and are referred to as "Triple X" securities; currently pay interest every 28days at one-month LIBOR plus 200 basis points; are rated A; are insured against loss of principal and interest by two bond insurers. One bond insurer had a credit rating of BBB and the other bond insurer was not rated at June30, 2009; are collateralized by the issuers; and mature between 2033 and 2036. We recorded an immaterial amount of unrealized gains and losses, net of deferred income taxes, on these auction rate securities for the three months ended June30, 2009 and 2008, and for the six months ended June30, 2009 and 2008. The cumulative unrealized loss, net of deferred income taxes, related to these securities was $17million at both June30, 2009 and December31, 2008. These unrealized losses were recorded in accumulated other comprehensive loss on our condensed consolidated balance sheets. The cost basis of these securities was $120million and $117million as of June30, 2009 and December31, 2008, respectively. We consider the decline in fair value to be a temporary impairment because we believe it is more likely than not that we will ultimately recover the entire $120million cost basis, in part because the securities are rated investment grade, the securities are fully collateralized and the issuers continue to make required interest payments. At some point in the future, we may determine that the decline in fair value is other than temporary if, among other factors, the issuers cease making required interest payments or if we believe it is more likely than not that we will be required to sell these securities before their values recover; we would then recognize the portion of the other-than-temporary decline in fair value that is due to credit loss in other expense (income)net in our condensed consolidated statements of operations. Because we are uncertain as to when the liquidity issues relating to these investments will improve, we continued to classify these securities as no |
Borrowings
Borrowings | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Condensed Consolidated Financial Statements | |
Borrowings | Note5: Borrowings As of June30, 2009 and December31, 2008, our long-term borrowings, net of unamortized discounts and premiums, consisted of the following: June30, 2009 December31, 2008 (Dollars in millions) Current portion of long-term borrowings: Long-term notes $ 1,062 $ 792 Long-term capital lease and other obligations 23 28 Total current portion of long-term borrowings 1,085 820 Long-term borrowings: Long-term notes 12,956 12,673 Long-term capital lease and other obligations 82 62 Total long-term borrowingsnet 13,038 12,735 Total long-term borrowingsnet, including current portion $ 14,123 $ 13,555 We were in compliance with all provisions and covenants of our borrowings as of June30, 2009. Effective January1, 2009, we adopted FSP APB14-1 (ASC 470-20). This FSP requires issuers of convertible debt that may be settled fully or partially in cash upon conversion to account separately for the liability and equity components of the convertible debt. The carrying amount of the equity component of our 3.50% Convertible Senior Notes was $164million as of June30, 2009 and December31, 2008. At June30, 2009 and December31, 2008, the liability component of these notes had a principal amount of $1.265billion at both dates; an unamortized discount value of $78million and $104million, respectively; and a net carrying amount of $1.187billion and $1.161billion, respectively. The remaining discount will be amortized over the next 16months. The effective interest rate on our 3.50% Convertible Senior Notes is 8.77%. The interest expense, inclusive of the 3.50% coupon and amortization of the discount and debt issuance costs are recognized for the three and six months ended June30, 2009 was $26million and $51million, respectively. The interest expense, inclusive of the 3.50% coupon and amortization of the discount and debt issuance costs, recognized for the three and six months ended June30, 2008 was $24million and $49million, respectively. The holders of our 3.50% Convertible Senior Notes have the option to require us to repurchase their notes for cash every five years on November15, beginning in 2010, and receive cash from us equal to the par value of the notes. We believe that, if the trading price of our common stock is below the conversion price on November15, 2010, the likelihood of holders requiring us to repurchase their notes will increase the more the conversion price exceeds the trading price of our common stock. The conversion value of the notes as of June30, 2009 was calculated by using the current conversion rate of 191.2981 per $1,000 in principal amount of the notes or a conversion price of $5.23, adjusted for certain events, including the payment of dividends, as described in the indenture governing the notes. Repayment On January2, 2009, we redeemed $230million aggregate principal amount of QCII's Floating Rate Senior Notes due 2009. New Issuance In April 2009, our wholly owned subsidiary, Qwest Corporation ("QC"), issued approximately |
Derivative Financial Instrument
Derivative Financial Instruments | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Condensed Consolidated Financial Statements | |
Derivative Financial Instruments | Note6: Derivative Financial Instruments We sometimes use derivative financial instruments, specifically interest rate swap contracts, to manage interest rate risks. We execute these instruments with financial institutions we deem creditworthy and monitor our exposure to these counterparties. An interest rate hedge is generally designated as either a cash flow hedge or a fair value hedge. In a cash flow hedge, a borrower of variable interest debt agrees with another party to make fixed payments equivalent to paying fixed rate interest on debt in exchange for receiving payments from the other party equivalent to receiving variable rate interest on debt, the effect of which is to eliminate some portion of the variability in the borrower's overall cash flows. In a fair value hedge, a borrower of fixed rate debt agrees with another party to make variable payments equivalent to paying variable rate interest on the debt in exchange for receiving fixed payments from the other party equivalent to receiving fixed rate interest on debt, the effect of which is to eliminate some portion of the variability in the fair value of the borrower's overall debt portfolio. We recognize all derivatives on our condensed consolidated balance sheets at fair value. We generally designate the derivative as either a cash flow hedge or a fair value hedge on the date on which we enter into the derivative instrument. For a derivative that is designated as and meets all of the required criteria for a cash flow hedge, we record in accumulated other comprehensive loss on our condensed consolidated balance sheets any changes in the fair value of the derivative. We then reclassify these amounts into earnings as the underlying hedged item affects earnings. In addition, if there are any changes in the fair value of the derivative arising from ineffectiveness of the cash flow hedging relationship, we record those amounts immediately in other expense (income)net in our condensed consolidated statements of operations. For a derivative that is designated as and meets all of the required criteria for a fair value hedge, we record in other expense (income)net in our condensed consolidated statements of operations the changes in fair value of the derivative and the underlying hedged item. We assess quarterly whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. If we determine that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting with respect to that derivative prospectively. We record immediately in earnings changes in the fair value of derivatives that are not designated as hedges. Interest Rate Hedges During 2008, we entered into the interest rate hedges described below as part of our short-term and long-term debt strategies. One objective of our short-term debt strategy is to take advantage of favorable interest rates by swapping floating rate debt to fixed rate debt using cash flow hedges. One objective of our long-term debt strategy is to achieve a more balanced ratio of fixed rate to floating rate debt by swa |
Severance and Restructuring
Severance and Restructuring | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Condensed Consolidated Financial Statements | |
Severance and Restructuring | Note7: Severance and Restructuring Severance For the three months ended June30, 2009 and 2008, we recorded severance expenses of $23million and $2million, respectively. For the six months ended June30, 2009 and 2008, we recorded severance expenses of $46million and $47million, respectively. A portion of our severance charges is included in each of cost of sales, selling expenses and general, administrative and other operating expenses in our condensed consolidated statements of operations. We have not included any severance charges in our segment expenses. As of June30, 2009 and December31, 2008, our severance liability was $59million and $56million, respectively. We expect to pay substantially all of the accrued severance charges during the next twelve months. Restructuring During 2004 and previous years, as part of our ongoing efforts to evaluate our operating costs, we established restructuring programs, which included workforce reductions, consolidation of excess facilities, and restructuring of certain business functions. As of June30, 2009, the remaining restructuring reserve for these programs related to leases for real estate that we ceased using in prior periods and consisted of our estimates of amounts to be paid for these leases in excess of our estimates of any sublease revenue we may collect. We expect this reserve will be used over the remaining lease terms, which range from 0.5 to 16.5years, with a weighted average of 12.6years. The remaining reserve balances are included on our condensed consolidated balance sheets in accrued expenses and other current liabilities for the current portion and other long-term liabilities for the long-term portion. The provisions, reversals, and adjustments are included in general, administrative and other expenses in our condensed consolidated statements of operations. We have not included any restructuring charges in our segment expenses. The following table presents the details of our real estate restructuring reserves for the six months ended June30, 2009: Real Estate Restructuring (Dollars in millions) Balance at December31, 2008 $ 226 Provisions Utilization (13 ) Reversals and adjustments 1 Balance at June30, 2009 $ 214 |
Employee Benefits
Employee Benefits | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Condensed Consolidated Financial Statements | |
Employee Benefits | Note8: Employee Benefits The components of net periodic benefits expense for our pension, non-qualified pension and post-retirement benefit plans for the three and six months ended June30, 2009 and 2008 are detailed below: Three Months Ended June30, Pension Plan Non-Qualified Pension Plan Post-Retirement Benefit Plans 2009 2008 2009 2008 2009 2008 (Dollars in millions) Net periodic benefits expense: Service cost $ 26 $ 31 $ 1 $ 1 $ 2 $ 3 Interest cost 127 123 53 56 Expected return on plan assets (139 ) (163 ) (17 ) (31 ) Recognized prior service cost (2 ) (25 ) (26 ) Recognized net actuarial loss 22 1 6 4 Total net periodic benefits expense (income) $ 36 $ (11 ) $ 2 $ 1 $ 19 $ 6 Six Months Ended June30, Pension Plan Non-Qualified Pension Plan Post-Retirement Benefit Plans 2009 2008 2009 2008 2009 2008 (Dollars in millions) Net periodic benefits expense: Service cost $ 52 $ 61 $ 1 $ 1 $ 4 $ 6 Interest cost 253 246 1 1 107 113 Expected return on plan assets (283 ) (326 ) (34 ) (62 ) Recognized prior service cost (3 ) (50 ) (52 ) Recognized net actuarial loss 37 1 3 15 7 Total net periodic benefits expense (income) $ 59 $ (22 ) $ 3 $ 5 $ 42 $ 12 The net periodic benefits expense for our pension, non-qualified pension and post-retirement benefit plans is recorded in general, administrative and other operating expenses in our condensed consolidated statements of operations. The measurement date used to determine pension, non-qualified pension and post-retirement benefits is December31; however, during the three months ended June30, 2009 we recorded adjustments to the net periodic benefits expense primarily for adjustments to our estimates of the fair value of certain private-equity and alternative investments held by our plan trusts that were estimated based on preliminary information at December31, 2008. In May 2009, we modified our target allocations for post-retirement benefit plan assets to 35% equity, 50% fixed income, 5% real estate and 10% other in order to reduce volatility in the portfolio. In conjunction with this modification, we expect our long-term rate of return on plan assets to decrease; however, we do not believe this decrease will materially change the life of the trust. |
Tax Matters
Tax Matters | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Condensed Consolidated Financial Statements | |
Tax Matters | Note9: Tax Matters During the three and six months ended June30, 2009, we reduced our income tax expense by $86million and $108million, respectively, compared to reductions of $18million in both the three and six months ended June30, 2008, due to the recognition of previously unrecognized tax benefits and settlements that are discrete to those periods. The benefits recorded for previously unrecognized tax positions were the result of increases in the amount the benefit that we believe is more likely than not to be sustained on various individual tax positions. Also, during the three months ended June30, 2009, we executed a settlement with the IRS relating to its audit of our 2002-2003 tax years. This settlement did not have a material impact on our condensed consolidated financial statements. The Company had unrecognized tax benefits as of June30, 2009 of $231million, which was a decrease of $202million from the balance at December31, 2008. This net decrease was due to a decrease of $221million relating to the elimination of unrecognized tax benefits as the result of settlements and a decrease of $116million primarily relating to the recognition of previously unrecognized tax benefits discussed above, partially offset by an increase of $135million for current period activity relating to tax positions originally taken by the Company in prior years for which the full benefit has not been recognized by us. Approximately $58million of the $231million unrecognized tax benefits we have at June30, 2009 could affect our effective tax rate as these positions would permanently decrease the cumulative amount that we would ever have to pay the taxing authorities. The remaining unrecognized tax benefits would not affect our effective tax rate as these benefits relate to the timing of deductions and would not impact the cumulative amount that we would ever have to pay the taxing authorities. |
Comprehensive Income
Comprehensive Income | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Condensed Consolidated Financial Statements | |
Comprehensive Income | Note10: Comprehensive Income Comprehensive income includes the amortization of actuarial gains and losses and prior service costs for our pension and post-retirement benefit plans, changes in the fair value and related amortization of certain financial derivative instruments (which qualify for hedge accounting) and unrealized gains and losses on certain investments. The components of comprehensive income for the three and six months ended June30, 2009 and 2008 are detailed below: Three Months Ended June30, Six Months Ended June30, 2009 2008 2009 2008 (Dollars in millions) Net income $ 212 $ 180 $ 418 $ 330 Other comprehensive income (loss)net of deferred taxes: Post-retirement benefit plansnet (13 ) (15 ) (25 ) (31 ) Pensionnet 14 (1 ) 23 Unrealized gain on derivative instrumentsnet 1 5 3 4 Unrealized gain (loss) on auction rate securities and othernet 5 1 (4 ) Total other comprehensive income (loss)net of deferred taxes 7 (11 ) 2 (31 ) Comprehensive income $ 219 $ 169 $ 420 $ 299 |
Segment Information
Segment Information | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Condensed Consolidated Financial Statements | |
Segment Information | Note11: Segment Information Our operating revenue is generated from our business markets, mass markets and wholesale markets segments. Our Chief Operating Decision Maker ("CODM") regularly reviews information for each of our segments to evaluate performance and to allocate resources. The accounting principles used to determine segment results are the same as those used in our condensed consolidated financial statements. Segment income consists of each segment's revenue and expenses. The following table summarizes segment information for the three and six months ended June30, 2009 and 2008: Three Months Ended June30, Six Months Ended June30, 2009 2008 2009 2008 (Dollars in millions) Total segment revenue $ 3,000 $ 3,291 $ 6,093 $ 6,609 Total segment expense 1,444 1,713 2,942 3,451 Total segment income $ 1,556 $ 1,578 $ 3,151 $ 3,158 Total margin percentage 52 % 48 % 52 % 48 % Business markets: Revenue $ 1,019 $ 1,013 $ 2,036 $ 2,005 Expense 611 632 1,232 1,249 Income $ 408 $ 381 $ 804 $ 756 Margin percentage 40 % 38 % 39 % 38 % Mass markets: Revenue $ 1,269 $ 1,454 $ 2,593 $ 2,938 Expense 578 725 1,178 1,488 Income $ 691 $ 729 $ 1,415 $ 1,450 Margin percentage 54 % 50 % 55 % 49 % Wholesale markets: Revenue $ 712 $ 824 $ 1,464 $ 1,666 Expense 255 356 532 714 Income $ 457 $ 468 $ 932 $ 952 Margin percentage 64 % 57 % 64 % 57 % The following table reconciles segment income to net income for the three and six months ended June30, 2009 and 2008: Three Months Ended June30, Six Months Ended June30, 2009 2008 2009 2008 (Dollars in millions) Total segment income $ 1,556 $ 1,578 $ 3,151 $ 3,158 Other revenue (primarily USF surcharges) 90 91 170 172 Unassigned expenses (primarily general and administrative) (577 ) (527 ) (1,130 ) (1,092 ) Depreciation and amortization (578 ) (578 ) (1,151 ) (1,154 ) Total other expensenet (274 ) (266 ) (525 ) (541 ) Income tax expense (5 ) (118 ) (97 ) (213 ) Net income $ 212 $ 180 $ 418 $ 330 The following table summarizes revenue derived from external customers for our major products and services for the three and six months ended June30, 2009 and 2008: Three Months Ended June30, Six Months Ended June30, 2009 2008 2009 2008 (Dollars in millions) Operating revenue by products and services: Segment revenue: Data, Internet and video services $ 1,364 $ 1,333 $ 2,727 $ 2,635 Voice services 1,603 |
Commitments and Contingencies
Commitments and Contingencies | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Condensed Consolidated Financial Statements | |
Commitments and Contingencies | Note12: Commitments and Contingencies Throughout this note, 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. Settlement classes have been certified in connection with the settlements of certain of the putative class actions described below where the courts held that the named plaintiffs represented the settlement class they purported to represent. To the extent appropriate, we have provided reserves for each of the matters described below. The terms and conditions of applicable bylaws, certificates or articles of incorporation, agreements or applicable law may obligate us to indemnify our former directors, officers and employees with respect to certain of the matters described below, and we have been advancing legal fees and costs to many former directors, officers and employees in connection with certain matters described below. KPNQwest Litigation/Investigation On January27, 2009, the trustees in the Dutch bankruptcy proceeding for KPNQwest,N.V. (of which we were a major shareholder) filed a lawsuit in the federal district court for the District of Colorado alleging violations of the Racketeer Influenced and Corrupt Organizations Act and breach of duty and mismanagement under Dutch law. We are a defendant in this lawsuit along with Joseph P. Nacchio, our former chief executive officer, Robert S. Woodruff, our former chief financial officer, and John McMaster, the former president and chief executive officer of KPNQwest. Plaintiffs allege, among other things, that defendants' actions were a cause of the bankruptcy of KPNQwest, and they seek damages for the bankruptcy deficit of KPNQwest of approximately $2.4billion. Plaintiffs also seek treble and punitive damages as well as an award of plaintiffs' attorneys' fees and costs. A lawsuit asserting the same claims that was previously filed in the federal district court for the District of New Jersey was dismissed without prejudice, and that dismissal was affirmed on appeal. On September13, 2006, Cargill Financial Markets,Plc and Citibank, N.A. filed a lawsuit in the District Court of Amsterdam, located in the Netherlands, against us, KPN TelecomB.V., Koninklijke KPNN.V. ("KPN"), Mr.Nacchio, Mr.McMaster, and other former employees or supervisory board members of us, KPNQwest or KPN. The lawsuit alleges that defendants misrepresented KPNQwest's financial and business condition in connection with the origination of a credit facility and wrongfully allowed KPNQwest to borrow funds under that facility. Plaintiffs allege damages of approximately 219million (or approximately $308million based on the exchange rate on June30, 2009). On October31, 2002, Richard and Marcia Grand, co-trustees of the R.M. Grand Revocable Living Trust, dated January25, 1991, filed a lawsuit in Arizona Superior Court. As amended and following the appeal of a partial summary judgment against plaintiffs which was affirmed in part and reversed in part, plaintiffs a |
Dividends
Dividends | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Condensed Consolidated Financial Statements | |
Dividends | Note13: Dividends Our Board of Directors declared the following dividends payable in 2009: Date Declared Record Date Dividend Per Share Total Amount Payment Date (in millions) December10, 2008 February13, 2009 $ 0.08 $ 137 March6, 2009 April15, 2009 May22, 2009 $ 0.08 $ 137 June12, 2009 July 27, 2009 August21, 2009 $ 0.08 $ 138 September11, 2009 |
Financial Statements of Guarant
Financial Statements of Guarantors | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to Condensed Consolidated Financial Statements | |
Financial Statements of Guarantors | Note14: Financial Statements of Guarantors QCII and two of its subsidiaries, Qwest Capital Funding,Inc. ("QCF") and Qwest Services Corporation ("QSC"), guarantee the payment of certain of each other's registered debt securities. As of June30, 2009, QCII had outstanding a total of $1.825billion aggregate principal amount of senior notes that were issued in February 2004 and June 2005 and that are guaranteed by QCF and QSC (the "QCII Guaranteed Notes"). These notes are guaranteed through their respective maturity dates, the latest of which is in February 2014. Each series of QCF's outstanding notes totaling $2.747billion in aggregate principal amount is guaranteed on a senior unsecured basis by QCII (the "QCF Guaranteed Notes"). These notes are guaranteed through their respective maturity dates, the latest of which is in February 2031. The guarantees are full and unconditional and joint and several. A significant amount of QCII's and QSC's income and cash flow are generated by their subsidiaries. As a result, the funds necessary to meet their debt service or guarantee obligations are provided in large part by distributions or advances from their subsidiaries. The following information sets forth our condensed consolidating statements of operations for the three and six months ended June30, 2009 and 2008, our condensed consolidating balance sheets as of June30, 2009 and December31, 2008, and our condensed consolidating statements of cash flows for the six months ended June30, 2009 and 2008. The information for QCII is presented on a stand-alone basis, information for QSC and QCF is presented on a combined basis and information for all of our other subsidiaries is presented on a combined basis. Each entity's investments in its subsidiaries, if any, are presented under the equity method. The condensed consolidating statements of operations and balance sheets include the effects of consolidating adjustments to our subsidiaries' tax provisions and the related income tax assets and liabilities in the QSC and QCII results. Both QSC and QCF are 100% owned by QCII, and QCF is a finance subsidiary of QCII. Other than as already described in this note, the accounting principles used to determine the amounts reported in this note are the same as those used in our condensed consolidated financial statements. The effects of our adoption of FSP APB14-1 (ASC 470-20) , which relates to the accounting for convertible debt, are reflected in all columns except for the "Subsidiary Non-Guarantors" column in the financial statements that follow. We periodically restructure the internal capital structure of our subsidiaries based on the needs of our business. QWEST COMMUNICATIONS INTERNATIONALINC. CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2009 (UNAUDITED) QCII(1) QSC(2) QCF(3) Subsidiary Non- Guarantors Eliminations QCII Consolidated (Dollars in millions) Operating revenue: Operating revenue $ $ $ 3,090 $ $ 3,090 Operating revenueaffiliates (3 ) (3 ) 6 Total operating revenue |
DOCUMENT AND ENTITY INFORMATION
DOCUMENT AND ENTITY INFORMATION (USD $) | |||
In Billions, except Share data | 6 Months Ended
Jun. 30, 2009 | Jul. 27, 2009
| Jun. 30, 2008
|
Document and Entity Information | |||
Entity Registrant Name | Qwest Communications International Inc | ||
Entity Central Index Key | 0001037949 | ||
Document Type | 10-Q | ||
Document Period End Date | 2009-06-30 | ||
Amendment Flag | true | ||
Amendment Description | The purpose of this Amendment No. 1 to the Quarterly Report on Form 10-Q of Qwest Communications International Inc. for the quarter ended June 30, 2009, as filed with the Securities and Exchange Commission on July 30, 2009, is to furnish a corrected Exhibit 101 (XBRL formatted data) to the Form 10-Q as required by Rule 405 of Regulation S-T. No other changes have been made to the Form 10-Q other than those described below. This Amendment No. 1 does not modify or update in any way disclosures made in the Form 10-Q. The Exhibit 101 furnished on July 30, 2009 inadvertently excluded certain tables that have been included in this corrected Exhibit 101. Exhibit 101 to this report provides the following items from our Form 10-Q formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text. Users of this data are advised that pursuant to Rule 406T of Regulation S-T these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections. | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | 5.9 | ||
Entity Common Stock, Shares Outstanding | 1,723,796,075 |