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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the Year ended December 30, 2001
Commission File Number 001-15577
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QWEST COMMUNICATIONS 401(k) SAVINGS PLAN
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Qwest Communications International Inc.
1801 California Street, Denver, Colorado 80202
303-992-1400
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TABLE OF CONTENTS
<Table>
<Caption>
Page(s)
-------
Report of Independent Public Accountants ............................................... 2
Statements of Net Assets Available for Benefits
as of December 30, 2001 and 2000................................................... 3
Statement of Changes in Net Assets Available for Benefits
for the Year ended December 30, 2001............................................... 4
Notes to Financial Statements .......................................................... 5-11
Signature .............................................................................. 12
</Table>
1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Participants and Plan Administrative Committee of the
Qwest Communications 401(k) Savings Plan:
We have audited the accompanying statements of net assets available for benefits
of the QWEST COMMUNICATIONS 401(k) SAVINGS PLAN (the "Plan") as of December 30,
2001 and 2000, and the related statement of changes in net assets available for
benefits for the year ended December 30, 2001. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 30, 2001 and 2000, and the changes in net assets available for benefits
for the year ended December 30, 2001, in conformity with accounting principles
generally accepted in the United States of America.
As further discussed in Note 1, the Plan merged into the Qwest Savings &
Investment Plan effective midnight on December 30, 2001.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
June 26, 2002.
2
QWEST COMMUNICATIONS 401(k) SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 30, 2001 AND 2000
(THOUSANDS OF DOLLARS)
<Table>
<Caption>
DECEMBER 30, DECEMBER 30,
2001 2000
------------ ------------
ASSETS (NOTE 8)
INVESTMENTS (NOTES 2 AND 3):
Money market fund $ -- $ 206
Mutual funds -- 47,402
Common/collective trusts -- 19,958
Common stock -- 745
Employer stock (Note 9) -- 45,303
Participant loans -- 2,545
------------ ------------
Total Investments -- 116,159
RECEIVABLES:
Participant contributions -- 208
Employer contributions -- 73
Pending trades -- 17
------------ ------------
Total Receivables -- 298
ACCRUED INCOME -- 12
CASH OVERDRAFT PAYABLE -- (42)
------------ ------------
Net Assets Available for Benefits $ -- $ 116,427
============ ============
</Table>
The accompanying notes are an integral part of these financial statements.
3
QWEST COMMUNICATIONS 401(k) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 30, 2001
(THOUSANDS OF DOLLARS)
<Table>
ADDITIONS TO (DEDUCTIONS FROM) NET ASSETS ATTRIBUTED TO:
Contributions:
Employee $ 40,912
Employer 17,344
Rollovers 5,875
------------
Total contributions 64,131
------------
Net Investment Income (Loss):
Interest and other dividends 2,311
Net depreciation in fair value of investments (Notes 2 and 3) (46,897)
------------
Total net investment loss (44,586)
------------
PAYMENTS:
Distributions to participants (14,463)
Administrative fees (248)
Other (41)
------------
Total payments (14,752)
------------
Net increase 4,793
Merger with Qwest Savings & Investment Plan (Notes 1 and 4) (121,220)
Net Assets Available for Benefits at December 30, 2000 116,427
------------
Net Assets Available for Benefits at December 30, 2001 $ --
============
</Table>
The accompanying notes are an integral part of this financial statement.
4
QWEST COMMUNICATIONS 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 2001 AND 2000
(THOUSANDS OF DOLLARS)
1. PLAN DESCRIPTION:
The following describes the Qwest Communications 401(k) Savings Plan
(the "Plan") and provides general information only. Participants should
refer to the Plan Document for a more complete description of the
Plan's provisions.
General
The Plan was established effective January 1, 1999 by Qwest
Communications International Inc. ("Qwest" or the "Company"). The Plan
was a defined contribution plan which covered substantially all
employees of Qwest and certain affiliated entities who met the
eligibility requirements. It was subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Benefits under the Plan were not guaranteed by the Pension Benefit
Guaranty Corporation.
Qwest acquired U S WEST, Inc. ("U S WEST") on June 30, 2000 (the
"Merger"). The individuals who were employed by U S WEST at the time of
the Merger became employees of Qwest by operation of law (the "Former
U S WEST Employees"). For the periods covered by these financial
statements, the Former U S WEST Employees continued to participate in
the employee benefit plans maintained by U S WEST prior to the Merger
and were not eligible employees of this Plan (see Plan Merger below).
Plan Merger
The Plan and related net assets of $121,220 were merged (the "Plan
Merger") into the Qwest Savings & Investment Plan (the "QSIP")
effective midnight December 30, 2001. See Note 4 for a condensed
Statement of Net Assets prior to the Merger. All participants' account
balances transferred to the QSIP. Merrill Lynch Trust Company, FSB
("Merrill Lynch"), ceased to be the trustee and recordkeeper for the
Plan at the time of the Plan Merger. Bankers Trust Company, a
subsidiary of Deutsche Bank ("Bankers Trust"), is the trustee for the
QSIP and Metropolitan Life Insurance Company ("MetLife") is the
recordkeeper for the QSIP.
Change in Plan Year
Effective December 30, 2000, the Plan year was changed to the twelve
consecutive month period commencing on December 31 and ending on the
following December 30. The period commencing January 1, 2000 and ending
December 30, 2000 was a short Plan year.
Eligibility
All employees of the Company and certain affiliated entities were
eligible to participate in the Plan (except for collectively bargained
employees, non-resident aliens, leased employees, independent
contractors, and Former U S WEST Employees) upon meeting the
eligibility requirements.
5
QWEST COMMUNICATIONS 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(THOUSANDS OF DOLLARS)
Eligibility (continued)
Employees were eligible to make salary deferral contributions to the
Plan on the first day of the payroll period after their first paycheck.
Prior to January 1, 2001, employees were eligible to participate in the
Company's matching contributions upon completion of one year of
service, as defined by the Plan document. Effective January 1, 2001,
employees were eligible to participate in the Company's matching
contribution on the first day of the payroll period after their first
paycheck. Employees who were hired prior to January 1, 2001, and who
had not completed one year of service, were eligible to participate in
the Company's matching contribution as of the first paycheck in 2001.
Contributions
Participant Salary Deferral Contributions
Participants were able to contribute to the Plan on a pre-tax basis
from 1% to 18% of their eligible compensation, as defined by the Plan
document. Participant pre-tax contributions were limited to comply with
statutory regulations ($10.5 in 2001). Effective January 1, 2001, each
employee who satisfied the eligibility requirements was deemed to have
authorized a 3% salary deferral contribution effective for the first
full pay period after such employee met the eligibility requirements.
An employee had the option to not participate or to discontinue
participation upon proper notification to the Plan administrator.
Company Matching Contributions
For the year ended December 30, 2001, the Company made a discretionary
matching contribution equal to 100% of each participant's salary
deferral contribution, not to exceed a maximum of 3% of each
participant's eligible compensation. The Company was able to make its
discretionary contribution in cash or in Qwest common stock. For the
year ended December 30, 2001, the Company match was made in Qwest
common stock, valued at its market price on the date of contribution.
Rollover Contributions
The Plan allowed the Trustee to accept a participant contribution
representing a distribution from another plan if that plan met the
requirements of the Internal Revenue Code (the "IRC"), as further
described in the Plan document. Such "rollover contributions" were
fully vested at all times.
Total annual additions under the Plan and all other plans sponsored by
the Company were limited to the lesser of 25% of eligible compensation,
as defined, or thirty five-thousand dollars. Annual additions were
defined as the participant's salary deferral contributions and the
Company's matching contributions, if any.
Vesting
Participants were fully vested in their accounts at all times.
6
QWEST COMMUNICATIONS 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(THOUSANDS OF DOLLARS)
Participant Accounts
Each participant's account was credited or charged with the
participant's contributions and the Company matching contributions, if
any, investment gains or losses and an allocable share of Plan
expenses, if any. Separate accounts were maintained for each
participant. Participants' accounts were adjusted daily to reflect
unrealized appreciation or depreciation of investments, income, gains
or losses on disposition of assets and any other investment
transactions.
Payment of benefits
Upon retirement, termination of employment or death, each participant
or beneficiary was entitled to receive their account balance in
accordance with the terms and conditions of the Plan. Participants
could also make certain in-service voluntary withdrawals and hardship
withdrawals if certain criteria were met.
Benefit payments were made in lump sum distributions. Certain other
benefit distribution options were allowed as protected benefits from
predecessor plans, as further discussed in the Plan document.
Investment Options
A participant had the option to direct their account into various
investment options in mutual funds, common/collective trusts, a money
market fund and Qwest common stock. In addition, employees had the
option to invest in the Merrill Lynch Self-Directed Brokerage Account.
The available investment options provided various levels of investment
risks and a diversification of investments.
Participants could have changed their investment options at any time.
Loans
Participants had the option to borrow from their fund accounts a
minimum of five hundred dollars up to a maximum amount equal to the
lesser of fifty thousand dollars or 50% of their account balance.
Participants were not allowed to have more than one loan outstanding at
any time. The maximum loan term was 60 months unless it was for the
purchase of a primary residence, in which case the maximum loan term
was 180 months. The loans were secured by the balance in the
participant's account and charged interest equal to the prime rate
charged by a bank selected by the Company on the last day of the
calendar quarter preceding the date of the loan plus one percentage
point. Principal and interest repayments were paid through payroll
deductions.
Voting
Participants who held Qwest common stock in their accounts were allowed
to vote in accordance with the Plan's provisions.
7
QWEST COMMUNICATIONS 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(THOUSANDS OF DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis
of accounting. The preparation of the financial statements in
conformity with accounting principles generally accepted in the United
States of America ("GAAP") requires the Plan's management to use
estimates and assumptions that affect the accompanying financial
statements and disclosures. Actual results could differ from these
estimates.
Investment Valuation and Income Recognition
Investments in mutual funds, common/collective trusts, common stock and
employer stock were valued at fair value based on quoted market prices.
Participant loans were valued at cost which approximated fair value.
The Merrill Lynch Retirement Preservation Trust is a common/collective
trust fund that invests mainly in guaranteed investment contracts, bank
investment contracts and synthetic guaranteed investment contracts.
These contracts were carried in the common/collective trust fund's
audited financial statements at cost plus accrued interest, which
approximated fair market value. The investment in the common/collective
trust fund in the accompanying financial statements was valued at the
Plan's proportionate interest in the fund as of the financial statement
dates. Interest rates earned on the investment change daily. The
average yield for the year ended December 30, 2001 was approximately
6.5%. The crediting interest rate as of December 30, 2001 and 2000 was
approximately 6.28% and 6.65%, respectively.
Realized and unrealized gains and losses are reflected in the
accompanying Statement of Changes in Net Assets Available for Benefits
and were determined as the difference between fair value at the
beginning of the year (or date purchased during the year) and selling
price or year-end fair value.
Interest income was recorded on the accrual basis and dividends were
recorded on the ex-dividend date. Purchases and sales of securities
were recorded on a trade date basis.
Payment of Benefits
Benefits were recorded when paid.
Administrative Fees and Investment Expenses
The Plan pays certain expenses, including trust investment and
administrative expenses incurred in connection with the Plan. The Plan
paid $248 of expenses for the year ended December 30, 2001. All other
costs and expenses of maintaining the Plan are paid by the Company.
8
QWEST COMMUNICATIONS 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(THOUSANDS OF DOLLARS)
3. INVESTMENTS:
The fair value of individual investments that represented 5% or more of
the Plan's net assets as of December 30, 2001 and December 30, 2000
were as follows:
<Table>
<Caption>
December 30, December 30,
2001 2000
------------ ------------
Qwest Communications International, Inc.
0 and 1,108,326 shares, respectively $ -- $ 45,303
Merrill Lynch Index Fund
0 and 152,509 shares, respectively -- 13,996
Massachusetts Investors Trust Class A
0 and 501,757 shares, respectively -- 10,045
PIMCO Total Return Fund Class A
0 and 757,149 shares, respectively -- 7,867
PIMCO Mid-Cap Growth Fund Class A
0 and 578,575 shares, respectively -- 13,915
Merrill Lynch Retirement Preservation Trust
0 and 5,895,785 shares, respectively -- 5,896
</Table>
During the year ended December 30, 2001, the Plan's investments (including gains
and losses on investments bought and sold, as well as held during the year) had
a net depreciation in value as follows:
<Table>
Mutual Funds $ (7,185)
Common/Collective Trusts (1,659)
Common Stock (382)
Employer Stock (37,671)
------------
$ (46,897)
============
</Table>
9
QWEST COMMUNICATIONS 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(THOUSANDS OF DOLLARS)
4. CONDENSED STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS PRIOR TO THE
MERGER WITH THE QSIP:
The following is a condensed statement of net assets available for
benefits prior to the merger with the QSIP:
<Table>
Money market fund $ 397
Mutual funds 59,637
Common/collective trusts 29,063
Common stock 673
Employer stock 28,199
Participant loans 3,154
Employer contribution receivable 96
All other assets 1
------------
Net Assets Available for Benefits $ 121,220
============
</Table>
5. TAX STATUS:
The Internal Revenue Service ("IRS") has determined and informed the
Company by a letter dated August 6, 2001 that the Plan was qualified
and that the trust established under the Plan was tax-exempt under the
appropriate sections of the Internal Revenue Code (the "Code") as of
December 30, 2000. Since August 6, 2001 the Plan has been amended;
however the Plan Administrator believes that the Plan continued to be
in compliance with the applicable requirements of the Code and
therefore was tax-exempt as of December 30, 2001.
6. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500:
For Form 5500 reporting purposes, amounts allocated to withdrawing
participants are recorded for benefit claims that have been processed
and approved for payment prior to December 30, but not yet paid as of
that date. However, in accordance with GAAP, benefits are recorded when
paid.
The following is a reconciliation of net assets available for benefits
per the financial statements to Form 5500:
<Table>
<Caption>
As of As of
December 30, December 30,
2001 2000
------------ ------------
Net assets available for benefits
per the financial statements $ -- $ 116,427
Less amounts allocated to withdrawing
participants (--) (176)
------------ ------------
Net assets available for benefits
per Form 5500 (unaudited) $ -- $ 116,251
============ ============
</Table>
10
QWEST COMMUNICATIONS 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(THOUSANDS OF DOLLARS)
6. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500: (continued)
The following is a reconciliation of benefits paid to participants per
the financial statements to the Form 5500 for the year ended December
30, 2001:
<Table>
Benefits and distributions paid to participants
per the financial statements $ 14,463
Add amounts payable at December 30, 2001 --
Less amounts payable at December 30, 2000 (176)
------------
Participant distributions paid per Form 5500
(unaudited) $ 14,287
============
</Table>
7. RELATED PARTY TRANSACTIONS:
Certain Plan assets were shares of Qwest common stock and investments
managed by Merrill Lynch, which qualify as related-party transactions.
8. CONCENTRATIONS, RISKS AND UNCERTAINTIES:
The Plan had a significant concentration of investments in Qwest common
stock. A change in the value of the Employer stock caused the value of
the Plan's net assets to change significantly due to this
concentration. As of December 30, 2001 the closing price of the stock
was $14.24 per share compared to $40.88 per share as of December 30,
2000. As of June 26, 2002 the closing price of the stock was $1.79 per
share, representing an additional 87% decrease in price from December
30, 2001.
The Plan provided for various investment options in money market funds,
mutual funds, common/collective trusts, common stock and Qwest stock.
Investment securities, in general, were exposed to various risks, such
as significant world events, interest rate, credit, and overall market
volatility risks.
As a point of information only, six putative class actions have been
brought against Qwest Communications International Inc. and its
directors in the U.S. District Court, District of Colorado. The suits
have been consolidated, and an amended consolidated complaint will be
filed soon, which may assert additional claims against additional
defendants. At present, the various complaints allege fiduciary
breaches and a failure to disclose material information in connection
with the decline in Qwest's stock value from 2000 to present. The Plan
is not a party to the lawsuit. Since this litigation is at an early
stage and turns on disputed issues of fact and law, it is not possible
to predict its ultimate outcome or its impact on the Plan.
9. SUBSEQUENT EVENTS:
In April 2002, the U.S. Department of Labor commenced an examination of
the Plan. It is currently not possible to predict the outcome of this
examination or the impact on the Plan's net assets or changes in net
assets, if any.
11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
Qwest Communications 401(k) Savings Plan
June 26, 2002 /s/ CHARLES A. JOSENHANS
-----------------------------------------
Charles A. Josenhans
Senior Vice President Accounting & Financial
Operations
12
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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23 Consent of Arthur Andersen LLP
99 Confirmation of Arthur Andersen LLP Representations