Qwest Communications Reports Second Quarter 2002 Results; Achieves Positive Free Cash Flow; Revises Guidance for Remainder of 2002
DENVER, Aug. 8 /PRNewswire-FirstCall/ -- Qwest Communications International Inc. (NYSE: Q ) today announced its financial results for the second quarter of 2002. On a reported basis, the company reported a net loss of ($1.14) billion or ($0.68) per share, compared to a net loss of ($3.31) billion or ($1.99) per share in the second quarter of 2001.
The loss reflects after-tax non-operating items of $926 million, or $0.55 per diluted share, due primarily to the write-down of the company's remaining investment in KPNQwest which totaled $740 million, increased bad debt reserves of $119 million associated with the WorldCom, Inc. bankruptcy, and asset impairments on real estate held for sale of $59 million. After adjusting for these charges and certain other non-operating items, the company recorded a ($0.13) normalized loss per diluted share compared with normalized earnings per share of $0.08 for the same period last year.
Free cash flow, defined as cash flow from operations less capital expenditures, totaled $320 million in the quarter. This reflects the company's reduced capital investment and continued management of working capital. For the quarter, capital expenditures were $618 million, down from $2.62 billion in the same period last year.
"We are aggressively taking the steps necessary to maximize the profitability of our core operations, delever our balance sheet and improve the delivery of services to our customers," said Richard C. Notebaert, Qwest's chairman and CEO. "I'm confident we have the right people and the right plan to deliver on both our short-term and long-term objectives."
Reported revenue for the quarter decreased 17.3 percent to $4.32 billion from $5.22 billion in the same period last year primarily due to the absence of optical capacity asset sales and certain Internet Protocol (IP) equipment sales. Recurring revenue declined approximately six percent to $4.32 billion as compared to $4.59 billion in the second quarter of 2001.
Recurring revenue for local and long-distance voice services for the quarter declined $231 million, or approximately eight percent compared to the same period last year, primarily due to industry pressures and the company's efforts to focus on more profitable products and lines of business.
Recurring revenue for data and Internet services declined 2.5 percent or $26 million in the second quarter of 2002, compared with the same period last year.
Wireless services increased approximately four percent or $7 million compared to the same period last year. The company had more than 1.1 million wireless customers at the end of the second quarter 2002, 11.5 percent more than at the end of the second quarter of 2001. In addition, total quarterly DSL (digital subscriber line) revenues increased approximately 81 percent or $21 million year-over-year. Total DSL customers, including in-region and out-of-region customers, increased to 508,000 at the end of the second quarter 2002, a 37 percent increase from the same period of 2001.
For the quarter, adjusted EBITDA (adjusted earnings before interest, taxes, depreciation and amortization) was $1.26 billion compared with adjusted EBITDA for the same period last year of $2.0 billion. This decline was mainly due to the absence of optical capacity asset sales and certain IP equipment sales, the company's continued investment in product platforms for dial Internet access and managed wavelength services, and certain unanticipated expenses recognized within the quarter for increased litigation risk and write-downs of certain inventory and assets.
As previously announced in a press release on July 28, 2002, the company expects to restate prior periods as a result of its determination that certain accounting policies may have been inappropriately applied and certain transactions were recorded incorrectly. The company is consulting with its new external auditors, KPMG LLP, on the scope of a restatement and what adjustments would be required. Until such time as these efforts have been concluded, the company cannot indicate the extent to which the results for 2000 - 2002 will be impacted.
The company is continuing to analyze its accounting policies and practices in consultation with its new auditors. In addition, the company has commenced a review of its internal controls. Qwest will attempt to conclude these analyses promptly. However, as a result of the change in auditors and the ongoing investigation by the U.S. Securities and Exchange Commission, the company cannot state with certainty when a restatement will be completed.
Accordingly, the company anticipates it will not be in a position to timely file its Quarterly Report on Form 10-Q. It expects to provide by August 19, 2002 more detailed financial disclosure about the second quarter, material trends related to its results of operations and its current liquidity and capital resources on a Form 8-K. This additional information will not be a substitute for the disclosure required in the Form 10-Q; however, until the company can file the Form 10-Q, it will provide as much relevant material financial information as it can that is of the type included in a Form 10-Q. Qwest will attempt to file the second quarter Form 10-Q as soon as it has sufficient certainty of the impact on this period of the expected restatement.
FINANCIAL GUIDANCE
Qwest announced revised financial guidance for full year 2002. The company expects its near-term outlook to continue to be affected by industry, competitive and economic conditions. Accordingly, Qwest expects total revenue in the range of $17.1 - $17.4 billion, adjusted EBITDA in the range of $5.4 - $5.6 billion, capital expenditures in the range of $3.0 - $3.1 billion, and a normalized loss per share of ($0.46) - ($0.49). In addition, the company expects to be cash flow positive for 2002. This guidance includes the results of QwestDex for all periods in 2002.
MARKET SEGMENTS
BUSINESS SERVICES
Recurring business services revenues for the quarter totaled $1.55 billion. Excluding optical capacity asset and certain IP equipment sales of $69 million from the second quarter of 2001, business services revenues declined 2.4 percent versus the same period last year. Growth in recurring data and Internet services of eight percent was offset by declines in local and long-distance voice revenues of approximately eight percent.
Qwest continues to expand its share of enterprise business and government customers and during the quarter signed agreements to provide services to the National Oceanic and Atmospheric Administration (NOAA), Flagstar Bank, Honeywell and Allegheny Power.
CONSUMER SERVICES
Consumer services revenues totaled $1.41 billion, representing a decrease of 4.8 percent, or $71 million, compared with the second quarter of 2001. Continued growth in DSL and wireless services was offset by a decline in consumer access lines of 4.6 percent and continued efforts to improve profitability by slowing the company's acquisition efforts of out-of-region long-distance customers.
As of June 30, 2002, approximately 37 percent of Qwest in-region consumer customers subscribed to a package, or bundle, of services that may include Internet access, DSL, wireless, voice messaging, caller identification or additional lines. This represents an increase of 24 percent over the second quarter 2001.
WHOLESALE SERVICES
Recurring wholesale services revenues totaled $995 million. Excluding optical capacity asset sales and certain IP equipment sales of $566 million from the second quarter of 2001, revenues declined approximately 12 percent versus the same period last year. The decline is attributable mainly to reduced volumes and mandated rate reductions for switched access services, lower demand for in-region co-location and billing and collection services, and increased pricing on certain voice products to improve profitability.
DIRECTORY SERVICES
Directory services revenues decreased less than one percent, or $3 million, primarily due to the extension of the life of 15 directories in 2001 from 12 months to 13 months offsetting increased advertising rates in 2002. All books published in the second quarter of 2002 had 12 month service lives.
UPDATE ON IMPAIRMENT CHARGES
As previously announced, Qwest expects an impairment of the carrying amount of its goodwill upon adoption of FASB Statement No. 142. The company's new auditors are reviewing the methodology for determining the impairment. As a result, Qwest has not recorded an impairment charge within the current quarter, but expects to do so at a later date. In addition, the company believes certain network assets are impaired and additional charges will be required in accordance FASB Statement No. 144. The company is in the process of quantifying the impact of the impairment and believes it will be material.
BALANCE SHEET AND LIQUIDITY
Qwest has informed the agent bank under its credit facility that it is in compliance with the financial covenants in the credit facility, and Qwest is in compliance with the financial covenants in its indentures, each as of June 30, 2002.
The company has been in discussions with Bank of America, the administrative agent for its syndicated credit facility, about restructuring the facility. The company currently expects that the administrative agent will approach the credit facility lenders within the next week to begin to seek approval for a restructuring proposal that would extend the maturity of the credit facility and modify the financial covenants.
In addition, Banc of America Securities LLC has agreed to act as sole arranger and sole book runner for a proposed $500 million Senior Secured Credit Facility at the company's QwestDex, Inc. subsidiary. The company has obtained a commitment from an affiliate of Bank of America for $200 million of this proposed new facility. The commitment is subject to completion of the restructuring of the existing syndicated credit facility and other customary closing conditions for a facility of this type, including the parties entering into definitive agreements. The company believes it will be able to complete the new facility and the restructuring of its existing credit facility in the third quarter; however, there can be no assurance that either can be completed in that time frame or on terms satisfactory to the company.
The company continues its efforts to delever its balance sheet. The sale of QwestDex is the most significant of these efforts. The company is in late stage negotiations with bidders to sell all or part of QwestDex.
NOTE TO INVESTORS
"Reported" results in the applicable period are prepared in accordance with what the company believed, at the relevant time, were generally accepted accounting principles in the United States (GAAP). Since the company is analyzing its accounting policies and practices, the results in prior periods may be determined not to have been in accordance with GAAP. Recurring and adjusted or normalized results are not prepared in accordance with GAAP.
"Recurring" results reflect adjustments made for optical capacity asset sales revenue, certain IP equipment sales and other items, such as contractual settlements in the periods presented. The IP equipment sales for which our results have been adjusted to derive "recurring" results primarily include individually large and infrequent wholesale sales. For the three months ended June 30, 2002 and June 30, 2001, the recurring revenue adjustments were $0 and $635 million, respectively.
"Free cash flow" results reflect cash flow from operations less capital expenditures.
"Normalized" results reflect adjustments to eliminate the impacts of non-recurring and non-operating items, which for the relevant periods may include merger-related and other charges, gains (losses) on the sale of rural exchanges, gains (losses) on the sale of investments, depreciation adjustment for access lines returned to service, the write-down of investments, KPNQwest restructuring charges, changes in the market value of financial instruments, gains (losses) on discontinued operations, asset impairments on real estate held for sale and gains (losses) on the early retirement of debt. In addition, the company normalized in the second quarter for the increased bad debt reserves associated with the WorldCom, Inc. bankruptcy consistent with other telecommunications providers. For additional details on these adjustments, readers should refer to Attachments C and D.
"Adjusted EBITDA" excludes all items adjusted as a normalizing item. Adjusted EBITDA does not represent cash flow for the periods presented and should not be considered as an alternative to cash flows as a source of liquidity. Qwest's definition of adjusted EBITDA is not necessarily comparable with adjusted EBITDA or similar non-GAAP concepts used by other companies or with similar concepts used in Qwest's debt instruments. Adjusted EBITDA is provided as a complement to the financial results reported in accordance with GAAP and is presented to provide investors additional information concerning the company's operations. The adjusted EBITDA for the three months ended June 30, 2002 is the same as the number calculated by the company for the same period under the credit facility definition. The covenant under the credit facility requires a comparison of debt to Consolidated EBITDA for the most recent four quarters, and on this basis, as of June 30, 2002 the total adjusted EBITDA for the four quarters ended June 30, 2002 is .23 percent higher than the number calculated by the company for the same period under the credit facility definition.
Certain reclassifications have been made to prior periods to conform to the current presentation.
CONFERENCE CALL TODAY
As previously announced, Qwest will host a conference call for investors and the media today at 9:00 a.m. (EDT) with Notebaert and Oren Shaffer, Qwest vice chairman and CFO. The call may be heard on the Web at www.qwest.com/about/investor/meetings .
About Qwest
Qwest Communications International Inc. (NYSE: Q ) is a leader in reliable, scalable and secure broadband data, voice and image communications for businesses and consumers. The Qwest Macro Capacity® Fiber Network, designed with the newest optical networking equipment for speed and efficiency, spans more than 175,000 miles globally. For more information, please visit the Qwest Web site at www.qwest.com .
This release may contain projections and other forward-looking statements that involve assumptions, risks and uncertainties. Readers are cautioned not to place undue reliance on these statements, which speak only as of the date of this release. These statements may differ materially from actual future events or results. Readers are referred to the documents filed by Qwest Communications International Inc. (together with its affiliates, "Qwest," "we" or "us") with the Securities and Exchange Commission (the "SEC"), specifically the most recent reports which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements, including but not limited to: the duration and extent of the current economic downturn in our 14-state local service area, including its effect on our customers and suppliers; any adverse outcome of the SEC's current inquiries into Qwest's accounting policies, practices and procedures; adverse results of increased review and scrutiny by the Department of Justice, other regulatory authorities, media and others (including any internal analyses) of financial reporting issues and practices or otherwise; rapid and significant changes in technology and markets; failure to achieve the projected synergies and financial results expected to result from the acquisition of U S WEST, and difficulties in combining the operations of the combined company; our future ability to provide interLATA services within our 14-state local service area; potential fluctuations in quarterly results; volatility of Qwest's stock price; intense competition in the markets in which we compete; changes in demand for our products and services; dependence on new product development and acceleration of the deployment of advanced new services, such as broadband data, wireless and video services, which could require substantial expenditure of financial and other resources in excess of contemplated levels; higher than anticipated employee levels, capital expenditures and operating expenses; adverse changes in the regulatory or legislative environment affecting our business; adverse developments in commercial disputes or legal proceedings; and changes in the outcome of future events from the assumed outcome included by Qwest in its significant accounting policies. The information contained in this release is a statement of Qwest's present intention, belief or expectation and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general and Qwest's assumptions. Qwest may change its intention, belief or expectation, at any time and without notice, based upon any changes in such factors, in Qwest's assumptions or otherwise. The cautionary statements contained or referred to in this release should be considered in connection with any subsequent written or oral forward looking statements that Qwest or persons acting on its behalf may issue. This release may include analysts' estimates and other information prepared by third parties for which Qwest assumes no responsibility. Qwest undertakes no obligation to review or confirm analysts' expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
The Qwest logo is a registered trademark of, and CyberCenter is a service
mark of, Qwest Communications International Inc. in the U.S. and certain other
countries.
ATTACHMENT A
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - AS REPORTED
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
June 30, %
2002 2001 Change
REVENUES:
Business services $1,551 $1,657 (6.4)
Consumer services 1,410 1,481 (4.8)
Wholesale services 995 1,699 (41.4)
Directory services 345 348 (0.9)
Network services and other revenue 15 34 (55.9)
Total revenues 4,316 5,219 (17.3)
OPERATING EXPENSES:
Cost of sales 1,644 1,848 (11.0)
Selling, general and administrative 1,699 1,342 26.6
Depreciation 1,075 865 24.3
Depreciation adjustment for
access lines returned to service -- 222 (100.0)
Goodwill and other intangible
amortization 85 392 (78.3)
Merger-related and other charges -- 415 (100.0)
Operating (loss) income (187) 135 (238.5)
OTHER EXPENSE (INCOME):
Interest expense - net 455 343 32.7
Loss on changes in market value
of financial instruments -- 23 (100.0)
Gain on sales of rural exchanges -- (50) 100.0
Loss on sales of investments and
FMV adjustments 11 -- --
Investment write-downs 740 3,108 (76.2)
Other expense - net 38 14 171.4
Total other expense - net 1,244 3,438 (63.8)
Loss before income taxes,
discontinued operations and
extraordinary item (1,431) (3,303) (56.7)
Income tax (benefit) provision (298) 3 NM
Loss from continuing operations (1,133) (3,306) 65.7
DISCONTINUED OPERATIONS:
(Loss) income from discontinued
operations (5) -- --
Income tax benefit 2 -- --
Loss before extraordinary item (1,136) (3,306) 65.6
Extraordinary item -
early retirement of debt,
net of tax -- -- --
NET LOSS $(1,136) $(3,306) 65.6
Basic loss per share $(0.68) $(1.99) 65.8
Basic average shares outstanding 1,678 1,661 1.0
Diluted loss per share $(0.68) $(1.99) 65.8
Diluted average shares outstanding 1,678 1,661 1.0
Dividends per share $-- $0.05 (100.0)
Six Months Ended
June 30, %
2002 2001 Change
REVENUES:
Business services $3,096 $3,439 (10.0)
Consumer services 2,839 2,944 (3.6)
Wholesale services 2,016 3,148 (36.0)
Directory services 695 690 0.7
Network services and other revenue 35 46 (23.9)
Total revenues 8,681 10,267 (15.4)
OPERATING EXPENSES:
Cost of sales 3,217 3,643 (11.7)
Selling, general and administrative 3,038 2,600 16.8
Depreciation 2,129 1,696 25.5
Depreciation adjustment for
access lines returned to service -- 222 (100.0)
Goodwill and other intangible
amortization 170 711 (76.1)
Merger-related and other charges -- 624 (100.0)
Operating (loss) income 127 771 (83.5)
OTHER EXPENSE (INCOME):
Interest expense - net 866 681 27.2
Loss on changes in market value
of financial instruments -- -- --
Gain on sales of rural exchanges -- (50) 100.0
Loss on sales of investments and
FMV adjustments 21 -- --
Investment write-downs 1,202 3,247 (63.0)
Other expense - net 209 34 514.7
Total other expense - net 2,298 3,912 (41.3)
Loss before income taxes,
discontinued operations and
extraordinary item (2,171) (3,141) (30.9)
Income tax (benefit) provision (334) 147 (327.2)
Loss from continuing operations (1,837) (3,288) 44.1
DISCONTINUED OPERATIONS:
(Loss) income from discontinued
operations (5) 1 (600.0)
Income tax benefit 2 -- --
Loss before extraordinary item (1,840) (3,287) 44.0
Extraordinary item -
early retirement of debt,
net of tax 6 (65) (109.2)
NET LOSS $(1,834) $(3,352) 45.3
Basic loss per share $(1.10) $(2.02) 45.5
Basic average shares outstanding 1,672 1,659 0.8
Diluted loss per share $(1.10) $(2.02) 45.5
Diluted average shares outstanding 1,672 1,659 0.8
Dividends per share $-- $0.05 (100.0)
ATTACHMENT B
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - NORMALIZED (1)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
June 30, %
2002 2001 Change
REVENUES:
Business services $1,551 $1,657 (6.4)
Consumer services 1,413 1,484 (4.8)
Wholesale services 995 1,699 (41.4)
Directory services 345 348 (0.9)
Network services and other revenue 15 34 (55.9)
Total revenues 4,319 5,222 (17.3)
OPERATING EXPENSES:
Cost of sales 1,647 1,850 (11.0)
Selling, general and administrative 1,412 1,343 5.1
Adjusted EBITDA (2) 1,260 2,029 (37.9)
Adjusted EBITDA margin 29.2% 38.9%
Depreciation 1,075 865 24.3
Goodwill and other intangible
amortization 85 392 (78.3)
Operating income 100 772 (87.0)
OTHER EXPENSE:
Interest expense - net 455 343 32.7
Other expense - net 38 14 171.4
Total other expense - net 493 357 38.1
(Loss) income before income taxes (393) 415 (194.7)
Income tax (benefit) provision (183) 287 (163.8)
NET (LOSS) INCOME $(210) $128 (264.1)
Basic (loss) earnings per share $(0.13) $0.08 (262.5)
Basic average shares outstanding 1,678 1,661 1.0
Diluted (loss) earnings per share $(0.13) $0.08 (262.5)
Diluted average shares outstanding 1,678 1,674 0.2
Diluted cash (loss) earnings
per share (3) $(0.09) $0.29 (131.0)
Six Months Ended
June 30, %
2002 2001 Change
REVENUES:
Business services $3,096 $3,439 (10.0)
Consumer services 2,846 2,950 (3.5)
Wholesale services 2,016 3,148 (36.0)
Directory services 695 690 0.7
Network services and other revenue 35 46 (23.9)
Total revenues 8,688 10,273 (15.4)
OPERATING EXPENSES:
Cost of sales 3,222 3,646 (11.6)
Selling, general and administrative 2,752 2,601 5.8
Adjusted EBITDA (2) 2,714 4,026 (32.6)
Adjusted EBITDA margin 31.2% 39.2%
Depreciation 2,130 1,697 25.5
Goodwill and other intangible
amortization 170 711 (76.1)
Operating income 414 1,618 (74.4)
OTHER EXPENSE:
Interest expense - net 866 681 27.2
Other expense - net 135 34 297.1
Total other expense - net 1,001 715 40.0
(Loss) income before income taxes (587) 903 (165.0)
Income tax (benefit) provision (215) 557 (138.6)
NET (LOSS) INCOME $(372) $346 (207.5)
Basic (loss) earnings per share $(0.22) $0.21 (204.8)
Basic average shares outstanding 1,672 1,659 0.8
Diluted (loss) earnings per share $(0.22) $0.21 (204.8)
Diluted average shares outstanding 1,672 1,674 (0.1)
Diluted cash (loss) earnings
per share (3) $(0.16) $0.59 (127.1)
(1) The consolidated normalized statements have been adjusted to eliminate
the impacts of non-recurring and non-operating items, which for the
relevant periods include Merger-related and other charges, asset
impairments, a depreciation adjustment for access lines returned to
service, gains (losses) on the sale of rural exchanges, gains (losses)
on the sale of investments, the write-down of investments, KPNQwest
restructuring charges, changes in the market value of financial
instruments, gains (losses) on discontinued operations and gains
(losses) on the early retirements of debt. In addition, the
normalized statements adjust for a charge recorded by the company in
the second quarter to increase its bad debt reserves associated with
the WorldCom, Inc. bankruptcy. The Merger has been accounted for as a
purchase transaction. Certain reclassifications have been made to
prior periods to conform to the current presentation.
(2) Adjusted earnings before interest, income taxes, depreciation and
amortization ("Adjusted EBITDA") excludes all items adjusted as a
normalizing item and does not represent cash flow for the periods
presented and should not be considered as an alternative to net
earnings (loss) as an indicator of our operating performance or as an
alternative to cash flows as a source of liquidity, and may not be
comparable with EBITDA as defined by other companies.
(3) Diluted cash (loss) earnings per share represent diluted (loss)
earnings per share adjusted to add back the after-tax amortization of
goodwill and other intangible assets.
ATTACHMENT C
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
June 30, 2002
As
Reported Normalized Normalized
Results Adjustments Results
REVENUES:
Business services $1,551 $-- $1,551
Consumer services 1,410 3 1,413
Wholesale services 995 -- 995
Directory services 345 -- 345
Network services and other revenue 15 -- 15
Total revenues 4,316 3 4,319
OPERATING EXPENSES:
Cost of sales 1,644 3 1,647
Selling, general and administrative 1,699 (287) 1,412
Adjusted EBITDA (2) 1,260
Adjusted EBITDA margin 29.2%
Depreciation 1,075 -- 1,075
Depreciation adjustment for
access lines returned to service -- -- --
Goodwill and other intangible
amortization 85 -- 85
Merger-related and other charges -- -- --
Operating income (187) 287 100
OTHER EXPENSE (INCOME):
Interest expense - net 455 -- 455
Loss on changes in market value
of financial instruments -- -- --
Gain on sales of rural exchanges -- -- --
Loss on sales of investments and
FMV adjustments 11 (11) --
Investment write-downs 740 (740) --
Loss on asset impairments
Other expense - net 38 -- 38
Total other expense - net 1,244 (751) 493
(Loss) income before income taxes,
discontinued operations and
extraordinary item (1,431) 1,038 (393)
Income tax (benefit) provision (298) 115 (183)
(Loss) income from continuing
operations (1,133) 923 (210)
DISCONTINUED OPERATIONS:
(Loss) from discontinued operations (5) 5 --
Income tax benefit 2 (2) --
NET (LOSS) INCOME $(1,136) 926 (210)
Basic (loss) earnings per share $(0.68) $(0.13)
Basic average shares outstanding 1,678 1,678
Diluted (loss) earnings per share $(0.68) $(0.13)
Diluted average shares outstanding 1,678 1,678
Diluted cash (loss) earnings
per share (3) $(0.09)
Three Months Ended
June 30, 2001
As
Reported Normalized Normalized
Results Adjustments Results
REVENUES:
Business services $1,657 $-- $1,657
Consumer services 1,481 3 1,484
Wholesale services 1,699 -- 1,699
Directory services 348 -- 348
Network services and other revenue 34 -- 34
Total revenues 5,219 3 5,222
OPERATING EXPENSES:
Cost of sales 1,848 2 1,850
Selling, general and administrative 1,342 1 1,343
Adjusted EBITDA (2) 2,029
Adjusted EBITDA margin 38.9%
Depreciation 865 -- 865
Depreciation adjustment for
access lines returned to service 222 (222) --
Goodwill and other intangible
amortization 392 -- 392
Merger-related and other charges 415 (415) --
Operating income 135 637 772
OTHER EXPENSE (INCOME):
Interest expense - net 343 -- 343
Loss on changes in market value
of financial instruments 23 (23) --
Gain on sales of rural exchanges (50) 50 --
Loss on sales of investments and
FMV adjustments -- -- --
Investment write-downs 3,108 (3,108) --
Loss on asset impairments
Other expense - net 14 -- 14
Total other expense - net 3,438 (3,081) 357
(Loss) income before income taxes,
discontinued operations and
extraordinary item (3,303) 3,718 415
Income tax (benefit) provision 3 284 287
(Loss) income from continuing
operations (3,306) 3,434 128
DISCONTINUED OPERATIONS:
(Loss) from discontinued operations -- -- --
Income tax benefit -- -- --
NET (LOSS) INCOME $(3,306) 3,434 128
Basic (loss) earnings per share $(1.99) $0.08
Basic average shares outstanding 1,661 1,661
Diluted (loss) earnings per share $(1.99) $0.08
Diluted average shares outstanding 1,661 1,674
Diluted cash (loss) earnings
per share (3) $0.29
(1) The consolidated normalized statements have been adjusted to eliminate
the impacts of non-recurring and non-operating items, which for the
relevant periods include Merger-related and other charges, asset
impairments, a depreciation adjustment for access lines returned to
service, gains (losses) on the sale of rural exchanges, gains (losses)
on the sale of investments, the write-down of investments, KPNQwest
restructuring charges, changes in the market value of financial
instruments, gains (losses) on discontinued operations and gains
(losses) on the early retirements of debt. In addition, the
normalized statements adjust for a charge recorded by the company in
the second quarter to increase its bad debt reserves associated with
the WorldCom, Inc. bankruptcy. The Merger has been accounted for as a
purchase transaction. Certain reclassifications have been made to
prior periods to conform to the current presentation.
(2) Adjusted earnings before interest, income taxes, depreciation and
amortization ("Adjusted EBITDA") excludes all items adjusted as a
normalizing item and does not represent cash flow for the periods
presented and should not be considered as an alternative to net
earnings (loss) as an indicator of our operating performance or as an
alternative to cash flows as a source of liquidity, and may not be
comparable with EBITDA as defined by other companies.
(3) Diluted cash (loss) earnings per share represent diluted (loss)
earnings per share adjusted to add back the after-tax amortization of
goodwill and other intangible assets.
ATTACHMENT D
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (1)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Six Months Ended
June 30, 2002
As
Reported Normalized Normalized
Results Adjustments Adjustments
REVENUES:
Business services $3,096 $-- $3,096
Consumer services 2,839 7 2,846
Wholesale services 2,016 -- 2,016
Directory services 695 -- 695
Network services and other revenue 35 -- 35
Total revenues 8,681 7 8,688
OPERATING EXPENSES:
Cost of sales 3,217 5 3,222
Selling, general and administrative 3,038 (286) 2,752
Adjusted EBITDA (2) 2,714
Adjusted EBITDA margin 31.2%
Depreciation 2,129 1 2,130
Depreciation adjustment for access
lines returned to service -- -- --
Goodwill and other intangible
amortization 170 -- 170
Merger-related and other charges -- -- --
Operating income 127 287 414
OTHER EXPENSE (INCOME):
Interest expense - net 866 -- 866
Gain on sales of rural exchanges
and fixed assets -- -- --
Loss on sales of investments and
FMV adjustments 21 (21) --
Investment write-downs 1,202 (1,202) --
Other expense - net 209 (74) 135
Total other expense - net 2,298 (1,297) 1,001
(Loss) income before income taxes,
discontinued operations and
extraordinary item (2,171) 1,584 (587)
Income tax (benefit) provision (334) 119 (215)
(Loss) income from continuing
operations (1,837) 1,465 (372)
DISCONTINUED OPERATIONS:
(Loss) income from discontinued
operations (5) 5 --
Income tax benefit 2 (2) --
(Loss) income before
extraordinary item (1,840) 1,468 (372)
Extraordinary item - early
retirement of debt, net of tax 6 (6) --
NET (LOSS) INCOME $(1,834) $1,462 $(372)
Basic (loss) earnings per share $(1.10) $(0.22)
Basic average shares outstanding 1,672 1,672
Diluted (loss) earnings per share $(1.10) $(0.22)
Diluted average shares outstanding 1,672 1,672
Diluted cash (loss) earnings
per share (3) $(0.16)
Six Months Ended
June 30, 2001
As
Reported Normalized Normalized
Results Adjustments Adjustments
REVENUES:
Business services $3,439 $-- $3,439
Consumer services 2,944 6 2,950
Wholesale services 3,148 -- 3,148
Directory services 690 -- 690
Network services and other revenue 46 -- 46
Total revenues 10,267 6 10,273
OPERATING EXPENSES:
Cost of sales 3,643 3 3,646
Selling, general and administrative 2,600 1 2,601
Adjusted EBITDA (2) 4,026
Adjusted EBITDA margin 39.2%
Depreciation 1,696 1 1,697
Depreciation adjustment for access
lines returned to service 222 (222) --
Goodwill and other intangible
amortization 711 -- 711
Merger-related and other charges 624 (624) --
Operating income 771 847 1,618
OTHER EXPENSE (INCOME):
Interest expense - net 681 -- 681
Gain on sales of rural exchanges
and fixed assets (50) 50 --
Loss on sales of investments and
FMV adjustments -- -- --
Investment write-downs 3,247 (3,247) --
Other expense - net 34 -- 34
Total other expense - net 3,912 (3,197) 715
(Loss) income before income taxes,
discontinued operations and
extraordinary item (3,141) 4,044 903
Income tax (benefit) provision 147 410 557
(Loss) income from continuing
operations (3,288) 3,634 346
DISCONTINUED OPERATIONS:
(Loss) income from discontinued
operations 1 (1) --
Income tax benefit -- -- --
(Loss) income before
extraordinary item (3,287) 3,633 346
Extraordinary item - early
retirement of debt, net of tax (65) 65 --
NET (LOSS) INCOME $(3,352) $3,698 $346
Basic (loss) earnings per share $(2.02) $0.21
Basic average shares outstanding 1,659 1,659
Diluted (loss) earnings per share $(2.02) $0.21
Diluted average shares outstanding 1,659 1,674
Diluted cash (loss) earnings
per share (3) $0.59
(1) The consolidated normalized statements have been adjusted to eliminate
the impacts of non-recurring and non-operating items, which for the
relevant periods include Merger-related and other charges, asset
impairments, a depreciation adjustment for access lines returned to
service, gains (losses) on the sale of rural exchanges, gains (losses)
on the sale of investments, the write-down of investments, KPNQwest
restructuring charges, changes in the market value of financial
instruments, gains (losses) on discontinued operations and gains
(losses) on the early retirements of debt. In addition, the
normalized statements adjust for a charge recorded by the company in
the second quarter to increase its bad debt reserves associated with
the WorldCom, Inc. bankruptcy. The Merger has been accounted for as a
purchase transaction. Certain reclassifications have been made to
prior periods to conform to the current presentation.
(2) Adjusted earnings before interest, income taxes, depreciation and
amortization ("Adjusted EBITDA") excludes all items adjusted as a
normalizing item and does not represent cash flow for the periods
presented and should not be considered as an alternative to net
earnings (loss) as an indicator of our operating performance or as an
alternative to cash flows as a source of liquidity, and may not be
comparable with EBITDA as defined by other companies.
(3) Diluted cash (loss) earnings per share represent diluted (loss)
earnings per share adjusted to add back the after-tax amortization of
goodwill and other intangible assets.
ATTACHMENT E
QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED CONSOLIDATED DATA
(UNAUDITED)
As of and for the
Three Months Ended
June 30, %
2002 2001 Change
Free cash flow(1) $320 ($1,473) NM
Capital expenditures
(in millions) $618 $2,616 (76.4%)
Total employees 55,080 65,479 (15.9%)
DSL:
Out-of-region subscribers
(in thousands) 23 10 130.0%
In-region subscribers
(in thousands) 485 360 34.7%
Qualified households/
businesses (in millions) 4.1 3.6 13.9%
DSL equipped central offices 369 303 21.8%
Subscribers per equipped
central office 1,315 1,187 10.8%
Wireless/PCS:
Revenues (in millions) $188 $181 3.9%
Subscribers (in thousands) 1,117 1,002 11.5%
ARPU (in dollars) $48 $52 (7.7%)
Cost per gross addition (CPGA) $248 $322 (23.0%)
Penetration 5.09% 5.26% (3.2%)
Access lines (in thousands):(2)
Business
Retail(3) 5,113 5,390 (5.1%)
Resale 82 179 (54.2%)
UNE-P 512 451 13.5%
Unbundled Loop 398 232 71.6%
Total Business 6,105 6,252 (2.4%)
Consumer
Primary line 9,425 9,822 (4.0%)
Additional line 1,696 1,810 (6.3%)
Public line 127 156 (18.6%)
Total Consumer 11,248 11,788 (4.6%)
Total access lines 17,353 18,040 (3.8%)
Minutes of use from Carriers
and CLECs (in millions) 15,809 17,827 (11.3%)
Voice grade equivalent access
lines (in thousands):
Business 48,014 40,820 17.6%
Consumer 12,678 12,786 (0.8%)
Total voice grade
equivalents 60,692 53,606 13.2%
(1) Free cash flow is calculated as cash provided (used) from operation,
less capital expenditures.
(2) Access line and voice grade equivalent data has been adjusted for
prior periods to conform to the current period presentation.
(3) Business retail access line counts include lines sold to
interexchange carriers at retail rates, however the revenue for these
lines is accounted for in Wholesale.
ATTACHMENT F
QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED CONSOLIDATED DATA - NORMALIZED
(DOLLARS IN MILLIONS)
(UNAUDITED)
The following table shows a breakdown of revenues by major products and
services for the three primary segments:
Business Consumer Wholesale
services services services
Three months Three months Three months
ended June 30, ended June 30, ended June 30,
Services 2002 2001 2002 2001 2002 2001
& products:
IP & data services $607 $562 $48 $51 $354 $419
Optical capacity
asset sales 0 69 0 0 0 361
IP equipment and
other 0 0 0 0 0 205
Total IP & data 607 631 48 51 354 985
Voice -
long distance 219 226 99 164 236 244
Voice - local 689 759 1,091 1,103 372 444
Wireless 22 23 166 157 0 1
Other 14 18 9 9 33 25
Total $1,551 $1,657 $1,413 $1,484 $995 $1,699
ATTACHMENT G
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
(UNAUDITED)
June 30, December 31,
2002 2001
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $699 $257
Accounts receivable - net 3,825 4,502
Inventories and supplies 86 170
Restricted Cash 750 --
Prepaid and other 473 566
Total current assets 5,833 5,495
Property, plant and equipment - net 29,763 30,238
Investments 53 1,400
Goodwill and intangibles - net 34,470 34,523
Other assets 2,190 2,125
Total assets $72,309 $73,781
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $5,894 $4,806
Accounts payable 1,290 1,529
Accrued expenses and other current liabilities 2,564 3,262
Advance billings and customer deposits 391 392
Total current liabilities 10,139 9,989
Long-term borrowings 20,370 20,197
Post-retirement and other post-employment
benefit obligations 2,881 2,923
Deferred taxes, credits and other 4,021 4,017
Stockholders' equity 34,898 36,655
Total liabilities and stockholders' equity $72,309 $73,781
ATTACHMENT H
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
Six Months Ended
June 30,
2002 2001
OPERATING ACTIVITIES:
Net Loss: $(1,834) $(3,352)
Adjustments to net loss:
Depreciation and amortization 2,299 2,629
Loss on sale of investments and
fair value adjustments, net 26 17
Non-Cash Merger-related charges (1) 479
Provision for bad debts 435 251
Asset impairment charge 1,333 3,189
Equity loss on investments 155 47
Deferred Income taxes (78) 591
(Gain) loss on early retirement of debt, net (6) 65
Changes in operating assets and liabilities:
Accounts receivable 230 (857)
Inventories, supplies, prepaids and
other current assets 55 (209)
Accounts payable, accrued expenses and
advance billings (718) 17
Restructuring and Merger-related reserves (251) (330)
Other 20 (61)
Cash provided by operating activities 1,665 2,476
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (1,814) (5,559)
Other 59 19
Cash used for investing activities (1,755) (5,540)
FINANCING ACTIVITIES:
Net proceeds from current borrowings 97 2,296
Proceeds from issuance of long-term borrowings 1,476 3,238
Repayments of long-term borrowings (236) (1,102)
Cash restricted for the repayment of
short-term borrowings (750) --
Costs relating to the early retirement of debt -- (106)
Proceeds from issuances of common stock 11 280
Repurchase of stock (12) (1,000)
Dividends paid on common stock -- (83)
Debt issuance costs (54) (97)
Cash provided by financing activities 532 3,426
CASH AND CASH EQUIVALENTS:
Increase 442 362
Beginning balance 257 154
Ending balance $699 $516
SOURCE: Qwest Communications International Inc.