The following unaudited pro forma condensed consolidated financial information is based on the historical financial statements of Qwest Corporation ("we", "us" or "our") and should be read in conjunction with financial statements filed in our Form 10-K for the year ended December 31, 2003 and Form 10-Q for the three months ended March 31, 2004. The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2004 and year ended December 31, 2003 and the unaudited pro forma condensed consolidated balance sheet as of March 31, 2004 present how our financial statements may have looked had the transfer of ownership of Qwest Wireless LLC from us to an affiliate occurred at the beginning of each of the periods presented for the consolidated statements of operations and at March 31, 2004 for the consolidated balance sheet.
The unaudited pro forma financial information is not necessarily indicative of the financial position or operating results that would have occurred had the transfer of Qwest Wireless been consummated on these dates, or at the beginning of the periods in which the transfer of ownership is being given effect
QWEST CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2004
(Dollars in millions)
| | Historical | Pro Forma Adjustment | Pro Forma as Adjusted | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (a) | (b) | | |||||||||
| Operating revenues | $ | 2,515 | $ | (126 | ) | $ | 2,389 | |||||
| Operating revenues—affiliates | 195 | 36 | 231 | |||||||||
| Total operating revenues | 2,710 | (90 | ) | 2,620 | ||||||||
| Operating expenses: | ||||||||||||
| Cost of sales (exclusive of depreciation and amortization detailed below) | 574 | (44 | ) | 530 | ||||||||
| Cost of sales—affiliates | 71 | (2 | ) | 69 | ||||||||
| Selling, general and administrative | 488 | (38 | ) | 450 | ||||||||
| Selling, general and administrative—affiliates | 306 | (28 | ) | 278 | ||||||||
| Depreciation and amortization | 673 | (6 | ) | 667 | ||||||||
| Restructuring and other charges | 2 | — | 2 | |||||||||
| Total operating expenses | 2,114 | (118 | ) | 1,996 | ||||||||
| Operating income | 596 | 28 | 624 | |||||||||
| Other expense (income): | ||||||||||||
| Interest expense—net | 149 | — | 149 | |||||||||
| Interest expense—net—affiliates | 40 | (40 | ) | — | ||||||||
| Other expense (income)—net | (4 | ) | — | (4 | ) | |||||||
| Total other expense—net | 185 | (40 | ) | 145 | ||||||||
| Income before income taxes, discontinued operations | 411 | 68 | 479 | |||||||||
| Income tax expense | 159 | 26 | 185 | |||||||||
| Net income | $ | 252 | $ | 42 | $ | 294 | ||||||
QWEST CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2003
(Dollars in millions)
| | Historical | Pro Forma Adjustment | Pro Forma as Adjusted | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (a) | (b) | | |||||||||
| Operating revenues | $ | 10,622 | $ | (595 | ) | $ | 10,027 | |||||
| Operating revenues—affiliates | 639 | 162 | 801 | |||||||||
| Total operating revenues | 11,261 | (433 | ) | 10,828 | ||||||||
| Operating expenses: | ||||||||||||
| Cost of sales (exclusive of depreciation and amortization detailed below) | 2,430 | (200 | ) | 2,230 | ||||||||
| Cost of sales—affiliates | 442 | (22 | ) | 420 | ||||||||
| Selling, general and administrative | 1,862 | (135 | ) | 1,727 | ||||||||
| Selling, general and administrative—affiliates | 1,390 | (59 | ) | 1,331 | ||||||||
| Depreciation and amortization | 2,806 | (55 | ) | 2,751 | ||||||||
| Asset impairment charges | 230 | (230 | ) | — | ||||||||
| Restructuring and other charges—net | 57 | — | 57 | |||||||||
| Total operating expenses | 9,217 | (701 | ) | 8,516 | ||||||||
| Operating income | 2,044 | 268 | 2,312 | |||||||||
| Other expense (income): | ||||||||||||
| Interest expense—net | 572 | — | 572 | |||||||||
| Interest expense—net—affiliates | 154 | (154 | ) | — | ||||||||
| Other expense (income)—net | (29 | ) | 11 | (18 | ) | |||||||
| Total other expense—net | 697 | (143 | ) | 554 | ||||||||
| Income before income taxes discontinued operations and cumulative effect of change in accounting principle | 1,347 | 411 | 1,758 | |||||||||
| Income tax expense | 516 | 159 | 675 | |||||||||
| Cumulative effect of change in accounting principle, net of taxes of $140 | 219 | 2 | 221 | |||||||||
| Net income | $ | 1,050 | $ | 254 | $ | 1,304 | ||||||
QWEST CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of March 31, 2004
(DOLLARS IN MILLIONS)
| | Historical | Pro Forma Adjustments | Pro Forma as Adjusted | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (a) | (b) | | |||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 1,160 | $ | — | $ | 1,160 | ||||||
| Accounts receivable—net | 1,085 | 10 | 1,095 | |||||||||
| Accounts receivable—affiliates | 96 | 18 | 114 | |||||||||
| Deferred income taxes | 189 | — | 189 | |||||||||
| Prepaid and other assets | 358 | (30 | ) | 328 | ||||||||
| Total current assets | 2,888 | (2 | ) | 2,886 | ||||||||
| Property, plant and equipment—net | 16,209 | (39 | ) | 16,170 | ||||||||
| Intangible assets—net | 1,094 | (158 | ) | 936 | ||||||||
| Other assets | 1,343 | (3 | ) | 1,340 | ||||||||
| Total assets | $ | 21,534 | $ | (202 | ) | $ | 21,332 | |||||
| LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Current borrowings | $ | 931 | $ | — | $ | 931 | ||||||
| Current borrowings—affiliates | 2,147 | (2,147 | ) | — | ||||||||
| Accounts payable | 505 | (66 | ) | 439 | ||||||||
| Accounts payable—affiliates | 743 | 42 | 785 | |||||||||
| Dividends payable—QSC | 1,354 | — | 1,354 | |||||||||
| Accrued expenses and other current liabilities | 901 | (24 | ) | 877 | ||||||||
| Deferred revenue and advanced billings | 529 | (11 | ) | 518 | ||||||||
| Total current liabilities | 7,110 | (2,206 | ) | 4,904 | ||||||||
| Long-term borrowings—net of unamortized debt discount of $155 million | 6,819 | — | 6,819 | |||||||||
| Post-retirement and other post-employment benefit obligations | 2,794 | (13 | ) | 2,781 | ||||||||
| Deferred income taxes | 2,580 | — | 2,580 | |||||||||
| Other long-term liabilities | 576 | 26 | 602 | |||||||||
| Total liabilities | 19,879 | (2,193 | ) | 17,686 | ||||||||
| Commitments and contingencies | ||||||||||||
| Stockholder's equity: | ||||||||||||
| Common stock—one share without par, owned by QSC | 8,216 | 1,991 | 10,207 | |||||||||
| Note receivable—affiliate | (286 | ) | — | (286 | ) | |||||||
| Accumulated deficit | (6,275 | ) | — | (6,275 | ) | |||||||
| Total stockholder's equity | 1,655 | 1,991 | 3,646 | |||||||||
| Total liabilities and stockholder's equity | $ | 21,534 | $ | (202 | ) | $ | 21,332 | |||||
