QWEST COMMUNICATIONS REPORTS THIRD QUARTER RESULTS
Continued Enterprise, Internet, DSL and Wireless Services Growth Offset
By Slowing Economy, Decline in Optical Network Capacity Asset Sales
Third quarter results compared to third quarter 2000:
Reported earnings per share (EPS) narrowed from a third quarter loss a year
ago of ($0.15) to a third quarter loss of ($0.09)
Reported revenue of $4.8 billion equaled last year's level
o Internet revenue grew nearly 65 percent
o Wireless revenue increased 68 percent to over $200 million
o Optical capacity asset sales and non-recurring Internet-Protocol
(IP) equipment revenue decreased approximately $200 million
Recurring revenue grew 4.5 percent
o Recurring long-distance data, voice and IP revenue grew 17.9
percent, while recurring local service revenue grew 1.4 percent
o Internet, data and IP services recurring revenues grew 20 percent
Pro forma normalized EPS was a loss of $(0.08) for the third quarter of
2001 compared to earnings of $0.14 per diluted share in the prior year
Pro forma normalized EBITDA decreased 5.3 percent to $1.8 billion driven by
the decrease in optical capacity asset sales and non-recurring IP equipment
revenue
o Pro forma normalized recurring EBITDA increased approximately one
percent
Third quarter results compared to second quarter 2001:
Reported EPS narrowed from a loss of ($1.99) to a loss of ($0.09)
Days sales outstanding (DSO) decreased from 85 days to 81 days
Optical capacity asset sales and non-recurring IP equipment revenue
decreased more than $400 million to 2.8 percent of revenue
PRIVILEGED ATTORNEY/CLIENT CORRESPONDENCE
Note to investors: "Recurring revenue" reflects adjustments made for optical
capacity asset revenue and non-recurring IP equipment sales in the periods
presented. For the three months ended September 30, 2001 and September 30, 2000,
the recurring revenue adjustments were $133 million and $330 million,
respectively. Additionally, "pro forma normalized" information regarding Qwest's
results from operations is provided as a complement to "reported results"
provided in accordance with accounting principles generally accepted in the
United States (GAAP). The condensed consolidated pro forma normalized statements
give retroactive effect as though the merger of Qwest and U S WEST, Inc., the
("Merger"), had occurred as of the beginning of the periods presented. Shares
outstanding and earnings per share have been restated to give retroactive effect
to the exchange ratio resulting from the Merger. In addition, results have been
adjusted to eliminate the impact of Merger-related and one-time charges, asset
write-offs and impairments, a depreciation adjustment on access lines returned
to service, gains/losses on the sale of investments, change in the market value
of investments, the write-down of investments, elimination of in-region
long-distance activity, and a tax true-up on merger-related expenses. Certain
reclassifications have been made to prior periods to conform to the current
presentation. The term "long distance" is meant to always include voice, data
and IP services and reflects the "classic Qwest" business, while the term "local
services" is meant to include all of the "classic U S WEST" local business.
DENVER, October 31, 2001 -- Qwest Communications International Inc. (NYSE: Q),
the broadband communications company, today announced its financial results
including revenue and earnings before interest, taxes, depreciation and
amortization (EBITDA) for the third quarter of 2001. Third quarter reported
revenue of $4.77 billion equaled third quarter revenue a year ago while pro
forma normalized EBITDA decreased 5.3 percent from $1.86 billion in the third
quarter a year ago to $1.77 billion in the third quarter 2001.
In addition, Qwest reported a net loss of ($142) million, or ($0.09) per share
in the third quarter of 2001 compared to a reported net loss of ($248) million
or ($0.15) per share in the third quarter a year ago. On a pro forma normalized
basis, the company recorded an ($0.08) loss per share for the third quarter
compared to earnings of $0.14 per diluted share a year ago. The decrease
reflects the impact of lower EBITDA and the related cumulative adjustment to the
annual effective tax rate as well as increases in both interest expense and
depreciation driven by Qwest's capital plan.
The results reflect relatively strong recurring revenue growth of 4.5 percent
and a decline in optical capacity asset sales and non-recurring IP equipment
revenue of approximately $200 million compared to the prior year period and $400
million since the second quarter of 2001. The decline in optical capacity asset
sales and non-recurring IP equipment revenue resulted from softening wholesale
demand and a shift in customer purchasing behavior away from network asset
purchases to shorter-term monthly operating leases.
"Our results reflect the continuing impact of a slowing economy as well as a
fundamental shift in the wholesale customer buying behavior for optical capacity
asset sales," said Joseph P. Nacchio, Qwest chairman and CEO. "We are continuing
to focus on retail revenue growth and the generation of free cash flow from
operations. Our blend of assets, products, and expanding distribution channels
positions us well for the economic recovery, and we continue to be the model to
which the industry will eventually evolve."
Excluding optical capacity asset sales and non-recurring IP equipment revenue,
commercial services revenue grew 7.0 percent compared to the third quarter of
last year. This increase was fueled by recurring Internet and data services
growth of 20 percent. Separately, Internet services grew nearly 65 percent as
demand for dedicated and dial Internet access, digital subscriber line (DSL),
professional services, and hosting remained strong.
Consumer and small-business revenue increased 3.4 percent over the prior year
period reflecting strong growth in wireless and DSL services. Wireless revenue
increased 68 percent to over $200 million while in-region DSL revenue grew
approximately 80 percent, reflecting an 84 percent increase in DSL subscribers
to 391,000. Offsetting this growth was a decline in local service revenue
resulting from the slowing economy, competitive losses and technology
displacement.
2
The local service revenue component of Qwest totaled approximately $3.7 billion
in the quarter. Adjusting for non-recurring IP equipment revenue, local services
revenue grew approximately 1.4 percent. Growth in both wireless and DSL were
offset by the impact of the slowing economy. Access lines decreased 0.4 percent
reflecting economic weakness in Qwest's local service business.
Qwest's long-distance operations generated revenue of approximately $1.1
billion, fueled by growth in recurring revenue of approximately 17.9 percent.
Optical capacity asset sales decreased from approximately $230 million in the
third quarter of last year to just over $130 million in the current quarter.
Recurring long-distance revenue benefited by continued strong IP sales and
growth in voice services as Qwest continued to take share in the national
enterprise market.
Third quarter pro forma normalized EBITDA decreased 5.3 percent to $1.77 billion
compared to the third quarter a year ago. This decline resulted mainly from the
decrease in optical capacity asset sales, product mix shifts, costs related to
long-distance re-entry and the introduction of product platforms including
Qwest's Internet dial and hosting infrastructure. While the introduction of
these product platforms impact margins in the near term, they position the
company well for revenue growth and margin expansion in the future.
"The challenges of a softening economy this quarter were not unique to Qwest,"
said Robin R. Szeliga, Qwest executive vice president of finance and CFO. "We
are continuing to streamline the company's cost structure and tightly control
capital spending on our way to positive free cash-flow."
Qwest recently announced a reduction in workforce of 4,000 employees and the
redeployment of 1,000 staff positions to quota bearing sales positions.
Additionally, Qwest is focusing on key cost savings initiatives including vendor
management, domestic and international network efficiencies and corporate
structure and work flow processes in order to reduce operating costs and improve
financial performance. These initiatives have increased pro forma normalized
EBITDA per employee from $99,500 at the time of the Merger to $108,000 at the
end of the third quarter.
For the quarter, accounts receivable decreased by $389 million compared to the
end of the second quarter 2001 due to a continued focused on collections
activity. DSO decreased from 85 days in the second quarter of 2001 to 81 days in
the third quarter of 2001.
COMMERCIAL MARKETS
Recurring commercial services revenue grew 7.0 percent compared to the third
quarter 2000 and was led by IP services growth, including dedicated Internet
access (DIA), virtual private network (VPN) services, and dial-up Internet
access.
In the quarter, the company aligned its business market units to expand its
focus on large global and national accounts. Qwest continued to grow its market
share of national accounts and secured new customers signing first-time
contracts including, American Hospital Association, BlueLight.com - Kmart's
dial-up Internet Service, GE Medical Systems, Perot Systems Corporation, and
Entergy. The company also secured additional contracts in the third quarter from
existing customers such as AOL Time Warner and in October from Microsoft and
Fifth Third Bank. In addition, Qwest was awarded more than $120 million in data,
Internet and Web hosting contracts from the government and education sectors.
3
CONSUMER AND SMALL BUSINESS MARKETS
Qwest launched a new broadband bundle, "Connected Home," which is the first
solution to include Qwest's high-speed DSL service for always-on access to the
Internet and a residential telephone line for simultaneous voice communication.
More than 33 percent of Qwest consumer customers subscribe to a package of
services that may include Internet access, wireless, voice messaging, caller
identification and additional lines - a 27 percent increase over the third
quarter of 2000.
Qwest wireless had approximately 1.1 million customers at the end of the
quarter. Wireless services revenue grew more than 12 percent sequentially and 68
percent year-over-year to more than $200 million in the third quarter of 2001.
Average revenue per user increased to $55 from $52 in the second quarter of 2001
as Qwest focused on high-value customers. Qwest wireless sales in bundles
increased to 30 percent, up from 17 percent at the end of the second quarter of
2001.
INTERNET, DATA AND IP SERVICES
Third quarter recurring Internet, data and IP services revenues grew 20 percent
over the third quarter of 2000. Internet, data and IP services revenues
represent more than 23 percent of total revenue. Growth occurred in the
following areas: Web hosting and related services, DIA, DSL, VPN, and Internet
professional services. DSL subscriber growth increased nearly 90 percent
annually to approximately 405,000 customers and includes 14,000 customers
outside of Qwest's local service area.
Qwest was the first incumbent local exchange carrier (ILEC) to complete a
large-scale voice over data deployment in its network. A trial of the
next-generation, packet-switched network is underway in one market where Qwest
provides local service, with plans to expand into six additional markets soon.
NETWORK EXPANSION
During the quarter the company expanded its domestic network by adding 5,500
miles of fiber routes, giving Qwest more than 25,500 route miles of broadband
network facilities across the U.S. Coupled with the company's fiber assets in
Mexico and Canada, Qwest's North American network spans more than 33,500 route
miles.
In a transaction with a significant business customer, Qwest purchased
approximately $300 million of assets -- including the 5,500 miles of domestic
fiber routes, co-location space and power -- to diversify and extend its network
and provide backup facilities. This customer also has agreed to purchase
high-speed, optical network capacity from Qwest, with approximately $86 million
of revenue recognized in the third quarter and additional future contracted
revenue.
As part of Qwest's global expansion efforts, the company acquired more than
20,000 route miles of fiber-optic capacity in South America for approximately
$67 million. These new routes will link to Qwest's other global facilities and
provide access to Panama, the U.S. Virgin Islands and Peru, among other South
American locations.
In Europe, Qwest will have access to an additional 6,200 route miles of
fiber-optic capacity as a result of KPNQwest's pending purchase of Global
TeleSystems, Inc.'s Ebone and Central Europe businesses. The transaction, which
is scheduled to be completed in March of 2002, extends KPNQwest's broadband
network into new markets including seven United Kingdom cities, Madrid and
Dublin. Following the purchase of these facilities, the KPNQwest network will
connect 18 countries and stretch more than 15,000 route miles. Earlier this
month Qwest announced an agreement to increase its ownership of KPNQwest to 47
percent by purchasing approximately 14 million shares from Koninklijke KPN N.V.
The purchase of these shares is expected to close in December of 2001.
4
As a result of this expansion and the acquisition of some additional
international fiber-optic assets, Qwest has completed its network expansion and
now has a global network totaling more than 190,000 route miles, with broadband
facilities to six continents.
SERVICE IMPROVEMENT
Qwest's residential and small-business customers continued to see improved
customer service results during the quarter. The number of customers who had
been waiting more than 30 days for the installation of their first telephone
line reached their lowest level in seven years, and in nine states, there were
no delayed orders greater than 30 days. Ninety-nine percent of installation
commitments were met on time. Ninety-five percent of total repair commitments
were met on time. Eighty-eight percent of outages were repaired in less than 24
hours, up from 81 percent a year ago.
IN-REGION LONG-DISTANCE RE-ENTRY
During the quarter the company announced the completion of long-distance
re-entry workshops in 12 of the 14 states where it provides local service.
Arizona, Colorado, Oregon, Nebraska and Washington state finished the 14-point
checklist workshop process necessary for the company's re-entry into the
long-distance business. Additionally, seven states working together in a
collaborative effort -- Iowa, Idaho, Montana, North Dakota, New Mexico, Utah and
Wyoming -- have completed their workshops. The seven-state collective effort is
unique in that it will speed final long-distance approval, allowing Qwest to
file with the FCC for approval for the seven states almost simultaneously.
The Chairman of the Regional Oversight Committee (ROC) said earlier this month
that the 13-state testing process is approximately 80 percent complete and Qwest
expects the ROC testing to conclude by mid to late December. The operational
support systems (OSS) test completion and subsequent reports are the final
component of the 14-point checklist. Qwest expects OSS tests in Arizona to be
complete in the next few days.
QWEST BOARD EXTENDS NACCHIO EMPLOYMENT AGREEMENT
The company said that its board of directors has extended the employment
contract for Nacchio from December 31, 2001 through December 31, 2005 and
provided additional equity incentives to 15 other senior executives to drive
long-term shareowner value. The board also has approved a voluntary stock option
exchange offer for approximately 24,000 full-time, non-union employees, designed
to increase equity-based performance incentives across the company. A separate
news release on this matter was issued this morning.
CONFERENCE CALL TODAY
As previously announced, Qwest will host a conference call for investors and the
media today at 9 a.m. (EST)-- featuring Nacchio and Szeliga. The call may be
heard on the Web at www.qwest.com/about/investor/meetings.
About Qwest
Qwest Communications International Inc. (NYSE: Q) is a leader in reliable,
scalable and secure broadband data, voice and image communications for
businesses and consumers. The Qwest Macro Capacity(R) Fiber Network, designed
with the newest optical networking equipment for speed and efficiency, spans
more than 190,000 miles globally. For more information, please visit the Qwest
Web site at www.qwest.com.
# # #
5
This release may contain projections and other forward-looking statements that
involve risks and uncertainties. These statements may differ materially from
actual future events or results. Readers are referred to the documents filed by
Qwest with the Securities and Exchange Commission, specifically the most recent
reports which identify important risk factors that could cause actual results to
differ from those contained in the forward-looking statements, including
potential fluctuations in quarterly results, volatility of Qwest's stock price,
intense competition in the communications services market, changes in demand for
Qwest's products and services, dependence on new product development and
acceleration of the deployment of advanced new services, such as broadband data,
wireless and video services, which could require substantial expenditure of
financial and other resources in excess of contemplated levels, higher than
anticipated employee levels, capital expenditures and operating expenses, rapid
and significant changes in technology and markets, adverse changes in the
regulatory or legislative environment affecting Qwest's business, delays in
Qwest's ability to provide interLATA services within its 14-state local service
territory, adverse conditions in the economy nationally and within its
territory, failure to maintain rights of way, and failure to achieve the
projected synergies and financial results expected to result from the
acquisition of U S WEST timely or at all and difficulties in combining the
operations of Qwest and U S WEST. This release may include analysts' estimates
and other information prepared by third parties for which Qwest assumes no
responsibility. Qwest undertakes no obligation to review or confirm analysts'
expectations or estimates or to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
The Qwest logo is a registered trademark of, and CyberCenter is a service mark
of, Qwest Communications International Inc. in the U.S. and certain other
countries.
Contacts: Media Contact: Investor Contact:
-------------- -----------------
Tyler Gronbach Lee Wolfe
303-992-2155 800-567-7296
tyler.gronbach@qwest.com IR@qwest.com
------------------------ ------------
6
ATTACHMENT A
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)(2) - PRO FORMA NORMALIZED
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ % ------------------ %
2001 2000 Change 2001 2000 Change
------------------------------------------ ------- ------- ------- ------- ------- -------
REVENUE:
Commercial services $ 2,373 $ 2,421 (2.0) $ 8,020 $ 6,881 16.6
Consumer and small business services 1,752 1,694 3.4 5,144 5,009 2.7
Directory services 371 351 5.7 1,061 1,029 3.1
Switched access services 270 299 (9.7) 814 1,017 (20.0)
------- ------- ------- -------
Total revenue 4,766 4,765 0.0 15,039 13,936 7.9
OPERATING EXPENSES:
Cost of services 1,697 1,558 8.9 5,343 4,577 16.7
Selling, general and administrative 1,304 1,343 (2.9) 3,905 3,977 (1.8)
------- ------- ------- -------
EBITDA 1,765 1,864 (5.3) 5,791 5,382 7.6
Depreciation 996 727 37.0 2,693 2,002 34.5
Goodwill and other intangible amortization 315 317 (0.6) 1,026 951 7.9
------- ------- ------- -------
Operating income 454 820 (44.6) 2,072 2,429 (14.7)
OTHER EXPENSE (INCOME):
Interest expense - net 380 314 21.0 1,061 807 31.5
Other expense - net 17 5 240.0 51 24 112.5
------- ------- ------- -------
Total other expense - net 397 319 24.5 1,112 831 33.8
------- ------- ------- -------
Income before income taxes 57 501 (88.6) 960 1,598 (39.9)
Income tax provision 195 270 (27.8) 752 873 (13.9)
------- ------- ------- -------
NET (LOSS) INCOME $ (138) $ 231 (159.7) $ 208 $ 725 (71.3)
======= ======= ======= =======
Basic (loss) earnings per share $ (0.08) $ 0.14 (157.1) $ 0.13 $ 0.44 (70.5)
======= ======= ======= =======
Basic average shares outstanding 1,664 1,662 0.1 1,660 1,644 1.0
======= ======= ======= =======
Diluted (loss) earnings per share $ (0.08) $ 0.14 (157.1) $ 0.12 $ 0.43 (72.1)
======= ======= ======= =======
Diluted average shares outstanding 1,664 1,695 (1.8) 1,673 1,686 (0.8)
======= ======= ======= =======
Diluted cash earnings per share $ 0.08 $ 0.30 (73.3) $ 0.67 $ 0.93 (28.0)
======= ======= ======= =======
(1) The consolidated pro forma normalized statements give retroactive effect as
though the merger of Qwest and U S WEST had occurred as of the beginning of
the periods presented. Shares outstanding and earnings per share have been
restated to give retroactive effect to the exchange ratio resulting from
the Merger. In addition, results have been adjusted to eliminate the
impacts of Merger-related costs and other one-time charges, asset
write-offs and impairments, a depreciation adjustment for access lines
returned to service, gains/losses on the sale of investments and fixed
assets, change in the market value of financial instruments, the write-down
of investments, elimination of in-region long-distance activity, and a tax
true-up on Merger-related expenses. The Merger has been accounted for as a
purchase transaction. Certain reclassifications have been made to prior
periods to conform to current presentation.
(2) Diluted cash earnings per share represent diluted earnings per share
adjusted to add back the after-tax amortization of goodwill and other
intangible assets resulting from the Merger.
7
ATTACHMENT B
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)(2)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- % --------------------- %
2001 2000 Change 2001 2000 Change
------------------------------------------ -------- -------- -------- -------- -------- --------
REVENUE:
Commercial services $ 2,373 $ 2,421 (2.0) $ 8,020 $ 4,880 64.3
Consumer and small business services 1,752 1,694 3.4 5,144 4,666 10.2
Directory services 371 351 5.7 1,061 1,029 3.1
Switched access services 270 299 (9.7) 814 1,017 (20.0)
-------- -------- -------- --------
Total revenue 4,766 4,765 0.0 15,039 11,592 29.7
OPERATING EXPENSES:
Cost of services 1,697 1,558 8.9 5,343 3,253 64.2
Selling, general and administrative 1,304 1,343 (2.9) 3,905 3,408 14.6
-------- -------- -------- --------
EBITDA 1,765 1,864 (5.3) 5,791 4,931 17.4
Depreciation 996 727 37.0 2,693 1,913 40.8
Depreciation adjustment for access lines
returned to service -- -- -- 222 -- --
Goodwill and other intangible amortization 315 317 (0.6) 1,026 317 223.7
Merger-related and other one-time
charges -- 1,030 (100.0) 624 1,336 (53.3)
-------- -------- -------- --------
Operating income (loss) 454 (210) 316.2 1,226 1,365 (10.2)
OTHER EXPENSE (INCOME):
Interest expense - net 380 314 21.0 1,061 732 44.9
Change in market value of financial
instruments 7 (58) (112.1) 7 710 (99.0)
(Gain) loss on sales of rural exchanges
and fixed assets -- 39 100.0 (50) 39 228.2
(Gain) on sales of investments -- (252) (100.0) -- (331) (100.0)
Investment write-downs -- -- -- 3,247 -- --
Other expense - net 17 5 240.0 51 19 168.4
-------- -------- -------- --------
Total other expense - net 404 48 741.7 4,316 1,169 269.2
-------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item 50 (258) 119.4 (3,090) 196 (1,676.5)
Income tax provision (benefit) 192 (10) (2,020.0) 339 160 111.9
-------- -------- -------- --------
(Loss) income before extraordinary item $ (142) $ (248) 42.7 $ (3,429) $ 36 (9,625.0)
Extraordinary item - early retirement of
debt, net of tax -- -- -- (65) -- --
-------- -------- -------- --------
NET (LOSS) INCOME $ (142) $ (248) 42.7 $ (3,494) $ 36 (9,805.6)
======== ======== ======== ========
Basic (loss) earnings per share $ (0.09) $ (0.15) 40.0 $ (2.10) $ 0.02 (10,600.0)
======== ======== ======== ========
Basic average shares outstanding 1,664 1,662 0.1 1,660 1,644 1.0
======== ======== ======== ========
Diluted (loss) earnings per share $ (0.09) $ (0.15) 40.0 $ (2.10) $ 0.02 (10,600.0)
======== ======== ======== ========
Diluted average shares outstanding 1,664 1,662 0.1 1,660 1,686 (1.5)
======== ======== ======== ========
Dividends per share $ -- $ -- -- $ 0.05 $ 0.31 (83.9)
======== ======== ======== ========
(1) The condensed consolidated statements of operations reflect the results of
operations for the merged Qwest entity for the three and nine months ended
September 30, 2001. For the nine months ended September 30, 2000, the
amounts reflect the combination of the results of operations for U S WEST,
Inc. only (the accounting acquirer in the Merger) for the six months ended
June 30, 2000, And the results of operations for the merged Qwest entity
for the three months ended September 30, 2000.
(2) Earnings before interest, income taxes, depreciation and amortization
("EBITDA") does not include non-recurring and non-operating items such as
Merger- related costs, assets write-offs and impairments, gains/losses on
the sale of investments and fixed assets, changes in the market values of
investments, one- time legal charges and sales of local telephone
exchanges. EBITDA does not represent cash flow for the periods presented
and should not be considered as an alternative to net earnings (loss) as an
indicator of our operating performance or as an alternative to cash flows
as a source of liquidity, and may not be comparable with EBITDA as defined
by other companies.
8
ATTACHMENT C
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)(2) - PRO FORMA NORMALIZED
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Three Months Ended
September 30, 2001 September 30, 2000
-------------------------------- -------------------------------
As Pro Forma Pro Forma As Pro Forma Pro Forma
Reported Normalized Normalized Reported Normalized Normalized
Results Adjustments Results Results Adjustments Results
------------------------------------ -------- ----------- ---------- -------- ----------- ----------
REVENUE:
Commercial services $ 2,373 $ -- $ 2,373 $ 2,421 $ -- $ 2,421
Consumer and small business services 1,752 -- 1,752 1,694 -- 1,694
Directory services 371 -- 371 351 -- 351
Switched access services 270 -- 270 299 -- 299
------- ------- ------- ------- ------- -------
Total revenue 4,766 -- 4,766 4,765 -- 4,765
OPERATING EXPENSES:
Cost of services 1,697 -- 1,697 1,558 -- 1,558
Selling, general and administrative 1,304 -- 1,304 1,343 -- 1,343
------- ------- ------- ------- ------- -------
EBITDA 1,765 -- 1,765 1,864 -- 1,864
Depreciation 996 -- 996 727 -- 727
Depreciation adjustment for access
lines returned to service -- -- -- -- -- --
Goodwill and other intangible
amortization 315 -- 315 317 -- 317
Merger-related and other one-time
charges -- -- -- 1,030 (1,030) --
------- ------- ------- ------- ------- -------
Operating income (loss) 454 -- 454 (210) 1,030 820
OTHER EXPENSE (INCOME):
Interest expense - net 380 -- 380 314 -- 314
Change in market value of financial
instruments 7 (7) -- (58) 58 --
(Gain) on sales of investments -- -- -- (252) 252 --
Loss on sales of fixed assets -- -- -- 39 (39) --
Other expense - net 17 -- 17 5 -- 5
------- ------- ------- ------- ------- -------
Total other expense - net 404 (7) 397 48 271 319
------- ------- ------- ------- ------- -------
Income (loss) before income taxes 50 7 57 (258) 759 501
Income tax provision (benefit) 192 3 195 (10) 280 270
------- ------- ------- ------- ------- -------
NET (LOSS) INCOME $ (142) $ 4 $ (138) $ (248) $ 479 $ 231
======= ======= ======= ======= ======= =======
Basic (loss) earnings per share $ (0.09) $ (0.08) $ (0.15) $ 0.14
======= ======= ======= =======
Basic average shares outstanding 1,664 1,664 1,662 1,662
======= ======= ======= =======
Diluted (loss) earnings per share $ (0.09) $ (0.08) $ (0.15) $ 0.14
======= ======= ======= =======
Diluted average shares outstanding 1,664 1,664 1,662 1,695
======= ======= ======= =======
Diluted cash earnings per share $ 0.08 $ 0.30
======= =======
(1) The consolidated pro forma normalized statements give retroactive effect as
though the merger of Qwest and U S WEST had occurred as of the beginning of
the periods presented. Shares outstanding and earnings per share have been
restated to give retroactive effect to the exchange ratio resulting from
the Merger. In addition, results have been adjusted to eliminate the
impacts of Merger-related costs and other one-time charges, asset
write-offs and impairments, a depreciation adjustment for access lines
returned to service, gains/losses on the sale of investments and fixed
assets, change in the market value of financial instruments, the write-down
of investments, elimination of in-region long-distance activity, and a tax
true-up on Merger-related expenses. The Merger has been accounted for as a
purchase transaction. Certain reclassifications have been made to prior
periods to conform to current presentation.
(2) Diluted cash earnings per share represent diluted earnings per share
adjusted to add back the after-tax amortization of goodwill and other
intangible assets resulting from the Merger.
9
ATTACHMENT D
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)(2) - PRO FORMA NORMALIZED
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Nine Months Ended Nine Months Ended
September 30, 2001 September 30, 2000
--------------------------------- -------------------------------
As Pro Forma Pro Forma As Pro Forma Pro Forma
Reported Normalized Normalized Reported Normalized Normalized
Results Adjustments Results Results Adjustments Results
---------------------------------------- -------- ----------- ---------- -------- ----------- ----------
REVENUE:
Commercial services $ 8,020 $ -- $ 8,020 $ 4,880 $ 2,001 $ 6,881
Consumer and small business services 5,144 -- 5,144 4,666 343 5,009
Directory services 1,061 -- 1,061 1,029 -- 1,029
Switched access services 814 -- 814 1,017 -- 1,017
-------- -------- -------- -------- -------- --------
Total revenue 15,039 -- 15,039 11,592 2,344 13,936
OPERATING EXPENSES:
Cost of services 5,343 -- 5,343 3,253 1,324 4,577
Selling, general and administrative 3,905 -- 3,905 3,408 569 3,977
-------- -------- -------- -------- -------- --------
EBITDA 5,791 -- 5,791 4,931 451 5,382
Depreciation 2,693 -- 2,693 1,913 89 2,002
Depreciation adjustment for access
lines returned to service 222 (222) -- -- -- --
Goodwill and other intangible
amortization 1,026 -- 1,026 317 634 951
Merger-related and other one-time
charges 624 (624) -- 1,336 (1,336) --
-------- -------- -------- -------- -------- --------
Operating income 1,226 846 2,072 1,365 1,064 2,429
OTHER EXPENSE (INCOME):
Interest expense - net 1,061 -- 1,061 732 75 807
Change in market value of financial
instruments 7 (7) -- 710 (710) --
(Gain) loss on sales of rural exchanges
and fixed assets (50) 50 -- 39 (39) --
(Gain) on sales of investments -- -- -- (331) 331 --
Investment write-downs 3,247 (3,247) -- -- -- --
Other expense - net 51 -- 51 19 5 24
-------- -------- -------- -------- -------- --------
Total other expense - net 4,316 (3,204) 1,112 1,169 (338) 831
-------- -------- -------- -------- -------- --------
(Loss) income before income taxes and
extraordinary item (3,090) 4,050 960 196 1,402 1,598
Income tax provision 339 413 752 160 713 873
-------- -------- -------- -------- -------- --------
(Loss) income before extraordinary
item $ (3,429) $ 3,637 $ 208 $ 36 $ 689 $ 725
Extraordinary item - early retirement of
debt, net of tax (65) 65 -- -- -- --
-------- -------- -------- -------- -------- --------
NET (LOSS) INCOME $ (3,494) $ 3,702 $ 208 $ 36 $ 689 $ 725
======== ======== ======== ======== ======== ========
Basic (loss) earnings per share $ (2.10) $ 0.13 $ 0.02 $ 0.44
======== ======== ======== ========
Basic average shares outstanding 1,660 1,660 1,644 1,644
======== ======== ======== ========
Diluted (loss) earnings per share $ (2.10) $ 0.12 $ 0.02 $ 0.43
======== ======== ======== ========
Diluted average shares outstanding 1,660 1,673 1,686 1,686
======== ======== ======== ========
Diluted cash earnings per share $ 0.67 $ 0.93
======== ========
(1) The consolidated pro forma normalized statements give retroactive effect as
though the merger of Qwest and U S WEST had occurred as of the beginning of
the periods presented. Shares outstanding and earnings per share have been
restated to give retroactive effect to the exchange ratio resulting from
the Merger. In addition, results have been adjusted to eliminate the
impacts of Merger-related costs and other one time charges, asset
write-offs and impairments, a depreciation adjustment for access lines
returned to service, gains/losses on the sale of investments and fixed
assets, change in the market value of financial instruments, the write-down
of investments, elimination of in-region long-distance activity, and a tax
true-up on Merger-related expenses. The Merger has been accounted for as a
purchase transaction. Certain reclassifications have been made to prior
periods to conform to current presentation.
(2) Diluted cash earnings per share represent diluted earnings per share
adjusted to add back the after-tax amortization of goodwill and other
intangible assets resulting from the Merger.
10
ATTACHMENT E
QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED CONSOLIDATED DATA
2000-2001
As of and for the
Three Months Ended
September 30,
--------------------------------- %
2001 2000 Change
--------------- ---------------- ------------
DSL (in 14-state region):
Subscribers (thousands) 391 213 83.6
DSL equipped central offices 318 285 11.6
Subscribers per equipped central office 1,230 747 64.6
Wireless/PCS:
Revenue (millions) $203 $121 67.8
Subscribers (thousands) 1,071 691 55.0
Average revenue per unit (dollars) $55 $55 -
Penetration 5.55% 4.22% 31.5
Capital expenditures (millions) $2,232 $2,304 (3.1)
Access lines (thousands):
Business 6,246 6,054 3.2
Consumer 11,715 11,977 (2.2)
-------------- --------------
Total access lines 17,961 18,031 (0.4)
============== ===============
Voice grade equivalent access lines (thousands):
Business 42,456 29,039 46.2
Consumer 12,807 12,538 2.1
-------------- --------------
Total voice grade equivalents 55,263 41,577 32.9
============== ==============
11
ATTACHMENT F
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
(UNAUDITED)
September 30, December 31,
2001 2000
------------------------------------------- ------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 425 $ 154
Accounts receivable - net 4,453 4,235
Inventories and supplies 357 275
Prepaid and other 817 535
------------- -------------
Total current assets 6,052 5,199
Property, plant and equipment - net 30,117 25,760
Investments 1,533 8,186
Goodwill and intangibles - net 34,791 32,327
Other assets - net 2,207 2,029
------------- -------------
Total assets $ 74,700 $ 73,501
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 4,369 $ 3,645
Accounts payable 1,938 2,049
Accrued expenses 3,000 3,806
Advance billings and customer deposits 378 393
------------- -------------
Total current liabilities 9,685 9,893
Long-term borrowings 20,436 15,421
Post-retirement and other post-employment
benefit obligations 2,897 2,735
Deferred taxes, credits and other 4,484 4,148
Stockholders' equity 37,198 41,304
------------- -------------
Total liabilities and stockholders' equity $ 74,700 $ 73,501
============= =============
12
ATTACHMENT G
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (1)
(DOLLARS IN MILLIONS)
(UNAUDITED)
Nine Months Ended
September 30,
------------------------------
2001 2000
------------- -------------
CASH PROVIDED BY OPERATING ACTIVITIES $ 3,356 $ 2,804
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (7,791) (5,006)
Proceeds from sale of equity securities -- 1,838
Cash from acquisition -- 407
Investment in equity securities -- (250)
Proceeds from sale of access lines 91 --
Other (125) (44)
------------- -------------
Cash used for investing activities (7,825) (3,055)
------------- -------------
FINANCING ACTIVITIES:
Net proceeds from repayments on current borrowings 965 (3,134)
Proceeds from issuance of long-term borrowings - net 6,937 4,267
Repayments of long-term borrowings (2,269) (316)
Costs relating to the early retirement of debt (106) --
Proceeds from issuances of common stock 296 315
Repurchase of stock (1,000) --
Dividends paid on common stock (83) (542)
------------- -------------
Cash provided by financing activities 4,740 590
------------- -------------
CASH AND CASH EQUIVALENTS:
Increase 271 339
Beginning balance 154 78
------------- -------------
Ending balance $ 425 $ 417
============= =============
(1) The condensed consolidated statements of cash flows above reflect
the cash flow activities for the merged Qwest entity for the nine
months ended September 30, 2001. For the nine months ended September
30, 2000, the amounts reflect the cash flow activities for (i) U S
WEST, Inc. from January 1, 2000 through June 29, 2000 and (ii) the
merged Qwest entity from June 30, 2000 through September 30, 2000.
13