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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission File Number 1-14087
U S WEST, Inc.
(Exact name of registrant as specified in its charter)
A Delaware Corporation 84-0953188
---------------------- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
of organization)
1801 California Street, Denver, Colorado 80202
(Address of principal executive offices and zip code)
Telephone Number (303) 672-2700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
At April 28, 2000, 507,685,431 shares of common stock were outstanding.
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U S WEST, Inc.
Form 10-Q
TABLE OF CONTENTS
Item Page
PART I - FINANCIAL INFORMATION
1. Financial Statements
Consolidated Statements of Income -
Three months ended March 31, 2000 and 1999.................................... 3
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999........................................... 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and 1999.................................... 5
Notes to Consolidated Financial Statements...................................... 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................. 13
3. Quantitative and Qualitative Disclosures
About Market Risk................................................................ 21
PART II - OTHER INFORMATION
1. Legal Proceedings....................................................................... 25
5. Recent Developments..................................................................... 25
6. Exhibits and Reports on Form 8-K........................................................ 25
2
U S WEST, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
(unaudited)
Three Months Ended
March 31,
-----------------------------
2000 1999
---- ----
Revenues:
Local services.................................................... $2,040 $1,863
Access services................................................... 709 671
Directory services................................................ 347 326
Long-distance services............................................ 107 174
Other services.................................................... 174 134
-------------- -------------
Total revenues................................................. 3,377 3,168
-------------- -------------
Operating expenses:
Employee-related expenses......................................... 1,167 1,122
Other operating expenses.......................................... 717 656
Depreciation and amortization..................................... 586 602
-------------- -------------
Total operating expenses....................................... 2,470 2,380
-------------- -------------
Operating income........................................................ 907 788
Other expense (income):
Interest expense.................................................. 211 153
Decline in market value of derivative financial
instruments................................................... 129 -
Gain on sales of investments...................................... (79) -
Other (income) expense-net........................................ (1) 1
-------------- -------------
Total other expense-net........................................ 260 154
-------------- -------------
Income before income taxes and cumulative effect of change in accounting
principle............................................................ 647 634
Provision for income taxes.............................................. 243 240
-------------- -------------
Income before cumulative effect of change in accounting
principle....... 404 394
Cumulative effect of change in accounting principle..................... - 240
-------------- -------------
Net Income.............................................................. $404 $634
============== =============
Basic earnings per share................................................ $0.80 $1.26
============== =============
============== =============
Basic average shares outstanding (in 000's)............................. 507,163 503,306
============== =============
Diluted earnings per share.............................................. $0.79 $1.25
============== =============
Diluted average shares outstanding (in 000's)........................... 514,305 508,121
============== =============
Dividends per share..................................................... $0.535 $0.535
============== =============
The accompanying notes are an integral part of the consolidated financial
statements.
3
U S WEST, Inc.
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share amounts)
March 31, December 31,
2000 1999
----------------- -----------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents....................................................... $82 $78
Accounts receivable, less allowance for uncollectibles of
$85 and $88, respectively..................................................... 2,355 2,455
Receivable from sale of Global Crossing Ltd. common stock....................... - 1,140
Inventories and supplies........................................................ 302 272
Deferred directory costs........................................................ 94 85
Deferred tax assets............................................................. 31 46
Prepaid and other............................................................... 185 116
----------------- -----------------
Total current assets............................................................... 3,049 4,192
Property, plant and equipment(Y)net................................................ 16,932 16,404
Investments........................................................................ 1,085 1,290
Other assets(Y)net................................................................. 1,635 1,386
----------------- -----------------
Total assets....................................................................... $22,701 $23,272
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt................................................................. $2,353 $2,882
Accounts payable................................................................ 1,503 1,700
Accrued expenses................................................................ 1,698 1,840
Advance billings and customer deposits.......................................... 354 344
----------------- -----------------
Total current liabilities.......................................................... 5,908 6,766
Long-term debt..................................................................... 10,247 10,189
Postretirement and other postemployment benefit obligations........................ 2,838 2,890
Deferred income taxes.............................................................. 1,177 1,191
Unamortized investment tax credits................................................. 159 161
Deferred credits and other......................................................... 1,057 820
Commitments and Contingencies
Stockholders' equity:
Preferred stock - $1.00 par value, 190,000,000 shares authorized, none issued
and outstanding.............................................................. - -
Series A junior preferred stock(Y)$1.00 par value, 10,000,000 shares authorized,
none issued and outstanding.................................................. - -
Common stock(Y)$0.01 par value, 2,000,000,000 shares authorized, 507,903,486 and
506,554,982 issued, 507,599,483 and 506,250,979 outstanding.................. 706 656
Retained earnings............................................................... 509 377
Accumulated other comprehensive income.......................................... 100 222
----------------- -----------------
Total stockholders' equity......................................................... 1,315 1,255
----------------- -----------------
Total liabilities and stockholders' equity......................................... $22,701 $23,272
================= =================
The accompanying notes are an integral part of the consolidated financial
statements.
4
U S WEST, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
(unaudited)
Three Months Ended
March 31,
------------------------------
2000 1999
---- ----
OPERATING ACTIVITIES
Net income................................................................................ $404 $634
Adjustments to net income:
Depreciation and amortization....................................................... 586 602
Decline in market value of derivative financial instruments......................... 129 -
Gain on sales of investments........................................................ (79) -
Cumulative effect of change in accounting principle................................. - (240)
Deferred income taxes and amortization of investment tax credits.................... 84 12
Changes in operating assets and liabilities:
Accounts receivable................................................................. 100 55
Inventories, supplies and other current assets...................................... (97) (116)
Accounts payable, accrued expenses and advance billings............................. (181) 51
Other............................................................................... (139) (61)
-------------- --------------
-------------- --------------
Cash provided by operating activities.................................................. 807 937
-------------- --------------
-------------- --------------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment......................................... (1,277) (753)
Payments on disposals of property, plant and equipment................................. (9) (8)
Proceeds from sale of Global Crossing Ltd. common stock................................ 1,140 -
Other.................................................................................. 136 (11)
-------------- --------------
Cash used for investing activities..................................................... (10) (772)
-------------- --------------
FINANCING ACTIVITIES
Net (repayments of) proceeds from short-term debt...................................... (520) 256
Repayments of long-term debt........................................................... (32) (181)
Proceeds from issuance of common stock................................................. 30 16
Dividends paid on common stock......................................................... (271) (269)
-------------- --------------
Cash used for financing activities..................................................... (793) (178)
-------------- --------------
CASH AND CASH EQUIVALENTS
Increase (decrease).................................................................... 4 (13)
Beginning balance...................................................................... 78 49
-------------- --------------
Ending balance......................................................................... $82 $36
============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
5
U S WEST, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2000
(dollars in millions, except per share amounts)
(unaudited)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The consolidated interim financial statements
are unaudited. We prepared the financial statements in accordance with the
instructions for Form 10-Q and therefore, did not include all information and
footnotes required by generally accepted accounting principles. In our opinion,
we made all the adjustments (consisting only of normal recurring adjustments)
necessary to fairly present our consolidated results of operations, financial
position and cash flows as of March 31, 2000 and for all periods presented. The
financial statements are subject to year-end audit adjustment. A description of
our accounting policies and other financial information are included in the
audited consolidated financial statements filed with the Securities and Exchange
Commission in our Form 10-K for the year ended December 31, 1999. The
consolidated results of operations for the three months ended March 31, 2000 are
not necessarily indicative of the results expected for the full year.
NOTE 2: EARNINGS PER SHARE
The following table is a reconciliation of basic weighted average
shares to diluted weighted average shares (shares in thousands):
Three Months Ended
March 31,
------------------------------------
2000 1999
---------------- --------------
Basic weighted average shares outstanding..................... 507,163 503,306
Dilutive effect of stock options.............................. 7,142 4,815
---------------- --------------
Diluted weighted average shares outstanding................... 514,305 508,121
================ ==============
NOTE 3: SEGMENT INFORMATION
We operate in four segments: retail services, wholesale services,
network services and directory services. The retail services segment provides
local telephone services, including wireless services, data services and
long-distance services. The wholesale services segment provides exchange access
services that connect customers to the facilities of interexchange carriers and
interconnection to our telecommunications network to competitive local exchange
carriers. Our network services segment provides access to our telecommunications
network, including our information technologies, primarily to our retail
services and wholesale services segments. The directory services segment
publishes White and Yellow Pages telephone directories and provides electronic
directory and other information services. We provide our services to more than
25 million residential and business customers in Arizona, Colorado, Idaho, Iowa,
Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota,
Utah, Washington and Wyoming.
Following is a breakout of our segments. Because significant operating
expenses of the retail services and wholesale services segments are not
allocated to the segments for decision-making purposes, management does not
believe the segment margins are representative of the actual operating results
of the segments. The margins for the retail services and wholesale services
segments exclude network and corporate expenses. The margins for the network and
directory services segments exclude corporate expenses. The "other" category
includes our corporate expenses and intersegment eliminations.
6
Total
Communications
and
Retail Wholesale Network Related Directory Reconciling Consolidated
Services Services Services Services Services Other Items Total
-------- -------- -------- -------- -------- ----- ----- -----
Three Months Ended March 31,
2000
Revenues........ $2,324 $747 $74 $3,145 $350 $- $(118)(1) $3,377
Margin.......... 1,469 581 (661) 1,389 190 25 (957)(2) 647
Assets.......... -(3) -(3) -(3) -(3) 799 -(3) 21,902(3) 22,701
Capital
expenditures. 154 24 1,050 1,228 11 2 - 1,241
1999
- ----
Revenues........ $2,169 $691 $50 $2,910 $328 $- $(70)(1) $3,168
Margin.......... 1,505 530 (685) 1,350 165 (35) (846)(2) 634
Assets.......... -(3) -(3) -(3) -(3) 895 -(3) 18,159(3) 19,054
Capital
expenditures. 111(4) 31 638 780 7 - - 787
- -----------------------
<FN>
<F1>
(1) Represents primarily intersegment charges.
<F2>
(2) Adjustments made to arrive at consolidated income before income taxes
and cumulative effect of change in accounting principle include the
following:
</FN>
7
Three Months Ended March 31,
------------------------------------------
2000 1999
------------------- -------------------
Costs excluded from segment data but included in the consolidated total:
Taxes other than income taxes................................... $111 $90
Depreciation and amortization................................... 586 602
Decline in market value of derivative financial instruments..... 129 -
Gain on sales of investments.................................... (79) -
Interest expense................................................ 211 153
Other (income) expense-net...................................... (1) 1
------------------- -------------------
$957 $846
=================== ===================
<FN>
<F1>
(3) We do not provide a breakout of assets for all segments to our chief
operating decision-maker. The reconciling items column represents the
amount to reconcile to the consolidated total.
<F2>
(4) Capital expenditures reported for the retail services segment include
only expenditures for wireless services and certain data services.
Additional capital expenditures relating to those services are included
in network services capital expenditures.
</FN>
In addition to the revenues disclosed above, intersegment revenues were:
Three Months Ended March 31,
--------------------------------------
2000 1999
----------------- -----------------
Retail services................................................. $24 $6
Wholesale services.............................................. 19 7
Network services................................................ 16 17
Directory services.............................................. 3 3
NOTE 4: OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive loss for the quarter ended March 31, 2000 was $122,
net of deferred taxes of $79. Other comprehensive income for the quarter ended
March 31, 1999 was $15, net of deferred taxes of $10. Other comprehensive income
(loss) consists of net unrealized gains and losses on available for sale
marketable securities.
Total comprehensive income for the three months ended March 31, 2000
and 1999 are as follows:
8
Three Months Ended March 31,
2000 1999
---- ----
Net income.......................................................... $404 $634
Other comprehensive income (loss):
Net unrealized gains (losses) on available for sale
marketable securities........................................ (122) 15
---------------- ----------------
Comprehensive income................................................ $282 $649
================ ================
In 2000, unrealized gains (losses) on marketable investments include
reclassification adjustments of $49, net of deferred taxes of $30, pertaining to
realized gains from the sale of securities.
NOTE 5: COMMITMENTS AND CONTINGENCIES
Commitments
We entered into an agreement with Olympic Properties of the United
States to sponsor the 2002 Salt Lake City Winter Olympics and the U.S. Olympic
Teams through 2004. As of March 31, 2000, we have a remaining commitment of $48
be paid in a combination of cash and services through 2004.
Contingencies
Regulatory Contingencies. On May 1, 1996, the Oregon Public Utilities
Commission ("OPUC") approved a stipulation terminating prematurely U S WEST
Communications, Inc.'s ("USWC"), a wholly owned subsidiary, alternative form of
regulation ("AFOR") plan and it then undertook a review of USWC's earnings. In
May 1997, the OPUC ordered USWC to reduce its annual revenues by $97, effective
May 1, 1997, and to issue a one-time refund, including interest, of
approximately $102 to reflect the revenue reduction for the period May 1, 1996
through April 30, 1997. This one-time refund for interim rates became subject to
refund when USWC's AFOR plan was terminated on May 1, 1996.
USWC filed an appeal of the order and asked for an immediate stay of
the refund with the Oregon Circuit Court which granted USWC's request, pending a
full review of the OPUC's order. On February 19, 1998, the Oregon Circuit Court
entered a judgment in USWC's favor on most of the appealed issues. The OPUC
appealed to the Oregon Court of Appeals on March 19, 1998, and the appeal
remains pending. USWC continues to charge interim rates, subject to refund,
during the pendency of that appeal.
On September 9, 1999, USWC and the OPUC staff reached a tentative
settlement agreement whereby USWC would refund approximately $270 to current and
former Oregon customers of USWC and issue temporary bill credits of $63 annually
until the OPUC sets final rates. On April 14, 2000, the OPUC announced its
acceptance of the settlement agreement. We have reserved for the proposed
refunds.
9
In December 1999, the Colorado Public Utilities Commission decided to
levy reparations against USWC of $13 for violations of service quality rules
between January 1998 and April 1999, although a final written order has not yet
been issued. USWC has reserved for these reparations.
The New Mexico Public Regulation Commission has ordered an interim
annual rate reduction of approximately $29, effective February 15, 2000.
Permanent resolution of this matter is expected during 2000.
USWC has pending regulatory actions in local regulatory jurisdictions
which call for price decreases, refunds or both. These actions are generally
routine and incidental to USWC's business. USWC will continue to monitor and
evaluate the risks associated with its local regulatory jurisdictions.
Other Contingencies. In 1999, twelve complaints were filed against us
and our directors in the following jurisdictions: California Superior Court, Los
Angeles County (1); New York Supreme Court, New York County (1); Colorado
District Court, City and County of Denver (2); Delaware Court of Chancery (8).
These actions are purported class actions brought on behalf of all persons,
other than the defendants, who own our common stock, against us and our
directors. Each of the complaints makes substantially similar allegations that
the defendants breached their fiduciary duties to the class members by refusing
to seek all bona fide offers for U S WEST (the "Company") and refusing to
consider the Qwest Communications International Inc. ("Qwest") proposal,
resulting in the stockholders being prevented from maximizing the value of their
common stock. The complaints seek various injunctive and monetary relief,
including orders: a) requiring defendants to act in accordance with their
fiduciary duties by considering any bona fide proposal which would maximize
stockholder value; b) requiring the directors to undertake an evaluation of our
Company as a merger/ acquisition candidate and take steps to enhance that value
and create an active auction for our Company; c) preventing defendants from
using a stockholder rights plan to impede any bona fide offer for our Company;
d) enjoining the consummation of the proposed Global Crossing Ltd. ("Global
Crossing") - U S WEST merger until all alternatives are explored; e) requiring
defendants to account for all damages suffered by plaintiffs as a result of
defendants' actions with respect to the tender offer for the shares of Global
Crossing common stock by us and the proposed Global Crossing-U S WEST merger;
and f) requiring defendants to pay damages to plaintiffs. We intend to
vigorously defend these actions.
On April 26, 2000, a Class Action Complaint was filed against U S WEST
and USWC purportedly on behalf of 100,000 customers in the State of New Mexico.
The complaint alleges, inter alia, that from 1993 to the present, U S WEST and
USWC, in violation of alleged statutory and common law obligations, willfully
delayed the provision of local telephone service to the purported class members.
In addition, the complaint alleges that U S WEST and USWC misrepresented the
date on which such local telephone service was to be provided to the purported
class members. The complaint seeks compensatory damages for purported class
members, disgorgement of profits and punitive damages. U S WEST and USWC intend
to vigorously defend this action.
10
On October 1, 1999, a Fifth Amended Class Action Complaint was filed
against U S WEST and USWC purportedly on behalf of 220,000 customers in the
State of Colorado. The complaint alleges, inter alia, that from 1993 to the
present, U S WEST and USWC, in violation of alleged statutory and common law
obligations, willfully delayed the provision of local telephone service to the
purported class members. In addition, the complaint alleges that U S WEST and
USWC misrepresented the date on which such local telephone service was to be
provided to the purported class members. The complaint seeks compensatory
damages for purported class members, disgorgement of profits and punitive
damages. U S WEST and USWC intend to vigorously defend this action.
We are subject to other legal proceedings and claims that arise in the
ordinary course of business. Although there can be no assurance of the ultimate
disposition of these matters, it is management's opinion, based upon the
information available at this time, that the expected outcome, individually or
in the aggregate, will not have a material adverse effect on our consolidated
results of operations or financial position.
NOTE 6: MERGER AGREEMENT
In July 1999, we entered into an agreement to merge with Qwest. Under
the terms of the merger agreement, Qwest will issue shares of its common stock
having a value of $69.00 for each share of our common stock, subject to a
"collar" on Qwest's Average Price (as defined below) between $28.26 and $39.90
per share. The exchange ratio, and accordingly, the number of Qwest shares to be
issued for each U S WEST share will be determined by dividing $69.00 by the
average of the volume weighted averages of the trading prices of Qwest common
stock for the 15 trading days randomly selected by lot, by Qwest and us together
from the 30 consecutive trading days ending on the third trading day preceding
the closing of the transaction (the "Average Price"). If Qwest's Average Price
is less than $28.26, the exchange ratio will be 2.44161. If Qwest's Average
Price is greater than $39.90, the exchange ratio will be 1.72932.
The obligation, if necessary, under the "collar" may be satisfied in
whole or in part with cash if Qwest's Average Price is below $38.70 per share.
In determining the cash amount for the "collar", Qwest and U S WEST will
consider Qwest's desire to reduce dilution to its stockholders, our desire to
provide a cash element to our stockholders and both companies' desire to
maintain the merged company's strong financial condition. We may terminate the
merger agreement if the closing price of Qwest's shares is below $22.00 for 20
consecutive trading days before the closing, or if the Average Price of Qwest
shares during the measurement period is less than $22.00. The Boards of
Directors of both Qwest and U S WEST and their stockholders approved the
proposed merger. The merger is subject to federal and state regulatory approvals
without significant conditions and other customary closing conditions.
11
NOTE 7: CHANGE IN ACCOUNTING METHOD
Prior to 1999, U S WEST Dex ("Dex") recognized revenues and expenses
related to publishing directories using the "deferral method," under which
revenues and expenses were recognized over the lives of the directories,
generally one year. Effective the fourth quarter of 1999, Dex changed to the
"point of publication" method of accounting, which recognizes revenues and
expenses at the time the related directory is published. The change in
methodology was made to align our revenue and expense policy with the earnings
process and to better reflect the operating activity of the business. The
accounting change resulted in a one-time increase in net income of $240 (net of
income tax of $153), or $0.47 per diluted share, which was reported as a
cumulative effect (as of January 1, 1999) of a change in accounting principle.
We restated our quarter ended March 31, 1999 results of operations to give
effect to the point of publication method which decreased net income by $3 or
$0.01 per diluted share as compared to results that would have been reported
under the deferral method.
12
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (dollars in millions)
Special Note Regarding Forward-Looking Statements
Some of the information presented in this Form 10-Q constitutes
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Although U S WEST, Inc. (the
"Company," which may also be referred to as "we," "us" or "our") believes that
its expectations are based on reasonable assumptions within the bounds of its
knowledge of its businesses and operations, there can be no assurance that
actual results will not differ materially from our expectations. Factors that
could cause actual results to differ from expectations include:
o greater than anticipated competition from new entrants into the local
exchange, intraLATA (local access transport area) toll, wireless, data and
directories markets, causing loss of customers and increased price
competition;
o changes in demand for our products and services, including optional custom
calling features;
o higher than anticipated employee levels, capital expenditures and operating
expenses (such as costs associated with interconnection);
o the loss of significant customers;
o pending and future state and federal regulatory changes affecting the
telecommunications industry, including changes that could have an impact on
the competitive environment and service pricing in the local exchange
market;
o acceleration of the deployment of advanced new services and/or advanced new
services to customers, such as broadband data, wireless (including the
purchase of spectrum licenses) and video services, which would require
substantial expenditure of financial and other resources;
o changes in economic conditions in the various markets served by our
operations;
o higher than anticipated start-up costs associated with new business
opportunities;
o delays in our ability to begin offering interLATA long-distance services;
o timing, cost and consumer acceptance of broadband services, including
telephony, data, video and wireless services;
o delays in the development of anticipated technologies, or the failure of
such technologies to perform according to expectations; and
13
o timing and completion of the announced merger with Qwest Communications
International Inc. ("Qwest") and the subsequent integration of the
businesses of the two companies.
You should not construe these cautionary statements as an exhaustive list
or as any admission by us regarding the adequacy of the disclosures made by us.
We cannot always predict or determine after the fact what factors would cause
actual results to differ materially from those indicated by our forward-looking
statements or other statements. In addition, you are urged to consider
statements that include the terms "believes," "belief," "expects," "plans,"
"objectives," "anticipates," "intends," or the like to be uncertain and
forward-looking. All cautionary statements should be read as being applicable to
all forward-looking statements wherever they appear.
We do not undertake any obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed herein might not occur.
Results of Operations
Three Months Ended March 31, 2000 Compared with 1999
Several non-recurring items impacted net income for the three months ended
March 2000 and 1999. Results of operations, normalized to exclude the effects of
such items, are as follows:
Three Months Ended
March 31,
-----------------------------
Increase
(Decrease)
2000 1999 ----------
---- ----
Net income ..................................... $404 $634 $(230) (36.3)%
Non-recurring items............................. 41(1) (240)(2) 281 117.1
------------
--------------- ------------ ------------
Normalized income............................... $445 $394 $51 12.9%
=============== ============ ============ ============
Diluted earnings per share...................... $0.79 $1.25 $(0.46) (36.8)%
Non-recurring items............................. 0.08 (0.47) 0.55 117.0
--------------- ------------ ------------ ------------
Normalized diluted earnings per share........... $0.87 $0.78 $0.09 11.5%
=============== ============ ============ ============
<FN>
<F1>
(1) Reflects an after-tax charge of $81 or $0.16 per diluted share for the
decline in the market value of derivative financial instruments, an
after-tax charge of $9 or $0.02 per diluted share for merger-related
costs and an after-tax benefit of $49 or $0.10 per diluted share for
the gain on sales of investments.
<F2>
(2) Reflects an after-tax benefit of $240 or $0.47 per diluted share
representing the cumulative effect of a change in accounting principle
applicable to the change in accounting method for directory publishing
revenues and expenses.
</FN>
14
Normalized net income increased by $51, or 12.9% to $445 for the quarter
ended March 31, 2000. We experienced a 6.6% increase in revenues for the three
months ended March 31, 2000, over the comparable 1999 period. The increase was
partially offset by an increase in expenses to support our growth initiatives,
enhance customer service and improve our network.
The following sections provide a more detailed discussion of the changes in
revenues and expenses.
Revenues
Three Months Ended
March 31,
------------------------
2000 1999 Increase
--------
Local services revenues................................. $2,040 $1,863 $177 9.5%
====== ====== ==== ====
Local services revenues. Local services revenues include retail and
wholesale basic monthly service fees, fees for calling services such as voice
messaging and caller identification, wireless revenues, subscriber line charges
("SLCs"), MegaBit [Trademark Symbol] data services, local number portability
("LNP") charges, public phone revenues, interconnection, paging and installation
and connection charges. State public service commissions regulate most local
service rates.
Local services revenues increased primarily due to greater sales of
wireless and calling services. Wireless services accounted for $66 and calling
services accounted for $23 of the increase. Increased demand for basic monthly
services, including second line installations, accounted for $25 of the revenue
increase over the quarter ended March 31, 1999. Reductions in regulatory rate
changes added $17 to the revenue growth. Also contributing to revenue growth
were greater revenues from LNP charges, interconnection revenues, SLCs, paging
services and increases in the subscriber base of our MegaBit [Trademark Symbol]
data services.
Three Months Ended
March 31,
------------------------
2000 1999 Increase
--------
Access services revenues................................ $709 $671 $38 5.7%
==== ==== === ====
Access services revenues. Access services revenues are derived primarily
from charging interexchange carriers ("IXCs"), such as AT&T and MCI WorldCom,
for use of our local network to connect customers to their long-distance
networks. Also included in access services revenues are special access and
private line revenues from end-users buying dedicated local exchange capacity to
support their private networks.
15
Increased demand for private line and special access services, as well as
demand from IXCs resulted in a $74 increase for the quarter ended March 31,
2000. Access minutes of use increased 4.7% for the three months ended March 31,
2000. Offsetting demand increases were FCC and state mandated rate reductions
aggregating $36 primarily relating to access reforms.
Three Months Ended
March 31,
-------------------------
2000 1999 Increase
---- ---- --------
Directory services revenues............................ $347 $326 $21 6.4%
==== ==== === ====
Directory services revenues. Directory services revenues are primarily
derived from selling advertising in our published directories. The increase in
directory services revenues was primarily attributable to increased sales of
premium advertisements and price increases.
Three Months Ended
March 31,
-------------------------
2000 1999 Decrease
---- ---- --------
Long-distance services revenues..................... $107 $174 $(67) (38.5)%
==== ==== ===== =======
Long-distance services revenues. Long-distance services revenues are
derived from customer calls to locations outside of their local calling area but
within the same LATA. The decrease in long-distance services revenues for the
three months ended March 31, 2000 was primarily attributable to greater
competition and strategic price reductions resulting in revenue declines of $57.
Mandated rate reductions of $10 for the three months ended March 31, 2000 also
contributed to the revenue decrease.
We believe we will continue to experience further declines in long-distance
services revenues as regulatory actions provide for increased levels of
competition. We are responding to competition through competitive pricing of
intraLATA long-distance services and increased promotional efforts to retain
customers. See "Special Note Regarding Forward-Looking Statements" on page 13.
16
Three Months Ended
March 31,
------------------------
2000 1999 Increase
--------
Other services revenues.................................. $174 $134 $40 29.9%
==== ==== === =====
Other services revenues. Other services revenues include billing and
collection services for IXCs, collocation services for other competitive local
exchange carriers ("CLECs"), customer equipment sales and sales of other
unregulated products, such as U S WEST.net [Registered Trademark Symbol], our
Internet service. Other services revenues increased primarily as a result of
increased subscribers for U S WEST.net [Registered Trademark Symbol], the
national expansion of our data business and increased customer equipment sales.
Operating Expenses
Three Months Ended
March 31,
-------------------------
2000 1999 Increase
---- ---- --------
Employee-related expenses.............................. $1,167 $1,122 $45 4.0%
====== ====== === ====
Employee-related expenses. Employee-related expenses include salaries and
wages, benefits, payroll taxes and contract labor.
Employee-related expenses increased because of growth in several sectors of
the business, primarily wireless and data communications, resulting in increased
employee levels. Additionally, increased commitments towards improving customer
service, including responding to requests for installation and repair services,
resulted in higher labor costs. Across-the-board wage increases also contributed
to the increase in employee-related expenses. The number of employees increased
from 55,324 at the end of the first quarter of 1999 to 60,785 at March 31, 2000.
Partially offsetting these increases were improvements in benefit-related costs,
primarily in our pension plan, mainly attributable to favorable returns on
pension plan assets. Pension credits were $74 in the first quarter of 2000
compared to $25 in the first quarter of 1999. We anticipate our pension credit
for the remaining quarters in 2000 will be consistent with our first quarter's
experience. We also anticipate that employee expenses will be higher in the
quarter the Qwest merger closes, due to retention initiatives (awards and
bonuses) associated with the consummation of the merger. See "Special Note
Regarding Forward-Looking Statements" on page 13.
17
Three Months Ended
March 31,
-------------------------
2000 1999 Increase
--------
Other operating expenses............................... $717 $656 $61 9.3%
==== ==== === ====
Other operating expenses. Other operating expenses include access charges
paid to carriers for the routing of local and long-distance traffic through
their facilities, taxes other than income taxes, paper, printing, delivery and
distribution costs associated with publishing activities and other operating
costs. The increase in other operating expenses for the quarter ended March 31,
2000 was primarily attributable to the following:
o increased costs of product sales associated with our growth initiatives,
including wireless handset costs and costs applicable to our data
communications services and other communication services;
o higher property taxes; and
o increased provision for uncollectibles, primarily attributable to increased
wireless revenues.
Three Months Ended
March 31,
---------------------------
2000 1999 Decrease
---- ---- --------
Depreciation and amortization expense................. $586 $602 $(16) (2.7)%
==== ==== ===== ======
Depreciation and amortization expense. The decrease in depreciation and
amortization expense was attributable to the cessation of depreciation,
beginning in April 1999, associated with access lines that are intended to be
sold. Additionally, in 1999, we accelerated and fully depreciated certain assets
due to changes in technology. Offsetting the decrease in expense was an increase
in depreciation and amortization expense due to higher overall property, plant
and equipment balances resulting from continued investment in our network.
Three Months Ended
March 31,
---------------------------
2000 1999 Increase
---- ---- --------
Other expense-net.................................... $260 $154 $106 68.8%
==== ==== ==== =====
18
Other expense-net. Interest expense was $211 for the first quarter of 2000
compared to $153 for the first quarter of 1999. The increase in interest expense
was primarily attributable to debt we incurred to acquire 39 million shares of
Global Crossing Ltd. ("Global Crossing") common stock.
In December 1999, we entered into an equity swap on 24 million shares of
Global Crossing common stock. For the quarter ended March 31, 2000, the market
value of the swap declined by $129. Partially offsetting the decline were
realized gains of $79 on the sales of other securities.
Segment results. Segment results represent margins which, for segment
reporting purposes, exclude certain costs and expenses, including depreciation
and amortization. See Note 3 to the consolidated financial statements.
Three Months Ended
March 31,
------------------------
Increase
2000 1999 (Decrease)
----------
Segment results:
Retail segment...................................... $1,469 $1,505 $(36) (2.4)%
Wholesale segment................................... 581 530 51 9.6
Network segment..................................... (661) (685) 24 3.5
Directory segment................................... 190 165 25 15.2
Margin from the retail services segment decreased for the three months
ended March 31, 2000 from the comparable prior period due to increased operating
expenses. Revenue from the retail services segment increased 7.1% for the three
months ended March 31, 2000 over the comparable 1999 period, primarily due to
growth in local services revenues. The revenue increase was offset by higher
operating expenses driven by growth initiatives and costs associated with
enhancing customer service. Margin from the wholesale services segment increased
as a result of greater demand for access and interconnection services, partially
offset by price reductions as mandated by both federal and state regulatory
authorities and higher operating costs associated with access charge expenses.
Margin from the network services segment increased for three months ended March
31, 2000, due to greater levels of spending on network enhancements partially
offset by expenditures to support growth in both the retail and wholesale
services segments. Margins from the directory services segment increased due to
increased sales of premium advertisements, price increases and increased efforts
to control costs.
Three Months Ended
March 31,
------------------------
2000 1999 Increase
---- ---- --------
Provision for income taxes................................. $243 $240 $3 1.3%
==== ==== == ====
19
Provision for income taxes. The effective tax rate for the three months
ended March 31, 2000 of 37.6% remained consistent with the 1999 rate of 37.9%.
Liquidity and Capital Resources
Operating Activities. Cash provided by operations declined to $807 for the
three months ended March 31, 2000 from $937 for the prior comparable period. The
decrease was primarily related to a decrease in working capital caused by a
reduction in trade payables and acceleration of property tax payments for the
quarter ended March 31, 2000.
Future cash needs could increase with the pursuit of new business
opportunities, including the acceleration of the deployment of additional and/or
advanced new services to customers, such as broadband data, wireless (including
the purchase of spectrum licenses) and video services, and may additionally be
impacted by continued implementation of the requirements of the
Telecommunications Act of 1996 (the "Act"). The acceleration of such additional
and/or advanced new services could have a material adverse effect on our
financial condition or results of operations. Interconnection, LNP, universal
service and access charge reform will negatively impact cash flows to the extent
recovery mechanisms provided by the FCC and state public utility commissions
("PUCs") are inadequate. We would expect that such cash needs will be funded
through operations and, when necessary, the issuance of securities.
Investing Activities. Total capital expenditures, on a cash basis, were
$1,277 in 2000 and $753 in 1999. Capital expenditures have primarily been, and
continue to be, focused on expanding access line growth, modernization of the
telecommunications network and meeting the requirements of the Act, including
interconnection services such as LNP, operational support systems, collocation
and trunking. We continue to expand our investment to compete in the wireless,
data and video markets. For 2000, we anticipate total capital expenditures to be
approximately $4,700. See "Special Note Regarding Forward-Looking Statements" on
page 13.
Partially offsetting these capital expenditures was the receipt of $1,140
on the sale of 24 million shares of Global Crossing common stock.
Financing Activities. Cash used for financing activities was $793 and $178
for the quarters ended March 31, 2000 and 1999, respectively. For 2000, net
repayments of short-term and long-term debt were $552, compared to net proceeds
of $75 for 1999. The decrease was primarily due to the paydown of commercial
paper and bonds. We paid dividends on our common stock totaling $271 in 2000 and
$269 in 1999.
We maintain commercial paper programs to finance short-term cash flow
requirements, as well as to maintain a presence in the short-term debt market.
As of March 31, 2000, we had lines of credit with a total unused borrowing
capacity of $4,050.
20
Risk Management
Over time, we are exposed to market risks arising from changes in interest
rates. The objective of our interest rate risk management program is to manage
the level and volatility of our interest expense. We may employ derivative
financial instruments to manage our interest rate risk exposure. We have also
employed financial derivatives to hedge interest rate and foreign currency
exposures associated with particular debt issues to synthetically obtain below
market interest rates.
As of March 31, 2000 and December 31, 1999, approximately $1,739 and
$2,265, respectively, of floating-rate debt was exposed to changes in interest
rates. This exposure is linked to commercial paper rates. A hypothetical
increase of one-percentage point in commercial paper rates would increase annual
pre-tax interest expense by $17. As of March 31, 2000 and December 31, 1999, we
also had $515 and $522, respectively, of long-term fixed rate debt obligations
maturing in the following 12 months. Any new debt obtained to refinance this
debt would be exposed to changes in interest rates. A hypothetical 10% change in
the interest rates on this debt would not have had a material effect on our
earnings.
As of March 31, 2000 and December 31, 1999, we had entered into
cross-currency swaps with notional amounts of $133. The cross-currency swaps
synthetically transform $90 and $94 of Swiss Franc borrowings at March 31, 2000
and December 31, 1999, respectively, into U.S. dollar obligations. Any gains
(losses) on the cross-currency swaps would be offset by losses (gains) on the
Swiss Franc debt obligations.
As of March 31, 2000 and December 31, 1999, we had entered into equity
swaps with notional amounts of $1,201 and $1,140 relating to the sale of 24
million shares of Global Crossing common stock. In connection with the equity
swaps, we entered into several equity collars on certain shares. The equity
collars restrict the magnitude of any gains or losses generated by the equity
swaps. A hypothetical 10% reduction in the market price of Global Crossing
common shares, based upon a market price of $40.94 at March 31, 2000, would
decrease the market value of our net position by $53. A hypothetical increase of
one-percentage point in interest rates would decrease the market value of our
net position by $13.
At March 31, 2000 and December 31, 1999, we held marketable equity
investments recorded at fair values of $1,015 and $1,206, which included net
unrealized gains of $100 and $222, respectively. The investments have exposure
to price risk. The estimated potential loss in fair value resulting from a
hypothetical 10% decrease in prices quoted by stock exchanges would decrease the
fair value of our equity investments by $102.
Recent Regulatory Developments
Access Reform. In its access reform order, the FCC mandated a substantial
restructuring of interstate access pricing beginning July 1, 1997 and continuing
through 2001. A significant portion of the services that were sold using
minutes-of-use pricing are now being charged using a combination of
minutes-of-use rates, flat-rate presubscribed IXC carrier charges ("PICCs") and
SLCs. These changes generally improve the pricing structure for our competitive
services.
21
The access reform order also continued to allow information service
providers and purchasers of unbundled network elements ("UNEs") to avoid access
charges. This remains a problem as the volume of information service-related
usage continues to increase without an associated increase in revenues.
In 2000, the incumbent local exchange carriers ("ILECs") and MCI WorldCom
appealed the February 1999 FCC order declaring Internet traffic to be
interstate. The FCC order required current agreements to remain intact for
reciprocal compensation with CLECs until it rules on this matter. In March 2000,
the U.S. Court of Appeals partially vacated and remanded the order back to the
FCC. Until this is resolved, there will remain uncertainty regarding our payment
obligation for Internet traffic.
Pending before the FCC are several proposals for access reform, including
reducing interstate rates to remove universal service support, changing the rate
structure for switched access to a flat rated structure, changing the general
access structure including the removal of the productivity factor, eliminating
the PICC for single line customers and a U.S. Court of Appeals remanded review
of the productivity factor. Action on these items is expected by mid-2000.
Adoption of access reform proposals could result in significant reductions in
our interstate revenues. There is no assurance such reductions would be offset
by increases in other rates.
Court Remand of 6.5% Productivity Factor. In 1999, the District of Columbia
U.S. Court of Appeals issued a ruling reversing and remanding back to the FCC
its order requiring ILECs to retroactively increase the productivity offset to
price caps to 6.5% in their annual price cap filings. The Court found that the
FCC's order did not justify the increase. In December 1999, the FCC issued a
notice of proposed rulemaking responding to the issues raised in the Court's
remand. The FCC proposed three alternative approaches to determining a new
productivity factor and asked whether it should be applied retroactively. We
expect the FCC to issue its order by June 2000. This issue is also being
addressed in conjunction with the access reform proposals. If the FCC does not
resolve this issue in conjunction with access reform, it may adopt a new higher
productivity factor or modified formula which could materially reduce our
interstate access charges.
Advanced Telecommunications Services. In March 2000, the District of
Columbia U.S. Court of Appeals partially vacated and remanded back to the FCC
its order establishing expanded collocation requirements for both conventional
voice and advanced services. We have also appealed the December 1999 FCC order
requiring that line sharing be provided as an UNE. Line sharing allows a CLEC to
provide advanced services over the same loop that the ILEC uses to provide
analog voice service. Previously, CLECs purchased a separate loop to provision
advanced services. In March 2000, the Company and GTE appealed the FCC's
December 1999 order on remand concerning the application of the unbundling
requirement to the provision of advanced services. We believe the Act did not
contemplate applying unbundling requirements to advanced services.
22
InterLATA Long-Distance Entry. We filed applications to enter the interLATA
long-distance business in Arizona, Colorado, Nebraska, Washington and Oregon and
continue to work with the state PUCs in those states to gain approval. We are
addressing operational support system issues on a regional basis and have agreed
to participate in regional testing. In February 2000, we filed notices of our
intention to file entry applications with our remaining state PUCs for their
review and expect to file actual applications in all states by the end of 2000,
with FCC filings following favorable state action. See "Special Note Regarding
Forward-Looking Statements " on page 13.
Universal Service Fees. In the first quarter of 2000, we appealed two
October 1999 FCC companion orders implementing a new universal service fund for
non-rural ILECs. The orders adopted a forward-looking cost model and determined
that an ILEC's costs at a study area (usually statewide) level must be greater
than 135% of the nationwide average to collect from the federal fund. As a part
of these orders, the FCC included a "hold harmless" provision. This provision
allows ILECs whose collections would otherwise decrease, to continue collecting
support using current methods for an indefinite period of time. The FCC will
determine the phase-out period for these collections in 2000. Because of
regulatory uncertainty regarding, among other things, the duration of the "hold
harmless" provision, we are currently unable to accurately estimate our federal
high cost support for 2000. In 2000, we will receive federal high cost support
for six states under the "hold harmless" provisions. The FCC has stated that
non-rural carriers should look to the states to make up some or all of the
shortfall in universal service support. We are in the process of seeking
additional support from the states, but the likelihood of success and the amount
of state support are as yet uncertain.
Number Pooling. In March 2000, the FCC issued an order substantially
changing the way telephone numbers are allocated among carriers in order to
avoid the premature exhaustion of telephone numbers in North America. This new
approach must be in place by mid-2001 in our region and will require significant
modifications to operational support systems and switch software with costs
exceeding $100. The FCC has issued a further notice of proposed rulemaking to
determine how ILECs may recover these costs in a competitively neutral way.
Contingencies
We have certain pending regulatory actions. See Note 5 to the consolidated
financial statements.
Other Items
From time to time, we engage in discussions regarding restructurings,
dispositions, acquisitions and other similar transactions. Any such transaction
could include, among other things, the transfer, sale or acquisition of
significant assets, businesses or interests, including joint ventures, or the
incurrence, assumption or refinancing of indebtedness, and could be material to
our financial condition and results of operations. There is no assurance that
any such discussions will result in the consummation of any such transaction.
23
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. FAS
No. 133 requires, among other things, that all derivative instruments be
recognized at fair value as assets or liabilities in the consolidated balance
sheets and changes in fair value generally be recognized currently in earnings
unless specific hedge accounting criteria are met. This standard is effective
for our 2001 fiscal year, although earlier adoption is permitted. Financial
statement impacts of adopting the new standard depend upon the amount and nature
of the future use of derivative instruments and their relative changes in
valuation over time. Had we adopted FAS No. 133 in 2000, its impact on the
consolidated financial statements would not have been material.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (the "Bulletin"), "Revenue Recognition in Financial
Statements," which addresses revenue recognition issues. The Bulletin requires,
in certain cases, nonrefundable up-front fees for services to be deferred and
recognized over the expected period of performance. The Bulletin also requires
that incremental direct costs incurred in obtaining the up-front fees be
deferred and recognized over the same period as the up-front fees. The Bulletin
is required to be adopted by June 30, 2000. We are assessing the types of
transactions that may be impacted by this pronouncement. The impact of the
Bulletin on the consolidated financial statements is not yet known.
24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Our Company and its subsidiaries are subject to claims and proceedings
arising in the ordinary course of business. For a discussion of these actions,
see Note 5: "Commitments and Contingencies" - to the consolidated financial
statements.
Item 5. Recent Developments
Debt Exchange Offer. In August 1999, U S WEST Capital Funding, Inc.
("Capital Funding"), a wholly-owned subsidiary of the Company, issued and sold
$1,150,000,000 aggregate principal amount of 6-7/8% Notes (the "old 6-7/8%
Notes") to certain initial purchasers in a transaction exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"). In accordance with the terms of a registration rights
agreement, on February 7, 2000, Capital Funding offered to exchange new 6-7/8%
Notes, which were registered under the Securities Act, for old 6-7/8% Notes. The
total aggregate principal amount of the old 6-7/8% Notes exchanged was
$1,147,274,000. Capital Funding used the net proceeds from the initial sale of
the old 6-7/8% Notes to repay a portion of its commercial paper indebtedness and
for general corporate purposes.
Commercial Paper Credit Facility. On May 5, 2000, the Company, Capital
Funding, and U S WEST Communications, Inc. executed a $4 billion 364-Day Credit
Agreement with the banks listed therein, and Morgan Guaranty Trust Company of
New York, as Administrative Agent, J.P. Morgan Securities Inc. and Banc of
America Securities LLC, Co-Joint Lead Arrangers and Bookrunners; Salomon Smith
Barney, Inc., Chase Securities Inc. and Commerzbank AG, Co-Arrangers; Bank of
America, N.A., Syndication Agent; and Citibank, N.A., and The Chase Manhattan
Bank, Co-Documentation Agents, to refinance and replace the Company's existing
credit facilities. The new $4 billion replacement credit facility, along with
existing credit facilities, provide credit support for the Capital Funding and U
S WEST Communications, Inc. commercial paper programs.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed for the Company through the filing of this Form 10-Q.
(2-A) Separation Agreement, dated June 5, 1998, between U S WEST, Inc.
(renamed MediaOne Group, Inc.) and USW-C, Inc (renamed U S WEST,
Inc.), (Exhibit 99.1 to Form 8-K/A dated June 26, 1998, File No.
1-14087).
(2-A.1) Amendment to the Separation Agreement between MediaOne Group, Inc.
(formerly U S WEST, Inc.) and U S WEST, Inc. (formerly USW-C, Inc.),
dated June 12, 1998, (Exhibit 10(p) to Form 10-K/A for the year ended
December 31, 1998, File No. 1-14087).
25
(2-A.2) Offer to Purchase; Letter of Transmittal relating to the Common Stock;
Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees to Clients; Letter from Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees to Clients; Notices of
Guaranteed Delivery relating to the Common Stock; Press Release issued
by the Offeror and the Company on May 17, 1999; and Guidelines for
Certificate of Taxpayer Identification Number on Substitute Form W-9,
each dated May 21, 1999 (Exhibits (a)(1) through (a)(5) to Schedule
14D-1 and Schedule 13D, dated May 21, 1999, as amended).
(2-A.3) Agreement and Plan of Merger, dated as of May 16, 1999, between Global
Grossing Ltd. and U S WEST, Inc. (Exhibit 2 to Form 8-K, dated May 21,
1999, File No, 1-14087).
(2-A.4) Tender Offer and Purchase Agreement, dated as of May 16, 1999, between
Global Crossing Ltd. and U S WEST, Inc. (Exhibit (c)(2) to Schedule
14D-1 and Schedule 13D, dated May 21, 1999, as amended).
(2-A.5) Voting Agreement, dated as of May 16, 1999, between Global Crossing
Ltd. and U S WEST, Inc. (Exhibit (c)(3) to Schedule 14D-1 and Schedule
13D, dated May 21, 1999, as amended).
(2-A.6) Standstill Agreement, dated as of May 16, 1999, between Global
Crossing Ltd. and U S WEST, Inc. (Exhibit (c)(4) to Schedule 14D-1 and
Schedule 13D, dated May 21, 1999, as amended).
(2-A.7) Tender and Voting Agreement, dated as of May 16, 1999, between U S
WEST, Inc. and each of the parties listed therein (Exhibit (c)(5) to
Schedule 14D-1 and Schedule 13D, dated May 21, 1999, as amended).
(2-A.8) Agreement, dated as of May 16, 1999, between U S WEST, Inc., Global
Crossing Ltd. and each person listed therein (Exhibit (c)(6) to
Schedule 14D-1 and Schedule 13D, dated May 21, 1999, as amended).
(2-A.9) Letter Agreement, dated as of May 16, 1999, between U S WEST, Inc. and
Global Crossing Ltd. (Exhibit 99 to Form 8-K, dated May 21, 1999, File
No. 1-14087).
(2-A.10) Transfer Agreement, dated as of May 16, 1999, between Global Crossing
Ltd. and each person listed therein (Exhibit (c)(8) to Schedule 14D-1
and Schedule 13D, dated May 21, 1999, as amended).
(2-A.11) Agreement and Plan of Merger between U S WEST, Inc. and Qwest
Communications International Inc., dated as of July 18, 1999 and
amended by Amendment No. 1, dated as of September 8, 1999 (Annex A to
Schedule 14A dated September 17, 1999).
26
(2-A.12) Voting Agreement among each of the stockholders listed therein and U S
WEST, Inc., dated as of July 18, 1999 (Exhibit 10.1 to Form 8-K, dated
July 20, 1999, File No. 1-14087).
(2-A.13) Termination Agreement, dated as of July 18, 1999, between U S WEST,
Inc. and Global Crossing Ltd. (Exhibit 10.2 to Form 8-K, dated July
20, 1999, File No. 1-14087).
(2-A.14) Amendment No. 1 to Tender Offer and Purchase Agreement, dated as of
July 18, 1999 (Exhibit 2-A.14 to Form 10-Q, for the quarter ended June
30, 1999, File No. 1-14087).
(3-A) Restated Certificate of Incorporation of U S WEST, Inc. (Exhibit 3A to
Form S-4/A Registration Statement No. 333-45765, filed March 18,
1998).
(3-B) Bylaws of U S WEST, Inc., effective as of June 12, 1998 (Exhibit 3(ii)
to Form 8-K/A dated June 26, 1998, File No. 1-14087).
(4-A) Form of Rights Agreement, dated as of June 1, 1998, between U S WEST,
Inc. (formerly USW-C, Inc.) and State Street Bank and Trust Company,
as Rights Agent, (Exhibit 4-A to the Form S-4 Registration Statement
No. 333-45765, filed April 2, 1998).
(4-A.1) Amendment No. 1 to Rights Agreement, dated as of May 16, 1999, between
U S WEST, Inc. and State Street Bank and Trust Company, (Exhibit 4 to
Form 8-K, dated May 21, 1999, File No. 1-14087).
(4-A.2) Amendment No. 2 to Rights Agreement, dated as of July 18, 1999,
between U S WEST, Inc. and State Street Bank and Trust Company,
(Exhibit 4-A.2 to Form 10-Q for the quarter ended June 30, 1999, File
No. 1-14087).
(4-A.3) Registration Rights Agreement, dated August 20, 1999, between U S WEST
Capital Funding Inc., U S WEST, Inc., J.P. Morgan Securities, Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated (Exhibit 4-A.3 to
Form S-4 Registration Statement No. 333-92523, filed December 10,
1999).
(4-B) Indenture, dated as of June 29, 1998, by and among U S WEST Capital
Funding, Inc., U S WEST, Inc., and The First National Bank of Chicago
(now known as Bank One Trust Company, National Association), as
Trustee (Exhibit 4(a) to Form 8-K, dated November 18, 1998, File No.
1-14087).
(10-A) Employee Matters Agreement between U S WEST, Inc. (renamed MediaOne
Group, Inc.) and USW-C, Inc. (renamed U S WEST, Inc.), dated June 5,
1998 (Exhibit 99.2 to Form 8-K/A dated June 26, 1998, File No.
1-14087).
27
(10-B) Tax Sharing Agreement between U S WEST, Inc. (renamed MediaOne Group,
Inc.) and USW-C, Inc. (renamed U S WEST, Inc.), dated June 5, 1998
(Exhibit 99.3 to Form 8-K/A dated June 26, 1998, File No. 1-14087).
(10-C) 364-Day $3.5 Billion Credit Agreement, dated May 8, 1998, with Morgan
Guaranty Trust Company of New York, as administrative agent (Exhibit
10A to Form 10-Q for the quarter ended March 31, 1998, File No.
1-14087).
(10-D) Five-Year $1 Billion Credit Agreement, dated May 8, 1998, with Morgan
Guaranty Trust Company of New York, as administrative agent (Exhibit
10B to Form 10-Q for the quarter ended March 31, 1998, File No.
1-14087).
(10-D.1) Amendment No. 1 to Credit Agreements, dated as of June 30, 1998, to
the 364-Day Credit Agreement and the Five-Year Credit Agreement, each
dated as of May 8, 1998, among U S WEST Capital Funding, Inc., U S
WEST, Inc., the banks listed therein, and Morgan Guaranty Trust
Company of New York (Exhibit 10(e)(1) to Form 10-Q for the quarter
ended September 30, 1998, File No. 1-14087).
(10-D.2) Amended and Restated Credit Agreement, dated as of May 7, 1999, among
U S WEST Capital Funding, Inc., U S WEST, Inc. and the banks listed
therein, (Exhibit (b)(4) to Schedule 14D-1 and Schedule 13D, dated May
21, 1999, as amended).
(10-D.3) Amendment to Credit Agreements, dated as of June 11, 1999, which
further amends (i) the 364-Day Credit Agreement, dated as of May 8,
1999, as amended and (ii) the Five-Year Credit Agreement, dated as of
May 8, 1998, as amended, among U S WEST Capital Funding, Inc., U S
WEST, Inc., the banks listed therein, and Morgan Guaranty Trust
Company of New York (Exhibit 10-D.3 to Form 10-Q for the quarter ended
June 30, 1999, File No. 1-14087).
(10-D.4) 364-Day $1.5 Billion Credit Agreement, dated as of June 11, 1999,
among U S WEST Capital Funding, Inc., and U S WEST, Inc., the banks
listed therein and Morgan Guaranty Trust Company of New York, as
administrative agent (Exhibit (b)(6) to Amendment No. 3 to Schedule
14D-1 and Schedule 13D, dated June 11, 1999, filed on behalf of Global
Crossing Ltd. and U S WEST, Inc.).
(10-D.5) Assignment and Assumption Agreement, dated as of July 6, 1999, among
each institution listed on Schedule 1 thereto, U S WEST, Inc. and
Morgan Guaranty Trust Company of New York, dated as of July 6, 1999
(Exhibit 10-D.5 to Form 10-Q for the quarter ended June 30, 1999, File
No. 1-14087).
(10-E) 364-Day $800 Million Credit Agreement, dated as of May 19, 1999, among
the banks listed therein, U S WEST Communications, Inc., and Morgan
Guaranty Trust Company of New York, as administrative agent (Exhibit
10-E to Form 10-Q for the quarter ended June 30, 1999, File No.
1-14087).
28
(10-F) Amendment No. 1 to Credit Agreement to the 364-Day $800 Million Credit
Agreement, dated as of May 19, 1998, among U S WEST Communications,
Inc., U S WEST, Inc., the banks listed therein, and Morgan Guaranty
Trust Company of New York, as administrative agent, dated as of June
11, 1999 (Exhibit 10-F to Form 10-Q for the quarter ended June 30,
1999, File No. 1-14087).
10-F.1 364-Day $4.0 Billion Credit Agreement, dated as of May 5, 2000, among
U S WEST, Inc., U S WEST Capital Funding, Inc., U S WEST
Communications, Inc., the banks listed therein, and Morgan Guaranty
Trust Company of New York, as administrative agent.
(10-G)* Change of Control Agreement for the President and Chief Executive
Officer (Exhibit 10(f) to Form 10-Q for the quarter ended June 30,
1998, File No. 1-14087).
(10-G.1)* Retention Agreement for the Chairman, Chief Executive Officer and
President of U S WEST, Inc., dated as of September 7, 1999 (Exhibit
10-G.1 to Form 8-K dated September 20, 1999, File No. 1-14087).
(10-H)* Form of Change of Control Agreement for Tier II Executive (Exhibit
10(g) to Form 10-Q for the quarter ended June 30, 1998, File No.
1-14087).
(10-H.1)* Form of Retention Agreement for Executive Officers of U S WEST, Inc.
(Exhibit 10-H.1 to Form 8-K dated September 20, 1999, File No.
1-14087).
(10-I)* Form of Executive Severance Agreement (Exhibit 10(h) to Form 10-Q for
the quarter ended June 30, 1998, File No. 1-14087).
(10-J)* 1998 U S WEST Stock Plan (Exhibit 10-A to the Form S-4 Registration
Statement No. 333-45765, filed February 6, 1998, as amended).
(10-K)* U S WEST Long-Term Incentive Plan (Exhibit 10-D to the Form S-4
Registration Statement No. 333-45765, filed February 6, 1998, as
amended).
(10-L)* U S WEST Executive Short-Term Incentive Plan (Exhibit 10-E to the Form
S-4 Registration Statement No. 333-45765, filed February 6, 1998, as
amended).
(10-M)* U S WEST 1998 Broad Based Stock Option Plan, dated June 12, 1998
(Exhibit 10(l) to Form 10-Q for the quarter ended September 30, 1998,
File No. 1-14087).
(10-N)* U S WEST Deferred Compensation Plan, amended and restated effective as
of June 12, 1998 (Exhibit 10(m) to Form 10-Q for the quarter ended
September 30, 1998, File No. 1-14087).
29
(10-O)* U S WEST 1998 Stock Plan, as amended June 22, 1998 (Exhibit 10(n) to
Form 10-Q for the quarter ended September 30, 1998, File No. 1-14087).
(10-O.1)* 1998 U S WEST Stock Plan, as amended August 6, 1999 (Exhibit 10-O.1 to
Form 10-Q for the quarter ended September 30, 1999, File No. 1-14087).
(10-O.2)* 1999 U S WEST Stock Plan, as amended August 6, 1999 (Exhibit 10-O.2 to
Form 10-Q for the quarter ended September 30, 1999, File No. 1-14087).
(10-P)* Shareowner Investment Plan, dated June 12, 1998 (Form S-3 Registration
Statement No. 333-52781, filed May 15, 1998).
(10-Q)* Form of Non-Qualified Stock Option Agreement (Exhibit 10-Q to Form
10-Q for the quarter ended March 31, 1999, File No. 1-14087).
(10-R) Form of Agreement for Purchase and Sale of Telephone Exchanges, dated
as of June 16, 1999, between Citizens Utilities Company and U S WEST
Communications, Inc. (Exhibit 99 to Form 8-K, dated June 17, 1999,
File No. 1-14087).
27 Financial Data Schedule
99 Annual Report on Form 11-K for the U S WEST Savings Plan/ESOP for the
year ended December 31, 1999 to be filed by amendment to the Company's
Form 10-K filed March 3, 2000.
- -------------------
( ) Previously filed.
* Executive Compensation Plans and Arrangements.
(b) Reports on Form 8-K filed during the first quarter of 2000 and through the
filing of this Form 10-Q:
(i) Form 8-K, dated December 31, 1999, as filed on January 4, 2000,
providing notification of a press release announcing that the Company
had monetized a portion of its Global Crossing stock ownership.
(ii) Form 8-K, dated January 26, 2000, providing notification of the
release of the Company's fourth quarter 1999 earnings.
(iii) Form 8-K, dated February 29, 2000, providing notification of a press
release announcing that Solomon D. Trujillo will not join the new
Qwest.
30
(iv) Form 8-K, dated March 3, 2000, reporting that Qwest announced the
post-merger management team.
(v) Form 8-K, dated March 10, 2000, filing the Chairman's letter to
shareholders dated March 3, 2000.
(vi) Form 8-K, dated March 10, 2000, providing notification of the Company's
and Qwest's joint press release announcing the Federal Communications
Commission's approval of the Qwest-U S WEST merger.
(vii) Form 8-K, dated March 15, 2000, providing notification of a press
release announcing that the Company and U S WEST Capital Funding, Inc.
("Capital Funding") had extended their exchange offer for $1.150
billion of 6-7/8% notes due August 15, 2001.
(viii) Form 8-K, dated April 5, 2000, providing notification of a press
release announcing the departure of Joseph R. Zell, President of U S
WEST !NTERPRISE Networking.
(ix) Form 8-K, dated April 28, 2000, providing notification of the release
of the Company's first quarter 2000 earnings.
31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U S WEST, Inc.
/s/ ALLAN R. SPIES
By:___________________________________
Allan R. Spies
Executive Vice President and
Chief Financial Officer
May 12, 2000
32