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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
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 1-3040
U S WEST Communications, Inc.
A Colorado Corporation 84-0273800
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
of organization)
1801 California Street, Denver, Colorado 80202
Telephone Number (303) 672-2700
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THE REGISTRANT, A WHOLLY-OWNED SUBSIDIARY OF U S WEST, INC., MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1) (a) AND (b) OF FORM 10-Q AND IS
THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL
INSTRUCTION H(2).
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 __
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U S WEST Communications, Inc.
Form 10-Q
TABLE OF CONTENTS
Item Page
PART I - FINANCIAL INFORMATION
1. Financial Statements
Consolidated Statements of Income -
Three months and six months ended June 30, 1999 and 1998............... 3
Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998................................... 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 1999 and 1998................................ 5
Notes to Consolidated Financial Statements...................................... 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................. 11
3. Quantitative and Qualitative Disclosures
About Market Risk................................................................ 18
PART II - OTHER INFORMATION
1. Legal Proceedings....................................................................... 24
6. Exhibits and Reports on Form 8-K........................................................ 24
U S WEST Communications, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
Operating revenues:
Local services....................................... $1,933 $1,756 $3,800 $3,486
Access services...................................... 688 671 1,369 1,336
Long-distance services............................... 150 195 321 396
Other services....................................... 78 73 152 146
------------- ------------ ------------- ------------
Total operating revenues.......................... 2,849 2,695 5,642 5,364
Operating expenses:
Employee-related expenses............................ 891 860 1,784 1,682
Other operating expenses............................. 658 740 1,287 1,344
Depreciation and amortization........................ 557 518 1,142 1,036
------------- ------------ ------------- -----------
Total operating expenses.......................... 2,106 2,118 4,213 4,062
------------- ------------ ------------- ------------
Operating income........................................... 743 577 1,429 1,302
Other expense:
Interest expense..................................... 98 94 187 185
Other expense-net.................................... 12 29 24 56
------------- ------------ ------------- ------------
Total other expense-net........................... 110 123 211 241
------------- ------------ ------------- ------------
Income before income taxes................................. 633 454 1,218 1,061
Provision for income taxes................................. 246 178 462 411
------------- ------------ ------------- ------------
Net income................................................. $387 $276 $756 $650
============= ============ ============= ============
The accompanying notes are an integral part of the consolidated financial
statements.
U S WEST Communications, Inc.
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
June 30, December 31,
1999 1998
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................................................... $66 $68
Accounts receivable, less allowance for uncollectibles of
$53 and $48, respectively............................................................. 1,640 1,619
Inventories and supplies................................................................ 194 154
Deferred tax assets..................................................................... 109 113
Prepaid and other....................................................................... 115 61
-------------- -------------
Total current assets....................................................................... 2,124 2,015
Property, plant and equipment-net.......................................................... 15,224 14,681
Other assets-net........................................................................... 987 882
-------------- -------------
Total assets............................................................................... $18,335 $17,578
============== =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term debt......................................................................... $1,342 $789
Accounts payable........................................................................ 1,446 1,411
Accrued expenses........................................................................ 1,604 1,383
Advance billings and customer deposits.................................................. 337 326
-------------- -------------
Total current liabilities.................................................................. 4,729 3,909
Long-term debt............................................................................. 4,970 5,154
Postretirement and other postemployment benefit obligations................................ 2,427 2,458
Deferred income taxes...................................................................... 997 898
Unamortized investment tax credits......................................................... 159 159
Deferred credits and other................................................................. 591 537
Commitments and Contingencies
Stockholder's equity:
Common stock-one share without par value, owned by parent............................... 8,079 8,080
Cumulative deficit...................................................................... (3,617) (3,617)
-------------- -------------
Total stockholder's equity................................................................. 4,462 4,463
-------------- -------------
Total liabilities and stockholder's equity................................................. $18,335 $17,578
============== =============
The accompanying notes are an integral part of the consolidated financial
statements.
U S WEST Communications, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
(unaudited)
Six Months Ended
June 30,
1999 1998
OPERATING ACTIVITIES
Net income................................................................................ $756 $650
Adjustments to net income:
Depreciation and amortization....................................................... 1,142 1,036
Deferred income taxes and amortization of investment tax credits.................... 98 79
Changes in operating assets and liabilities:
Accounts receivable................................................................. (21) (20)
Inventories, supplies and other current assets...................................... (87) (63)
Accounts payable, accrued expenses and advance billings............................. 221 (159)
Other............................................................................... (61) 86
-------------- --------------
Cash provided by operating activities............................................... 2,048 1,609
-------------- --------------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment......................................... (1,627) (1,242)
Proceeds from (payments on) disposals of property, plant and equipment................. (18) 34
Other.................................................................................. - (24)
-------------- --------------
Cash used for investing activities..................................................... (1,645) (1,232)
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FINANCING ACTIVITIES
Net proceeds from short-term debt...................................................... 555 228
Proceeds from issuance of long-term debt............................................... 17 -
Repayments of long-term debt........................................................... (280) (83)
Dividends paid on common stock......................................................... (697) (566)
Equity infusions from U S WEST......................................................... - 63
-------------- --------------
Cash used for financing activities..................................................... (405) (358)
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CASH AND CASH EQUIVALENTS
Increase (decrease).................................................................... (2) 19
Beginning balance...................................................................... 68 26
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Ending balance......................................................................... $66 $45
============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
U S WEST Communications, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 1999
(dollars in millions)
(unaudited)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements include accounts of
U S WEST Communications, Inc. (the "Company") and its wholly owned subsidiaries.
We are a wholly owned subsidiary of U S WEST, Inc. ("U S WEST").
The consolidated interim financial statements are unaudited. The
financial statements have been prepared in accordance with the instructions for
Form 10-Q and, therefore, do not necessarily include all information and
footnotes required by generally accepted accounting principles. In our opinion,
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly our consolidated financial position, results of operations and
cash flows as of June 30, 1999 and for all periods presented have been made. The
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/A for the year ended December 31, 1998. The
consolidated results of operations for the three and six months ended June 30,
1999 are not necessarily indicative of the results expected for the full year.
Certain reclassifications of prior period revenue amounts have been
made to conform to the current year presentation.
On January 1, 1999, we adopted the accounting provisions required by
the American Institute of Certified Public Accountants' Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1, among other things, requires that certain
costs of internal use software, whether purchased or developed internally, be
capitalized and amortized over the estimated useful life of the software.
Adoption of the SOP resulted in an increase in net income for the three months
ended June 30, 1999 of $52 and $86 for the six months ended June 30, 1999,
respectively.
NOTE 2 SEGMENT INFORMATION
We operate in three segments: retail services, wholesale services and
network services. The retail services segment provides local telephone services,
including wireless, data and long-distance services. The wholesale services
segment provides 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.
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, which has been extracted from
the financial statements of U S WEST. Separate segment data is not provided to
our chief operating decision-maker for the Company. Certain revenues and
expenses of U S WEST are included in the segment data, which have been
eliminated in the reconciling items column. Additionally, because significant
expenses of operating 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 margin for the retail services and wholesale services
segments excludes network and corporate expenses. The margin for the network
services segment excludes corporate expense. The "other" category includes our
corporate expenses and intersegment eliminations. Asset information by segment
is not provided to our chief operating decision-maker. The total communications
and related services column represents a total of the retail services, wholesale
services and network services segments.
Total
Communications
and
Retail Wholesale Network Related Reconciling Consolidated
Services Services Services Services Other Items Total
-------- -------- -------- -------- ----- ----- -----
Three Months Ended June 30,
1999
Operating
revenues......... $2,222 $719 $65 $3,006 $- $(157) $2,849
Margin........... 1,543 526 (699) 1,370 (3) (734) 633(1)
Capital
expenditures..... 93(2) 9 831 933 38 (23) 948
1998
Operating
revenues......... $2,113 $638 $53 $2,804 $- $(109) $2,695
Margin........... 1,544 449 (629) 1,364 (81) (829) 454(1)
Capital
expenditures..... 119(2) - 641 760 34 (13) 781
- - --------------------
(1) Represents income before income taxes. Adjustments that are made to the
total of the segments' margin to arrive at income before income taxes
include the following:
Three Months Ended June 30,
------------------------------------------
1999 1998
------------------- -------------------
Costs and adjustments excluded from segment data but included in the
consolidated total:
Restructuring costs............................................. $- $129
Taxes other than income taxes................................... 104 87
Depreciation and amortization................................... 557 518
Interest expense................................................ 98 94
Other amounts applicable to U S WEST, Inc....................... (37) (28)
Other expense-net............................................... 12 29
=================== ===================
$734 $829
=================== ===================
(2) 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.
Total
Communications
and
Retail Wholesale Network Related Reconciling Consolidated
Services Services Services Services Other Items Total
-------- -------- -------- -------- ----- ----- -----
Six Months Ended June 30,
1999
Operating
revenues......... $4,390 $1,409 $115 $5,914 $- $(272) $5,642
Margin........... 3,047 1,055 (1,384) 2,718 (36) (1,464) 1,218(1)
Capital
expenditures..... 204(2) 40 1,469 1,713 38 (38) 1,713
1998
Operating
revenues......... $4,180 $1,273 $99 $5,552 $- $(188) $5,364
Margin........... 3,108 959 (1,305) 2,762 (188) (1,513) 1,061(1)
Capital
expenditures..... 237(2) - 1,032 1,269 41 (20) 1,290
- - --------------------
(1) Represents income before income taxes. Adjustments that are made to the
total of the segments' margin to arrive at income before income taxes
include the following:
Six Months Ended June 30,
------------------------------------------
1999 1998
------------------- -------------------
Costs and adjustments excluded from segment data but included in the
consolidated total:
Restructuring costs............................................. $- $129
Taxes other than income taxes................................... 190 181
Depreciation and amortization................................... 1,142 1,036
Interest expense................................................ 187 185
Other amounts applicable to U S WEST, Inc....................... (79) (74)
Other expense-net............................................... 24 56
=================== ===================
$1,464 $1,513
=================== ===================
(2) 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.
In addition to the operating revenues disclosed above, intersegment
operating revenues of the retail services segment and network services segment
were:
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
Retail services................................. $8 $7 $14 $13
Network services................................ 17 16 31 33
NOTE 3: COMMITMENTS AND CONTINGENCIES
Commitments
We have 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 June 30, 1999, we have a remaining commitment of $49
to be paid in a combination of cash and services through 2004.
Contingencies
On May 1, 1996, the Oregon Public Utilities Commission ("OPUC")
approved a stipulation terminating prematurely our alternative form of
regulation ("AFOR") plan and it then undertook a review of our earnings. In May
1997, the OPUC ordered us to reduce our 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 our
AFOR plan was terminated on May 1, 1996.
We filed an appeal of the order and asked for an immediate stay of the
refund with the Oregon Circuit Court which granted our request for a stay,
pending a full review of the OPUC's order. On February 19, 1998, the Oregon
Circuit Court entered a judgment in our 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. We continue to charge interim rates, subject to refund,
during the pendency of that appeal. The potential exposure, including interest,
at June 30, 1999, is not expected to exceed $386. Management does not believe
there will be a material adverse impact to the financial statements as a result
of this matter.
Other Contingencies. In December 1998, we were informed of the
possibility of a claim by a purported class challenging the transfer of
approximately $54 from the U S WEST pension trust to the U S WEST health care
trust to pay retiree medical expenses pursuant to Section 420 of the Internal
Revenue Code of 1986, as amended. We believe that this transfer complied with
the applicable law and the associated plan documents. We plan to vigorously
defend any such claim if and when it is asserted.
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 results of
operations or financial position.
NOTE 4: SALE OF EXCHANGES
In June 1999, we entered into a series of definitive agreements to sell
local-exchange telephone properties serving approximately 530,000 access lines
in nine states for approximately $1,650 in cash, subject to adjustment. Approval
of the sale is subject to review by federal and state regulatory agencies. The
transfer of ownership, which will occur on a state-by-state basis, is expected
to be completed in 2000.
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
Communications, 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 and Year 2000
remediation);
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 in the local exchange market;
o a change 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 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
o the timing and completion of the recently announced merger with Qwest
Communications International Inc. ("Qwest") and the subsequent integration
of the businesses of the two companies.
These cautionary statements should not be construed as an exhaustive
list or as any admission by us regarding the adequacy of the disclosures. 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, 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 and Six Months Ended June 30, 1999 Compared with 1998
Net income for the quarter ended June 30, 1999, increased by $111, or
40.2% to $387, compared to net income of $276 for the quarter ended June 30,
1998. Net income for the six months ended June 30, 1999, increased $106, or
16.3% to $756, compared to net income of $650 for the six months ended June 30,
1998. We experienced a 5.7% and 5.2% increase in revenues for the three and six
months ended June 30, 1999, respectively, over the comparable 1998 periods.
These increases were partially offset by increases in expenses to support our
growth initiatives, enhanced customer service and greater network and
interconnection costs.
The following sections provide a more detailed discussion of the
changes in revenues and expenses.
Operating Revenues
Three Months Ended Six Months
June 30, Ended June 30,
1999 1998 Increase 1999 1998 Increase
Local services revenues......... $1,933 $1,756 $177 10.1% $3,800 $3,486 $314 9.0%
Local services revenues. Local services revenues include basic monthly service
fees, fees for calling services such as voice messaging and caller
identification, wireless revenues, subscriber access line charges, MegaBit(TM)
data services, public phone revenues, and installation and connection charges.
State public service commissions regulate most local service rates.
Local services revenues increased primarily due to increased sales of
wireless and calling services. Wireless services accounted for $41 and $72 of
the revenue increases for the three and six months ended June 30, 1999,
respectively. Increased revenues from calling services contributed $36 for the
quarter ended June 30, 1999 and $67 for the six months ended June 30, 1999, over
comparable 1998 periods. Additionally, revenues from access line growth
contributed to the rise in revenues. Second line additions by residential and
small business customers contributed to access line growth due to continuing
demand for Internet access and data transport capabilities. As of the end of the
second quarter of 1999, we had added 510,000 access lines, an increase of 3.1%
over the second quarter of 1998. Of this increase, second line installations
accounted for 242,000 lines, an increase of 16.5% compared with the second
quarter of 1998. Also contributing to the revenue growth were increases in the
subscriber base of our Megabit(TM) data services and greater revenue from inside
wire maintenance plans. Partially offsetting these increases were net regulatory
rate adjustments and refunds of $4 for the three months ended June 30, 1999 and
$19 for the six months ended June 30, 1999, over the comparable 1998 periods.
While local services revenues increased in 1999, the growth rate has
declined from 1998. The decline in the growth rate was primarily attributable to
increased competition as well as our customer retention strategy of offering
bundles of services to customers at lower prices in return for entering into
longer-term contracts. Additionally, some business customers have opted to
migrate from multiple single lines to high capacity lines, which decreases local
services revenues but increases access services revenues. We believe we may
continue to experience declining growth rates as the level of customer demand
slows and competition increases. In June 1999, we entered into a series of
definitive agreements to sell 530,000 access lines in nine states for $1,650 in
cash, subject to adjustment. The access lines accounted for 3.8% of fiscal 1998
local services revenues. While the sale is expected to provide us with a
one-time gain in 2000, it will negatively impact future local services revenue
growth.
Three Months Ended Six Months
June 30, Ended June 30,
1999 1998 Increase 1999 1998 Increase
Access services revenues........ $688 $671 $17 2.5% $1,369 $1,336 $33 2.5%
Access services revenues. Access services revenues are derived primarily from
charging interexchange carriers, such as AT&T and MCI WorldCom, for use of our
local network to connect customers to their long-distance networks. These
revenues are generated from both interstate and intrastate services.
Access services revenues increased due to greater demand for both
interstate and intrastate access services. The volume of interstate and
intrastate access minutes billed both increased 5% for the three months ended
June 30, 1999, over the comparable periods in 1998. Interstate and intrastate
access minutes billed increased 6% and 5%, respectively, for the six months
ended June 30, 1999 over the comparable 1998 periods. Rate reductions of $17 and
$14 for interstate and intrastate access services, respectively, for the three
months ended June 30, 1999, and $31 and $30 for the six months ended June 30,
1999, offset increases in demand. The net impact of increased demand, offset by
rate reductions for the three months ended June 30, 1999, was to increase
interstate access services revenues by $42, or 9% and to decrease intrastate
access services revenues by $4, or 3% over the comparable 1998 periods. The net
impact of increased demand, offset by rate reductions for the six months ended
June 30, 1999, was to increase interstate access services revenues by $93, or
10% and to decrease intrastate access services revenues by $19, or 3% over the
comparable 1998 periods. While we anticipate increased demand for total access
services will continue, the effect of rate reductions is anticipated to continue
to cause a decline in intrastate access services revenues. Additionally,
revenues for the quarter and six months ended June 30, 1998 were favorably
impacted by regulatory rate adjustments of $20 and $40, respectively.
Three Months Ended Six Months
June 30, Ended June 30,
1999 1998 Decrease 1999 1998 Decrease
Long-distance services revenues.. $150 $195 ($45) (23.1%) $321 $396 ($75) (18.9%)
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 and
six months ended June 30, 1999 was primarily attributable to greater
competition, resulting in revenue declines of $31 and $51, respectively. Rate
reductions of $7 and $17 for the three and six months ended June 30, 1999,
respectively, also contributed to the revenue losses. As of June 30, 1999,
customers in 11 of the 14 states in which we operate were able to choose an
alternative provider for intraLATA calls without dialing a special access code
when placing the call.
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 11.
Three Months Ended Six Months
June 30, Ended June 30,
1999 1998 Increase 1999 1998 Increase
Other services revenues......... $78 $73 $5 6.8% $152 $146 $6 4.1%
Other services revenues. Other services revenues include billings and
collections for interexchange carriers and sales of customer equipment. The
increases for the three and six months ended June 30, 1999, were primarily
attributable to billing and collection and rent revenues.
Operating Expenses
Three Months Ended Six Months
June 30, Ended June 30,
1999 1998 Increase 1999 1998 Increase
Employee-related expenses....... $891 $860 $31 3.6% $1,784 $1,682 $102 6.1%
Employee-related expenses. Employee-related expenses include salaries and wages,
benefits, payroll taxes and contract labor.
Employee-related expenses increased during the three and six month
periods ended June 30, 1999, because of increased commitments towards improving
customer services, including meeting requests for installation, repair services
and customer services, resulting in higher labor costs. Additionally, growth in
several sectors of the business, primarily wireless and data communications,
resulted in increased employee levels. Across-the-board wage increases also
contributed to the increase in employee-related expenses. Partially offsetting
the higher expenses were net reductions in the costs of employee benefits,
including pension expense, of $22 for the three months ended June 30, 1999 and
$41 for the six months ended June 30, 1999, over the comparable 1998 periods. In
addition, $24 for the quarter ended June 30, 1999 and $38 for the six months
ended June 30, 1999, of employee-related expenses associated with developing
internal use software were capitalized in 1999 due to the adoption of Statement
of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," effective January 1, 1999.
Three Months Ended Six Months
June 30, Ended June 30,
1999 1998 Decrease 1999 1998 Decrease
Other operating expenses........ $658 $740 ($82) (11.1%) $1,287 $1,344 ($57) (4.2%)
Other operating expenses. Other operating expenses include access charges paid
to independent local exchange carriers ("LECs") for the routing of local and
long-distance traffic through their facilities and other selling, general and
administrative costs. Included in the quarter and six months ended June 30, 1998
were $129 of separation costs associated with the split from MediaOne Group,
Inc. and asset impairment charges. Excluding these charges, other operating
expenses increased $47, or 7.7%, for the quarter ended June 30, 1999 and
increased $72 or 5.9% for the six months ended June 30, 1999. These increases in
other operating expenses for the quarter and six months ended June 30, 1999,
were primarily attributable to the following:
o higher access charge expenses resulting from regulatory rulings that
require us to pay reciprocal compensation to other LECs for calls that
originate on our network and terminate on other LECs' networks,
o increased costs of product sales associated with growth initiatives,
including wireless handset costs and costs applicable to our data
communications services, and
o higher interconnection and Year 2000 remediation costs.
In addition, the increase in other operating expenses for the six
months ended June 30, 1999, was also due to the following:
o higher marketing and advertising costs for wireless, data communications
services and calling services, such as caller identification, and
o higher rent expense related to increased computer hardware leasing and
increases in leasing costs associated with telephone poles.
Offsetting the increases in other operating expenses were the effects
of capitalizing $73 for the quarter ended June 30, 1999 and $127 for the six
months ended June 30, 1999 of costs associated with developing internal use
software in accordance with SOP 98-1.
Three Months Ended Six Months
June 30, Ended June 30,
1999 1998 Increase 1999 1998 Increase
Depreciation and amortization
expense...................... $557 $518 $39 7.5% $1,142 $1,036 $106 10.2%
Depreciation and amortization expense. Depreciation and amortization expense
increased primarily due to higher overall property, plant and equipment balances
resulting from continued investment in our network. Additionally, the useful
lives of certain assets were reduced, reflecting changes in technology, causing
greater depreciation expense. Partially offsetting the second quarter increase
was the cessation of depreciation primarily associated with the 530,000 access
lines that are under definitive sales agreements entered into in the second
quarter of 1999.
Three Months Ended Six Months
June 30, Ended June 30,
1999 1998 Decrease 1999 1998 Decrease
Other expense-net............... $110 $123 ($13) 10.6% $211 $241 ($30) (12.4%)
Other expense-net. Interest expense remained relatively consistent for the
three and six months ended June 30, 1999, compared to the prior comparable
periods. Included in other expense-net were other expenses of $12 for the
quarter ended June 30, 1999, compared to $29 for the quarter ended June 30, 1998
and $24 for the six months ended June 30, 1999, compared to $56 for the prior
comparable period. The decreases were due to a reduction in regulatory interest
expense from the prior year. Additionally, for the six months ended June 30,
1999, there was a reduction in interest expense attributable to an anticipated
settlement of federal income tax liabilities for tax years still under audit.
Three Months Ended Six Months
June 30, Increase Ended June 30, Increase
1999 1998 (Decrease) 1999 1998 (Decrease)
Segment margin results:
Retail segment.................. $1,543 $1,544 $(1) (0.1)% $3,047 $3,108 $(61) (1.2)%
Wholesale segment............... 526 449 77 17.1 1,055 959 96 10.0
Network segment................. (699) (629) (70) (11.1) (1,384) (1,305) (79) (6.1)
Segment results. For segment reporting purposes, segment margins exclude certain
costs and expenses, including depreciation and amortization, corporate expenses
and taxes other than income. See Note 2 to the consolidated financial
statements.
Margin from the retail services segment decreased for the six months
ended June 30, 1999 over the comparable prior period due to operating expenses
increasing at a greater rate than revenue growth. Revenue from the retail
services segment increased 5.0% for the six months ended June 30, 1999 over the
comparable 1998 period, primarily due to growth in local services revenue. The
revenue increase was more than offset by the higher operating expenses driven by
growth initiatives and increased customer service costs. For the quarter ended
June 30, 1999, the margin was flat compared to the prior comparable quarter.
This improvement, compared to the margin decline for the six months ended June
30, 1999, resulted from a reduction in advertising costs. Margins from the
wholesale services segment increased as a result of greater demand for access
services, partially offset by price reductions as mandated by both federal and
state regulatory authorities and higher operating costs relating to
interconnection costs and additional access charge expenses. Margins from the
network services segment decreased as a result of expenditures to support growth
in both the retail and wholesale services segments. Additionally, the
implementation of SOP 98-1 in 1999, contributed favorably to each segment's
margin results.
Three Months Ended Six Months
June 30, Ended June 30,
1999 1998 Increase 1999 1998 Increase
Provision for income
taxes........................ $246 $178 $68 38.2% $462 $411 $51 12.4%
Provision for income taxes. The effective tax rate for the three months ended
June 30, 1999 was 38.9% compared to 39.2% for the comparable quarter of 1998.
The effective tax rate was 37.9% for the six months ended June 30, 1999 compared
to 38.7% for the six months ended June 30, 1998. The reductions in the 1999
effective tax rates were due to lower permanent differences in the current year.
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. We do not use derivative financial
instruments for trading purposes.
As of June 30, 1999 and December 31, 1998, approximately $464 and $123,
respectively, of floating-rate debt was exposed to changes in interest rates.
This exposure is primarily linked to commercial paper rates and changes in
3-month LIBOR. A hypothetical increase of 1% in commercial paper rates and
3-month LIBOR would not have had a material effect on our earnings. As of June
30, 1999 and December 31, 1998, we also had $222 and $228, 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 June 30, 1999, all outstanding interest rate swaps and the
associated debt instrument have matured. As of December 31, 1998, we had
interest rate swaps with notional amounts of $155. The swaps synthetically
transformed certain of the Company's floating rate issues into fixed rate
obligations. The swaps and associated debt issues were indexed to two and
10-year constant maturity U.S. Treasury rates. Any gains (losses) on the swaps
were offset by losses (gains) on the associated debt instruments.
As of June 30, 1999 and December 31, 1998, we had also entered into
cross-currency swaps with notional amounts of $133 and $204, respectively. The
cross-currency swaps synthetically transform $97 and $182 of Swiss Franc
borrowings at June 30, 1999 and December 31, 1998, 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.
Recent Regulatory Developments
Interconnection. The FCC issued an order (the "Order") in 1996 relating to the
Telecommunications Act of 1996 (the "Act") that established interconnection
costing and pricing rules which, from our perspective, significantly impeded
negotiations with new entrants to the local exchange market, state regulatory
commission interconnection rulemakings and interconnection arbitration
proceedings.
On January 25, 1999, the U.S. Supreme Court ("Supreme Court") issued a
ruling on our appeal of the Order. Although the decision stated that the Act was
ambiguous and self-contradictory, the Supreme Court ruled that:
o the FCC has authority to set pricing methodology;
o unbundled network elements ("UNEs") must be provided in cases where
necessary or the lack of availability would impair competition;
o Incumbent local exchange companies ("ILECs") must sell on a bundled basis,
at the competitive local exchange carriers' ("CLECs") request, network
elements the ILEC uses itself on a bundled basis; and
o CLECs may pick and choose pricing or other terms and conditions from
multiple contracts within certain bounds.
The impact of the Supreme Court ruling is unclear since state
regulatory commissions generally follow the FCC's pricing and unbundling
requirements in setting UNE prices. On April 16, 1999, the FCC issued a Further
Notice of Proposal Rulemaking ("FNPRM") to address how it should interpret the
"necessary and impair" standard and which specific network elements the FCC
should require ILECs to unbundle. We expect further review of the legality of
the FCC's pricing rules will occur at the Eighth Circuit Court of Appeals.
InterLATA Long-Distance Entry. Several regional Bell operating companies have
filed for entry into the interLATA long-distance business. Although many of
these applications have been approved by state regulatory commissions, the FCC
has rejected all applications to date.
We view entry into this business as important to our strategy of
providing an integrated bundle of services to our customers. In 1999, we
withdrew our applications to enter the interLATA long-distance business in
Wyoming and Montana but we filed an application in Arizona. In April 1999, the
Nebraska Public Service Commission indicated it needed additional information
before making a recommendation to the FCC. We expect our application to be
forwarded to the FCC for its review in late 1999 or early 2000.
See "Special Note Regarding Forward-Looking Statements" on page 11.
Access Reform. In its access reform order, the FCC mandated a substantial
restructuring of interstate access pricing. A significant portion of the
services that were charged using minutes-of-use pricing are now being charged
using a combination of minutes-of-use rates, flat-rate presubscribed
interexchange carrier charges ("PICCs") and subscriber line charges ("SLCs").
Although an increase in the SLC to multi-line business users occurred on July 1,
1997, the bulk of the mandated pricing changes occurred on January 1, 1998.
Additional mandated pricing changes occurred on January 1, 1999 and July 1, 1999
and more will be implemented on January 1, 2000 and 2001. The net effect of
these changes will be to decrease minutes-of-use charges and increase flat-rate
charges (i.e., PICCs and SLCs).
The access reform order also continued in place the current rules under
which ILECs may not assess interstate access charges on information service
providers and purchasers of UNEs.
In February 1999, the FCC issued an order declaring that Internet
traffic is interstate and opened a proceeding to determine the appropriate
regulatory structure. The FCC allowed no change in the current agreements for
reciprocal compensation with CLECs until it rules on this matter. A ruling is
expected in the summer of 1999.
Advanced Telecommunications Services. On March 31, 1999, the FCC issued an
order establishing expanded collocation requirements for both conventional voice
and advanced services. The FCC also issued a FNPRM on "line sharing." Line
sharing allows a CLEC to provide advanced services over the same loop that the
ILEC uses to provide analog voice service.
Long-Term Number Portability Tariffs. In July 1999, the FCC issued an order on
our local number portability tariff that was originally effective in February
1999. The FCC's order reduced our tariff from $0.54 per access line to $0.43 per
access line. The FCC also required that the difference between $0.54 and $0.43
be refunded to customers. The Company does not expect the refund to have a
material impact on its financial statements.
Court Remand of 6.5% Productivity Factor. On May 21, 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. The FCC must revise and
reissue its order by April 2000.
Shared Transport. In June 1999, the Supreme Court vacated and remanded to the
Eight Circuit Court of Appeals its decision on the FCC's shared transport rules.
Until the FCC issues new rules, there is no federal requirement to make shared
transport available as a UNE. The FCC has combined this issue with its FNPRM on
UNE pricing.
Contingencies
We have pending regulatory actions in local regulatory jurisdictions.
See Note 3 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.
Year 2000 Costs
Background. We have conducted a comprehensive review of our computer-based
systems and related software and are taking measures to ensure that such systems
will properly recognize the year 2000 and continue to process beyond December
31, 1999. The systems we evaluated include systems within (i) the Public
Switched Telephone Network (the "Network"), (ii) Information Technologies
("IT"), and (iii) individual Business Units (the "Business Units").
The Network, which processes voice and data information relating to our
core communications business, relies on remote switches, central office
equipment, interoffice equipment and loop transport equipment that is
predominantly provided to us by telecommunications network vendors. IT is
comprised of our internal business systems that employ hardware and software on
an enterprise-wide basis, including operational, financial and administrative
functions. The Business Units, which include internal organizations such as
finance, procurement, directory services, operator services, wireless, data
networks, real estate, etc., employ systems that support desktop and
departmental applications, as well as embedded computer chip technologies, which
relate specifically to each of our Business Unit's functions and generally are
not part of the Network or IT.
We have approached year 2000 remediation activities through five
general phases: (i) inventory/assessment, (ii) planning, (iii) conversion, (iv)
testing/certification and (v) implementation. Additionally, we are continuously
monitoring and improving our year 2000 related activities and progress,
communicating with our customers and vendors, participating in cooperative
testing with others and taking steps to assure that we have contingency plans in
place prior to the end of 1999. These activities will continue throughout 1999.
Network update. With regard to the Network, we are working with our
telecommunications network vendors to obtain and convert to compliant releases
of hardware and software. We also are testing, at our own initiative, in
cooperation with certain of our customers, vendors and with other major wireline
telecommunications companies, network equipment over multiple configurations
involving a broad spectrum of services. Toward this end, we participate in the
Telco Year 2000 Forum (the "Forum"), an organization that addresses the year
2000 readiness of network elements and network interoperability. The Forum has
contracted with Telcordia (formerly known as Bellcore), a former affiliate
engaged in telecommunications industry research, development and maintenance
activities, to engage in inter-region interoperability testing. No significant
issues have been found to date. We also participate in (i) the FCC's Network
Reliability and Interoperability Council IV working group, which is tasked to
evaluate the year 2000 readiness of the public telecommunications network, and
(ii) the Alliance for Telecommunications Industry Solutions ("ATIS"), which is
testing inter-network interoperability, and which, in conjunction with the
Cellular Telecommunications Industry Association ("CTIA"), is testing network
interoperability with wireless networks. Our inventory/assessment, planning and
conversion phases for the Network are complete. The network
testing/certification phase was approximately 100% complete as of June 30, 1999.
Cooperative testing with certain customers, vendors and other telecommunications
companies is expected to continue during 1999. As of June 30, 1999,
approximately 99.6% of our Network remediation implementation was complete, with
the remainder anticipated to be finished by August 1999. Substantial progress
has been made with Network contingency planning activities. We anticipate that
the remainder of the Network contingency planning activities will be complete by
the end of the third quarter, 1999.
IT update. Within IT, we have identified approximately 570 applications that
support our critical business processes, such as billing and collections,
network monitoring, repair and ordering. The inventory/assessment and planning
phases for such IT applications are complete. As of June 30, 1999, approximately
99% of IT conversion activities, 96.8% of IT testing activities and 97% of IT
implementation had been completed. We anticipate that each of these phases for
IT will be complete by September 1999. Substantial progress has been made with
IT contingency planning activities. We anticipate that the remainder of the IT
contingency planning activities will be complete by the end of the third
quarter, 1999.
Business Units update. Within our Business Units, it is estimated that as of
June 30, 1999, approximately 100% of the inventory/assessment activity, 99.5% of
the planning activity, 99.5% of the conversion activity and 99% of the testing
and remediation implementation activities were complete. We anticipate that each
of these phases will be complete in the Business Units for major conversions and
upgrades by the end of the third quarter of 1999. We have recently initiated
Business Unit contingency planning activities and we anticipate those will be
complete by the end of the third quarter, 1999.
Costs relating to year 2000. We and our parent company have spent approximately
$200 from the beginning of 1997 through the end of the second quarter of 1999 on
year 2000 projects and activities. We and our parent company estimate that
additional costs for year 2000 related projects and activities will be
approximately $75. Virtually all year 2000 related expenditures are being funded
through operations. Though year 2000 costs will directly impact the reported
level of future net income, we intend to control our total cost structure,
including deferral of non-critical projects to future years, in an effort to
mitigate the impact of year 2000 costs on our historical rate of earnings
growth. The estimates stated above are subject to change. The timing of our
expenses may vary and is not necessarily indicative of readiness efforts or
progress to date.
Contingency plan. We cannot provide assurance that the results of our year 2000
compliance efforts or the costs of such efforts will not differ materially from
estimates. Accordingly, we are developing year 2000 specific business continuity
and contingency plans to address high risk areas as they are identified. Our
year 2000 contingency planning activities will include training of crisis
managers on year 2000 issues and potential business impacts to their particular
process areas, reviewing and modifying existing business continuity plans to
address year 2000 issues and establishing rapid response teams and
communications procedures for each of the major critical operations and
facilities to handle potential post-implementation year 2000 failures. These
year 2000 specific contingency planning activities are to be in place by the
third quarter of 1999. In addition, we have in place our standard overall
business continuity, contingency and disaster recovery plans (such as diesel
generator back-up power supply sources for our Network, Network rerouting
capabilities, computer data and records safe-keeping and back-up and recovery
procedures) which will be verified, and as appropriate, augmented for specific
year 2000 contingencies.
Dependencies. Within Network, we are highly dependent upon our
telecommunications network vendors to provide year 2000 compliant hardware and
software in a timely manner, and on third parties that are assisting us in the
focused testing and implementation phases regarding the Network. Because of
these dependencies, we have developed and implemented a vendor compliance
process whereby we have obtained written assurances of timely year 2000
compliance from most of our critical vendors (not only for Network, but also for
IT and the Business Units). In addition, we monitor and actively participate in
coordinated Network testing activities, as discussed above, with respect to the
Forum, ATIS and Telcordia. Within IT, we depend on the development of software
by experts, both internal and external, and the availability of critical
resources with the requisite skill sets. Because of this dependency, we have
developed detailed timetables, resource plans and standardized year 2000 testing
requirements for identified critical applications (irrespective of whether these
applications are used primarily by IT, the Network or the Business Units).
Within the Business Units, we are dependent on vendor supplied goods and
services and operability of the Network and critical IT and Business Unit
specific applications. Because of these dependencies, we are implementing the
same type of vendor compliance processes and application planning and testing
processes at the Business Units, as discussed above with respect to the Network
and IT. Overall, we have sought compliance assurances from approximately 7,765
vendors concerning approximately 25,769 products and have received assurances
for 99.6% of those products as of June 30, 1999. During 1999, we will continue
to pursue assurances of timely year 2000 compliance for the remaining critical
vendors.
As with any large-scale computer-related project such as year 2000
remediation, the testing phase may require resources in excess of other project
phases and the other project phases may be affected by and dependent upon the
results of the testing phase.
Summary. In management's view, the most reasonably likely worse case scenario
for year 2000 failure prospects we face is that a limited number of important IT
and/or Business Unit specific applications may unexpectedly fail. In addition,
there may be unexpected problems with the Network relating to the year 2000. Our
failure or the failure by certain of our vendors to remediate year 2000
compliance issues in advance of the year 2000 and to execute appropriate
contingency plans in the event that a critical failure is experienced, could
result in disruption of our operations, possibly impacting the Network and
impairing our ability to bill or collect revenues. However, while no assurance
can be given, management believes that our efforts at remediation and testing,
year 2000 specific contingency planning, and overall business continuity,
contingency and disaster recovery planning will likely be successful, and that
the aforementioned "worse case scenario" is unlikely to develop or significantly
disrupt our financial operations.
The above discussion regarding year 2000 contains many statements that
are "forward-looking" within the meaning of the Reform Act. Although we believe
that our estimates are based on reasonable assumptions, we cannot assure that
actual results will not differ materially from these expectations or estimates.
See "Special Note Regarding Forward-Looking Statements" on page 11.
New Accounting Standards
On June 15, 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 on the balance
sheet and that changes in fair value generally be recognized currently in
earnings unless specific criteria are met. The standard is effective for fiscal
years beginning after June 15, 2000, though 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 1999, its impact
on the consolidated financial statements would not have been material.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The 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 3: Commitments and Contingencies" - to the consolidated financial
statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed for the Company through the filing of this Form 10-Q.
Exhibit No.
(2a) Articles of Merger including the Plan of Merger between The
Mountain States Telephone and Telegraph Company (renamed U S
WEST Communications, Inc.) and Northwestern Bell Telephone
Company. (Incorporated herein by this reference to Exhibit 2a
to Form SE filed on January 8, 1991, File No. 1-3040).
(2b) Articles of Merger including the Plan of Merger between The
Mountain States Telephone and Telegraph Company (renamed U S
WEST Communications, Inc.) and Pacific Northwest Bell
Telephone Company. (Incorporated herein by this reference to
Exhibit 2b to Form SE filed on January 8, 1991, File No.
1-3040).
(3a) Restated Articles of Incorporation of the Registrant.
(Incorporated herein by this reference to Exhibit 3a to Form
10-K/A filed on April 13, 1998, File No. 1-3040).
(3b) Bylaws of the Registrant, as amended. (Incorporated herein
by this reference to Exhibit 3b to Form 10-K/A filed on April
13, 1998, File No. 1-3040).
4 No instrument which defines the rights of holders of long and
intermediate term debt of the Registrant is filed herewith
pursuant to Regulation S-K, Item 601(b) (4) (iii) (A).
Pursuant to this regulation, the Registrant hereby agrees to
furnish a copy of any such instrument to the SEC upon request.
(10a) Reorganization and Divestiture Agreement dated as of November
1, 1983, between American Telephone and Telegraph Company, U S
WEST Inc., and certain of their affiliated companies,
including The Mountain States Telephone and Telegraph Company,
Northwestern Bell Telephone Company, Pacific Northwest Bell
Telephone Company and NewVector Communications, Inc. (Exhibit
10a to Form 10-K for the period ended December 31, 1983, File
No. 1-3040).
(10b) Shared Network Facilities Agreement dated as of January 1,
1984, between American Telephone and Telegraph Company, AT&T
Communications of the Midwest, Inc. and The Mountain States
Telephone and Telegraph Company. (Exhibit 10b to Form 10-K for
the period ended December 31, 1983, File No. 1-3040).
(10c) Agreement Concerning Termination of the Standard Supply
Contract effective December 31, 1983, between American
Telephone and Telegraph Company, Western Electric Company,
Incorporated, The Mountain States Telephone and Telegraph
Company and Central Services Organization (Exhibit 10d to Form
10-K for the period ended December 31, 1983, File No.
1-3040).
(10d) Agreement Concerning Certain Centrally Developed Computer
Systems effective December 31, 1983, between American
Telephone and Telegraph Company, Western Electric Company,
Incorporated, The Mountain States Telephone and Telegraph
Company and Central Services Organization (Exhibit 10e to Form
10-K for the period ended December 31, 1983, File No.
1-3040).
(10e) Agreement Concerning Patents, Technical Information and
Copyrights effective December 31, 1983, between American
Telephone and Telegraph Company and U S WEST, Inc. (Exhibit
10f to Form 10-K for the period ended December 31, 1983, File
No. 1-3040).
(10f) Agreement Concerning Liabilities, Tax Matters and Termination
of Certain Agreements dated as of November 1, 1983, between
American Telephone and Telegraph Company, U S WEST, Inc., The
Mountain States Telephone and Telegraph Company and certain of
their affiliates (Exhibit 10g to Form 10-K for the period
ended December 31, 1983, File No. 1-3040).
(10g) Agreement Concerning Trademarks, Trade Names and Service Marks
effective December 31, 1983, between American Telephone and
Telegraph Company, American Information Technologies
Corporation, Bell Atlantic Corporation, BellSouth Corporation,
Cincinnati Bell, Inc., NYNEX Corporation, Pacific Telesis
Group, The Southern New England Telephone Company,
Southwestern Bell Corporation and U S WEST, Inc. (Exhibit 10i
to Form 10-K for the period ended December 31, 1984, File No.
1-3040).
(10h) Shareholders' Agreement dated as of January 1, 1988, between
Ameritech Services, Inc., Bell Atlantic Management Services,
Inc., BellSouth Services, Incorporated, NYNEX Service Company,
Pacific Bell, Southwestern Bell Telephone Company, The
Mountain States Telephone and Telegraph Company, Northwestern
Bell Telephone Company and Pacific Northwest Bell Telephone
Company (Exhibit 10h to Form SE dated March 5, 1992, File No.
1-3040).
(10i) 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
99B to Form 8-K dated June 17, 1999, File No. 1-3040).
10j 364-Day $800 Million Credit Agreement, dated May 19, 1999,
with The Banks Listed Therein and Morgan Guaranty Trust
Company of New York, as Administrative Agent.
10k Amendment No. 1 to Credit Agreement dated as of June 11, 1999
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 on the signature pages thereto and Morgan
Guaranty Trust Company of New York, as Administrative Agent.
27 Financial Data Schedule
- - -------------------
( ) Previously filed.
(b) Reports on Form 8-K filed during the Second Quarter of 1999 and through the
filing of this form 10-Q.
(i) Form 8-K dated June 17, 1999 providing notification of a press
release entitled "Citizens Utilities signs definitive
agreements with U S WEST to purchase approximately 530,000
telephone access lines in nine states for $1.65 billion".
SIGNATURES
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 Communications, Inc.
/s/ ALLAN R. SPIES
By:___________________________________
Allan R. Spies
Vice President and Chief Financial Officer
August 9, 1999