[GRAPHIC OMITTED]
Qwest NEWS
Spirit of Service
QWEST COMMUNICATIONS REPORTS THIRD QUARTER 2002 RESULTS
o Second Consecutive Quarter of Positive Free Cash Flow
o Liquidity Concerns Addressed With Amended/New Credit Facilities and Pending
Sale of QwestDex
o Expects 2002 Revenue of Approximately $17.1 Billion and Adjusted EBITDA of
Approximately $5.4 Billion
o Net Loss of ($214) Million or ($0.13) Per Share, Compared to a Loss of
($142) Million or ($0.09) Per Share in the Third Quarter of 2001
Investors: Please see "Note to Investors" below for definitions and explanations
of certain matters.
DENVER, October 30, 2002 -- Qwest Communications International Inc. (NYSE: Q)
today announced its financial results for the third quarter of 2002. On a
reported basis, the company reported a net loss of ($214) million or ($0.13) per
share, compared to a net loss of ($142) million or ($0.09) per share in the
third quarter of 2001. The loss reflects after-tax non-operating items of $44
million, or $0.02 per share, due to adjustments of restructuring reserves,
losses associated with the sale of certain assets and an adjustment to the
company's deferred tax provision.
"Qwest took significant steps to strengthen the company's balance sheet and
address liquidity concerns during the third quarter," said Richard C. Notebaert,
Qwest chairman and CEO. "We are positioning the company to grow profitably in
the future and are pleased with the momentum we have generated to date."
As a result of the company's reduced capital investment and continued management
of working capital, free cash flow (defined as cash flow from operations less
capital expenditures) totaled $53 million for the third quarter of 2002.
Reported revenue for the quarter decreased 13.2 percent to $3.80 billion from
$4.37 billion in the same period last year. Both periods reflect the
classification of the company's QwestDex publishing business as a discontinued
operation. Normalized revenue declined approximately 12.3 percent to $4.18
billion, as compared to $4.77 billion in the third quarter of 2001. Excluding
$133 million in revenues from optical capacity asset sales from the third
quarter of 2001 that are subject to restatement, normalized revenue declined
approximately 9.8 percent. Normalized revenues declined owing to, among other
things, continued competitive pressures in local and long-distance voice
services, industry and economic factors, and reductions in data and IP services
primarily due to the company's efforts to eliminate less profitable businesses.
"We are creating an efficient and disciplined company and will capitalize on
opportunities as market conditions improve," said Oren G. Shaffer Qwest vice
chairman and CFO. "We continue to de-emphasize low-margin businesses and are
driving costs out of our core operations."
Operating expenses declined $41 million, or 1.4 percent, over last year.
Sequentially, operating expenses declined $99 million, or 3.2 percent, in the
quarter. The reductions reflect the company's ongoing efforts to streamline
operations while focusing on long-term annuity-based relationships with its
customers.
For the quarter, adjusted EBITDA (adjusted earnings before interest, taxes,
depreciation and amortization) was $1.22 billion compared with $1.77 billion in
the third quarter of 2001. Increases to regulatory and bad debt reserves reduced
adjusted EBITDA by approximately $115 million.
The company has now completed its analysis of policies and practices related to
revenue recognition for optical capacity asset sales (IRUs) for the years 2001
and 2000 and concluded that the policies and practices do not support the
original accounting treatment. As previously announced, the company will restate
prior period financials for the IRUs and certain other incorrectly recorded
transactions. The company is consulting with its current external auditors, KPMG
LLP, on the scope of the restatement and what adjustments would be required.
Until such time as these efforts have been concluded, the company cannot
indicate the extent to which the results for 2000-2002 will be impacted.
Until the restatement is completed and KPMG has completed the re-audit of the
relevant periods, the company anticipates it will not be in a position to file
its Quarterly Report on Form 10-Q. The company expects to file a Form 8-K that
includes more detailed financial disclosure about the third quarter, material
trends related to its results of operations and its current liquidity and
capital resources, in November 2002. This additional information will not be a
substitute for the disclosure required in the Form 10-Q; however, until the
company can file the Form 10-Q, it will provide as much relevant material
financial information as it can that is of the type included in a Form 10-Q.
BUSINESS SERVICES
Normalized business services revenues for the quarter totaled $1.49 billion, a
decline of 5.8 percent versus the same period last year. Lower local voice
revenues and lower data and IP services revenue, which were primarily due to the
company's de-emphasis of low-margin businesses, were offset by growth in
long-distance voice and certain IP and data services.
2
Qwest continues to expand its share of enterprise business and government
customers, and during the quarter signed agreements to provide services to the
U.S. Department of the Treasury, General Services Administration, Alaska
Airlines, the Nebraska Distance-Learning Consortium, and the State of New
Mexico.
CONSUMER SERVICES
Normalized consumer services revenues totaled $1.39 billion, representing a
decrease of 9.2 percent, or $141 million, compared with the third quarter of
2001. Contributing to the decline were reduced access lines, wireless revenues
and the company's continued efforts to de-emphasize less profitable products and
improve cash flow of the company's out-of-region long-distance business.
As of September 30, 2002, approximately 32 percent of Qwest in-region consumer
customers subscribed to a package (multiple calling features sold along with
local voice service at a discounted price) and more than four percent to a
bundle (multiple Qwest products bundled together on one bill, including local
voice service, DSL, wireless, and/or additional lines). This represents an
increase of nine percent for package penetration and 83 percent for bundle
penetration over the same period last year.
WHOLESALE SERVICES
Normalized wholesale services revenues totaled $905 million for the quarter.
Excluding $133 million in optical capacity asset revenues subject to restatement
from the same period last year, normalized revenues declined approximately 20
percent. The decline is mainly attributable to reduced volumes, mandated rate
reductions for switched access services, and general economic and industry
conditions. The company is increasing pricing on certain products to improve
profitability.
DIRECTORY SERVICES
Directory services revenue decreased approximately one-half of one percent, or
$2 million, primarily due to the extension of the life of five directories in
2001 from 12 months to 13 months. The incremental revenue from the directory
life extensions in 2001 was $13 million. Net of the directory life extensions,
directory services revenue increased by $12 million, or 3.3 percent, primarily
due to higher advertising rates in 2002. These results continue to reflect the
point of publication method of accounting, which Qwest has used since 1999. As
previously announced, Qwest's restated financial statements will reflect
directory services results based on the deferral and amortization method of
accounting. All books published in the third quarter of 2002 had 12-month
service lives. As a result of the pending sale of the QwestDex business,
directory services results are reported as a discontinued operation.
GUIDANCE
The company reaffirmed its financial guidance for 2002 and indicated it expects
results to be at the low end of the range provided in the update given on August
8, 2002, before the company entered into agreements to sell its QwestDex
business. The low end of that guidance, which included results from the QwestDex
business, was for revenue of approximately $17.1 billion and adjusted EBITDA of
3
approximately $5.4 billion. The company expects a normalized loss of ($0.47) to
($0.49) per share and capital investment of between $3.0 - $3.1 billion.
Finally, the company believes it will generate free cash flow for the year of
between $100 and $200 million.
IMPAIRMENT CHARGES
As previously announced, the company ceased amortization of its goodwill
beginning on January 1, 2002, in conjunction with the adoption of Statement of
Financial Accounting Standards ("SFAS") No. 142, which will reduce annual
amortization expense by approximately $900 million. Further, Qwest expects to
record a transitional goodwill impairment charge of approximately $24 billion
for its adoption of SFAS No. 142, effective January 1, 2002. Additionally, as
required by SFAS No. 142, the company will continue to monitor factors such as
the business conditions in the telecommunications industry and the company's
market capitalization during 2002. Those factors, among others, will require the
company to perform another goodwill impairment test in 2002.
In addition, the company has determined that certain network and intangible
assets are impaired and approximately $10.8 billion in additional charges are
required. This network impairment includes fair market adjustments for the
company's domestic and international network as well as its wireless and hosting
platforms. The company expects to record an approximate $8.1 billion impairment
charge for these assets and an approximate $2.7 billion reduction in the
carrying value of intangible assets related to customer lists and product
technology associated with the company's interexchange carrier business.
Write-downs for these assets will be reflected in the company's Form 10-Q for
the second quarter of 2002, the period in which the impairment occurred. The
company expects the impact of these write-downs to decrease annual depreciation
expense by an additional approximately $1.4 billion.
BALANCE SHEET AND LIQUIDITY
Several initiatives were completed in the quarter to strengthen the company's
balance sheet and improve its liquidity position. On August 20, 2002, the
company announced it had reached a definitive agreement to sell its QwestDex
publishing business to a new entity formed by the private equity firms of The
Carlyle Group and Welsh, Carson, Anderson & Stowe for $7.05 billion. On
September 4, 2002, the company announced it had successfully amended its
syndicated credit facility, extending the term and relaxing certain financial
covenants. In addition, the company's QwestDex subsidiary obtained a $750
million term loan due in 2004.
RE-ENTERING IN-REGION LONG-DISTANCE SERVICE
In June and July, Qwest filed two applications with the Federal Communications
Commission (FCC) to re-enter the long-distance markets in Colorado, Idaho, Iowa,
Montana, Nebraska, North Dakota, Utah, Washington and Wyoming. On September 10,
2002, Qwest withdrew those applications because of concerns relating to
historical accounting issues. On September 30, 2002, Qwest refiled an
application with the FCC for all nine states. The new application addresses the
accounting concerns by creating a new long-distance subsidiary - Qwest Long
4
Distance Corporation (QLDC) - that does not have the historical financial
accounting issues that caused the withdrawal of the prior application.
Additionally, the application incorporates the full record of Qwest's previous
long-distance applications that the FCC examined in detail over the course of
the summer, and that utility commissions in the nine states and the United
States Department of Justice (DOJ) had recommended that the FCC approve. On
October 22, 2002, the DOJ conditionally recommended that the FCC approve Qwest's
application to re-enter the long-distance business in the nine states. The FCC
must act on Qwest's application within 90 days of its filing. Utility
commissions in Oregon and New Mexico also have completed proceedings and
indicated their support for Qwest being authorized to provide long distance
services in their states.
NOTE TO INVESTORS
Although the company has announced it will be restating its financial statements
for 2001 and 2000, until that restatement is completed it will continue to
provide a comparison to reported and normalized results for the 2001 period. The
comparisons should not be viewed as a confirmation of the previously reported
numbers, nor should it be viewed as indicative of the actual trends since the
reported numbers for the prior period will be restated. This restatement will
also impact the results for the first nine months of 2002.
"Reported" results in the applicable period were prepared in accordance with
what the company believed, at the relevant time, were generally accepted
accounting principles in the United States (GAAP); however, the company has
determined that the results in 2001 were not in accordance with GAAP and is
restating those financial statements. In addition, the company has not yet
determined the impact of the restatement on the current period. Adjusted or
normalized results are not prepared in accordance with GAAP.
"Free cash flow" results reflect cash flow from operations less capital
expenditures. For the purpose of this release free cash flow includes cash flow
from the QwestDex operations.
5
"Normalized" results reflect adjustments to eliminate the impacts of
non-recurring and non-operating items, which for the relevant periods may
include restructuring, merger-related and other charges, gains (losses) on the
sale of rural exchanges, gains (losses) on the sale of assets and investments, a
depreciation adjustment for access lines returned to service, the write-down of
investments, KPNQwest restructuring charges, changes in the market value of
financial instruments, gains (losses) on discontinued operations, asset
impairments, and gains (losses) on the early retirement of debt. In addition,
the company normalized in the second quarter for the increased bad debt reserves
associated with the WorldCom, Inc. bankruptcy consistent with other
telecommunications providers. For additional details on these adjustments,
readers should refer to Attachments C and D.
"Adjusted EBITDA" excludes all items adjusted as a normalizing item. Adjusted
EBITDA does not represent cash flow for the periods presented and should not be
considered as an alternative to cash flows as a source of liquidity. Qwest's
definition of adjusted EBITDA is not necessarily comparable with adjusted EBITDA
or similar non-GAAP concepts used by other companies or with similar concepts
used in Qwest's debt instruments. Adjusted EBITDA is provided as a complement to
the financial results reported in accordance with GAAP and is presented to
provide investors additional information concerning the company's operations.
The company expects to disclose any differences in the adjusted EBITDA for the
three months and four quarters ended September 30, 2002, and the consolidated
EBITDA calculation under the credit facility when it is available in its Form
8-K in November 2002.
Certain reclassifications have been made to prior periods to conform to the
current presentation.
CONFERENCE CALL TODAY
As previously announced, Qwest will host a conference call for investors and the
media today at 9:00 a.m. EST with Richard C. Notebaert, Qwest chairman and CEO
and Oren Shaffer, Qwest vice chairman and CFO. 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 leading provider of
voice, video and data services to more than 25 million customers. The company's
53,000-plus employees are committed to the "Spirit of Service" and providing
world-class services that exceed customers' expectations for quality, value and
reliability. For more information, please visit the Qwest Web site at
www.qwest.com.
# # #
6
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
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: the duration and extent of the current economic downturn in our
14-state local service area, including its effect on our customers and
suppliers; the effects of our anticipated restatement of historical financial
statements including delays in or restrictions on our ability to access
the capital markets or other adverse effects to our business and financial
position; our substantial indebtedness, and our inability to complete any
efforts to de-lever our balance sheet through asset sales or other transactions;
any adverse outcome of the SEC's current investigation into our accounting
policies, practices and procedures; any adverse outcome of the current
investigation by the U.S. Attorney's office in Denver into certain matters
relating to us; adverse results of increased review and scrutiny by Congress,
regulatory authorities, media and others (including any internal analyses) of
financial reporting issues and practices or otherwise; the failure of our chief
executive and chief financial officers to provide certain certifications
relating to certain public filings; rapid and significant changes in technology
and markets; any adverse developments in commercial disputes or legal
proceedings, including any adverse outcome of current or future legal
proceedings related to matters that are the subject of governmental
investigations, and, to the extent not covered by insurance, if any, our
inability to satisfy any resulting obligations from funds available to us, if
any; our future ability to provide interLATA services within our 14-state local
service area; potential fluctuations in quarterly results; volatility of our
stock price; intense competition in the markets in which we compete; changes in
demand for our 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;
adverse changes in the regulatory or legislative environment affecting our
business; and changes in the outcome of future events from the assumed outcome
included in our significant accounting policies.
The information contained in this release is a statement of Qwest's present
intention, belief or expectation and is based upon, among other things, the
existing regulatory environment, industry conditions, market conditions and
prices, the economy in general and Qwest's assumptions. Qwest may change its
intention, belief or expectation, at any time and without notice, based upon any
changes in such factors, in Qwest's assumptions or otherwise. The cautionary
statements contained or referred to in this release should be considered in
connection with any subsequent written or oral forward-looking statements that
Qwest or persons acting on its behalf may issue. 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.
By including any information in this release, Qwest does not necessarily
acknowledge that disclosure of such information is required by applicable law or
that the information is material.
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 Stephanie Comfort
303-992-2155 800-567-7296
tyler.gronbach@qwest.com IR@qwest.com
7
ATTACHMENT A
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - AS REPORTED (1)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ % ------------------------ %
2002 2001 Change 2002 2001 Change
- ------------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
REVENUES:
Business services $ 1,481 $ 1,567 (5.5) $ 4,569 $ 5,001 (8.6)
Consumer services 1,387 1,528 (9.2) 4,203 4,431 (5.1)
Wholesale services 905 1,268 (28.6) 2,920 4,415 (33.9)
Network services and other revenue 24 11 118.2 63 60 5.0
---------- ---------- ---------- ----------
Total revenues 3,797 4,374 (13.2) 11,755 13,907 (15.5)
OPERATING EXPENSES:
Cost of sales 1,457 1,569 (7.1) 4,425 4,941 (10.4)
Selling, general and administrative 1,327 1,277 3.9 4,303 3,787 13.6
Depreciation 1,067 987 8.1 3,175 2,676 18.6
Depreciation adjustment for access lines
returned to service - - - - 222 (100.0)
Goodwill and other intangible amortization 85 315 (73.0) 255 1,026 (75.1)
Restructuring, merger-related and other
charges 117 - - 117 624 (81.3)
---------- ---------- ---------- ----------
Operating (loss) income (256) 226 (213.3) (520) 631 (182.4)
OTHER EXPENSE (INCOME):
Interest expense - net 449 380 18.2 1,315 1,061 23.9
Loss on changes in market value of
financial instruments - 7 (100.0) - 7 (100.0)
Gain on sales of rural exchanges - - - - (50) 100.0
Loss on sales of investments and
FMV adjustments 1 - - 22 - -
Investment write-downs - - - 1,202 3,247 (63.0)
Other expense - net 8 17 (52.9) 217 51 325.5
---------- ---------- ---------- ----------
Total other expense - net 458 404 13.4 2,756 4,316 (36.1)
---------- ---------- ---------- ----------
Loss before income taxes, discontinued (714) (178) (301.1) (3,276) (3,685) 11.1
operations and extraordinary item
Income tax (benefit) provision (387) 104 (472.1) (873) 108 (908.3)
---------- ---------- ---------- ----------
Loss from continuing operations (327) (282) (16.0) (2,403) (3,793) 36.6
---------- ---------- ---------- ----------
DISCONTINUED OPERATIONS:
Income from discontinued operations 184 229 (19.7) 569 596 (4.5)
Income tax provision (71) (89) (20.2) (220) (232) (5.2)
---------- ---------- ---------- ----------
Loss before extraordinary item (214) (142) (50.7) (2,054) (3,429) 40.1
---------- ---------- ---------- ----------
Extraordinary item - early retirement of
debt, net of tax - - - 6 (65) (109.2)
---------- ---------- ---------- ----------
NET LOSS $ (214) $ (142) (50.7) $ (2,048) $ (3,494) 41.4
========== ========== ========== ==========
Basic loss per share $ (0.13) $ (0.09) (44.4) $ (1.22) $ (2.10) 41.9
========== ========== ========== ==========
Basic average shares outstanding 1,688 1,664 1.4 1,677 1,660 1.0
========== ========== ========== ==========
Diluted loss per share $ (0.13) $ (0.09) (44.4) $ (1.22) $ (2.10) 41.9
========== ========== ========== ==========
Diluted average shares outstanding 1,688 1,664 1.4 1,677 1,660 1.0
========== ========== ========== ==========
Dividends per share $ - $ - - $ - $ 0.05 (100.0)
========== ========== ========== ==========
(1) "Reported" results in the applicable period were prepared in
accordance with what the company believed, at the relevant time, were
generally accepted accounting principles in the United States (GAAP);
however, the company has determined that the results in 2001 were not
in accordance with GAAP and is restating those financial statements.
In addition, the company has not yet determined the impact of the
restatement on the current period.
8
ATTACHMENT B
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - NORMALIZED (1)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- % ------------------------- %
2002 2001 Change 2002 2001 Change
- ------------------------------------------ ---------- ---------- ---------- ---------- ---------- ----------
REVENUES:
Business services $ 1,494 $ 1,586 (5.8) $ 4,613 $ 5,067 (9.0)
Consumer services 1,390 1,531 (9.2) 4,213 4,440 (5.1)
Wholesale services 905 1,268 (28.6) 2,920 4,415 (33.9)
Directory services 369 371 (0.5) 1,064 1,061 0.3
Network services and other revenue 21 10 110.0 57 56 1.8
---------- ---------- ---------- ----------
Total revenues 4,179 4,766 (12.3) 12,867 15,039 (14.4)
OPERATING EXPENSES:
Cost of sales 1,576 1,697 (7.1) 4,798 5,343 (10.2)
Selling, general and administrative 1,384 1,304 6.1 4,136 3,905 5.9
---------- ---------- ---------- ----------
Adjusted EBITDA (2) 1,219 1,765 (30.9) 3,933 5,791 (32.1)
Adjusted EBITDA margin 29.2% 37.0% 30.6% 38.5%
Depreciation 1,071 996 7.5 3,201 2,693 18.9
Goodwill and other intangible amortization 85 315 (73.0) 255 1,026 (75.1)
---------- ---------- ---------- ----------
Operating income 63 454 (86.1) 477 2,072 (77.0)
OTHER EXPENSE:
Interest expense - net 455 380 19.7 1,321 1,061 24.5
Other expense - net 8 17 (52.9) 143 51 180.4
---------- ---------- ---------- ----------
Total other expense - net 463 397 16.6 1,464 1,112 31.7
---------- ---------- ---------- ----------
(Loss) income before income taxes (400) 57 (801.8) (987) 960 (202.8)
Income tax (benefit) provision (142) 195 (172.8) (357) 752 (147.5)
---------- ---------- ---------- ----------
NET (LOSS) INCOME $ (258) $ (138) (87.0) $ (630) $ 208 (402.9)
========== ========== ========== ==========
Basic (loss) earnings per share $ (0.15) $ (0.08) (87.5) $ (0.38) $ 0.13 (392.3)
========== ========== ========== ==========
Basic average shares outstanding 1,688 1,664 1.4 1,677 1,660 1.0
========== ========== ========== ==========
Diluted (loss) earnings per share $ (0.15) $ (0.08) (87.5) $ (0.38) $ 0.12 (416.7)
========== ========== ========== ==========
Diluted average shares outstanding 1,688 1,664 1.4 1,677 1,673 0.2
========== ========== ========== ==========
Diluted cash (loss) earnings per share (3) $ (0.12) $ 0.08 (250.0) $ (0.28) $ 0.67 (141.8)
========== ========== ========== ==========
(1) The consolidated normalized statements have been adjusted to eliminate
the impacts of non-recurring and non-operating items, which for the
relevant periods may include restructuring, merger-related and other
charges, asset impairments, a depreciation adjustment for access lines
returned to service, gains (losses) on the sale of rural exchanges,
gains (losses) on the sale of assets and investments, the write-down
of investments, KPNQwest restructuring charges, changes in the market
value of financial instruments, gains (losses) on discontinued
operations and gains (losses) on the early retirements of debt. In
addition, the normalized statements adjust for a charge recorded by
the company in the second quarter to increase its bad debt reserves
associated with the WorldCom, Inc. bankruptcy. The merger has been
accounted for as a purchase transaction. Certain reclassifications
have been made to prior periods to conform to the current
presentation.
9
(2) Adjusted earnings before interest, income taxes, depreciation and
amortization ("Adjusted EBITDA") excludes all items adjusted as a
normalizing item. Adjusted EBITDA does not represent cash flow for the
periods presented and should not be considered as an alternative to
cash flows as a source of liquidity. Qwest's definition of adjusted
EBITDA is not necessarily comparable with adjusted EBITDA or similar
non-GAAP concepts used by other companies or with similar concepts
used in Qwest's debt instruments. Adjusted EBITDA is provided as a
complement to the financial results reported in accordance with GAAP
and is presented to provide investors additional information
concerning the company's operations. The company expects to disclose
any differences in the adjusted EBITDA for the three months and four
quarters ended September 30, 2002 and the Consolidated EBITDA
calculation under the credit facility when it is available in its Form
8-K in November 2002.
(3) Diluted cash (loss) earnings per share represent diluted (loss)
earnings per share adjusted to add back the after-tax amortization of
goodwill and other intangible assets.
10
ATTACHMENT C
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1) (4)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Three Months Ended
September 30, 2002 September 30, 2001
----------------------------------------- -----------------------------------------
As As
Reported Normalized Normalized Reported Normalized Normalized
Results Adjustments Results Results Adjustments Results
- ---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
REVENUES:
Business services $ 1,481 $ 13 $ 1,494 $ 1,567 $ 19 $ 1,586
Consumer services 1,387 3 1,390 1,528 3 1,531
Wholesale services 905 - 905 1,268 - 1,268
Directory services - 369 369 - 371 371
Network services and other revenue 24 (3) 21 11 (1) 10
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 3,797 382 4,179 4,374 392 4,766
OPERATING EXPENSES:
Cost of sales 1,457 119 1,576 1,569 128 1,697
Selling, general and administrative 1,327 57 1,384 1,277 27 1,304
----------- ----------- ----------- ----------- ----------- -----------
Adjusted EBITDA (2) 1,219 1,765
Adjusted EBITDA margin 29.2% 37.0%
Depreciation 1,067 4 1,071 987 9 996
Depreciation adjustment for access
lines returned to service - - - - - -
Goodwill and other intangible
amortization 85 - 85 315 - 315
Restructuring, merger-related and other
charges 117 (117) - - - -
----------- ----------- ----------- ----------- ----------- -----------
Operating income (256) 319 63 226 228 454
OTHER EXPENSE (INCOME):
Interest expense - net 449 6 455 380 - 380
Loss on changes in market value of
financial instruments - - - 7 (7) -
Loss on sales of investments and
FMV adjustments 1 (1) - - - -
Other expense - net 8 - 8 17 - 17
----------- ----------- ----------- ----------- ----------- -----------
Total other expense - net 458 5 463 404 (7) 397
----------- ----------- ----------- ----------- ----------- -----------
(Loss) income before income taxes, (714) 314 (400) (178) 235 57
discontinued operations and
extraordinary item
Income tax (benefit) provision (387) 245 (142) 104 91 195
----------- ----------- ----------- ----------- ----------- -----------
(Loss) income from continuing
operations (327) 69 (258) (282) 144 (138)
----------- ----------- ----------- ----------- ----------- -----------
DISCONTINUED OPERATIONS:
Income from discontinued operations 184 (184) - 229 (229) -
Income tax provision (71) 71 - (89) 89 -
----------- ----------- ----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (214) (44) (258) $ (142) 4 (138)
=========== =========== =========== =========== =========== ===========
Basic loss per share $ (0.13) $ (0.15) $ (0.09) $ (0.08)
=========== =========== =========== ===========
Basic average shares outstanding 1,688 1,688 1,664 1,664
=========== =========== =========== ===========
Diluted loss per share $ (0.13) $ (0.15) $ (0.09) $ (0.08)
=========== =========== =========== ===========
Diluted average shares outstanding 1,688 1,688 1,664 1,664
=========== =========== =========== ===========
Diluted cash (loss) earnings per share (3) $ (0.12) $ 0.08
=========== ===========
11
(1) The consolidated normalized statements have been adjusted to eliminate
the impacts of non-recurring and non-operating items, which for the
relevant periods may include restructuring, merger-related and other
charges, asset impairments, a depreciation adjustment for access lines
returned to service, gains (losses) on the sale of rural exchanges,
gains (losses) on the sale of assets and investments, the write-down
of investments, KPNQwest restructuring charges, changes in the market
value of financial instruments, gains (losses) on discontinued
operations and gains (losses) on the early retirements of debt. 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) Adjusted earnings before interest, income taxes, depreciation and
amortization ("Adjusted EBITDA") excludes all items adjusted as a
normalizing item. Adjusted EBITDA does not represent cash flow for the
periods presented and should not be considered as an alternative to
cash flows as a source of liquidity. Qwest's definition of adjusted
EBITDA is not necessarily comparable with adjusted EBITDA or similar
non-GAAP concepts used by other companies or with similar concepts
used in Qwest's debt instruments. Adjusted EBITDA is provided as a
complement to the financial results reported in accordance with GAAP
and is presented to provide investors additional information
concerning the company's operations. The company expects to disclose
any differences in the adjusted EBITDA for the three months and four
quarters ended September 30, 2002 and the Consolidated EBITDA
calculation under the credit facility when it is available in its Form
8-K in November 2002.
(3) Diluted cash (loss) earnings per share represent diluted (loss)
earnings per share adjusted to add back the after-tax amortization of
goodwill and other intangible assets.
(4) "Reported" results in the applicable period were prepared in
accordance with what the company believed, at the relevant time, were
generally accepted accounting principles in the United States (GAAP);
however, the company has determined that the results in 2001 were not
in accordance with GAAP and is restating those financial statements.
In addition, the company has not yet determined the impact of the
restatement on the current period.
12
ATTACHMENT D
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1) (4)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2001
------------------------------------------ ------------------------------------------
As As
Reported Normalized Normalized Reported Normalized Normalized
Results Adjustments Results Results Adjustments Results
- -------------------------------------- ----------- ------------ ------------ ---------- ------------ --------------
REVENUES:
Business services $ 4,569 $ 44 $ 4,613 $ 5,001 $ 66 $ 5,067
Consumer services 4,203 10 4,213 4,431 9 4,440
Wholesale services 2,920 - 2,920 4,415 - 4,415
Directory services - 1,064 1,064 - 1,061 1,061
Network services and other revenue 63 (6) 57 60 (4) 56
---------- ----------- ----------- --------- ----------- -------------
Total revenues 11,755 1,112 12,867 13,907 1,132 15,039
OPERATING EXPENSES:
Cost of sales 4,425 373 4,798 4,941 402 5,343
Selling, general and administrative 4,303 (167) 4,136 3,787 118 3,905
---------- ----------- ----------- --------- ----------- -------------
Adjusted EBITDA (2) 3,933 5,791
Adjusted EBITDA margin 30.6% 38.5%
Depreciation 3,175 26 3,201 2,676 17 2,693
Depreciation adjustment for
access lines returned to service - - - 222 (222) -
Goodwill and other intangible
amortization 255 - 255 1,026 - 1,026
Restructuring, merger-related and
other charges 117 (117) - 624 (624) -
---------- ----------- ----------- --------- ----------- -------------
Operating income (520) 997 477 631 1,441 2,072
OTHER EXPENSE (INCOME):
Interest expense - net 1,315 6 1,321 1,061 - 1,061
Loss on changes on market value
of financial instruments 7 (7) -
Gain on sales of rural
exchanges and fixed assets - - - (50) 50 -
Loss on sales of investments and
FMV adjustments 22 (22) - - - -
Investment write-downs 1,202 (1,202) - 3,247 (3,247) -
Other expense - net 217 (74) 143 51 - 51
---------- ----------- ----------- --------- ----------- -------------
Total other expense - net 2,756 (1,292) 1,464 4,316 (3,204) 1,112
---------- ----------- ----------- --------- ----------- -------------
(Loss) income before income taxes,
discontinued operations and
extraordinary item (3,276) 2,289 (987) (3,685) 4,645 960
Income tax (benefit) provision (873) 516 (357) 108 644 752
---------- ----------- ----------- --------- ----------- -------------
(Loss) income from continuing
operations (2,403) 1,773 (630) (3,793) 4,001 208
---------- ----------- ----------- --------- ----------- -------------
DISCONTINUED OPERATIONS:
Income from discontinued operations 569 (569) - 596 (596) -
Income tax provision (220) 220 - (232) 232 -
---------- ----------- ----------- --------- ----------- -------------
(Loss) income before extraordinary
item (2,054) 1,424 (630) (3,429) 3,637 208
---------- ----------- ----------- --------- ----------- -------------
Extraordinary item - early
retirement of debt, net of tax 6 (6) - (65) 65 -
---------- ----------- ----------- --------- ----------- -------------
NET (LOSS) INCOME $ (2,048) $ 1,418 $ (630) $ (3,494) $ 3,702 $ 208
========== =========== =========== ========= =========== =============
Basic (loss) earnings per share $ (1.22) $ (0.38) $ (2.10) $ 0.13
========== =========== ========= =============
Basic average shares outstanding 1,677 1,677 1,660 1,660
========== =========== ========= =============
Diluted (loss) earnings per share $ (1.22) $ (0.38) $ (2.10) $ 0.12
========== =========== ========= =============
Diluted average shares outstanding 1,677 1,677 1,660 1,673
========== =========== ========= =============
Diluted cash (loss) earnings per $ (0.28) $ 0.67
share (3) =========== =============
13
(1) The consolidated normalized statements have been adjusted to eliminate the
impacts of non-recurring and non-operating items, which for the relevant
periods may include restructuring, merger-related and other charges, asset
impairments, a depreciation adjustment for access lines returned to
service, gains (losses) on the sale of rural exchanges, gains (losses) on
the sale of assets and investments, the write-down of investments, KPNQwest
restructuring charges, changes in the market value of financial
instruments, gains (losses) on discontinued operations and gains (losses)
on the early retirements of debt. In addition, the normalized statements
adjust for a charge recorded by the company in the second quarter to
increase its bad debt reserves associated with the WorldCom, Inc.
bankruptcy. 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) Adjusted earnings before interest, income taxes, depreciation and
amortization ("Adjusted EBITDA") excludes all items adjusted as a
normalizing item. Adjusted EBITDA does not represent cash flow for the
periods presented and should not be considered as an alternative to cash
flows as a source of liquidity. Qwest's definition of adjusted EBITDA is
not necessarily comparable with adjusted EBITDA or similar non-GAAP
concepts used by other companies or with similar concepts used in Qwest's
debt instruments. Adjusted EBITDA is provided as a complement to the
financial results reported in accordance with GAAP and is presented to
provide investors additional information concerning the company's
operations. The company expects to disclose any differences in the adjusted
EBITDA for the three months and four quarters ended September 30, 2002 and
the Consolidated EBITDA calculation under the credit facility when it is
available in its Form 8-K in November 2002.
(3) Diluted cash (loss) earnings per share represent diluted (loss) earnings
per share adjusted to add back the after-tax amortization of goodwill and
other intangible assets.
(4) "Reported" results in the applicable period were prepared in accordance
with what the company believed, at the relevant time, were generally
accepted accounting principles in the United States (GAAP); however, the
company has determined that the results in 2001 were not in accordance with
GAAP and is restating those financial statements. In addition, the company
has not yet determined the impact of the restatement on the current period.
14
ATTACHMENT E
QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED CONSOLIDATED DATA (5)
(UNAUDITED)
As of and for the
Three Months Ended
September 30,
-------------------------- %
2002 2001 Change
---------- ---------- ----------
Free cash flow (in millions) (1) $ 53 $ (1,352) NM
Capital expenditures (in millions) $ 504 $ 2,232 (77.4%)
Total employees 53,133 65,309 (18.6%)
DSL:
Out-of-region subscribers (in thousands) 25 15 66.7%
In-region subscribers (in thousands) 500 391 27.9%
Qualified households/businesses (in millions) 4.0 3.7 8.1%
DSL equipped central offices 392 318 23.3%
Subscribers per equipped central office 1,276 1,228 3.9%
Wireless/PCS:
Revenues (in millions) $ 179 $ 203 (11.8%)
Subscribers (in thousands) 1,084 1,071 1.2%
ARPU (in dollars) $ 47 $ 55 (14.5%)
Cost per gross addition (CPGA) $ 229 $ 321 (28.7%)
Penetration 4.95% 5.01% (1.2%)
Access lines (in thousands): (2)
Business
Retail (3) 5,107 5,344 (4.4%)
Resale 77 169 (54.4%)
UNE-P 498 459 8.5%
Unbundled Loop 437 273 60.1%
---------- ----------
Total Business 6,119 6,245 (2.0%)
---------- ----------
Consumer
Primary line 9,323 9,769 (4.6%)
Additional line 1,632 1,793 (9.0%)
Public line (4) 122 153 (20.3%)
---------- ----------
Total Consumer 11,077 11,715 (5.4%)
---------- ----------
Total access lines 17,196 17,960 (4.3%)
========== ==========
Minutes of use from Carriers and CLECs (in
millions) 15,993 17,673 (9.5%)
Voice grade equivalent access lines (in
thousands): (2)
Business 50,959 44,082 15.6%
Consumer 12,597 12,807 (1.6%)
---------- ----------
Total voice grade equivalents 63,556 56,889 11.7%
========== ==========
15
(1) Free cash flow is calculated as cash provided (used) from operation, less
capital expenditures. Please note that this calculation includes the
operations of DEX, while the cash flow presented on Attachment H does not.
(2) Access line and voice grade equivalent data has been adjusted for prior
periods to conform to the current period presentation. A voice-grade
equivalent is the amount of capacity required to carry one telephone call.
A voice-grade equivalent line is the outcome of measuring all residential
and business access lines, and private line channel terminations as if they
were converted to single access lines that have the ability to transmit and
receive only one voice transmission at a time.
(3) Business retail access line counts include lines sold to interexchamge
carriers at retail rates, however the revenue for these lines is accounted
for in our Wholesale segment.
(4) Consumer public access lines represent lines serving public payphones.
(5) "Reported" results in the applicable period were prepared in accordance
with what the company believed, at the relevant time, were generally
accepted accounting principles in the United States (GAAP); however, the
company has determined that the results in 2001 were not in accordance with
GAAP and is restating those financial statements. In addition, the company
has not yet determined the impact of the restatement on the current period.
16
ATTACHMENT F
QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED CONSOLIDATED DATA - NORMALIZED (1)
(DOLLARS IN MILLIONS)
(UNAUDITED)
The following table shows a breakdown of revenues by major products and
services for the three primary segments:
Business services Consumer services Wholesale services
Three months Three months Three months
ended September 30, ended September 30, ended September 30,
---------------------------------------------------------------------------
Services & products: 2002 2001 2002 2001 2002 2001
- -------------------- ---------- ---------- ---------- ---------- ---------- ----------
IP & data services $ 561 $ 565 $ 49 $ 57 $ 340 $ 428
Optical capacity asset sales - - - - - 133
IP equipment and other - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Total IP & data 561 565 49 57 340 561
Voice - long distance 226 244 77 142 218 247
Voice - local 671 742 1,093 1,145 342 430
Wireless 20 26 159 176 - 1
Other 16 9 12 11 5 29
---------- ---------- ---------- ---------- ---------- ----------
Total $ 1,494 $ 1,586 $ 1,390 $ 1,531 $ 905 $ 1,268
========== ========== ========== ========== ========== ==========
<FN>
(1) "Reported" results in the applicable period were prepared in accordance
with what the company believed, at the relevant time, were generally
accepted accounting principles in the United States (GAAP); however, the
company has determined that the results in 2001 were not in accordance with
GAAP and is restating those financial statements. In addition, the company
has not yet determined the impact of the restatement on the current period.
</FN>
17
ATTACHMENT G
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (1)
(DOLLARS IN MILLIONS)
September 30, December 31,
2002 2001
- ------------------------------------------------ ------------- -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,133 $ 257
Accounts receivable - net 2,971 3,725
Inventories and supplies 96 170
Prepaid and other 770 504
Assets held for sale 820 914
------------ ------------
Total current assets 5,790 5,570
Property, plant and equipment - net 29,180 30,165
Investments 47 1,400
Goodwill and intangibles - net 34,384 34,523
Other assets 2,303 2,123
------------ ------------
Total assets $ 71,704 $ 73,781
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 2,388 $ 4,805
Accounts payable 1,063 1,488
Accrued expenses and other current liabilities 2,413 3,237
Advance billings and customer deposits 386 391
Liabilities held for sale 191 98
------------ ------------
Total current liabilities 6,441 10,019
Long-term borrowings 23,742 20,197
Post-retirement and other post-employment
benefit obligations 2,816 2,893
Deferred taxes, credits and other 3,970 4,017
Stockholders' equity 34,735 36,655
------------ ------------
Total liabilities and stockholders' equity $ 71,704 $ 73,781
============ ============
(1) "Reported" results in the applicable period were prepared in accordance
with what the company believed, at the relevant time, were generally
accepted accounting principles in the United States (GAAP); however, the
company has determined that the results in 2001 were not in accordance with
GAAP and is restating those financial statements. In addition, the company
has not yet determined the impact of the restatement on the current period.
18
ATTACHMENT H
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (1)
(DOLLARS IN MILLIONS)
(UNAUDITED)
Nine Months Ended
September 30,
2002 2001
----------- -----------
OPERATING ACTIVITIES:
Net Loss: $ (2,048) $ (3,494)
Adjustments to net loss:
Income from discontinued operations, net of income taxes (349) (364)
Depreciation and amortization 3,430 3,924
Loss on sale of investments and fair value adjustments, net 22 -
Non-Cash Merger-related charges 118 480
Provision for bad debts 581 405
Asset impairment charge 1,339 3,247
Equity loss on investments 155 74
Deferred Income taxes (294) 829
(Gain) loss on sales of rural exchanges and fixed assets 5 (50)
(Gain) loss on early retirement of debt, net (6) 65
Changes in operating assets and liabilities:
Accounts receivable 161 (875)
Inventories, supplies, prepaids and other current assets 58 (501)
Accounts payable, accrued expenses and advance billings (1,066) (444)
Restructuring and Merger-related reserves (370) (443)
Other 53 156
----------- -----------
Cash provided by operating activities 1,789 3,009
----------- -----------
INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:
Expenditures for property, plant and equipment (2,318) (7,791)
Other 63 (24)
----------- -----------
Cash used for investing activities (2,255) (7,815)
----------- -----------
FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:
Net proceeds from current borrowings 809 968
Proceeds from issuance of long-term borrowings 1,476 6,937
Repayments of long-term borrowings (1,117) (2,269)
Cash restricted for the repayment of short-term borrowings (107) -
Costs relating to the early retirement of debt - (106)
Proceeds from issuances of common stock 12 296
Repurchase of stock (12) (1,000)
Dividends paid on common stock - (83)
Debt issuance costs (152) (41)
----------- -----------
Cash provided by financing activities 909 4,702
----------- -----------
CASH AND CASH EQUIVALENTS:
Increase 443 (104)
Net cash generated by (used in) discontinued operations 433 375
Beginning balance 257 154
----------- -----------
Ending balance $ 1,133 $ 425
=========== ===========
19
(1) "Reported" results in the applicable period were prepared in accordance
with what the company believed, at the relevant time, were generally
accepted accounting principles in the United States (GAAP); however, the
company has determined that the results in 2001 were not in accordance with
GAAP and is restating those financial statements. In addition, the company
has not yet determined the impact of the restatement on the current period.
20