CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | ||||
In Millions, except Share data in Thousands | 3 Months Ended
Sep. 30, 2009 | 3 Months Ended
Sep. 30, 2008 | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
Operating revenue | $3,054 | $3,379 | $9,317 | $10,160 |
Operating expenses: | ||||
Cost of sales (exclusive of depreciation and amortization) | 932 | 1,232 | 2,794 | 3,562 |
Selling | 460 | 575 | 1,502 | 1,657 |
General, administrative and other operating | 596 | 519 | 1,764 | 1,650 |
Depreciation and amortization | 581 | 599 | 1,732 | 1,753 |
Total operating expenses | 2,569 | 2,925 | 7,792 | 8,622 |
Operating income | 485 | 454 | 1,525 | 1,538 |
Other expense (income) - net: | ||||
Interest expense on long-term borrowings and capital leases - net | 274 | 263 | 810 | 805 |
Other - net | (27) | (11) | (28) | |
Total other expense (income) - net | 274 | 236 | 799 | 777 |
Income before income taxes | 211 | 218 | 726 | 761 |
Income tax expense | 75 | 73 | 172 | 286 |
Net income | $136 | $145 | $554 | $475 |
Earnings per common share: | ||||
Basic (in dollars per share) | 0.08 | 0.08 | 0.32 | 0.27 |
Diluted (in dollars per share) | 0.08 | 0.08 | 0.32 | 0.27 |
Weighted average common shares outstanding: | ||||
Basic (in shares) | 1,711,954 | 1,713,127 | 1,707,354 | 1,739,441 |
Diluted (in shares) | 1,719,502 | 1,713,745 | 1,713,405 | 1,741,928 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | ||
In Millions | Sep. 30, 2009
| Dec. 31, 2008
|
Current assets: | ||
Cash and cash equivalents | $2,074 | $565 |
Accounts receivable - net of allowance of $114 and $129, respectively | 1,343 | 1,465 |
Deferred income taxes - net | 569 | 572 |
Prepaid expenses and other | 361 | 368 |
Total current assets | 4,347 | 2,970 |
Property, plant and equipment - net | 12,399 | 13,045 |
Capitalized software - net | 888 | 875 |
Deferred income taxes - net | 2,003 | 2,168 |
Other | 588 | 1,083 |
Total assets | 20,225 | 20,141 |
Current liabilities: | ||
Current portion of long-term borrowings | 925 | 820 |
Accounts payable | 754 | 820 |
Accrued expenses and other | 1,355 | 1,641 |
Deferred revenue and advance billings | 547 | 572 |
Total current liabilities | 3,581 | 3,853 |
Long-term borrowings - net of unamortized debt discount and other of $286 and $270, respectively | 13,210 | 12,735 |
Post-retirement and other post-employment benefits obligations - net | 2,461 | 2,457 |
Pension obligations - net | 809 | 775 |
Deferred revenue | 502 | 519 |
Other | 693 | 1,188 |
Total liabilities | 21,256 | 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; 1,735,087 and 1,713,521 shares issued, respectively | 17 | 17 |
Additional paid-in capital | 42,245 | 42,167 |
Treasury stock - 8,923 and 6,767 shares, respectively (including 44 shares and 62 shares, respectively, held in rabbi trust) | (22) | (20) |
Accumulated deficit | (42,784) | (43,063) |
Accumulated other comprehensive loss | (487) | (487) |
Total stockholders' deficit | (1,031) | (1,386) |
Total liabilities and stockholders' deficit | $20,225 | $20,141 |
1_CONDENSED CONSOLIDATED BALANC
CONDENSED CONSOLIDATED BALANCE SHEETS (PARENTHETICAL) (USD $) | ||
In Millions, except Share data | Sep. 30, 2009
| Dec. 31, 2008
|
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
Allowance on accounts receivable (in dollars) | $114 | $129 |
Unamortized debt discount and other on long-term borrowings (in dollars) | $286 | $270 |
Preferred stock, par value (in dollars per share) | $1 | $1 |
Preferred stock, shares authorized | 200,000,000 | 200,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | 0.01 | 0.01 |
Common stock, shares authorized | 5,000,000,000 | 5,000,000,000 |
Common stock, shares issued | 1,735,087,000 | 1,713,521,000 |
Treasury stock, shares | 8,923,000 | 6,767,000 |
Treasury stock - shares held in rabbi trust | 44,000 | 62,000 |
2_CONDENSED CONSOLIDATED STATEM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | ||
In Millions | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 |
Operating activities: | ||
Net income | $554 | $475 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 1,732 | 1,753 |
Deferred income taxes | 156 | 347 |
Provision for bad debt - net | 111 | 123 |
Other non-cash charges - net | 95 | 116 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 17 | (5) |
Prepaid expenses and other current assets | (4) | 35 |
Accounts payable and accrued expenses and other current liabilities | (209) | (546) |
Deferred revenue and advance billings | (51) | (24) |
Other non-current assets and liabilities | 30 | (251) |
Cash provided by operating activities | 2,431 | 2,023 |
Investing activities: | ||
Expenditures for property, plant and equipment and capitalized software | (1,023) | (1,416) |
Proceeds from sale of investment securities | 13 | 56 |
Other | (6) | 17 |
Cash used for investing activities | (1,016) | (1,343) |
Financing activities: | ||
Proceeds from long-term borrowings | 1,270 | |
Repayments of long-term borrowings, including current maturities | (819) | (205) |
Proceeds from issuances of common stock | 45 | 31 |
Dividends paid | (412) | (420) |
Repurchases of common stock | (432) | |
Other | 10 | 30 |
Cash provided by (used for) financing activities | 94 | (996) |
Cash and cash equivalents: | ||
Increase (decrease) in cash and cash equivalents | 1,509 | (316) |
Beginning balance | 565 | 902 |
Ending balance | $2,074 | $586 |
Basis of Presentation
Basis of Presentation | |
9 Months Ended
Sep. 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 nine months ended September30, 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 October28, 2009, the date these financial statements were issued. 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 September30, 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 nine months ended September30, 2009 and the condensed consolidated statement of cash flows for the nine months ended September30, 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 assessments of potential losses in relation to threatened or pending tax and legal matters. See Note9Tax Matters and Note12Commitments and Contingencies for additional information. For matters not related to income taxes, if a loss is considered probable and the amount can be reasonably estimated, we recognize an expense for the est |
Earnings Per Common Share
Earnings Per Common Share | |
9 Months Ended
Sep. 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 nine months ended September30, 2009 and 2008: ThreeMonthsEnded September30, NineMonthsEnded September30, 2009 2008 2009 2008 (Dollars in millions except per share amounts, shares in thousands) Net income allocated to common shareholders $ 135 $ 144 $ 550 $ 473 Basic weighted average common shares outstanding 1,711,954 1,713,127 1,707,354 1,739,441 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 512 363 470 2,401 Dilutive effect of performance shares 7,036 255 5,581 86 Diluted weighted average common shares outstanding 1,719,502 1,713,745 1,713,405 1,741,928 Earnings per common share: Basic $ 0.08 $ 0.08 $ 0.32 $ 0.27 Diluted $ 0.08 $ 0.08 $ 0.32 $ 0.27 We had weighted average unvested restricted stock grants outstanding of approximately 13million shares and 12million shares during the three and nine months ended September30, 2009, respectively, and 8million shares and 7million shares during the three and nine months ended September30, 2008, respectively. These shares were 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 $4million for the three and nine months ended September30, 2009, respectively. For purposes of calculating basic and diluted earnings per share for the three and nine months ended September30, 2008, these shares were allocated net income of approximately $1million and $2million, respectively. 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 nine months ended September30, 2009 and 2008: ThreeMonths Ended September30, NineMonths Ended September30, 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 50,739 66,489 50,748 53,745 Outstanding options to purchase common stock excluded because the market-based vesting |
Fair Value of Financial Instrum
Fair Value of Financial Instruments | |
9 Months Ended
Sep. 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, auction rate securities, the investment fund, accounts receivable, accounts payable and interest rate hedges approximate their fair values. The carrying value of our long-term notes including the current portion reflects original cost net of unamortized discounts and other and was $14.016billion as of September30, 2009. For additional information, see Note5Borrowings. 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. 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 September30, 2009 and December31, 2008: Fair value as of Level September30, 2009 December31, 2008 (Dollars in millions) Assets: Auction rate securities 3 $ 93 $ 90 Investment fund 3 4 20 Fair value hedges 3 2 Total assets $ 99 $ 110 Liabilities: Long-term notes, including the current portion 1 2 $ 13,756 $ 11,043 Cash flow hedges 3 5 8 Total liabilities $ 13,761 $ 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 ca |
Investments
Investments | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
Investments | Note4: Investments As of September30, 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 of which had a credit rating of BB+ at September30, 2009, and the other of which was not rated at that date; 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 and nine months ended September30, 2009 and 2008. The cumulative unrealized loss, net of deferred income taxes, related to these securities was $17million at both September30, 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 September30, 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. If the issuers cease making required interest payments, we would 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. If we believe that we will be required to sell these securities before their values recover, we |
Borrowings
Borrowings | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
Borrowings | Note5: Borrowings As of September30, 2009 and December31, 2008, our long-term borrowings, net of unamortized discounts and other, consisted of the following: September30, 2009 December31, 2008 (Dollars in millions) Current portion of long-term borrowings: Long-term notes $ 903 $ 792 Long-term capital lease and other obligations 22 28 Total current portion of long-term borrowings 925 820 Long-term borrowings: Long-term notes 13,113 12,673 Long-term capital lease and other obligations 97 62 Total long-term borrowingsnet 13,210 12,735 Total long-term borrowingsnet, including current portion $ 14,135 $ 13,555 We were in compliance with all provisions and covenants of our borrowings as of September30, 2009. Effective January1, 2009, we adopted FSP APB14-1 (ASC 470). 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 September30, 2009 and December31, 2008. At September30, 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 $64million and $104million, respectively; and a net carrying amount of $1.201billion and $1.161billion, respectively. The remaining discount will be amortized over the next 13months. 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, recognized for the three and nine months ended September30, 2009 was $26million and $77million, respectively. The interest expense, inclusive of the 3.50% coupon and amortization of the discount and debt issuance costs, recognized for the three and nine months ended September30, 2008 was $25million and $73million, 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 September30, 2009 was calculated by using the current conversion rate of 195.3085 per $1,000 in principal amount of the notes or a conversion price of $5.12, adjusted for certain events, including the payment of dividends, as described in the indenture governing the notes. Repayment On August3, 2009, our wholly owned subsidiary, Qwest Capital Funding, Inc ("QCF"), paid at maturity $562million aggregate principal amount of its 7.0% Notes due 200 |
Derivative Financial Instrument
Derivative Financial Instruments | |
9 Months Ended
Sep. 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 due to changes in interest rates. 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. However, if the terms of this type of derivative match the terms of the underlying hedged item such that we qualify to assume no ineffectiveness, then the fair value of the derivative is measured and the change in the fair value for the period is assumed to equal the change in the fair value of the underlying hedged item for the period, with no impact in other expense (income)net. We assess quarterly whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item or whether our initial assumption of no ineffectiveness is still valid. If we determine that a derivative is not highly effective as a hedge, a derivative has ceased to be a highly effective hedge or our assumption of no ineffectiveness is no longer valid, then we discontinue hedge accounting with respect to that derivative prospectively. We reco |
Severance and Restructuring
Severance and Restructuring | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
Severance and Restructuring | Note7: Severance and Restructuring Severance For the three months ended September30, 2009 and 2008, we recorded severance expenses of $11million and $63million, respectively. For the nine months ended September30, 2009 and 2008, we recorded severance expenses of $57million and $110million, respectively. A portion of our severance expenses 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 expenses in our segment expenses. As of September30, 2009 and December31, 2008, our severance liability was $47million and $56million, respectively. We expect to pay substantially all of our accrued severance expenses during the next 12months. 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 September30, 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 0.3 to 16.3years, with a weighted average of 12.4years. 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 expenses in our segment expenses. The following table presents the details of our real estate restructuring reserves for the nine months ended September30, 2009: Real Estate Restructuring (Dollars in millions) Balance at December31, 2008 $ 226 Provisions Utilization (16 ) Reversals and adjustments 1 Balance at September30, 2009 $ 211 |
Employee Benefits
Employee Benefits | |
9 Months Ended
Sep. 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 nine months ended September30, 2009 and 2008 are detailed below: Three Months Ended September30, 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 $ 26 $ $ $ 2 $ 1 Interest cost 126 126 1 54 57 Expected return on plan assets (141 ) (160 ) (17 ) (31 ) Recognized prior service cost (1 ) (25 ) (26 ) Recognized net actuarial loss 19 2 8 1 Total net periodic benefits expense (income) $ 30 $ (7 ) $ 1 $ $ 22 $ 2 Nine Months Ended September30, 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 $ 78 $ 87 $ 1 $ 1 $ 6 $ 7 Interest cost 379 372 2 1 161 170 Expected return on plan assets (424 ) (486 ) (51 ) (93 ) Recognized prior service cost (4 ) (75 ) (78 ) Recognized net actuarial loss 56 2 1 3 23 8 Total net periodic benefits expense (income) $ 89 $ (29 ) $ 4 $ 5 $ 64 $ 14 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 nine months ended September30, 2009 we recorded adjustments to the net periodic benefits expense due primarily to adjustments to our estimates of the fair value of certain investments held by our plan trusts that were estimated based on previously available 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 our forecast of when the post-retirement benefit plan assets will be depleted. |
Tax Matters
Tax Matters | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
Tax Matters | Note9: Tax Matters During the nine months ended September30, 2009, we reduced our income tax expense by $108million and during the nine months ended September30, 2008 we reduced our income tax expense by $18million due to the recognition of previously unrecognized tax benefits and settlements of uncertain tax positions that are discrete to those periods. The benefits recorded for previously unrecognized tax positions were the result of increases in the amount of benefit that we believe is more likely than not to be sustained on various individual tax positions. We had unrecognized tax benefits as of September30, 2009 of $236million, which was a net decrease of $198million 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 $114million primarily relating to the recognition of previously unrecognized tax benefits discussed above, partially offset by an increase of $137million for activities in the nine months ended September30, 2009 relating to tax positions originally taken by us in prior years for which the full benefit has not been recognized. Approximately $58million of the $236million unrecognized tax benefits we had at September30, 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 | |
9 Months Ended
Sep. 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 nine months ended September30, 2009 and 2008 are detailed below: Three Months Ended September30, Nine Months Ended September30, 2009 2008 2009 2008 (Dollars in millions) Net income $ 136 $ 145 $ 554 $ 475 Other comprehensive (loss) incomenet of deferred taxes: Post-retirement benefit plansnet (13 ) (15 ) (38 ) (46 ) Pensionnet 8 31 Unrealized gain (loss) on derivative instrumentsnet 2 (2 ) 5 2 Unrealized gain (loss) on auction rate securities and othernet 1 (7 ) 2 (11 ) Total other comprehensive (loss) incomenet of deferred taxes (2 ) (24 ) (55 ) Comprehensive income $ 134 $ 121 $ 554 $ 420 |
Segment Information
Segment Information | |
9 Months Ended
Sep. 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. We have reclassified certain prior year segment revenue and expense amounts presented in our Quarterly Report on Form10-Q for the three and nine months ended September30, 2008 to conform to the current period presentation and to the presentation of our 2008 results of operations included in our Annual Report on Form10-K for the year ended December31, 2008. Segment income consists of each segment's revenue and expenses. The following table summarizes segment information for the three and nine months ended September30, 2009 and 2008: Three Months Ended September30, Nine Months Ended September30, 2009 2008 2009 2008 (Dollars in millions) Total segment revenue $ 2,958 $ 3,286 $ 9,051 $ 9,895 Total segment expense 1,417 1,782 4,359 5,233 Total segment income $ 1,541 $ 1,504 $ 4,692 $ 4,662 Total segment margin percentage 52 % 46 % 52 % 47 % Business markets: Revenue $ 1,032 $ 1,044 $ 3,068 $ 3,049 Expense 623 675 1,855 1,924 Income $ 409 $ 369 $ 1,213 $ 1,125 Margin percentage 40 % 35 % 40 % 37 % Mass markets: Revenue $ 1,226 $ 1,426 $ 3,819 $ 4,364 Expense 553 751 1,731 2,239 Income $ 673 $ 675 $ 2,088 $ 2,125 Margin percentage 55 % 47 % 55 % 49 % Wholesale markets: Revenue $ 700 $ 816 $ 2,164 $ 2,482 Expense 241 356 773 1,070 Income $ 459 $ 460 $ 1,391 $ 1,412 Margin percentage 66 % 56 % 64 % 57 % The following table reconciles segment income to net income for the three and nine months ended September30, 2009 and 2008: Three Months Ended September30, Nine Months Ended September30, 2009 2008 2009 2008 (Dollars in millions) Total segment income $ 1,541 $ 1,504 $ 4,692 $ 4,662 Other revenue (primarily USFsurcharges) 96 93 266 265 Unassigned expenses (primarily general and administrative) (571 ) (544 ) (1,701 ) (1,636 ) Depreciation and amortization (581 ) (599 ) (1,732 ) (1,753 ) Total other expensenet (274 ) (236 ) (799 ) (777 ) Income tax expense (75 ) (73 ) (172 |
Commitments and Contingencies
Commitments and Contingencies | |
9 Months Ended
Sep. 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 or employees with respect to certain of the matters described below, and we have been advancing legal fees and costs to certain former directors, officers or 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 JosephP. 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 NewJersey 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, KPNTelecomB.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 $320million based on the exchange rate on September30, 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 all |
Dividends
Dividends | |
9 Months Ended
Sep. 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 TotalAmount PaymentDate (in millions) December10, 2008 February13, 2009 $ 0.08 $ 137 March6, 2009 April15, 2009 May22, 2009 $ 0.08 $ 137 June12, 2009 July27, 2009 August21, 2009 $ 0.08 $ 138 September11, 2009 October14, 2009 November20, 2009 $ 0.08 $ 138 December11, 2009 |
Financial Statements of Guarant
Financial Statements of Guarantors | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
Financial Statements of Guarantors | Note14: Financial Statements of Guarantors QCIIand two of its subsidiaries, QCFand QSC, guarantee the payment of certain of each other's registered debt securities. As of September30, 2009, QCIIhad outstanding a total of $1.825billion aggregate principal amount of registered senior notes that were issued in February2004 and June2005 and that are guaranteed by QCFand QSC (the "QCIIGuaranteed Notes"). These notes are guaranteed through their respective maturity dates, the latest of which is in February2014. Each series of QCF's outstanding notes totaling $2.185billion in aggregate principal amount is guaranteed on a senior unsecured basis by QCII(the "QCFGuaranteed Notes"). These notes are guaranteed through their respective maturity dates, the latest of which is in February2031. 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. As of September30, 2009, QCIIalso had outstanding $550million aggregate principal amount of unregistered senior notes that were issued in September2009 and that are guaranteed by QCFand QSC. For additional information, see Note5Borrowings. The following information sets forth our condensed consolidating statements of operations for the three and nine months ended September30, 2009 and 2008, our condensed consolidating balance sheets as of September30, 2009 and December31, 2008, and our condensed consolidating statements of cash flows for the nine months ended September30, 2009 and 2008. The information for QCIIis presented on a stand-alone basis, information for QSC and QCFis 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 QCIIresults. Both QSC and QCFare 100% owned by QCII, and QCFis 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 (ASC470) , 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 SEPTEMBER 30, 2009 (UNAUDITED) QCII(1) QSC(2) QCF(3) Subsidiary Non-Guarantors Eliminations QCII Consolidated (Dollars in millions) Operating |
DOCUMENT AND ENTITY INFORMATION
DOCUMENT AND ENTITY INFORMATION (USD $) | |||
In Billions, except Share data | 9 Months Ended
Sep. 30, 2009 | Oct. 26, 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 | 2009-09-30 | ||
Amendment Flag | false | ||
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 | 1,726,624,162 |