RIDE THE LIGHT
QWEST
NEWS
QWEST COMMUNICATIONS Reports Fourth QUARTER,
Year-End 2001 RESULTS
o GAAP loss per share of ($0.31) reflects slowing economy, restructuring
charge of ($0.22)
o Results affected by continued weakness in the economy and reduced
optical capacity asset sales; accordingly, 2002 capital budget further
reduced to $4.0 to $4.2 billion
Investors: Please see definitions of terms used in the "Note to Investors"
below.
DENVER, January 29, 2002 -- Qwest Communications International Inc. (NYSE: Q)
today announced its financial results for the fourth quarter and the full year
of 2001. For the quarter, the company recorded a ($0.07) pro forma normalized
loss per diluted share compared with pro forma normalized earnings per diluted
share of $0.16 for the same period last year. For the year, it recorded pro
forma normalized earnings per diluted share of $0.05 compared with pro forma
normalized earnings per diluted share of $0.59 for 2000.
For the quarter, on a reported basis, prepared in accordance with Generally
Accepted Accounting Principles (GAAP), the company reported a net loss of ($516)
million or ($0.31) per diluted share, compared to a net loss of ($116) million
or ($0.07) per diluted share in the fourth quarter of 2000. The loss in the
fourth quarter of 2001 reflects an after-tax charge of $367 million or ($0.22)
per diluted share due primarily to previously announced restructuring actions
that include personnel reductions, real-estate consolidation and other
initiatives designed to streamline operations (see note 4 on Attachment B). In
addition, reported results include non-operating restructuring charges and other
one-time items associated primarily with KPNQwest (see note 5 on Attachment B)
and write-downs for certain equity investments. The after-tax impact of these
non-operating expenses in the fourth quarter was $26 million or ($0.02) per
diluted share.
For the year, on a reported basis, Qwest reported a net loss of ($2.41) per
diluted share, compared to a loss of ($0.06) per diluted share in 2000.
DSL, wireless and Internet services continue to be key growth products. Total
DSL customers at the end of the year increased nearly 74 percent from the end of
2000 to 448,000. Wireless services revenues for the quarter grew approximately
42 percent to $211 million with 1.11 million customers at year-end. For the
quarter, recurring Internet services revenue increased 30 percent to $287
million compared with the same period last year.
"Our overall performance continues to be impacted by economic conditions
nationally and in our local service region, but we are encouraged with the
progress made in some of our key growth areas, including global enterprise, DSL
and wireless," said Joseph P. Nacchio, Qwest chairman and CEO.
Reported revenue for the quarter was down approximately six percent to $4.70
billion, down $314 million from $5.02 billion in the same period last year. The
decrease in revenues for the quarter was mainly due to reduced optical capacity
asset sales and certain Internet equipment sales. For the full year, reported
revenue increased approximately four percent to $19.74 billion compared with pro
forma normalized 2000 revenues of $18.95 billion, or approximately 19 percent
compared to 2000 reported revenues of $16.61 billion.
Recurring revenue for the quarter of $4.68 billion declined slightly as compared
to $4.70 billion in the fourth quarter of 2000. Recurring revenue for Internet
services grew 30 percent, or $67 million in the fourth quarter of 2001, compared
with the same period last year. Wireless revenues grew 42 percent, or $62
million in the fourth quarter of 2001, compared with the same period last year.
These strong growth rates were offset by weakness in local and traditional data
services, reflecting continued slowing of the regional economy. Internet and
data services recurring revenue of $1.03 billion for the quarter grew three
percent over the same period last year and now represents approximately 22
percent of recurring revenue for the company. For the full year, recurring
revenue increased five percent to $18.44 billion compared with recurring pro
forma normalized 2000 revenues.
For the quarter, pro forma normalized earnings before interest, taxes,
depreciation and amortization (EBITDA) was $1.61 billion compared with pro forma
normalized EBITDA for the same period last year of $1.99 billion. This decline
was mainly due to reduced optical capacity asset sales and certain Internet
equipment sales. In addition, EBITDA was also impacted by continued investments
in new product platforms and 271 re-entry, changes in product mix and an
increase in uncollectible accounts due to continued weakness in the economy. For
the year, Qwest recognized pro forma normalized EBITDA of $7.40 billion compared
with pro forma normalized EBITDA of $7.37 billion in 2000.
"Our substantial recent investments in service improvements and new product
platforms, such as Internet dial and virtual private networks, have positioned
us to better meet the needs of our customers and take advantage of the economic
recovery when it occurs," said Robin R. Szeliga, Qwest executive vice president
of finance and CFO. "We remain focused on reducing costs and becoming free
cash-flow positive as we gain scale and streamline operations."
2
The workforce reduction of 7,000 jobs that was previously announced is expected
to be completed by mid-2002. The job reductions come as Qwest continues to
streamline its business. Qwest expects to achieve this workforce reduction
through attrition and continued business process improvements. The company does
not expect the reductions to impact the delivery of service to customers.
For the quarter, capital expenditures were $752 million, down from $2.24 billion
in the same period last year. For the year, capital expenditures were $8.54
billion compared with $8.99 billion (on a pro forma normalized basis) for 2000.
As a result of continued economic weakness, Qwest is also modifying its expected
capital expenditures for 2002 to a range of $4.0 to $4.2 billion, from previous
guidance of $4.2 to $4.3 billion. Qwest's resulting 2002 capital to revenue
ratio is expected to be in the same range as other large communications
companies. Qwest expects to be free cash flow positive in the second quarter of
2002 and beyond.
LOCAL REVENUES; LONG-DISTANCE VOICE, DATA AND INTERNET REVENUES
For the quarter, local services revenue was down $75 million, or two percent
compared with the fourth quarter of 2000. For the year local services revenue
grew $345 million or 2.4 percent compared with pro forma normalized 2000.
For the quarter, revenues for long-distance voice, data and Internet services
decreased $238 million, or approximately 19 percent compared with the fourth
quarter of 2000 as a result of a decline in optical capacity asset sales and
certain Internet equipment sales. For the quarter, recurring revenues for these
services grew more than six percent, or $57 million, compared with the same
period last year. For the year, revenues for long-distance voice, data and
Internet services increased nearly 10 percent, or $445 million, as compared to
pro forma normalized 2000. For the year, recurring revenue for these services
increased approximately 15 percent, or $506 million, versus pro forma normalized
2000.
For the quarter, recurring revenues for long-distance data and Internet services
grew 20 percent over the same period last year.
COMMERCIAL MARKETS
Commercial services revenue declined approximately 14 percent, or $396 million,
compared with the fourth quarter of 2000, primarily due to a decline in optical
capacity asset sales and certain Internet equipment sales. Recurring commercial
services revenue declined four percent compared with the fourth quarter of 2000.
Strong growth in Internet services, including dedicated Internet access (DIA),
virtual private network (VPN) services, and dial-up Internet access was offset
by declines in local service revenues and delays in major customer installations
and acceptances during the quarter.
Following a realignment of the business market unit to focus on the top 1000
global business and national accounts, Qwest continued to capture new market
share among enterprise customers and federal and state government accounts.
3
CONSUMER MARKETS
Consumer revenues increased more than three percent, or $48 million, compared
with the fourth quarter of 2000, with continued growth in DSL and wireless
services offset by a decline in access lines of three percent.
At the end of 2001, approximately 35 percent of Qwest consumer customers
subscribed to a package or bundle of services that may include Internet access,
DSL, wireless, voice messaging, caller identification or additional lines. That
is an improvement of 25 percent over 2000.
WIRELESS AND DSL SERVICES
Qwest wireless had approximately 1.11 million customers at the end of 2001. For
the quarter, wireless services revenue grew approximately 42 percent to $211
million compared with the fourth quarter of 2000. Average revenue per user
decreased approximately one percent to $54.30 compared with the third quarter of
2001.
Qwest continues to leverage its infrastructure by offering broadband services
for fast Internet connections. Total DSL customers, which includes in-region and
out-of-region DSL customers, increased to 448,000 at the end of 2001, which is a
nearly 74 percent increase from the end of 2000. Total DSL revenues increased
approximately 85 percent for the quarter and 66 percent for the year.
SERVICE IMPROVEMENT
Qwest made strong customer service improvements in 2001 in key areas of
installation and repair for residential and small-business customers across its
14 Western states. The number of customers who had been waiting more than 30
days for the installation of their first telephone line reached the lowest level
on record. In 2001, Qwest met nearly 99 percent of the more than 22 million
installation commitments on time and nearly 95 percent of total repair
commitments. Additionally, 89 percent of service outages were repaired in less
than 24 hours, the best annual customer service results since 1995.
The results mark the sixth consecutive quarter that Qwest has improved customer
service and follow a report by the Federal Communications Commission (FCC) that
found that Qwest leads the industry in service quality. In December 2001, the
FCC issued its "Quality of Service of the Local Operating Companies" report,
which showed that Qwest was first among the major local service providers in
four of the seven critical customer service categories measured by the FCC and
that Qwest improved in six of the seven.
RE-ENTERING IN-REGION LONG-DISTANCE SERVICE
The company is continuing to make progress toward receiving federal approval to
re-enter the long-distance market. On December 21, 2001, Qwest completed a
critical and comprehensive operational support systems (OSS) test in Arizona.
Qwest is also nearing completion of an OSS test covering 13 other local service
states.
4
In addition to the OSS tests, 12 states have completed workshops on all 14-point
checklist items. Of those 12 states, five (Colorado, Idaho, Iowa, Nebraska and
Wyoming) have issued orders completing review of all checklist requirements
subject to completion of the multi-state OSS test. The remaining seven states
have issued final orders on most checklist items and are expected to complete
their reviews in January and February.
Qwest's actual performance in serving wholesale customers is better than
Verizon's and SBC's at the time they applied, and successfully received,
approval to offer long-distance services in New York, Texas, Missouri and
Arkansas.
The company plans to file for long-distance approval with the FCC for all states
by mid-2002. The FCC is expected to approve all applications within 90 days.
NOTE TO INVESTORS
"Reported" results are prepared in accordance with generally accepted accounting
principles in the United States (GAAP). Recurring and pro forma normalized
results are not prepared in accordance with GAAP.
"Recurring" results reflect adjustments made for optical capacity asset revenue,
certain Internet equipment sales and other items, such as contractual
settlements in the periods presented. The Internet equipment sales for which our
results have been adjusted to derive "recurring" results primarily include
individually large and infrequent wholesale sales. For the three months ended
December 31, 2001 and December 31, 2000, the recurring revenue adjustments were
$23 million and $319 million, respectively. For the years ended December 31,
2001 and December 31, 2000, the recurring revenue adjustments were $1.30 billion
and $1.37 billion, respectively.
Additionally, "pro forma normalized" information regarding Qwest's results from
operations is provided as a complement to reported or GAAP results. The
condensed consolidated pro forma normalized statements give retroactive effect
as though the merger of Qwest and U S WEST, Inc. 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, pro forma normalized results have been adjusted to
eliminate the impact of non-recurring items such as merger-related and one-time
charges, restructuring charges, asset write-offs and impairments, a depreciation
adjustment on access lines returned to service, gains/losses on the sale of
investments and fixed assets, 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 and restructuring charges. For additional detail
on these adjustments readers should refer to Attachments C and D. Certain
reclassifications have been made to prior periods to conform to the current
presentation.
5
The term "local services" refers to our estimate of the classic U S WEST
business (including wireless). The term "long-distance voice, data and Internet
services" refers to our estimate of the classic Qwest business. We have worked
to integrate the businesses and operations of Qwest and U S WEST since the
completion of the merger on June 30, 2000. Because we do not operate the two as
separate businesses, we have attempted to approximate the revenues attributable
to the major lines of business of each company, as they existed prior to the
merger. Our estimates do not necessarily reflect the actual results that would
have been generated by the two businesses as standalone entities.
CONFERENCE CALL TODAY
As previously announced, Qwest will host a conference call for investors and the
media today at 9 a.m. (EST) with Joseph P Nacchio, Qwest chairman and CEO, Robin
R. Szeliga, Qwest executive vice president of finance and CFO, and Afshin
Mohebbi, Qwest president and COO. 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.
# # #
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 Communications International Inc. (together with its affiliates, "Qwest",
"we" or "us") 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 but not limited to: potential fluctuations in quarterly results;
volatility of Qwest's stock price; intense competition in the markets in which
we compete; changes in demand for our products and services; the duration and
extent of the current economic downturn, including its effect on our customers
and suppliers; adverse economic conditions in the markets served by us or by
companies in which we have substantial investments; 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 our business,
delays in our ability to provide interLATA services within our 14-state local
service area; 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, and difficulties in combining the operations of the
combined company. This release may include analysts' estimates and other
information prepared by third parties for which we assume no responsibility. We
undertake 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)(3)(4) - PRO FORMA NORMALIZED
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------------- % -------------------------- %
2001 2000 Change 2001 2000 Change
- ---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
REVENUES:
Commercial services $ 2,406 $ 2,802 (14.1) $ 11,166 $ 10,466 6.7
Consumer services 1,496 1,448 3.3 5,900 5,674 4.0
Directory services 543 501 8.4 1,604 1,530 4.8
Switched access services 259 267 (3.0) 1,073 1,284 (16.4)
---------- ---------- ---------- ----------
Total revenues 4,704 5,018 (6.3) 19,743 18,954 4.2
OPERATING EXPENSES:
Cost of services 1,768 1,670 5.9 7,111 6,247 13.8
Selling, general and administrative 1,326 1,362 (2.6) 5,231 5,339 (2.0)
---------- ---------- ---------- ----------
EBITDA 1,610 1,986 (18.9) 7,401 7,368 0.4
Depreciation 1,079 793 36.1 3,772 2,795 35.0
Goodwill and other intangible
amortization 315 319 (1.3) 1,341 1,270 5.6
---------- ---------- ---------- ----------
Operating income 216 874 (75.3) 2,288 3,303 (30.7)
OTHER EXPENSE:
Interest expense - net 381 309 23.3 1,442 1,116 29.2
Other expense - net 39 19 105.3 90 43 109.3
---------- ---------- ---------- ----------
Total other expense - net 420 328 28.0 1,532 1,159 32.2
---------- ---------- ---------- ----------
(Loss) income before income taxes (204) 546 (137.4) 756 2,144 (64.7)
Income tax (benefit) provision (81) 276 (129.3) 671 1,149 (41.6)
---------- ---------- ---------- ----------
NET (LOSS) INCOME $ (123) $ 270 (145.6) $ 85 $ 995 (91.5)
========== ========== ========== ==========
Basic (loss) earnings per share $ (0.07) $ 0.16 (143.8) $ 0.05 $ 0.60 (91.7)
========== ========== ========== ==========
Basic average shares outstanding 1,665 1,670 (0.3) 1,661 1,650 0.7
========== ========== ========== ==========
Diluted (loss) earnings per share $ (0.07) $ 0.16 (143.8) $ 0.05 $ 0.59 (91.5)
========== ========== ========== ==========
Diluted average shares outstanding 1,665 1,695 (1.8) 1,671 1,688 (1.0)
========== ========== ========== ==========
Diluted cash earnings per share $ 0.09 $ 0.32 (71.9) $ 0.76 $ 1.25 (39.2)
========== ========== ========== ==========
(1) The consolidated pro forma normalized statements give retroactive
effect as though the merger of Qwest and U S WEST (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 impacts of
non-recurring items, such as Merger-related costs and other one-time
charges, restructuring 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, gains/losses
on the sale of rural exchanges, changes 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
and restructuring charges. The Merger has been accounted for as a
purchase transaction. Certain reclassifications have been made to prior
periods to conform to the current presentation.
(2) Earnings before interest, income taxes, depreciation and amortization
("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.
(3) Diluted cash earnings per share represent diluted earnings per share
adjusted to add back the after-tax amortization of goodwill and other
intangible assets.
(4) Small business services revenue is now being reflected on the
Commercial services line. These amounts were reclassified from the
Consumer services line, due to Qwest's reorganization of its sales
organization. Prior periods have also been restated to conform to the
current presentation.
7
ATTACHMENT B
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)(2)(3)(4)(5) - AS REPORTED
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------------- % -------------------------- %
2001 2000 Change 2001 2000 Change
- ---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
REVENUES:
Commercial services $ 2,406 $ 2,802 (14.1) $ 11,166 $ 8,436 32.4
Consumer services 1,496 1,448 3.3 5,900 5,360 10.1
Directory services 543 501 8.4 1,604 1,530 4.8
Switched access services 259 267 (3.0) 1,073 1,284 (16.4)
---------- ---------- ---------- ----------
Total revenues 4,704 5,018 (6.3) 19,743 16,610 18.9
OPERATING EXPENSES:
Cost of services 1,768 1,670 5.9 7,111 4,923 44.4
Selling, general and administrative 1,326 1,362 (2.6) 5,231 4,770 9.7
---------- ---------- ---------- ----------
EBITDA 1,610 1,986 (18.9) 7,401 6,917 7.0
Depreciation 1,079 793 36.1 3,772 2,706 39.4
Depreciation adjustment for access
lines returned to service - - - 222 - -
Goodwill and other intangible
amortization 315 319 (1.3) 1,341 636 110.8
Restructuring, Merger-related and
other one-time charges 600 416 44.2 1,224 1,752 (30.1)
---------- ---------- ---------- ----------
Operating (loss) income (384) 458 (183.8) 842 1,823 (53.8)
OTHER EXPENSE (INCOME):
Interest expense - net 381 309 23.3 1,442 1,041 38.5
Loss on changes in market value of
financial instruments - 207 (100.0) 7 917 (99.2)
(Gain) loss on sales of rural
exchanges and fixed assets (1) (11) 90.9 (51) 28 (282.1)
(Gain) loss on sales of investments
and FMV adjustments (26) 4 (750.0) (26) (327) 92.0
Investment write-downs 47 - - 3,294 - -
Non-operating restructuring charges 22 - - 22 - -
Other expense - net 39 19 105.3 90 38 136.8
---------- ---------- ---------- ----------
Total other expense - net 462 528 (12.5) 4,778 1,697 181.6
---------- ---------- ---------- ----------
(Loss) income before income taxes (846) (70) (1,108.6) (3,936) 126 (3,223.8)
and extraordinary item
Income tax (benefit) provision (330) 46 (817.4) 9 207 (95.7)
---------- ---------- ---------- ----------
(Loss) before extraordinary item (516) (116) (344.8) (3,945) (81) (4,770.4)
---------- ---------- ---------- ----------
Extraordinary item - early retirement
of debt, net of tax - - - (65) - -
---------- ---------- ---------- ----------
NET (LOSS) $ (516) $ (116) (344.8) $ (4,010) $ (81) (4,850.6)
========== ========== ========== ==========
Basic (loss) per share $ (0.31) $ (0.07) (342.9) $ (2.41) $ (0.06) (3,916.7)
========== ========== ========== ==========
Basic average shares outstanding 1,665 1,670 (0.3) 1,661 1,272 30.6
========== ========== ========== ==========
Diluted (loss) per share $ (0.31) $ (0.07) (342.9) $ (2.41) $ (0.06) (3,916.7)
========== ========== ========== ==========
Diluted average shares outstanding 1,665 1,670 (0.3) 1,661 1,272 30.6
========== ========== ========== ==========
Dividends per share $ - $ - - $ 0.05 $ 0.31 (83.9)
========== ========== ========== ==========
8
(1) The condensed consolidated statements of operations reflect the results
of operations for the merged Qwest entity for the three and twelve
months ended December 31, 2001. For the twelve months ended December
31, 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 six months ended
December 31, 2000.
(2) Earnings before interest, income taxes, depreciation and amortization
("EBITDA") does not include items such as Merger-related costs,
restructuring charges, asset write-offs and impairments, gains/losses
on the sale of investments and fixed assets, gains/losses on the sale
of rural exchanges, changes in the market values of financial
instruments and one-time legal charges. 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.
(3) Small business services revenue is now being reflected on the
Commercial services line. These amounts were reclassified from the
Consumer services line, due to Qwest's reorganization of its sales
organization. Prior periods have also been restated to conform to the
current presentation.
(4) For the quarter ended December 31, 2001, the restructuring,
Merger-related and other one-time charges line consists of the
following: $764M in pre-tax charges resulting from the Company's
restructuring plan and other one-time charges ($347M in severance
costs, $241M in abandoned real estate leases, $176M in asset
impairments and other one-time charges) offset by reductions to the
Company's previously established Merger-related reserve of $164M,
totaling the $600M net charge shown above ($367M on an after-tax
basis). The reversal of Merger-related reserves relates primarily to
favorable developments in underlying matters. For the year ended
December 31, 2001, the restructuring, Merger-related and other one-time
charges line consists of the following: $764M in charges resulting from
the Company's restructuring plan and other one-time charges and $460M
in net Merger-related charges, totaling the $1,224M net charge shown
above ($749M on an after-tax basis).
(5) The non-operating restructuring charge of $22M for the quarter ended
December 31, 2001 and the year then ended, relates to Qwest's equity
share of a restructuring charge incurred by KPNQwest, N.V.
9
ATTACHMENT C
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)(2)(3)(4)(5)(6)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Three Months Ended
December 31, 2001 December 31, 2000
------------------------------------------- ---------------------------------------
As Pro Forma Pro Forma As Pro Forma Pro Forma
Reported Normalized Normalized Reported Normalized Normalized
Results Adjustments Results Results Adjustments Results
- -------------------------------------- ----------- ------------ ------------ ---------- ------------ -----------
REVENUES:
Commercial services $ 2,406 $ - $ 2,406 $ 2,802 $ - $ 2,802
Consumer services 1,496 - 1,496 1,448 - 1,448
Directory services 543 - 543 501 - 501
Switched access services 259 - 259 267 - 267
------------ ----------- ----------- ---------- ----------- -----------
Total revenues 4,704 - 4,704 5,018 - 5,018
OPERATING EXPENSES:
Cost of services 1,768 - 1,768 1,670 - 1,670
Selling, general and administrative 1,326 - 1,326 1,362 - 1,362
------------ ----------- ----------- ---------- ----------- -----------
EBITDA 1,610 - 1,610 1,986 - 1,986
Depreciation 1,079 - 1,079 793 - 793
Goodwill and other
intangible amortization 315 - 315 319 - 319
Restructuring, Merger-related and
other one-time charges 600 (600) - 416 (416) -
------------ ----------- ----------- ---------- ----------- -----------
Operating (loss) income (384) 600 216 458 416 874
OTHER EXPENSE (INCOME):
Interest expense - net 381 - 381 309 - 309
Loss on changes in market value
of financial instruments - - - 207 (207) -
(Gain) on sales of rural exchanges (1) 1 - (11) 11 -
(Gain) loss on sales of investments
and FMV adjustments (26) 26 - 4 (4) -
Investment write-downs 47 (47) - - - -
Non-operating restructuring charges 22 (22) - - - -
Other expense - net 39 - 39 19 - 19
------------ ----------- ----------- ---------- ----------- -----------
Total other expense - net 462 (42) 420 528 (200) 328
------------ ----------- ----------- ---------- ----------- -----------
(Loss) income before income taxes (846) 642 (204) (70) 616 546
Income tax (benefit) provision (330) 249 (81) 46 230 276
------------ ----------- ----------- ---------- ----------- -----------
NET (LOSS) INCOME $ (516) $ 393 $ (123) $ (116) $ 386 $ 270
============ =========== =========== ========== ============ ===========
Basic (loss) earnings per share $ (0.31) $ (0.07) $ (0.07) $ 0.16
============ =========== ========== ===========
Basic average shares outstanding 1,665 1,665 1,670 1,670
============ =========== ========== ===========
Diluted (loss) earnings per share $ (0.31) $ (0.07) $ (0.07) $ 0.16
============ =========== ========== ===========
Diluted average shares outstanding 1,665 1,665 1,670 1,695
============ =========== ========== ===========
Diluted cash earnings per share $ 0.09 $ 0.32
=========== ===========
(1) The consolidated pro forma normalized statements give retroactive
effect as though the merger of Qwest and U S WEST (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 impacts of
10
non-recurring items, such as Merger-related costs and other one-time
charges, restructuring 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, gains/losses
on the sale of rural exchanges, changes 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
and restructuring charges. The Merger has been accounted for as a
purchase transaction. Certain reclassifications have been made to prior
periods to conform to the current presentation.
(2) Earnings before interest, income taxes, depreciation and amortization
("EBITDA") does not include items such as Merger-related costs,
restructuring charges, asset write-offs and impairments, gains/losses
on the sale of investments and fixed assets, gains/losses on the sale
of rural exchanges, changes in the market values of financial
instruments and one-time legal charges. 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.
(3) Diluted cash earnings per share represent diluted earnings per share
adjusted to add back the after-tax amortization of goodwill and other
intangible assets.
(4) Small business services revenue is now being reflected on the
Commercial services line. These amounts were reclassified from the
Consumer services line, due to Qwest's reorganization of its sales
organization. Prior periods have also been restated to conform to the
current presentation.
(5) For the quarter ended December 31, 2001, the restructuring,
Merger-related and other one-time charges line consists of the
following: $764M in pre-tax charges resulting from the Company's
restructuring plan and other one-time charges ($347M in severance
costs, $241M in abandoned real estate leases, $176M in asset
impairments and other one-time charges) offset by reductions to the
Company's previously established Merger-related reserve of $164M;
totaling the $600M net charge shown above ($367M on an after-tax
basis). The reversal of Merger-related reserves relates primarily to
favorable developments in underlying matters.
(6) The non-operating restructuring charge of $22M for the quarter ended
December 31, 2001 relates to Qwest's equity share of a restructuring
charge incurred by KPNQwest, N.V.
11
ATTACHMENT D
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)(2)(3)(4)(5)(6)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Twelve Months Ended Twelve Months Ended
December 31, 2001 December 31, 2000
--------------------------------- ---------------------------------
As Pro Forma Pro Forma As Pro Forma Pro Forma
Reported Normalized Normalized Reported Normalized Normalized
Results Adjustments Results Results Adjustments Results
- ---------------------------------------- -------- ----------- ---------- -------- ----------- ----------
REVENUES:
Commercial services $ 11,166 $ - $ 11,166 $ 8,436 $ 2,030 $ 10,466
Consumer services 5,900 - 5,900 5,360 314 5,674
Directory services 1,604 - 1,604 1,530 - 1,530
Switched access services 1,073 - 1,073 1,284 - 1,284
-------- -------- -------- -------- -------- --------
Total revenues 19,743 - 19,743 16,610 2,344 18,954
OPERATING EXPENSES:
Cost of services 7,111 - 7,111 4,923 1,324 6,247
Selling, general and administrative 5,231 - 5,231 4,770 569 5,339
-------- -------- -------- -------- -------- --------
EBITDA 7,401 - 7,401 6,917 451 7,368
Depreciation 3,772 - 3,772 2,706 89 2,795
Depreciation adjustment for access
lines returned to service 222 (222) - - - -
Goodwill and other intangible
amortization 1,341 - 1,341 636 634 1,270
Restructuring, Merger-related and other
one-time charges 1,224 (1,224) - 1,752 (1,752) -
-------- -------- -------- -------- -------- --------
Operating income 842 1,446 2,288 1,823 1,480 3,303
OTHER EXPENSE (INCOME):
Interest expense - net 1,442 - 1,442 1,041 75 1,116
Loss on changes in market value of
financial instruments 7 (7) - 917 (917) -
(Gain) loss on sales of rural exchanges
and fixed assets (51) 51 - 28 (28) -
(Gain) on sales of investments and
FMV adjustments (26) 26 - (327) 327 -
Investment write-downs 3,294 (3,294) - - - -
Non-operating restructuring charges 22 (22) - - - -
Other expense - net 90 - 90 38 5 43
-------- -------- -------- -------- -------- --------
Total other expense - net 4,778 (3,246) 1,532 1,697 (538) 1,159
-------- -------- -------- -------- -------- --------
(Loss) income before income taxes and (3,936) 4,692 756 126 2,018 2,144
extraordinary item
Income tax provision 9 662 671 207 942 1,149
-------- -------- -------- -------- -------- --------
(Loss) income before extraordinary
item (3,945) 4,030 85 (81) 1,076 995
-------- -------- -------- -------- -------- --------
Extraordinary item - early retirement of
debt, net of tax (65) 65 - - - -
-------- -------- -------- -------- -------- --------
NET (LOSS) INCOME $ (4,010) $ 4,095 $ 85 $ (81) $ 1,076 $ 995
======== ======== ======== ======== ======== ========
Basic (loss) earnings per share $ (2.41) $ 0.05 $ (0.06) $ 0.60
======== ======== ======== ========
Basic average shares outstanding 1,661 1,661 1,272 1,650
======== ======== ======== ========
Diluted (loss) earnings per share $ (2.41) $ 0.05 $ (0.06) $ 0.59
======== ======== ======== ========
Diluted average shares outstanding 1,661 1,671 1,272 1,688
======== ======== ======== ========
Diluted cash earnings per share $ 0.76 $ 1.25
======== ========
(1) The consolidated pro forma normalized statements give retroactive
effect as though the merger of Qwest and U S WEST (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 impacts of
12
non-recurring items, such as Merger-related costs and other one-time
charges, restructuring 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, gains/losses
on the sale of rural exchanges, changes 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
and restructuring charges. The Merger has been accounted for as a
purchase transaction. Certain reclassifications have been made to prior
periods to conform to the current presentation.
(2) Earnings before interest, income taxes, depreciation and amortization
("EBITDA") does not include items such as Merger-related costs,
restructuring charges, asset write-offs and impairments, gains/losses
on the sale of investments and fixed assets, gains/losses on the sale
of rural exchanges, changes in the market values of financial
instruments and one-time legal charges. 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.
(3) Diluted cash earnings per share represent diluted earnings per share
adjusted to add back the after-tax amortization of goodwill and other
intangible assets.
(4) Small business services revenue is now being reflected on the
Commercial services line. These amounts were reclassified from the
Consumer services line, due to Qwest's reorganization of its sales
organization. Prior periods have also been restated to conform to the
current presentation.
(5) For the year ended December 31, 2001, the restructuring, Merger-related
and other one-time charges line consists of the following: $764M in
pre-tax charges resulting from the Company's restructuring plan and
other one-time charges ($347M in severance costs, $241M in abandoned
real estate leases, $176M in asset impairments and other one-time
charges) and $460M in net Merger-related charges, totaling the $1,224M
net charge shown above ($749M on an after-tax basis).
(6) The non-operating restructuring charge of $22M for the year ended
December 31, 2001 relates to Qwest's equity share of a restructuring
charge incurred by KPNQwest, N.V.
13
ATTACHMENT E
QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED CONSOLIDATED DATA (1)
(UNAUDITED)
As of and for the
Three Months Ended
December 31,
------------------ %
2001 2000 Change
------- ------- ------
DSL (in 14-state region):
Subscribers (in thousands) 432 255 69.4%
DSL equipped central offices 348 302 15.2%
Subscribers per equipped central office 1,241 846 46.7%
Wireless/PCS:
Revenues (in millions) $ 211 $ 149 41.6%
Subscribers (in thousands) 1,114 805 38.4%
ARPU (in dollars) $ 54 $ 56 (3.6%)
Penetration 5.73% 4.89% 17.2%
Capital expenditures (in millions) $ 752 $ 2,236 (66.4%)
Access lines (in thousands):
Business 6,205 6,141 1.0%
Consumer 11,582 11,948 (3.1%)
------- ------- ------
Total access lines 17,787 18,089 (1.7%)
======= ======= ======
Voice grade equivalent access lines (in thousands):
Business 46,111 34,956 31.9%
Consumer 12,850 12,653 1.6%
------- ------- ------
Total voice grade equivalents 58,961 47,609 23.8%
======= ======= ======
(1) Access line and voice grade equivalent data has been adjusted for prior
periods to conform to the current period presentation.
14
ATTACHMENT F
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
(UNAUDITED)
December 31, December 31,
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 242 $ 154
Accounts receivable - net 4,418 4,235
Inventories and supplies 377 275
Prepaid and other 621 535
------------ ------------
Total current assets 5,658 5,199
Property, plant and equipment - net 29,966 25,760
Investments 1,400 8,186
Goodwill and intangibles - net 34,523 32,327
Other assets 2,124 2,029
------------ ------------
Total assets $ 73,671 $ 73,501
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 4,707 $ 3,645
Accounts payable 1,529 2,049
Accrued expenses 3,286 3,589
Advance billings and customer deposits 392 393
------------ ------------
Total current liabilities 9,914 9,676
Long-term borrowings 20,197 15,421
Post-retirement and other post-employment
benefit obligations 2,923 2,952
Deferred taxes, credits and other 3,969 4,148
Stockholders' equity 36,668 41,304
------------ ------------
Total liabilities and stockholders' equity $ 73,671 $ 73,501
============ ============
15
ATTACHMENT G
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (1)
(DOLLARS IN MILLIONS)
(UNAUDITED)
Year Ended
December 31,
-------------------------------------
2001 2000
------------------- ---------------
Cash provided by operating activities $ 4,107 $ 3,681
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (8,543) (6,597)
Proceeds from sale of equity securities - 868
Proceeds from 1999 sale of Global Crossing securities - 1,140
Cash from acquisition - 407
Investment in equity securities (89) (510)
Proceeds from sale of access lines 94 19
Other (74) (121)
------------------ --------------
Cash used for investing activities (8,612) (4,794)
------------------ --------------
FINANCING ACTIVITIES:
Net proceeds from (repayments of) current borrowings 1,144 (2,200)
Proceeds from issuance of long-term borrowings 6,937 4,266
Repayments of long-term borrowings (2,553) (655)
Costs relating to the early retirement of debt (106) -
Proceeds from issuances of common stock 286 320
Repurchase of stock (1,000) -
Dividends paid on common stock (83) (542)
Other (32) -
------------------ --------------
Cash provided by financing activities 4,593 1,189
------------------ --------------
CASH AND CASH EQUIVALENTS:
Increase 88 76
Beginning balance 154 78
------------------ --------------
Ending balance $ 242 $ 154
================== ==============
(1) The condensed consolidated statements of cash flows above reflect the
cash flow activities for the merged Qwest entity for the twelve months
ended December 31, 2001. For the twelve months ended December 31, 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 December 31, 2000.
16