20020424Application (Part 2).pdf

written notice to the Company,and in such event,said employment termination shall be treated as termination by the Company for
reason other than Death,Disability,or Cause under Paragraph 4(c).For purposes hereof,Good Reason shall mean:
(1)a diminution of the Executive's titles,offices,positions or authority,excluding for this purpose an action not taken in bad faith and
which is remedied within twenty (20)days after receipt of written notice thereofgivenby the Executive;
(2)the assignment to the Executive of any duties inconsistent with the Executive's position (including status or reporting requirements),
authority,or material responsibilities,or the removal of the Executive's authority or material responsibilities,excluding for this purpose
an action not taken in bad faith and which is remedied by the Company within twenty (20)days after receipt of notice thereofgiven by
the Executive;
(3)the failure by the Company to timely make any payment due hereunder or to comply with any of the material provisions of this
Agreement,other than a failure not occurring in bad faith and which is remedied by the Company within twenty (20)days after receipt
of notice thereof given by the Executive;
(4)the failure of the Company to cause this Agreement to be assumed by its successors or permitted assigns pursuant to Paragraph ll
hereof.
(5)occurrence of a Change of Control of the Company,which shall be deemed to have occurred upon (A)acquisition by any
individual,entity,or group
(within the meaning of Section 13(d)(3)or 14(d)(2)of the Securities Exchange Act of 1934,as amended (the "Exchange Act")),other
than Anschutz Company,The Anschutz Corporation,or any entity or organization controlled by Philip F.Anschutz (collectively,the
Anschutz Entities"),of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)of twenty
percent (20%)or more of either (i)the then-outstanding shares of common stock of the Company ("Outstanding Shares")or (ii)the
combined votingpower of the then-outstanding votingsecurities of the Company entitled to vote generally in the election of directors
("Voting Power")and (B)such beneficial
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ownership (as so defined)by such individual,entity or group of more than 20%of the Outstanding Shares or the Voting Power,as the
case may be,shall then exceed the beneficial ownership (as so defined)by the Anschutz Entities of the Outstanding Shares or the
Voting Power,respectively;
(6)the failure of the Company to elect or re-elect the Executive as a director of the Company or the removal of the Executive as a
director;
(7)any person other than Philip F.Anschutz or the Executive serving in the position of Chairman of the Board;or
(8)the failure of the Company to maintain Directors'and Officers'insurance ("D&O Insurance")of at least $15 million in the
aggregate.
e.OTHER THAN GOOD REASON:The Executive may terminate his employment at any time without breaching this Agreement,
subject to Paragraph 5(d)below.
f.RESIGNATIONS:On and as of the date that the employment of the Executive by the Company shall terminate for any reason,the
Executive shall resign from his position as a director and employee of the Company and from all other positions he holds as a director
or employee of any subsidiary or affiliateof the Company.
g.NON-RENEWALOF TERM:Either party may elect not to renew this Agreement on the same or similar terms following the
expiration of the Term.The parties agree to give the other party written notice of any such decision at least one-hundred-eighty (180)
days prior to the expiration of the Term.
5.OBLIGATIONS OF THE COMPANYAND THE EXECUTIVE UPON TERMINATION:
a.DEATH OR DISABILITY:If the Executive's employment is terminated by reason of the Executive's Death or Disability during the
Term,the Term shall terminate without further obligations to the Executive or his legal representatives under this Agreement,other
than for (A)payment of the sum of (i)any base salary and bonus owed to the Executive through the date of termination (providedthat
for this purpose the amount of such bonus shall be calculated based on the number of days in the year through the date of termination,
as well as any earned bonus for any complete year that theretofore had not been paid)and (ii)any other compensation earned through
the date of termination but not yet paid or delivered to the Executive and any rights under Paragraph 6 ("Accrued Obligations"),and
(B)payment of any amounts due pursuant to the terms of any applicable stock option (or other equity-based)plan of the Company or
any welfare or pension benefit plan of the Company as of the date of termination or which by their specific terms extend beyond such
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date of termination,(C)subject to the terms of the applicable plans (or equivalent substitute(s)(on a fully grossed up after tax basis)if
the plan(s)prohibit participation by ex-employees),continuation of the benefits providedin Paragraphs 3(c)and 3(d)of this
Agreement for two years following the termination of the Executive's employment (or such shorter period as shall terminate on the date
that the
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Executive shall commence participation in a medical plan of a subsequent employer),(D)subject to the terms of the applicable plan,
other than eligibility,retiree medical benefits for the lives of the Executive and his spouse at the time of termination of his employment
and his dependents at the time of termination of his employment while they remain dependents,and (E)payments due,if any,and
continuation of coverage (collectively,"Indemnification/Insurance Payments"),pursuant to the Indemnification Provisions and D&O
Insurance.All such payments shall be paid to the Executive or his estate or beneficiary,as applicable.
b.TERMINATION FOR CAUSE:If the Executive's employment is terminated by the Company for Cause,the Term shall terminate
without further obligations to the Executive or his legal representatives under this Agreement on the date of such termination and no
furtherpayments or benefits of any kind,including salary and bonuses,shall be payable to the Executive,other than for (i)Accrued
Obligations and (ii)the payments and benefits providedin Paragraph 5(f).
If it is subsequently determined that the Company did not have Cause for termination,then the Company's decision to terminate shall
be deemed to have been made under Paragraph 4(c),and the Executive shall be entitled to receive the amounts payable under
Paragraph 5(c).
c.OTHER THAN DEATH OR DISABILITY OR CAUSE:Ifthe Company terminates the Executive's employment during the Term
for any reason other than Death or Disability,or Cause,or the Executive terminates for Good Reason,the Term shall terminate on the
date of such termination without furtherobligationto the Executive other than (A)Accrued Obligations (B)payment of any amounts
due pursuant to the terms of any applicable stock option (or other equity-based)plan of the Company or any welfare or pension benefit
plan of the Company as of the date of termination or which by their specific terms extend beyond such date of termination,(C)
payment to the Executive,within thirty (30)days of the date of termination,of a lump sum equal to the product of two (2)times the
sum of the Executive's then current base salary and target bonus,(D)subject to the terms of the applicable plans (or equivalent
substitute(s)(on a fully grossed up after tax basis)if the plan(s)prohibit participation by ex-employees),continuation of the benefits
providedin Paragraphs 3(c)and 3(d)of this Agreement for two years following the termination of the Executive's employment (or
such shorter period as shall terminate on the date that the Executive shall commence participation in a medical plan of a subsequent
employer),(E)subject to the terms of the applicable plan,other than eligibility,retiree medical benefits for the lives of the Executive
and his spouse at the time of termination of his employment and his dependents at the time of termination of his employment while
they remain dependents,and (F)payment of Indemnification/Insurance Payments.The Company shall be obligated to make the
foregoing payments and to providethe foregoingbenefits upon the Executive and the Company signing a mutual release of all claims
against the other,substantially in the form attached as Exhibit A;such release shall not affect the Executive's rights (x)under the
Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA"),(y)any conversion rights under any applicable life insurance
policies and (z)any rights with respect to Indemnification/Insurance Payments.
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d.TERMINATION BY EXECUTIVE:If the Executive terminates his employment for any reason other than for Good Reason,as
defined in Paragraph
4(d),the Term shall terminate without furtherobligationto the Executive on the date of such termination and no furtherpayments or
benefits of any kind,including salary and bonuses,shall be payable to the Executive,other than for (A)Accrued Obligations and (B)
the payments and benefits providedin Paragraph 5(f).
e.NON-RENEWAL OF AGREEMENT:If the parties do not renew this Agreement following the expiration of the Term,the
Company shall not have any further obligation to the Executive,other than for (A)Accrued Obligations,(B)severance at the same
level and terms as is given to other senior executives of the Company,(C)upon the Executive's execution of a mutual release
substantially in the form attached as Exhibit A,and subject to the terms of the applicable plans (or equivalent substitute(s)(on a fully
grossed up after tax basis)if the plan(s)prohibit participation by ex-employees),continuation of the benefits providedin Paragraphs
3(c)and 3(d)of this Agreement for two years following the termination of the Executive's employment (or such shorter period as shall
terminate on the date that the Executive shall commence participation in a medical plan of a subsequent employer),(D)upon the
Executive's execution of a mutual release substantially in the form attached as Exhibit A,subject to the terms of the applicable plan,
other than eligibility,retiree medical benefits for the lives of the Executive and his spouse at the time of termination of his employment
and his dependents at the time of termination of his employment while they remain dependents,and (E)the payments and benefits
providedin Paragraph 5(f).
f.EXCLUSIVE REMEDY:Except for the payments and benefits providedin this Paragraph 5,the Executive acknowledges and agrees
that upon termination of the Term,he shall have no other claims against,and be entitled to no other payments or benefits from,the
Company under this Agreement or pursuant to the Company's policies and plans,other than (A)the Executive's rights under COBRA,
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(B)any conversion rights under any applicable life insurance policies,(C)payment of any amounts due pursuant to the terms of anystockoption(or other equity-based)plan of the Company or any welfare or pension benefit plan of the Company as of the date ofterminationorwhichbytheirspecifictermsextendsuchdateofterminationand(D)rights with respect to Indemnification/InsurancePayments.In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not
the Executive obtains other employment.The amounts due hereunder shall not be subject to offset.
6.SPECIAL TAX PROVISION:
a.Anything in this Agreement to the contrary notwithstanding,in the event that the Executive receives any amount or benefit(collectively,the "Covered Payments")(whether pursuant to the terms of this Agreement or any other plan,arrangement or agreementwiththeCompany,any person whose actions result in a change of ownership or effectivecontrol covered by Section 280G(b)(2)of theInternalRevenueCodeof1986,as amended (the "Code")or any person affiliatedwith the Company or such person)that
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is or becomes subject to the excise tax imposed by or under Section 4999 of the Code (or any similar tax that may hereafter beimposed)and/or any interest or penalties with respect to such excise tax (such excise tax,together with such interest and penalties,ishereinaftercollectivelyreferredtoasthe"Excise Tax")by reason of the application of Section 280G(b)(2)of the Code,the Company
shall pay to the Executive an additional amount (the "Tax Reimbursement Payment")such that after payment by the Executive of all
taxes (including,without limitation,any interest or penalties and any Excise Tax imposed on or attributable to the Tax ReimbursementPaymentitself),the Executive retains an amount of the Tax Reimbursement Payment equal to the sum of (i)the amount of the ExciseTaximposedupontheCoveredPayments,and (ii)without duplication,an amount equal to the product of (A)any deductions
disallowed for federal,state or local income tax purposes because of the inclusion of the Tax Reimbursement Payment in Executive's
adjusted gross income,and (B)the highest applicable marginal rate of federal,state or local income taxation,respectively,for thecalendaryearinwhichtheTaxReimbursementPaymentismadeoristobemade.The intent of this Paragraph 6 is that after the
Executive pays federal,state and local income taxes and any payroll taxes,the Executive will be in the same position as if theExecutivewerenotsubjecttotheExciseTaxunderSection4999oftheCodeanddidnotreceivetheextrapaymentspursuant to this
Paragraph 6,and this Paragraph 6 shall be interpreted accordingly.
b.Except as otherwise providedin Paragraph 6(a),for purposes of determining whether any of the Covered Payments will be subject
to the Excise Tax and the amount of such Excise Tax,such Covered Payments will be treated as "parachute payments"(within the
meaning of Section 280G(b)(2)of the Code)and such payments in excess of the Code Section 280G(b)(3)"base amount"shall be
treated as subject to the Excise Tax,unless,and except to the extent that,the Company's independent certified public accountants or
legal counsel (reasonably acceptable to the Executive)appointed by such public accountants (or,if the public accountants decline such
appointment and decline appointing such legal counsel,such independent certified public accountants as promptly mutually agreed on
in good faith by the Company and the Executive)(the "Accountant"),delivera written opinion to the Executive,reasonablysatisfactorytotheExecutive's legal counsel,that,in the event such reporting position is contested by the Internal Revenue Service,
there will be a more likely than not chance of success with respect to a claim that the Covered Payments (in whole or in part)do not
constitute "parachute payments,"represent reasonable compensation for services actually rendered (withinthe meaning of Section280G(b)(4)ofthe Code)in excess of the "base amount"allocable to such reasonable compensation,or such "parachute payments"are
otherwise not subject to such Excise Tax (with appropriate legal authority,detailed analysis and explanation providedtherein by theAccountant);and the value of any Covered Payments which are non-cash benefits or deferred payments or benefits shall be determined
by the Accountant in accordance with the principles of Section 280G of the Code.
c.For purposes of determining the amount of the Tax Reimbursement Payment,the Executive shall be deemed to pay federal,state
and/or local income taxes at the highest applicable marginal rate of income taxation for the calendar year in which the Tax
Reimbursement Payment is made or is to be made,and to have otherwise allowable deductions for federal,state and local income tax
purposes at least equal to those
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disallowed due to the inclusion of the Tax Reimbursement Payment in the Executive's adjusted gross income.
d.(1)(A)In the event that prior to the timetheExecutivehasfiledanyofthe
Executive's tax returns for a calendar yearinwhichCoveredPaymentsaremade,theAccountantdetermines,for any reasonwhatsoever,the correct amount of the TaxReimbursementPaymenttobelessthanthe
amount determined at the time the Tax
Reimbursement Payment was made,the
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Executive shall repay to the Company,at the
time that the amount of such reduction in
the Tax Reimbursement Payment is determinedbytheAccountant,the portion of the prior
Tax Reimbursement Payment attributable to
such reduction (including the portion of the
Tax Reimbursement Payment attributable to
the Excise Tax and federal,state and local
income taxes imposed on the portion of the
Tax Reimbursement Payment being repaid bytheExecutive,using the assumptions andmethodologyutilizedtocalculatetheTax
Reimbursement Payment (unless manifestly
erroneous)),plus interest on the amount of
such repayment at the rate provided in
Section 1274 (b)(2)(B)of the Code.
(B)In the event that the determination set
forth in (A)above is made by the Accountant
after the filing by the Executive of any of
the Executive's tax returns for a calendar
year in which Covered Payments are made,the
Executive shall file at the request of the
Company an amended tax return in accordance
with the Accountant's determination,but noportionoftheTaxReimbursementPayment
shall be required to be refunded to theCompanyuntilactualrefundorcreditof
such portion has been made to the Executive,
and interest payable to the Company shall
not exceed the interest received or credited
to the Executive by such tax authority for
the period it held such portion (less any
tax the Executive must pay on such interest
and which the Executive is unable to deduct
as a result of payment of the refund).
(C)In the event the Executive receives a
refund pursuant to (B)above and repays suchamounttotheCompany,the Executive shall
thereafter file for any refunds or credits
that may be due to Executive by reason of
the repayments to the Company.The Executive
and the Company shall mutually agree upon
the course of action,if any,to be pursued
(which shall be at the expense of theCompany)if the Executive's claim for such
refund or credit is denied.
(2)In the event that the Excise Tax is later
determined by the Accountant or the Internal
Revenue Service to exceed the amount taken
into account hereunder at the time a Tax
Reimbursement
ll
Payment was made (including by reason of anypaymenttheexistenceoramountofwhich
could not be determined at the time of the
earlier Tax Reimbursement Payment),theCompanyshallmakeanadditionalTax
Reimbursement Payment in respect of such
excess (plus any interest or penalties
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payable with respect to such excess)once
the amount of such excess is finally
determined.
(3)In the event of any controversy with the
Internal Revenue Service (or other taxingauthority)under this Paragraph 6,subject
to the second sentence of subparagraph
(1)(C)above,Executive shall permit theCompanytocontrolissuesrelatedtothisParagraph6(at its expense),provided that
such issues do not potentially materiallyadverselyaffecttheExecutive,but the
Executive shall control any other issues.In
the event the issues are interrelated,the
Executive and the Company shall in good
faith cooperate so as not to jeopardize
resolution of either issue.In the event of
any conference with any taxing authority as
to the Excise Tax or associated income
taxes,the Executive shall permit therepresentativeoftheCompanytoaccompany
the Executive,and the Executive and hisrepresentativeshallcooperatewiththeCompanyanditsrepresentative.
(4)With regard to any initial filing for a
refund or any other action required pursuant
to this Paragraph 6 (other than by mutualagreement)or,if not required,agreed to by
the Company and the Executive,the Executive
shall cooperate fully with the Company,provided that the foregoing shall not apply
to actions that are provided herein to be at
the Executive's sole discretion.
e.The Tax Reimbursement Payment,or any portion thereof,payable by the Company shall be paid not later than the fifth day
following the determination by the Accountant,and any payment made after such fifth day shall bear interest at the rate providedin
Code Section 1274(b)(2)(B)to the extent and for the period after such fifth day that Executive has an obligation to make payment or
estimated payment of the Excise Tax.The Company shall use its best efforts to cause the Accountant to promptly deliverthe initial
determination required hereunder with respect to Covered Payments paid or payable in any calendar year;if the Accountant's
determination is not delivered within ninety (90)days after Covered Payments are paid or distributed,the Company shall pay the
Executive the Tax Reimbursement Payment set forth in an opinion from counsel recognized as knowledgeable in the relevant areas
selected by Executive,and reasonably acceptable to the Company,within five (5)days after deliveryof such opinion.The Company
may withholdfrom the Tax Reimbursement Payment and deposit into applicable taxing authorities such amounts as they are required
to withholdby applicable law.To the extent that the Executive is required to pay estimated or other taxes on amounts received by the
Executive beyond any withheld amounts,the Executive shall promptly make such payments.The amount of such payment shall be
subject to later adjustment in accordance with the determination of the Accountant as providedherein.
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f.The Company shall be responsible for (i)all charges of the Accountant,(ii)if subparagraph (e)is applicable,the reasonable charges
for the opinion given by the Executive's legal counsel,and
(iii)all reasonable charges in connection with the preparation and filing of any amended tax returns on behalf of the Executive
requested by the Company,required hereunder,or required by applicable law.The Company shall gross-up for tax purposes any
income to the Executive arising pursuant to this subparagraph (f)so that the economic effect to the Executive is the same as if the
benefits were providedon a non-taxable basis.
g.The Executive and the Company shall mutually agree on and promulgate furtherguidelines in accordance with this Paragraph 6 to
the extent that,if any,necessary to effect the reversal of excessive or shortfall Tax Reimbursement Payments.The foregoing shall not
in any way be inconsistent with Paragraph 6(d)(l)(C).
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7.CONFIDENTIAL INFORMATION:During and after the Term,the Executive agrees that he shall not use or disclose anyConfidentialInformationrelatingtotheCompanyoranyofitssubsidiariesorotheraffiliatesoftheCompany,present and future,andtheirrespectivebusinesses,which shall have been obtained by the Executive during his employment by the Company or any of itssubsidiariesorotheraffiliatesoftheCompanyandwhichshallnotbeorbecomepublicknowledge(other than by acts by the ExecutiveorhisrepresentativesinviolationofthisAgreement),providedthat the Executive may,(a)while employed by the Company,disclose
such information,knowledge,or data as he in good faith deems appropriate,and (b)otherwise comply with legal process,so long astheExecutivegivespromptnoticetotheCompanyofanyrequireddisclosureandreasonablycooperates(without being required toincuranyexpenseorsubjecthimselftosanctionorpenalty)with the Company if the Company determines to oppose,challenge,orquashthelegalprocess."Confidential Information"consists of any oral or written information not generally known outside of the
Company and its subsidiaries and affiliates,including without limitation,trade secrets,intellectual property,software and
documentation,customer information (including,without limitation,customer lists),company policies,practices and codes of conduct,internal analyses,analyses of competitive products,strategies,merger and acquisition plans,marketing plans,corporate fmancialinformation,information related to negotiations with third parties,informationprotected by privileges (such as the attorney-clientprivilege),internal audit reports,contracts and sales proposals,training materials,employment records,performance evaluations,andothersensitiveinformation.This provision is not intended,and shall not be interpreted,to limit or reduce any confidentiality
obligations the Executive otherwise owes the Company under applicable law.
8.NONSOLICITATION:The Executive agrees that during the Term of this Agreement and for a period of one (1)year following theterminationoftheTerm,he will not,directly or indirectly,knowingly,whether alone or with others,solicit any employee of the
Company or any of its subsidiaries or other affiliates,present or future (while an affiliate)who is being compensated at a rate of Fifty
Thousand Dollars ($50,000.00)or more,to leave the employment of such company or to work for any individualor firm then incompetitionwiththebusinessoftheCompanyoranyofitssubsidiariesorotheraffiliates,present or future.The Executive understandsandagreesthathisagreementnottosolicitmeans,among other things,that he may not have any part in hiring anyone who is an
employee of the Company or its
l 3
subsidiaries or affiliates,even if the Executive is contacted by the employee first.The Executive further understands and agrees that for
purposes of this nonsolicitation paragraph,employees of the Company or its subsidiaries or affiliates shall mean persons who are or
were employed by the Company or its subsidiaries or affiliates at the relevant time or during the six months preceding the relevant
time.The Executive may give references with respect to such employees.
9.NONCOMPETITION:The Executive agrees that during the Term of this Agreement and for a period of one (1)year followingtheterminationoftheTermforanyreason,he will not directly or indirectly,whether as principal,agent,officer,director,employee,
consultant,partner,shareholder,or otherwise,alone or with others,engage in any activity competitive with the business of the
Company or the telecommunications business of any of its subsidiaries or affiliates,present or future.The foregoing shall not beviolatedbytheExecutiveowninglessthanthreepercent(3%)of the outstanding equity or debt securities of any entity.In addition to
any and all other remedies available to the Company,if the Executive breaches his obligations set forth in this Paragraph 9 he shallforfëitandshallnotbeentitledtoanyCompanybenefitsorstockoptions,vested or unvested.The Executive agrees that the restrictions
set forth in this Paragraph 9 are necessary and reasonable to protect the Company's business and the Executive represents that these
restrictions will not prevent him from earning a livelihood.
10.REMEDIES:
a.The Executive agrees that in addition to any other remedy available to the Company pursuant to statute,common law or this or any
other agreement,and notwithstanding any agreement regarding alternative dispute resolution that the Executive and the Company enterintonoworinthefuture,the Company may seek injunctiverelief from a court to enforce the confidentiality,nonsolicitation,and/or
noncompete provisions set forth in Paragraphs 7,8,and 9 above,pending any decision on the merits by an arbitrator.The Executive
agrees that the remedies as providedfor in this Agreement supersede all prior inconsistent agreements into which he has entered,including without limitation,any agreements or provisions found in prior stock option agreements.
b.If a court or arbitrator determines that any provisionof this Agreement is too broad,the Executive and the Company agree that thecourtorarbitratorshouldmodifytheprovisiontotheextent(but not more than)necessary to make the provisionenforceable.All other
provisions of the Agreement shall be enforceable as drafted.
l 1.SUCCESSORSHIP:This Agreement shall inure to the benefit of and be binding upon the Company and its successors and
permitted assigns and any such successor or permitted assignee shall be deemed substituted for the Company under the terms of this
Agreement for all purposes.As used herein,"successor"and "assignee"shall be limited to any person,firm,corporation,or other
business entity which at any time,whether by purchase,merger,or otherwise,directly or indirectly acquires the stock of the Company
or to which the Company assigns this Agreement by operation of law or otherwise in connection with any sale of all or substantially all
of the assets of the Company,provided that any successor or permitted assignee promptly assumes in a writing deliveredto theExecutivethisAgreementand,in no event,shall any such succession or assignment release the Company from its obligations
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hereunder.
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12.ARBITRATION:
a.Any and all controversies,claims,or disputes arising out of or in any way relating to this Agreement,Executive's employment with
the Company,or the termination thereof,shall be resolved by final and binding arbitration in New York,New York before a singlearbitratorinaccordancewiththeapplicablerulesandproceduresoftheAmericanArbitrationAssociation(the "AAA").The arbitration
shall be commenced by filing a demand for arbitration with the AAA within eighteen (18)months after the occurrence of the factsgivingrisetoanysuchcontroversy,claim,or dispute.The Federal ArbitrationAct,9 U.S.C.Sections 1-16,as it may be amended from
time to time,shall govern the arbitrabilityof all claims,and the arbitratorshall decide all issues relating to arbitrability.The costs of
such arbitration,including the arbitrator's fees,shall be split evenly between the parties to the arbitration.Each party to the arbitration
shall be responsible for the payment of its own attorneys'fees,providedthat,if the Executive prevails as to any matter in any such
arbitration,the Company shall pay the reasonable attorneys'fees incurred by the Executive in connection with those matters on which
he prevails,in an amount to be determined by the arbitrator.
b.Claims covered by this agreement to arbitrate include,but are not limited to,claims sounding in contract,statute,tort,fraud,
misrepresentation,discrimination or any other legal theory,including but not limited to claims under Title VII of the Civil Rights Actof1964,as amended;claims under the Civil Rights Act of 1991;claims under the Age Discrimination in Employment Act of 1967,as
amended;claims under42U.S.C.sections 1981,1981a,1983,1985,or 1988;claims under the Family and Medical Leave Act of
1993;claims under the Americans with Disabilities Act of 1990,as amended;claims under the Rehabilitation Act of 1973,as
amended;claims under the Fair Labor Standards Act of 1938,as amended;claims under the Employee Retirement Income Security
Act of 1974,as amended;claims under the Colorado Anti-DiscriminationAct;or claims under any other similar federal,state,or local
laws or regulations,whenever brought or amended.The only legal claims between Executive and the Company that are not included
within this agreement for arbitration are claims by the Executive for workers'compensation or unemployment compensation benefits.
c.The Executive recognizes and acknowledges that he is voluntarily,knowinglyand intelligently waivingany right he may otherwise
have to seek remedies in court or other forums,including the right to a jury trial.The Company likewise recognizes and acknowledges
that it is voluntarily,knowingly and intelligently waivingany right it might otherwise have to seek remedies against Executive in court
or other forums,including the right to a jury trial.
d.All arbitration proceedings will be confidential.The arbitrator's decision and award shall be final and binding,as to all claims that
were,or could have been,raised in the arbitration,and judgment upon the award rendered by the arbitrator may be entered to any court
havingjurisdiction thereof.The arbitrator's award shall be in writing and shall reveal the essential findings and conclusions on which
the award is based.
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13.GOVERNING LAW:The provisions of this Agreement shall be construed in accordance with,and governed by,the laws of the
State of New York without regard to principles of conflict of laws.
14.SAVINGS CLAUSE:If any provisionof this Agreement or the application thereofis held invalid,the invalidity shall not affect
other provisions or applications of the Agreement which can be giveneffect without the invalidprovisions or applications and to this
end the provisions of this Agreement are declared to be severable.
15.WAIVER OF BREACH:No waiverof any breach of any term or provisionof this Agreement shall be construed to be,nor shall
be,a waiverof any other breach of this Agreement.No waivershall be binding unless in writing and signed by the party waivingthe
breach.
16.MODIFICATION:No provisionof this Agreement may be amended,modified,or waived except by written agreement signed by
the parties hereto.
17.ASSIGNMENTOF AGREEMENT:The Executive acknowledges that his services are unique and personal.Accordingly,the
Executive may not assign his rights or delegate his duties or obligations under this Agreement to any person or entity;provided,
however,that payments may be made to the Executive's estate or beneficiaries as expressly set forth herein.If the Executive dies
before all amounts owed to him from the Company have been paid,such amounts owing shall be paid to the Executive's estate or
beneficiaries.
18.ENTIRE AGREEMENT:This Agreement is an integrated document and constitutes and contains the complete understanding and
agreement of the parties with respect to the subject matter addressed herein,and supersedes and replaces all priornegotiations and
agreements,whether written or oral,concerning the subject matter hereof.
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l9.CONSTRUCTION:Each party has cooperated in the draftingand preparation of this Agreement.Hence,in any construction to be
made of this Agreement,the same shall not be construed against any party on the basis that the party was the drafter.The captions of
this Agreement are not part of the provisions and shall have no force or effect.
20.NOTICES:Notices and all other communications providedfor in this Agreement shall be in writingand shall be delivered
personally or sent by registered or certified mail,return receipt requested,postage prepaid,or sent by facsimile or prepaid overnight
courier to the parties at the facsimile phone numbers or addresses set forth below (or at such other numbers or addresses as shall be
specified by the parties by like notice).Such notices,demands,claims,and other communications shall be deemed given:
a.in the case of deliveryby overnight service with guaranteed next day delivery,such next day or the day designated for delivery;
b.in the case of certified or registered United States mail,five days after deposit in the United States mail;or
16
c.in the case of facsimile,the date upon which the transmitting party received confirmation of receipt by facsimile,telephone,or
otherwise;and
d.in the case of personal delivery,when received.
Communications that are to be delivered by facsimile or by the United States mail or by overnight service are to be delivered to the
facsimile phone numbers or addresses set forth below:
(1)To the Company:
Qwest Communications International Inc.
1801 CaliforniaStreet
Denver,Colorado 80202
Attention:General Counsel
Facsimile:[phone]
(2)To the Executive:
Joseph P.Nacchio
At the address and/or facsimile number maintained in
the Company's business records.
Each party,by written notice furnished to the other party,may modify the acceptable deliverynumber or address,except that notice of
such a change of number or address shall be effectiveonly upon receipt.In the event that the Company is aware that the Executive is
not at the location when notice is being given,notice shall be deemed givenwhen received by the Executive,whether at the
aforementioned location or at another location.
21.TAX WITHHOLDING:The Company may withhold from any amounts payable under this Agreement such federal,state,or local
taxes as shall be required to be withheld pursuant to any applicable law or regulation.
22.REPRESENTATION:The Executive represents that he is knowledgeable and sophisticated as to business matters,including the
subject matter of this Agreement,that he has read this Agreement and that he understands its terms.The Executive acknowledges that,
prior to assenting to the terms of this Agreement,he has been givena reasonable time to reviewit,to consult with counsel of his
choice,and to negotiate at arm's-length with the Company as to its contents.The Executive and the Company agree that the language
used in this Agreement is the language chosen by the parties to express their mutual intent,and that they have entered into this
Agreement freely and voluntarilyand without pressure or coercion from anyone.
17
IN WITNESS WHEREOF,the Company and the Executive,intending to be legally bound,have executed this Agreement on the day
and year first above written.
QWEST COMMUNICATIONS INTERNATIONAL INC.
Mammm EDGARpro ©2002.EDGAR Online,Inc.
By:/S/PHILIP F.ANSCHUTZ
Name:Philip F.Anschutz
Title:Chairman of the Board
JOSEPH P.NACCHIO
/S/JOSEPH P.NACCHIO
l8
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATEDEMPLOYMENT AGREEMENT(the "Agreement")is effective as of January 1,2002 (the"EffectiveDate"),by and between QWEST SERVICES CORPORATION,a Colorado corporation,having its principal executive
offices in Denver,Colorado (the "Company"),and AFSHIN MOHEBBI (the "Executive").
WHEREAS,the Company and the Executive originallyentered into an employment agreement on May 20,1999;
WHEREAS,the Company and the Executive amended their original employment agreement by a letter agreement dated as of May 20,
2001;
WHEREAS,the Company and the Executive now desire to furtheramend and restate the employment agreement as of the Effective
Date;
NOW,THEREFORE,in consideration of the mutual promises and agreements set forthbelow,the Company and the Executive hereby
amend and restate the terms of the employment agreement in its entirety as follows:
l.TERM OF EMPLOYMENT.Subject to the terms of this Agreement,the Company hereby employs the Executive,and the
Executive hereby accepts employment as President and Chief Operating Officer for the period beginning the EffectiveDate,until
terminated by either party in accordance with the terms of this Agreement.
2.POSITION AND DUTIES.
a.The Executive shall serve as President and ChiefOperating Officer of the Company and shall have such duties,responsibilities and
authority as are customarily required of and given to a President and ChiefOperating Officer and such other duties and responsibilities
commensurate with such position as the Chief Executive Officer or the Board of Directors (the "Board")of the Company shall
determine from time to time.
b.It is anticipated that the Executive will frequently attend board meetings to make presentations and to observe the discussion.
c.The Executive may (i)with the express authorization of the Board,serve as a director or trustee of other for-profit corporations or
businesses which are not in competition with the business of the Company,and
(ii)serve on civic or charitable boards or committees.
1
3.COMPENSATIONAND BENEFITS.
gargang EDGARpro ©2002.EDGAR Online,Inc.
a.SALARY.Beginning April l,2002,the Executive shall receive for services rendered an annual base salary of Eight Hundred FiftyThousandDollars($850,000)(the "Base Salary")payable in periodic installments in accordance with the Company's payroll practices.The Board shall reviewthe Executive's salary at least annually and may increase (but not reduce)the Executive's annual Base Salary initssolediscretion.The Executive's next reviewshall be no later than January 1,2003.Once increased,such Base Salary shall not bereduced.The Executive's Base Salary as so increased shall thereafter be treated as his Base Salary hereunder.Prior to April 1,2002,the Executive's base salary shall continue to be paid at its existing rate.
b.ANNUAL BONUS.Beginning April 1,2002,the Executive shall be eligible to participate in the Company's quarterly bonus plan,and his target annual bonus shall be two hundred percent (200%)of his Base Salary.Prior to April 1,2002,the Executive's targetbonuspaymentshallremainatitsexistinglevel.
c.BENEFITS.The Executive shall be entitled to participate in all benefit plans now existing or established hereafter for seniorexecutivesandemployeestotheextentthattheExecutiveiseligibleunderthegeneralprovisionsofsuchplans.
d.VACATION.The Executive shall be entitled to be covered by Qwest's time off with pay policy.
e.TRAVEL,BUSINESS CLUB MEMBERSHIPAND EXPENSES.The Company shall reimburse the Executive all reasonableexpensesincurredwhenperforminghisdutiesandresponsibilitiesinaccordancewiththeCompany's expense reimbursement policiesandguidelines.The Company shall also reimburse the Executive for reasonable attorneys'fees for negotiating and preparing any term
sheets of employment at the Company and preparing and executing this Agreement and any future amendments.
f.RELOCATION.Upon any termination of the Executive's employment with the Company for any reason (other than by the CompanyforcauseorbytheExecutivewithoutGoodReason),the Company shall,at the Executive's request,pay all reasonable expenses
incurred by the Executive in relocating to any location within the continental Unites States that the Executive may select,includingmovingexpenses,costs of selling his home at the time of such termination,expenses related to purchasing a home in the new locationandrelatedexpenses;provided,however,such obligation shall terminate no later than thirty (30)months after such termination.
g.INDEMNIFICATION.To the fullest extent permitted by the indemnification provisions of the Articles of Incorporation and BylawsoftheCompanyineffectasofthedateofthisAgreement,and the indemnification provisions of the laws of the jurisdiction of theCompany's incorporation in effect from time to time,the Company shall indemnify the Executive as a senior officeror employee of theCompanyagainstallliabilitiesandreasonableexpensesthatmaybeincurredinanythreatened,pending or completed action,suit orproceeding,and shall pay for the reasonable expenses incurred by the Executive in the defense of or participation in any proceeding towhichtheExecutiveisapartybecauseofhisservicetothe
2
Company.The rights of the Executive under this indemnification provisionshall survivethe termination of employment.
4.TERMINATION.
a.TERMINATION FOR CAUSE.The Company may immediately terminate this Agreement for "cause"by giving written notice totheExecutive.Any one or more of the following events shall constitute "cause":
(1)Willful misconduct with respect to the Company which is materially detrimental to the Company;
(2)Convictionof (or pleading nolo contendere to)a felony (other than (A)a traffic violationthat is in most jurisdictions not classified
as a felonyand (B)a felony resulting from vicarious (rather than direct)liability arising out of his position as an ofBcer of theCompany);
(3)Failure or refusal to attempt to follow the written direction of the Board within a reasonable period after receiving written notice;or
(4)Gross continuous nonfeasance with regard to the Executive's material duties,taken as a whole,which materially continue after awrittennoticethereofisgiventotheExecutive.
b.TERMINATION WITHOUT CAUSE.On sixty (60)days prior written notice,the Company may terminate the Executive without
"cause"(as defined in
Section 4.a above);provided,however,that the Company shall pay all accrued salary,bonus,vacation time,and benefits through theterminationdate.In addition,the Executive shall receive from the Company (i)an amount equal to two (2)times the sum of (A)his
then annual Base Salary and (B)the target annual bonus for the fiscal year in which the Executive's employment terminates;and (ii)continuation of all existing employee benefits for a period of thirty
(30)months from the termination date or,if earlier,until the Executive becomes employed by another person or entity.
Mastura EDGARpro ©2002.EDGAR Online,Inc.
The Company shall have the right to terminate this Agreement without cause based on the death or permanent disability of theExecutiveprovidedthatthepaymentsreferredtointhisSection4.b are made to the Executive or his representative.
c.TERMINATION BY THE EXECUTIVEFOR GOOD REASON.The Executive may terminate his employment for Good ReasonuponwrittennoticetotheCompany,and in such event,said employment termination shall be treated as termination by the Companyforreasonsotherthangoodcause,and the Executive shall receive the payments referred to in the proceeding Section 4.b.For purposesofthisAgreement,Good Reason shall mean:
(1)A diminution of the Executive's titles,offices,positions or authority;
3
(2)The assignment to the Executive of any duties inconsistent with the Executive's position,authority or material responsibilities,ortheremovaloftheExecutive's authority or material responsibilities;
(3)The failure by the Company to timely make any payment due hereunder or to comply with any of the material provisions of thisAgreement;or
(4)The occurrence of a Change of Control of the Company,as defmed in the Qwest Equity Incentive Plan.
5.OFFSET.The Company shall have the right to offset against or deduct from any amounts payable to the Executive hereunder anyamountsdueandpayablebytheExecutivetoanyoftheCompanyanditsaffiliates(including,without limitation,any amounts due andpayableunderanypromissorynotes),but only to the extent the Executive does not dispute any such amounts in accordance withSection9hereof.
6.PROPRIETARYINFORMATION OBLIGATIONS.During the term of employment under this Agreement,the Executive shallhaveaccesstoandbecomeacquaintedwiththeCompany's confidential and proprietary information(collectively,"Proprietary
Information"),including but not limited to informationor plans concerning the Company's business,customer and technicalinformationandrecords.The Executive shall not disclose any of the Company's Proprietary Information,directly or indirectly,or use it
in any way,either during the term of this Agreement or at any time thereafter,except as reasonably necessary in the course of hisemploymentfortheCompanyorisauthorizedinwritingbytheCompany,or to the extent required by applicable law,legal process orjudicialorder.All documents and records relating to the Company's business,whether prepared by the Executive or otherwise,coming
into his possession,shall remain the Company's exclusive property and shall be returned to the Company on termination ofemployment.
7.NONCOMPETE;NONSOLICITATION;NONDISCLOSURE.The Executive acknowledges that he has signed The Noncompete,Nonsolicitation and Nondisclosure Agreement attached as Exhibit A.
8.SUCCESSORS AND ASSIGNS.This Agreement is intended to bind and inure to the benefit of and be enforceable by the Executive
and the Company,and their respective successors and assigns,except that Executive may not assign any of his duties under thisAgreementwithouttheCompany's prior written consent.
9.DISPUTERESOLUTIONAND BINDING ARBITRATION.The Executive and the Company agree that,if a dispute arises
concerning or relating to the Executive's employment with the Company or the terms and conditions to this Agreement,the disputeshallbesubmittedtobindingarbitrationundertheemploymentrulesoftheAmericanArbitrationAssociation("AAA")then in effect.
The arbitration shall take place in Santa Clara County,Californiaand both the Executive and the Company agree to submit to thejurisdictionofthearbitratorselectedinaccordancewiththeAAArulesandprocedures.The arbitratorshall decide all issues relating toarbitrability.The costs of such arbitration,including the arbitrator's fees,shall initially be split evenly between the parties to thearbitration.If the Executive prevails as to
4
any matter in such arbitration,the Company shall pay the reasonable attorneys fees and costs (includingarbitrator fees,arbitration
costs,etc.)incurred by the Executive in connection with those matters on which he prevails in an amount to be determined by thearbitrator.
10.CHOICEOF LAW.All questions conceming the construction validity and interpretation of this Agreement shall be govemed by
the intemal law,and not the law of conflicts,of the State of Califomia.
11.SEVERABILITY.If any term,provisionor part of this Agreement is found by a court to be invalid,illegal,or incapable of being
enforced by any rule of law or public policy,all other terms,provisions and parts of this Agreement shall nevertheless remain in full
force and effect as long as the economic or legal substance of the transactions contemplated hereby is not effected in any manner
materially adverse to any party.
MERES EDGARpro ©2002.EDGAR Online,Inc.
12.CONSTRUCTION;REPRESENTATION.Each party has cooperated in the draftingand preparation of this Agreement.Hence,in
any construction to be made of this Agreement,the same shall not be construed against any party on the basis that the party was the
drafter.The Executive represents that he is knowledgeable and sophisticated as to business matters,including the subject matter of this
Agreement,that he has read this Agreement and that he understands its terms.The Executive acknowledges that,prior to assenting to
the terms of this Agreement,he has been givena reasonable time to review it,to consult with counsel of his choice,and to negotiate at
arm's-length with the Company as to its contents.The Executive and the Company agree that the language used in this Agreement is
the language chosen by the parties to express their mutual intent,and that they have entered into this Agreement freely and voluntarily
and without pressure or coercion from anyone.
13.ATTORNEYS FEES.If any legal proceeding is necessary to enforce or interpret the terms of this Agreement,the prevailingparty
shall be entitled to reasonable attorneys fees as well as costs and disbursements,in addition to any other reliefto which the prevailing
party may be entitled.
5
14.NOTICES.Any notices providedhereunder must be in writing and shall be deemed effective on the earlier of personal delivery
(includingpersonal deliveryby telecopy or private overnightcarrier)or the third day after mailing by first class mail to the recipient at
the address indicated below:
To the Company:Executive Vice President
Human ResourcesQwestCommunications International Inc.
1801 California Street
Denver,CO 80202
To the Executive:AFSHIN MOHEBBI
5256 Preserve Parkway South
Greenwood Village,CO 80121
With a copy to:Craig S.Ritchey,Esq.Ritchey Fisher Whitman &Klein
1717 Embarcadero Road
Palo Alto,CA 94303Telephone:[phone]
Facsimile:[phone]
or to such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the
sending party.
6
IN WITNESS WHEREOF,the parties now execute this Agreement,to be effectiveas the EffectiveDate.
QWEST SERVICES CORPORATION
By:/s/Ian Ziskin
Ian Zi skin
Executive Vice President and
Chief Human Resources Officer
EXECUTIVE:
©2002.EDGAR Online,Inc.
/s/Afshin Mohebbi
AFSHIN MOHEBBI
EXHIBIT A
NONCOMPETE,NONSOLICITATION AND NONDISCLOSURE AND AGREEMENT
As used in this document,"Qwest"means Qwest Communications International Inc.and any successor,subsidiary,or affiliateof
Qwest Communications International Inc.
Noncompete.You will not,alone or with others,compete with Qwest anywhere in the United States for thirty (30)months after your
employment with Qwest ends for any reason.You understand that this agreement not to compete means,among other things,that
during this period you may not work for,own more than 2%of the common stock of,advise,represent or assist in any other way any
person or entity that competes with Qwest and/or that sells goods or services similar to those Qwest sells or,during your employment
with Qwest,plans to sell.If a court determines that this provisionis too broad,you and Qwest agree that the court should modify theprovisiontotheextent(but not more than is)necessary to make the provisionenforceable.
Nonsolicitation.You will not,alone or with others,solicit any employee of Qwest to leave Qwest's employment for thirty (30)months
aner your employment with Qwest ends for any reason.You understand that this agreement not to solicit means,among other things,
that you may not have any part in hiring anyone who is a Qwest employee,even if you are contacted by the Qwest employee first.For
these purposes,employees of Qwest shall mean persons who are employed by Qwest at any time during the six months ending on the
last date of your employment.If a court determines that this provisionis too broad,you and Qwest agree that the court should modify
the provisionto the extent (but not more than is)necessary to make the provisionenforceable.
Nondisclosure.You will not disclose or use any Confidential Information(as defined below)of Qwest for thirty (30)months after your
employment with Qwest ends for any reason.You understand that this agreement not to disclose or use Confidential Information
means,among other things,that you may not take or performa job whose responsibilities would likely lead you to disclose or useConfidentialInformation.If a court determines that this provisionis too broad,you and Qwest agree that the court should modifythe
provisionto the extent (but not more than is)necessary to make the provisionenforceable."Confidential Information"is any oral or
written informationnot generally known outside of Qwest,including without limitation,trade secrets,intellectual property,software
and documentation,customer information(including,withoutlimitation,customer lists),company policies,practices and codes of
conduct,internal analyses,analyses of competitive products,strategies,merger and acquisition plans,marketing plans,corporate
financialinformation,information related to negotiations with third parties,informationprotected by Qwest's privileges (such as the
attorney-client privilege),internal audit reports,contracts and sales proposals,training materials,employment records,performance
evaluations,and other sensitive information.This agreement does not relieve you of any obligations you have to Qwest under law.
Remedies.You agree that in addition to any other remedy available to Qwest pursuant to statute,common law,this agreement or
otherwise,and notwithstanding any existing or future agreement regarding alternative dispute resolution that you enter into now or in
the future,Qwest may ask a
A-1
court to enforce the above noncompete,nonsolicitation,and/or nondisclosure provisions,in addition to seeking any other available
remedy.In particular,you agree that notwithstanding any present or future arbitration agreement,Qwest may seek injunctiverelief
from a court to enforce the noncompetition,nonsolicitation,and/or nondisclosure obligations described above pending any decision on
the merits by an arbitrator.You agree that these provisions permitting Qwest to seek court enforcement,including injunctiverelief,
may not be superceded by any agreement except one that specifically references this paragraph and is signed by the parties to this
agreement.You agree that these remedies provisions supercede all prior inconsistent agreements into which you have entered.
A-2
EXHIBIT 12
QWEST COMMUNICATIONS INTERNATIONAL INC.
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
Ex-ma EDGARpro ©2002.EDGAR Online,Inc.
YEAR ENDED DECEMBER 31,
2001 2000 1999 1998 1997
(Loss)Income before income taxes,extraordinary item andcumulativeeffectofchangeinaccountingprinciple $(3,958)$126 $1,902 $2,419 $2,429Interestexpense(net of amounts capitalized)1,442 1,041 736 543 405Interestfactoronrentals(1/3)151 137 92 70 91Lossesfromequitymethodaffiliates(1)3,170 41
Earnings available for fixed charges (2)$805 $1,345 $2,730 $3,032 $2,925
Interest expense 1,629 1,145 763 568 425Interestfactoronrentals(1/3)151 137 92 70 91
Fixed charges $1,780 $1,282 $855 $638 $516
Ratio of earnings to fixed charges (coverage deficiency)$(975)1.05 3.19 4.75 5.67
NCrfE (1):
For the year ended December 31,2001,the ratio of earnings to fixed charges was calculated as a negative ratio.As a result,disclosed
above is the calculation of the coverage deficiency.For the purposes of this calculation we have included the impact of the $3.048billionwrite-downof the investment on KPNQwest that occurred during the second quarter of 2001,as an add-back of Qwest's share
of losses in its equity method affiliates.
NOTE (2):
"Earnings"is computed by adding income before income taxes,extraordinary items and cumulative effect of change in accounting
principle and fixed charges.Also included in earnings is the add-back of Qwest's share of losses in its equity method affiliates."Fixed
charges"consist of interest on indebtedness and the portionof rentals representative of the interest factor.
QWEST COMMUNICATIONS INTERNATIONAL INC.
SCHEDULE II -VALUATION AND QUALIFYINGACCOUNTS
(DOLLARS IN MILLIONS)
BALANCE AT BALANCE ATBEGINNINGOFMERGERCHARGEDTOEND OFPERIODADJUSTMENT(1)EXPENSE DEDUCTIONS PERIOD
Allowance for uncollectibles:
2001 $301 $--$660 $589 $37220008868484339301199969--158 139 88
Allowance for obsolete inventory:
2001 $11 $--$1 $1 $11200010--2 1 1119996--8 4 10
(1)The merger adjustment represents pre-merger Qwest's allowance for uncollectibles at the time of the Merger (June 30,2000).
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Qwest Communications International Inc.:
We have audited in accordance with auditing standards generally accepted in the United States,the consolidated financial statements
included in Qwest Communications International Inc.'s (the "Company")Annual Report on Form 10-K,and have issued our report
thereon dated January 29,2002 (except for the matters discussed in Note l5,as to which the date is March 31,2002).Our audits were
made for the purpose of forming an opinion on those consolidated financial statements taken as a whole.The schedule appearing on
525-8 EDGARpro O 2002.EDGAR Online,Inc.
Exhibit 12,page 2 of this Form 10-K is the responsibility of the Company's management and is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic financial statements.This schedule has been subjected
to the auditing procedures applied in the audits of the basic financial statements and,in our opinion,fairly states,in all material
respects,the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
/s/JLcthur JLadersen LLP
Denver,Colorado,
Jarauary 29,2002.
EXHIBIT21
Subsidiary of Owest Communications International Inc.Jurisdiction of Incorporation
1056974 Ontario,Inc.Ontario
1200 Landmark Center Condominium Association NebraskaBlock142ParkingGarageAssociationColoradoElPasoCountyTelephoneCompanyColoradoKPNQwestN.V.NetherlandsLCIInternational,Inc.DelawareLightwaveSpectrum,Inc.DelawareMalheurHomeTelephoneCompanyOregonOpticomS.A.de C.V.Mexico
Qwest Advanced Technologies,Inc.ColoradoQwest(Asia)Limited Hong Kong
Qwest Asset Management Company ColoradoQwestB.V.Netherlands
Qwest Broadband Services,Inc-DelawareQwestBusinessResources,Inc.Colorado
Qwest Capital Funding,Inc.Colorado
Qwest Communications Corporation Delaware
Qwest Communications Corporation of Virginia Virginia
Owest Communications International Ltd.United Kingdom
Qwest Communications Japan Corporation JapanQwestCorporationColoradoQwestCyber.Solutions LLC Delaware
Qwest Database Services,Inc.Colorado
Qwest Dex Holdings,Inc.Delaware
Qwest Dex,Inc.Colorado
Qwest Digital Media,LLC Delaware
Qwest Foundation Colorado
Qwest Government Services,Inc.Colorado
Qwest Hong Kong,LLC Delaware
Qwest Information Technologies,Inc.Colorado
Qwest Internet Solutions,Inc.DelawareQwestInterpriseAmerica,Inc.Colorado
Qwest Interprise America of Virginia,Inc.VirginiaQwestInvestmentCompanyDelaware
Qwest IP Holdings,Inc.Delaware
Qwest Hong Kong Telecommunications,Limited Hong Kong
Qwest Japan Holding Company Delaware
Qwest Japan,Inc.Delaware
Qwest N Limited Partnership Delaware
Qwest Services Corporation Colorado
Qwest Singapore Pte Ltd.SingaporeQwestTelecommunicationsAsia,Limited Hong Kong
Qwest Transoceanic,Inc.DelawareQwestWireless,LLC DelawareServiciosDerechodeViaS.A.de C.V.MexicoTrainingPartnerships,Inc.ColoradoTransoceanicOperations,Inc.Delaware
En=wm EDGARpro 2002.EDGAR Online,Inc.
TW Wireless,LLC DelawareUSLDCommunications,Inc.TexasVicorp.com DelawareVicorp.com International DelawareWesternRe,Inc.Vermont
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants,we hereby consent to the inclusion of our report dated January 29,2002 (except for the matters
discussed in Note 15,as to which the date is March 31,2002),on the consolidated balance sheets of Qwest Communications
International Inc.and subsidiaries (the "Company")as of December 31,2001 and 2000,and the related consolidated statements of
operations,stockholders'equity and cash flows for each of the three years in the period ended December 31,2001,included in this
Form 10-K for the year ended December 31,2001 and into the Company's previouslyfiled Registration Statements on Form S-3 No.
333-82142 filed on February 5,2002 and Form S-8 No.333-74622,filed on December 5,2001.
Arthur Andersen LLP
Denver,Colorado,
March 31,2002.
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS,that each person whose signature appears below hereby constitutes and appoints
Yash A.Rana,as his or her attorney-in-fact and agent,with full power of substitution,for him or her in any and all capacities,herebygivingandgrantingtosaidattorney-in-fact and agent full power and authority to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as fully,to all intents and purposes,as he might or could do if
personally present at the doing thereof,hereby ratifying and confirmingall that said attorney-in-fact and agent may or shall lawfully
do,or cause to be done,in connection with the proposed filing by Qwest Communications International Inc.,a Delaware corporation,with the Securities and Exchange Commission,under the provisions of the Securities Exchange Act of 1934,as amended,of an annual
report on Form 10-K for the fiscal year ended December 31,2001,including but not limited to,such full power and authority to do thefollowing:(i)execute and file such annual report,(ii)execute and file any amendment or amendments thereto,(iii)receive and respond
to comments from the Securities and Exchange Commission related in any way to such annual report or any amendment or
amendments thereto,and (iv)execute and deliverany and all certificates,instruments or other documents related to the matters
enumerated above,as the attorney-in-fact in his sole discretion deems appropriate.
This power of attorney has been duly executed below by the following persons in the capacities indicated on this 31st day of March,
2002.
QWEST COMMUNICATIONS
INTERNATIONAL INC.
/S/PHILIP F.ANSCHUTZ
Philip F.Anschutz Director,Chairman of the Board
S/LINDA G .ALVARADO
Linda G.Alvarado Director
/S/CRAIG R .BARRETT
usama EDGARpro ©2002.EDGAR Online,Inc.
Craig R.Barrett Director
S/HANK BROWN
Uank Brown Director
S THOMAS J.DONOHUE
Thomas J.Donohue Director
S JORDAN L.HAINES
Jordan L.Haines Director
S CANNON Y.HARVEY
Cannon Y.Harvey Director
S PETER S.HELLMAN
Peter S.Hellman Director
S VINOD KHOSLA
Vinod Khosla Director
S MARILYN C.NELSON
Marilyn C.Nelson Director
S FRANK POPOFF
Frank Popoff Director
S CRAIG D.SLATER
Craig D.Slater Director
S W.THOMAS STEPHENS
W.Thomas stephens Director
Mmma EDGARpro ©2002.EDGAR Online,Inc.
[LETTERHEAD OF QWEST COMMUNICATIONS INTERNATIONAL INC.
EXHIBIT 99
March 31,2002
Via EDGAR
Securities and Exchange Commission
450 Fifth Street,N.W.
Washington,DC 20549
RE:CONFIRMATION OF ARTHUR ANDERSEN REPRESENTATIONS
Ladies and Gentlemen:
This letter confirms that Qwest Communications International Inc.has received from Arthur Andersen LLP,the independent public
accountant engaged by the company to examine the company's financial statements that are included in the Form 10-K to which this
letter is attached as an exhibit,a representation letter addressed to the company and stating that:
o the audit conducted by Arthur Andersen was subject to Arthur Andersen's quality control system for the U.S.accounting and auditing
practice to providereasonable assurance that the engagement was conducted in compliance with professional standards;and
o there was appropriate continuity of Arthur Andersen personnel workingon audits,availabilityof national officeconsultation and
availabilityof personnel at foreign affiliates of Arthur Andersen to conduct the relevant portions of the audit.
Very truly yours,
QWEST COMMUNICATIONS INTERNATIONAL INC.
By:/s/Yash A.Rana
Name:Yash A.Rana
Title:Vice President,Senior Associate General
Counsel &Assistant Secretary
End of Filing
urmza EDGARpro ©2002.EDGAR Online,Inc.
UNITED STATES.SLCURITIES AND EXCHaÑGE COMMISSION
Washington,D.C.20549
FORM 10-K/A
AMENDMENT NO.1
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31,2000
OR
[]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO.000-22609
QWEST COMMUNICATIONS INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1339282
(State or other jurisdiction (I.R.S.Employer
of incorporation or organization)Identification No.)
1801 CALIFORNIA STREET,DENVER,COLORADO 80202
TELEPHONE NUMBER [phone]
Securities registeredpursuant to Section 12(b)of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Qwest Common Stock New York Stock Exchange
($0.01 per share,par value)
Qwest Capital Funding,Inc.New York Stock Exchange
($500,000,000 6.125%Notes due July 15,2002)
Securities registeredPursuant to Section 12(g)of the Act:
NONE
At March 5,2001,1,649,490,762 shares of Qwest common stock were outstanding.At March 5,2001,the aggregate market value of the Qwest
voting stock held by non-affiliateswas approximately $45,900,367,222.
INDICATE BY CHECKMARK WHETHERTHE REGISTRANT(1)HAS FILED ALL REPORTS REQUlREDTO BE FILED BY
SECTION13 OR 15(d)OF THE SECURITIESEXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH
SHORTER PERIOD THAT THE REGISTRANTWAS REQUIREDTO FILE SUCH REPORTS),AND (2)HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTSFOR THE PAST 90 DAYS.Yes [X]No []
Indicate by check mark if disclosure of delinquent filers pursuant to ltem 405 of Regulation S-K is not contained herein,and will not be
contained,to the best of registrant's knowledge,in definitiveproxy or informationstatements incorporated by reference in Part III of this Form
EDGARpro SOUT R:Ÿinancial IDSicht Svstems,Inc.©Coovright 2001.All rights reserved.
10-K or any amendment to this Form 10-K [
This document contains statements about expected future events and financial results that are forward-lookingand subject to risks and
uncertainties.Please refer to page 3 of Form 10-K for a discussion of factors that could cause actual results to differfrom expectations.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT WHERE INCORPORATED
Annual Report for the year ended December 31,2000 Part II,Items 5,7A,and 8
Proxy Statement for Qwest's 2001 Annual Meeting Part III,Items 10,11,12 and 13
of Stockholders
&~sklena^aoro e no,o or,sol Tn inhe vai-ame Tnc Convr aht 2001.All richts reserved.
TABLEOFCONTENTS
ITEM DESCRIPTION PAGE
PART I
1.Business...................................3
2.Properties............................7
3.Legal Proceedings........................................7
4.Submission of Matters to a Vote of Security Holders.........8
PART II
5.Market for Registrant's Common Equity and Related
Stockholder Matters.....................9
6.Selected Financial Data..................................9
7.Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................10
7A.Quantitative and Qualitative Disclosures About Market
Risk....................................................20
8.Consolidated Financial Statements and Supplementary Data....20
9.Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure..................20
PART III
10.Directors and Executive Officers of the Registrant..........20
11.Executive Compensation.....................................20
12.Security Ownership of Certain Beneficial Owners and
Management..............................................20
13.Certain Relationships and Related Transactions..............20
PART IV
14.Financial Statement Schedules,Reports on Form 8-K and
Exhibits.................................21SignaturePage............................26
FORM 10-K/A
QWEST COMMUNICATIONS INTERNATIONAL INC.
This amended Annual Report on Form 10-K/A amends and restates in its entirety Qwest's Annual Report on Form 10-K for the fiscal year
ended December 31,2000 as of the date of filing the original Form 10-K,March 16,2001.The only change was to conform its disclosure
regarding pension credits and charges for the periods presented in the original Annual Report on Form 10-K to the disclosure regarding those
matters in Qwest's Quarterly Report on Form 10-Q for the quarter ended June 30,2001.The changed disclosure is contained in Part II,
Item 7,Management's Discussion and Analysis of Financial Condition and Results of Operations.In addition,we have moved the Selected
Financial Data out of Exhibit 13 and included it in Part II,Item 6 of this amended Form 10-K and refiled Exhibit 13 to reflect the elimination of
the Selected Financial Data and Management's Discussion and Analysis from such exhibit.This amended Annual Report on Form 10-K/A
speaks as of the end of the fiscal year 2000 as required by Form 10-K or as of the date of filing the original Annual Report on Form 10-K.It
does not update any of the statements contained therein.This Form 10-K as amended,contains forwardlooking statements which were made at
the time the original Form 10-K was fíled on March 16,2001 and is subject to the factors described in the special note below and must be
considered in light of any subsequent statements,including forwardlooking statements,in any written statement subsequent to the filing of the
original Form 10-K,including statements made in filings on Reports on Forms 8-K and 10-Q.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains or incorporates by reference forward-lookingstatements,as that term is used in federal securities laws,about Qwest
Communications International Inc.'s (Qwest or us or we or our)financial condition,results of operations and business.These statements
include,among others:
-statements concerning the benefits that we expect will result from our business activities and certain transactions we have completed,such as
increased revenues,decreased expenses and avoided expenses and expenditures,and
-statements of our expectations,beliefs,future plans and strategies,anticipated developments and other matters that are not historical facts.
These statements may be made expressly in this document or may be incorporated by reference to other documents we will file with the
Securities and Exchange Commission (SEC).You can find many of these statements by looking for words such as believes,expects,
anticipates,estimates,or similar expressions used in this report or incorporated by reference in this report.
These forward-lookingstatements are subject to numerous assumptions,risks and uncertainties that may cause our actual results to be
materially differentfrom any future results expressed or implied by us in those statements.
The most important factors that could prevent us from achieving our stated goals include,but are not limited to,the following:
-intense competition in the markets in which we conduct our business;
-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
videoservices,which could require substantial expenditure of fmancial and other resources in excess of contemplated levels;
-rapid and significant changes in technology and markets;
-higher than anticipated employee levels,capital expenditures and operating expenses;
-adverse changes in the regulatory or legislative environment impacting the competitive environment and service pricing in the local exchange
market and affecting our business,and delays in the ability to begin interLATA (local access transport area)long-distance services in our 14-
state region;
-failure to maintain the necessary rights-of-way;
-failure to achieve the projected synergies and financial results expected to result from the merger of US WEST,Inc.(US WEST),with and
into Qwest on June 30,2000 (the Merger),and difficulties in combining the operations of Qwest and US WEST,which could affect our
revenues,levels of expenses and operating results.
Because these statements are subject to risks ancertainties,actual results may differ mater.from those expressed or implied by the
forward-lookingstatements.We caution you not to place undue reliance on the statements,whien speak only as of the date of this report.
The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral
forward-lookingstatements that Qwest or persons acting on its behalf may issue.We do not undertake any obligation to reviewor confirm
analyst's expectations or estimates or to release publicly any revisions to any forward-lookingstatements to reflect events or circumstances
after the date of this report or to reflect the occurrence of unanticipated events.
2
&sklEDGARoro Entirr Pin no al Tn ryh Ovat omc Tnc T3VT Cht 1 .AÎl T]Q¾†R TORATV fi
PART I
ITEM 1.BUSINESS
We are a leading broadband Internet communications company that provides advanced communication services,data,multimedia and Internet-
based services on a national and global basis;and wireless services,local telecommunications and related services and directory services in the
14-state local service area.A Fortune 100 company,we principally serve large and mid-size business and government customers on a national
and international basis,as well as residential and small business customers primarily in the 14-state local service area.
We are incorporated under the laws of the State of Delaware and have our principal executive offices at 1801 California Street,Denver,
Colorado 80202,telephone number [phone].
OPERATIONS
We are organized on the basis of our products and services and operate in four segments:(1)retail services,(2)wholesale services,(3)network
services and (4)directory services.For furtherfinancial informationon our segments,you should refer to Management's Discussion and
Analysis of Financial Condition and Results of Operations and Note 10 to the consolidated financial statements.
Retail Services
The principal types of retail services we offer are:(l)advanced communication services and data,multimedia and Internet-based services;(2)
wireless services;(3)interLATA (local access transport area)long-distance services;(4)intraLATA long-distance services within our l4-state
local service area and (5)local exchange telephone services.
Advanced Communication Services and Data,Multimediaand Internet-based Services.Advanced communication services,data,multimedia
and Internet-based services include Internet Protocol (IP)-enabled services such as dedicated and dial-up Internet access,Web hosting,co-
location access,voice over IP,application hosting,mass storage services,and broadband local access,including digital subscriber line (DSL).
We also providehigh-speed data communications and network services,including Internet access,hosting,DSL,virtualprivatenetworks,
frame relay service,transparent local area network (LAN)service,asynchronous transfer mode (ATM)service,network integration solutions,
application services and other data-related services to business customers.
During2000,we opened seven more CyberCenters,bringingthe total number of centers to 14 by the end of the year.These centers offer
business customers a variety of Web hosting and application services includingour e-solutions,a suite of Web hosting,application service
providerand professional consulting services.The buildings are directly connected to our network and each is equipped with a maximum-
security environmentto safeguard the customers'hosting operations.We plan to construct and operate another 10 centers within the United
States in 2001.
Wireless Services.We hold 10 MHz licenses to providedigital personal communications services in most markets in our 14-state local service
area.Wireless services are being offeredin 20 of these markets,and enable customers to use the same telephone number for their wireless
phone as for their home or business phone.We also serve five markets in our 14-state local service area through a joint venture with Touch
America,Inc.
InterLATA Long-Distance Services.We provideinterLATA long-distance voice and data services to business and residential customers
outside of our 14-state local service area.We intend to begin offering interLATA long-distance services within our 14-state local service area
pursuant to the Telecommunications Act of 1996 (the Telecommunications Act or the Act)upon satisfaction of certain regulatory conditions
primarily related to local exchange telephone competition.
IntraLATA Long-Distance Services Within our Region.We provideintraLATA long-distance services within our l4-state local service area.
These services include intraLATA service beyond the local calling area,wide area telecommunications service or 800 services for customers
with highly concentrated demand,and special services,such as transport of data,radio and video.
Local Exchange Telephone Services.Local exchange telephone services providelines fromtelephone exchange offices to customers'premises
in order to originate and terminate voice and data telecommunications.
3
These services include basic local exchange a :es providedthrough our switched network,<ated private line facilities for voice and
special services as well as data transport services.Other local exchange revenue is derived from turectory assistance and public telephone
service.
We also provideother products and services,such as customer premises equipment and enhanced services,(including voice mail)to residents,
business customers and governmental agencies.
For the year ended December 31,2000,revenue from retail services accounted for approximately 70%of our total revenue.
Wholesale Services
We provide network transport services nationally,on a wholesale basis,primarilyto telecommunications companies and Internet service
providers(ISPs).We also providenetwork transport,switching and billing services to competitive local exchange carriers (CLECs),
interexchange carriers (IXCs)and wireless carriers in our 14-state local service area.CLECs are communications companies,certifiedby a
state Public Utility Commission (PUC),that providelocal exchange service within a Qwest-associated local calling area.IXCsprovide
transitional long-distance services to end-users by handling calls that are made from a phone exchange in one LATA to an exchange in another
LATA.We also providewholesale products such as optical broadband capacity,conventional private line services to other communications
providers,as well as to ISPs and other data service companies,and high-volumevoice services.For the year ended December 31,2000,
revenue from wholesale services accounted for approximately 19%of our total revenue.
Network Services
Our network services segment provides access to our telecommunications network,including our informationtechnologies supporting the
network,primarily to customers of our retail services and wholesale services segments.For the year ended December 31,2000,revenue from
network services accounted for approximately 2%of our total revenue.
Directory Services
ThroughQwest Dex,Inc.(Qwest Dex),we publish White and Yellow Pages directories in the 14-state local service area.Qwest Dex's business
includes all facets of directory-related publishing.Qwest Dex's customers include businesses that purchase advertising in its directories and
other related products.Qwest Dex also provides directory publishing services to other telephone companies on a contract basis and electronic
directory services.Qwest Dex has expanded its directories business onto the Internet.For the year ended December 31,2000,the revenue from
directory services accounted for approximately 9%of our total revenue in 2000.
OUR NETWORK
Our principal asset is our telecommunications network,which uses both traditional telephone communications technology and Internet
communications technology.
In addition to the traditional telephone network in the 14-state local service area,we continue to expand our high-capacity fiber optic network.
The network reaches over 25,500 miles in North America,and is designed to allow customers to seamlessly exchange multimedia content-
images,data and voice over the public circuit-switched telephone network.The technologically advanced fiber optic network is designed to
instantaneously re-route traffic in the event of a fiber cut to prevent interruptionin service to our customers.This is accomplished by
automatically re-routing traffic in the opposite direction around the SONET ring.The network is equipped with state-of-the-art transmission
electronics.Our network is designed to support IP,traditional circuit-switched services and alternative informationtransfer standards used for
data transmission.
Our network connects approximately 150 metropolitan areas coast to coast.We were the first network service providerto complete a
transcontinental fibernetwork when we activated our network from Los Angeles to San Francisco to New York in April 1998.We are
expanding our worldwidebroadband services portfolio to
4
&ÍEDOMPro Source:Financial Insi¤ht Svstems.Inc.©Covyright 2001.All rights reserved.
include end-to-end connectivity for our local rnet services to large and multi-locationente.:s and carriers in key United States
metropolitan markets.We are leveraging the many completed metropolitan area fiberrings and nght-of-ways that were built as part of the
nationwide backbone construction.We completed construction of extensive fiber and DSL networks in 12 major cities in 2000 and we expect
to complete 14 additional major cities by the end of200l.
We have also built a 1,400 route-mile network in Mexico,and are part of a consortium of communications companies that is building a 13,125-
mile underwater cable network connecting the United States to Japan.
KPNQwest,N.V.(KPNQwest),a European communications company in which we and KPN,the Dutch telephone company,each own a 44%
equity interest,is building and operating a high-capacity,pan-European fiber optic,Internet-based network that is currently expected to connect
over 50 cities throughout Europe when it is completed by the end of 2001.
In June 1999,our subsidiary,Qwest Corporation,entered into a series of definitiveagreements to sell local exchange telephone properties
serving approximately 570,000 access lines in nine states for approximately $l.8 billion in cash,subject to adjustment.The pending sales are
subject to regulatory approvals and other customary closing conditions.The transfer of ownership,which will occur on a state-by-state basis,is
expected to be completed by the end of the first quarter in 2002.In addition,on February 26,2001,we announced that we do not have plans to
sell a significant number of additional access lines at the present time.
STRATEGIC RELATIONSHIPS
We are developing Internet and multimedia services in alignment with existing and anticipated market demand in partnership with leading
informationtechnology companies,includingthe following:
-MicrosoftCorporation for business applications and service;
-IBM Corporation for the construction and management of CyberCenters;
-SAP America,Inc.,Oracle Corporation and Siebel Systems,Inc.for application hosting services;
-Hewlett-Packard Company for high-end data storage,hosting and systems management services;and
-BellSouth Corporation for coordinated marketing and product development in the southeastern United States.
We also continue to evaluate opportunities to enter into other relationships with leading informationtechnology companies that would allow us
to improveand expand services,compete more effectivelyand create new opportunities for growth.
COMPETITION
During2000,we faced a constantly changing competitive environment.The early part of the year saw significant consolidation in the
telecommunications industry followedlater in the year by a number of companies experiencing financial difficulties.We expect that rapid
restructuring in the telecommunications industry will continue in the future.
We still face intense competition in almost every area of our business,primarily from other communications companies.Some of our existing
and potential competitors,particularly in the communications services markets,have more financial,personnel,marketing resources as well as
certain competitive advantages.As a result of these competitors'efforts,we continue to experience an erosion of our market share in certain
markets,as well as pressure on profit margins,particularly in the intraLATA long-distance market and business portion of the local service
market.
We have taken several steps to combat the impacts of competition on our operating results.First,we continue to expand and upgrade our
network facilities and CyberCenters to accommodate the increasing customer demands for faster and greater amounts of data,as well as
Internet based services.Our national fiber optic network provides us with the ability to meet many of these demands today and into the
immediate future.This network also lowers our cost structure,allowingus to maintain profit margins relative to our competitors.Second,
5
we have successfully deployed bundled prodt .nd service offerings to our customers in resp to competition in the small business and
residential sectors.This allows us to providea comprehensive package at a competitive price.Third,we are committed to significantly
improvingthe service providedto our customers.Substantial amounts of time,effort and financial resources have been,and will continue to be,
focused on this area.Fourth,we are diligently workingwith various state PUCs and the Federal Communications Commission (FCC)to meet
the requirements necessary for us to be able to enter the interLATA long-distance market within our Region.We continue to work with the
appropriate regulatory bodies to achieve increased pricing flexibility for products and services.We have been successful in gaining price cap
regulation in several jurisdictions.Finally,we remain focused on providingnew and improved products and services in the data,IP,and
wireless arenas where demand continues to accelerate.Based upon these factors,we believe we are well positioned to compete with other
companies in providingproducts and services to current and potential customers.
REGULATION
As a general matter,we are subject to substantial regulation,including requirements and restrictions arising under the Telecommunications Act
and state utility laws,and the rules and policies of the FCC,state PUCs and other governmental entities.This regulation,among other matters,
currently prohibits us (with certain exceptions)from providingretail or wholesale interLATA telecommunications services within the Region,
and governs the terms and conditions under which we provideservices to our customers (including competing CLECs and IXCs in our
Region).
Interconnection.The FCC is continuing to interpret the obligations of incumbent local exchange carriers (ILECs)under the
Telecommunications Act to interconnect their networks with,and make unbundled network elements available to,CLECs.These decisions
establish our obligations in the Region,and our rights when we compete for certain services outside of our Region.In addition,the United
States Supreme Court is now considering an appeal from a rulingof the Eighth Circuit Court of Appeals that the FCC's rules for the pricing of
interconnection and unbundled network elements by ILECs unlawfullypreclude ILECs from recovering their actual costs as required by the
Act.
Access Pricing.The FCC has initiated a number of proceeding which directly affect the rates and charges for access services sold or purchased
by Qwest.It is expected that these proceedings and related implementation of resulting FCC decisions will continue through 2002.
On May 31,2000,the FCC adopted the access reform and universal service plan developed by the Coalition for AffordableLocal and Long-
Distance Service (CALLS).The adoption of the CALLS proposal resolved many outstanding issùes before the FCC including:the court
remand of the 6.5%productivityfactor,the treatment of implicit universal service support;the treatment of low-volumelong-distance users
and the next scheduled price cap review.The CALLS plan has a five-yearlife and provides for the following:elimination of the residential
presubscribed interexchange carrier charge (PICC);increases in subscriber line charges;reductions in switched access usage rates;the removal
ofcertain implicit universal service support from access charges and direct recovery from end-users;and commitments from participating IXCs
to pass through access charge reductions to end-users.We have opted into the five-yearCALLS plan.
Advanced Telecommunications Services.On two separate occasions,the FCC has ruled that advanced services providedby an ILEC are
covered by those provisions of the Act that govern telephone exchange and exchange access services.We have challenged this finding,
contending that advanced services fit within neither category and are not properlytreated as exchange services.This case is now before the
Court of Appeals.
InterLATA Long-Distance Entry.Several Regional Bell Operating Companies (RBOC)have filed for entry into the interLATA long-distance
business.Although many of these applications have been supported by state PUCs,the FCC had rejected all applications until December 1999.
As of this date,long-distance authority has been granted in the states of New York,Kansas,Oklahoma,and Texas.
We filed applications with all in-region state PUCs for support of our planned applications to the FCC for authority to enter the interLATA
long-distance business.Workshops and related proceedings are underway at the state level to evaluate the Company's satisfaction of
requirements under the Telecommunications Act that must be
6
met in orderfor an RBOC to obtain long-dist,authority.We have agreed to test operationa,port systems on a regional basis in 13 states,
and testing of those systems is scheduled to begin in March 2001.Testing in Arizona is being conducted separately,and began in February
2001.We expect to file FCC applications in many of our states by the end of 2001.
Long-TermNumber Portability Tariffs.In July 1999,the FCC issued an order on our local number portability(LNP)tariff that was originally
effectivein February 1999.The FCC's order approved a monthly cost recovery surcharge of $0.43 per access line.We estimate the surcharge
will facilitate the recovery of approximately $407 million of LNP implementation costs over five years.We have successfully defended our
tariffs against AT&T's objections.
EMPLOVEES
As of December 31,2000,we employed approximately 67,000 employees.Approximately 38,000 were represented by collective bargaining
agreements.We believe that our relations with our employees are good.
ITEM 2.PROPERTIES
Our network and its component assets are the principal properties we own.Our installed fiber optic cable is laid under the various rights of way
held by us.Other fixed assets are located at various locations in geographic areas that we serve.
Our tangible assets include a significant investment in telecommunications equipment.We own substantially all of our telecommunications
equipment required for our business.Total investment in plant,property and equipment was approximately $48.3 billion and $38.1 billion at
December 31,2000 and 1999,respectively,including the effect of retirements,but before deducting accumulated depreciation.
We lease sales offices for our communications services business unit in major metropolitan locations both in the United States and
internationally.Our network management centers are located primarily in owned buildings situated on land owned in fee at various locations in
geographic areas that we serve.
Our local services network is predominately located within the Region,which includes Arizona,Colorado,Idaho,Iowa,Minnesota,Montana,
Nebraska,New Mexico,NorthDakota,Oregon,South Dakota,Utah,Washington and Wyoming.Our network provides the capabilities to
furnish advanced data transmission and informationmanagement services.
ITEM 3.LEGAL PROCEEDINGS
In January 2001,an amended purported class action complaint was filed against Qwest and certain current and former officersand directors on
behalfof stockholders of US WEST.The complaint alleges that Qwest has a duty to pay a quarterly dividendto US WEST stockholders of
record as of June 30,2000.Plaintiffsfurtherclaim that the defendants'effortsto close the Merger in advance of the record date and the
defendants'failure to pay the dividendbreaches fiduciaryduties owed to stockholders of US WEST.Qwest has filed a motion to dismiss the
complaint,which is pending.
ThroughDecember 2000,seven purported class action complaints have been filed in various state courts against Qwest and US WEST on
behalfof customers in the states of Arizona,Colorado,Minnesota,New Mexico,Oregon,Utah and Washington.The complaints allege,among
other things,that from 1993 to the present,US WEST,in violationof alleged statutory and common law obligations,willfullydelayed the
provisionof local telephone service to the purported class members.In addition,the complaints allege that US WEST misrepresented the date
on which such local telephone service was to be providedto the purported class members.The complaints seek compensatory damages for
purported class members,disgorgement of profits and punitivedamages.As of November 11,2000,the parties have signed agreements to settle
the complaints.The agreements are subject to a varietyof conditions,includingcourt approval.
7
In April 1999,CSX Transportation,Inc.filed mplaint in federal district court in Jacksonvil Jorida against Qwest claiming breach of a
1995 contract.Discovery in the case is ongoing and the trial is scheduled to commence in October 2001.
ThroughDecember 2000,several purported class actions have been filed in various state courts against Qwest on behalf of landowners in
Georgia,Indiana,Kansas,Louisiana,Missouri,Oregon,Tennessee and Texas.The complaints challenge Qwest's right to install its fiber optic
cable network in railroadrights-of-way.The complaints allege that the railroads own a limited property right-of-waythat did not include the
right to permit Qwest to install its fiber optic cable network on the plaintiffs'property.The Indiana action purports to be on behalfof a national
class of landowners adjacent to railroad rights-of-wayover which the Qwest network passes;the Georgia,Kansas,Louisiana,Missouri,
Oregon,Tennessee and Texas actions purport to be on behalfof a class of such landowners in Georgia,Kansas,Louisiana,Missouri,Oregon,
Tennessee and Texas,respectively.The complaints seek damages on theories of trespass and unjust enrichment,as well as punitivedamages.
The Company received,and may in the future receive,additional claims and demands that may be based on similar or differentlegal theories.
From March 2,2000 to March 9,2000,five purported class action complaints were filed against Qwest in state court in Delaware on behalfof
Qwest stockholders.The complaints allege that Qwest and its directors breached their fiduciaryduty by entering into the Merger and by
agreeing not to solicit alternative transactions.Since the filing of the complaints,there has been no discovery or other activity in the cases.
On March 17,2000,and March 20,2000,two class action complaints were filed in federal district court in Delaware against Qwest and Joseph
Nacchio on behalfof US WEST stockholders.The complaints allege,among other things,that Qwest and Mr.Nacchio made material false
statements regarding Qwest's intent to solicit an alternative transaction to the Merger.Since the filing of the complaints,there has been no
discovery or other activity in the cases.
In 1999,twelve purported class action complaints were filed against US WEST and its directors on behalf of US WEST stockholders.Each of
the complaints allege that the defendants breached their fiduciaryduties to the class members by refusing to seek all bona fide offers for US
WEST and refusing to consider the Qwest proposal.Since the filing of the complaints,there has been no discovery or other activity in the
cases.
Various other litigation matters have been filed against us.We intend to vigorouslydefend these outstanding claims.
We have providedfor these matters in our financial statements as of December 31,2000.We do not expect any material adverse impacts in
excess of these reserves as a result of the ultimate resolution of these matters.
From time to time,we receive complaints and become subject to investigations regarding tariffs,slamming (the practice of changing long-
distance carriers withoutthe customer's consent)and other matters.In 2000,the CaliforniaPublic Utilities Commission opened an investigation
relatingto certain slamming complaints.A purported class action complaint was filed in federal court in Connecticut containing slamming
allegations.The Attorney General of Connecticut has also filed a similar complaint in state court in Connecticut.We may receive complaints or
become subject to investigations in the future.Such complaints or investigations could result in the imposition of certain fines and other
penalties.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 2000.
8
ISEDGAnpm SOUTCe Financial Insicht Svetems,Inc.CODVright 2001.All rights reserved.
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The informationunder the caption Market for the Registrant's Common Equity and Related Stockholder Matters on page 68 of Qwest's 2000
Annual Report is incorporated herein by reference.
ITEM 6.SELECTED FINANCIAL DATA
The merger between Qwest Communications International Inc.(Qwest or the Company)and US WEST,Inc.(US WEST)(the Merger)was
effectiveJune 30,2000.Amounts reflected below for the years ended December 3l,1996,1997,1998 and 1999 represent the results of
operations for US WEST only (the accounting acquirer).For the year ended December 31,2000,the amounts reflect the results of operations
for (i)US WEST from January 1,2000 through June 29,2000 and
(ii)the merged Qwest entity from June 30,2000 through the end of the year.
YEAR ENDED DECEMBER 31,
2000 1999 1998 1997 1996
(DOLLARS IN MILLIONS,EXCEPT PER SHARE AMOUNTS)
Revenues....................$16,610 $13,182 $12,395 $11,521 $11,168
Operating expenses.................14,787 9,845 9,346 8,745 8,356
Operating income.......................1,823 3,337 3,049 2,776 2,812
(Loss)income before extraordinary item
and cumulative effect of change in
accounting principle................(81)1,102 1,508 1,527 1,501
Net (loss)income(1)(2).............(81)1,342 1,508 1,524 1,535
(Loss)earnings per share:(3)
Basic.......................(0.06)1.54 1.76 1.83 1.86
Diluted.............................(0.06)1.52 1.75 1.79 1.82
Average common shares outstanding(thousands):(3)
Basic.....................1,272,088 872,309 854,967 834,831 825,835
Diluted..........................1,272,088 880,753 862,581 849,497 844,930
Dividends per common share.............$0 .31 $1.36 $1.24 $1.24 $1.24
EBITDA(4)..............................6,917 5,704 5,248 4,939 4,970
Total assets...........................73,501 23,272 18,407 17,667 17,279
Total debt..........................19,066 13,071 9,919 5,715 6,545
Debt to total capital ratio............31.6%91.2%92.9%56.7%61.6%
Capital expenditures...................$6,968 $4,218 $2,905 $2,672 $2,831
(1)2000 net loss includes a charge of $l.096 billion ($0.86 per diluted share)of Merger-related costs,a charge of $560 million ($0.44 per
diluted share)on the decline in the market value of certain financial instruments and a net gain of $182 million ($0.14 per diluted share)on the
sales of investments.1999 net income includes expenses of $282 million ($0.32 per diluted share)related to a terminated merger,a loss of $225
million ($0.26 per diluted share)on the sale of common stock and a charge of $34 million ($0.04 per diluted share)on the decline in the market
value of derivativefinancial instruments.1998 net income includes expenses of $68 million ($0.08 per diluted share)associated with the June
12,1998 separation ofUS WEST's formerparent company into two independent companies (the Separation)and an asset impairment charge
of $21 million ($0.02 per diluted share).1997 net income includes a $152 million regulatory charge ($0.18 per diluted share)related primarily
to the 1997 Washington State Supreme Court ruling that upheld a Washington rate order,a gain of $32 million ($0.04 per diluted share)on the
sale of US WEST's one-seventh interest in Bell Communications Research,Inc.and a gain of $48 million ($0.06 per diluted share)on the sales
of local telephone exchanges.1996 net income includes a gain of $36 million ($0.04 per diluted share)on the sale of local telephone exchanges
and the current effect of $15 million ($0.02 per diluted share)from adopting Statement of Financial Accounting Standards (SFAS)No.121,
Accounting for the Impairment of Long-LivedAssets and for Long-LivedAssets to be Disposed Of.As described in note 3 below,the per
share amounts assume the conversion of US WEST common stock into Qwest common stock for all periods presented.
(2)1999 net income includes $240 million ($0.27 per diluted share)for the cumulative effect of a change in accounting principle related to
recognizing directory publishing revenues and expenses on the point of publication method.1997 net income was reduced by an extraordinary
charge of $3 million ($0.00 per diluted share)for the early extinguishment of debt.1996 net income includes a gain of $34 million ($0.04 per
diluted share)for the cumulative effect of the adoption of SFAS No.121.
(3)In connection with the Merger,each outstanding share of US WEST common stock was converted into the right to receive 1.72932 shares
of Qwest common stock (and cash in lieu of fractional shares).The average common shares outstanding assume the l-for-1.72932conversion
of US WEST shares for Qwest shares for all periods presented.In addition,average common shares outstanding also assume a one-for-one
WalEDGARpro Rource·Financial Tnsicht Svstems.Inc.©Convright 2001.All rights reserved.
conversion of US WEST Communications C i (Communications Group)common shares c nding into shares of US WEST as of the
Separation date.The 1998 average common snares outstanding include the issuance of approximately 28,786,000 shares of common stock
attributable to the contribution to US WEST by its former parent company (Parent)of the businesses of the Communications Group and the
domestic directories business of US WEST Dex,Inc.(Dex).
(4)Earnings before interest,income taxes,depreciation and amortization (EBITDA)does not include non-recurring and non-operating items
such as Merger costs,asset write-offs and impairments,gains/losses on the sale of investments and fixed assets,changes in the market values of
investments,one-time legal charges,in-region long-distance activity,Qwest construction activity,Separation charges,regulatory accruals and
sales of local telephone exchanges.EBITDA does not represent cash flow for the periods presented and should not be considered as an
alternative to net earnings
(loss)as an indicator of the Company's 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.
9
49 DGMpro Source:Financial Insight Systems,Inc.©Copyright 2001.All rights reserved.
ITEM 7.MANAGEMENT'S DISCUSSIO RD ANALYSIS OF FINANCIAL CONDI 4 AND RESULTSOF OPERATIONS
MANAGEMENT'S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS (DOLLARS
IN MILLIONS,EXCEPT PER SHARE AMOUNTS)
Certain statements set forthbelow under this caption constitute forward-lookingstatements within the meaning of the Private Securities
Litigation Reform Act of 1995 (Reform Act).See Special Note Regarding Forward-LookingStatements on page l of this Form 10-K/A for
additional factors relating to such statements.
RESULTS OF OPERATIONS
2000 Compared with 1999
The Mergerhas been accounted for as a reverse acquisition under the purchase method of accounting with US WEST being deemed the
accounting acquirer and Qwest the acquired entity.As US WEST was deemed the accounting acquirer,its historical fmancial statements have
been carried forwardas those of the newly combined company.In connection with the Merger,each outstanding share of US WEST common
stock was converted into the right to receive 1.72932 shares of Qwest common stock.In addition,all outstanding US WEST stock options
were converted into options to acquire Qwest common stock.All share and per share amounts have been restated to give retroactive effect to
the exchange ratio.
10
anlEDGARpro Annre -Financial Tn irrht Rv tems.Tnc.©Convright 2001.All richts reserved.
The results of operations for Qwest (the acqui :ntity for accounting purposes)priorto the M r with US WEST on June 30,2000,are not
reflected in the accompanying consolidated statements of operations.However,the following unaudited consolidated pro forma results of
operations are presented assuming the Merger had been completed on January 1,1999 and have been adjusted to eliminate the impacts of non-
recurring items such as Merger costs,asset write-offs and impairments,gains/losses on the sale of investments and fixed assets,changes in the
market values of investments,one-time legal charges,in-region long-distance activity and Qwest construction activity.
ACTUAL
YEAR ENDED PRO FORMA YEAR ENDED DECEMBER 31,
DECEMBER 31,
-----------------INCREASE %
2000 1999 2000 1999 (DECREASE)CHANGE
(DOLLARS IN MILLIONS)
Revenues:Commercial services...............$7,424 $4,689 $9,425 $7,388 $2,037 27.6%
Consumer and small business
services.......................6,372 5,571 6,715 6,284 431 6.9
Directory services................1,530 1,436 1,530 1,436 94 6.6
Switched access services..........1,284 1,486 1,284 1,486 (202)(13.6)
Total revenues............16,610 13,182 18,954 16,594 2,360 14.2
Operating expenses:
Cost of services..................5,433 3,990 6,757 5,906 851 14.4
Selling,general and
administrative.................4,260 3,488 4,829 4,406 423 9.6
EBITDA..................6,917 5,704 7,368 6,282 1,086 17.3
Depreciation....................2,617 2,348 2,706 2,520 186 7.4
Amortization...................725 19 1,359 1,287 72 5.6
Merger-related and othercharges.....................1,752 --------
Total operatingexpenses................14,787 9,845 15,651 14,119 1,532 10.9
Operating income...................1,823 3,337 3,303 2 475 828 33 5
Other expense (income):
Interest expense --net...........1,041 736 1,116 887 229 25.8
Decline in market value of
financial instruments..........917 56 ------
Expenses related to terminated
merger.....................--282 ------
(Gain)loss on sale of
investments.-------............(327)367 --
Other expense (income)--net.....66 (6)43 (3)46 1,533.3
Total other
expense --net..........1,697 1,435 1,159 884 275 31.1
Income before income taxes and
cumulative effect of change in
accounting principle..............126 1,902 2,144 1,591 553 34.8
Provision for income taxes..........207 800 1,149 943 206 21.9
(Loss)income before cumulative
effect of change in accountingprinciple........................(81)1,102 995 648 347 53.6
Cumulative effect of change in
accounting principle --net of
tax..-...........--.--...--240 -----
Net (loss)income...................$(81)$1,342 $995 $648 $347 53.6%
Because of the significance of the Merger,the comparison of 2000 results to 1999 results will be based upon the above pro forma results except
for goodwill and other intangible amortizatic pense,Merger-related and other charges and loss)income.
ll
ikEDGAnoro e 99vne.vi 2nod 1 Too,he coroeome Tno (c3 C'Anvriryht 9001 All virvb e vocorworl
REVENUES
The Company's revenues are generated from a variety of services and products.Commercial,consumer and small business services revenues
are derivedfrom retail and wholesale services such as Internet and data products and services,including Web hosting and Internet access,
frame relay and digital subscriber line (DSL).Also included in this category are voice services such as basic monthly fees for telephone
service,wireless services,fees for calling services such as voice messaging and caller identification,special access and private line revenues
from end-users buying local exchange capacity to support their privatenetworks and inter-and intraLATA (local access and transport area)
long-distance services.To a lesser extent,the Company sells capacity under indefeasible rights of use contracts.Revenues from these contracts
are included in commercial services and were not significant in either fiscal 2000 or 1999.Directory services revenues are generated primarily
from selling advertising in the Company's published directories.Switched access services revenue is derived principally from charges to
interexchange carriers (IXCs)for use of the Company's local network to connect customers to their long-distance networks.
Total pro forma revenues for 2000 grew by 14.2 percent as compared to 1999,due to increases in commercial revenue driven by Internet
Protocol (lP)and data including sales of Internet access,frame relay and virtual private network services.Data and IP revenues represented
over 22 percent of total pro forma revenues for 2000 up from 16 percent in 1999 as this segment of the business grew by more than 60 percent
in 2000.The Company expects the data services business to become a greater portion of overall Company revenues in the future.Also
contributingto the increase was residential wireless and DSL growth.Wireless revenues grew by l 10 percent in 2000 over 1999 and DSL
revenues grew by over 150 percent during the same period,primarilydue to an increase in customers.
Local voice revenues grew despite the fact that access line growth slowed to approximately 2 percent year-over-year.Total access lines
increased by 341,000 with business lines comprising the majority of the change.The decline in access line growth was partially attributable to
businesses converting single access lines to a lower number of high-speed,high-capacity lines allowingfor transport of data at higher rates of
speed.On a voice-grade equivalent basis,the Company's business access lines grew by 30.5 percent as compared to 1999.
Directory services revenues for 2000 increased by almost $100 million due principallyto higher advertising rates,an increase in the number of
directories published and an increase in the number of premium quality advertisements.
Partially offsetting the increase in total revenues was the decline in switched access revenue,primarily due to rate reductions mandated by the
Federal Communications Commission (FCC)as part of access reform,as well as rate reductions mandated by state public utility commissions
(PUCs).
IntraLATA and consumer long-distance service voice revenues also declined due to price cuts caused by regulatory rate reductions,a de-
emphasis of out-of-regionconsumer services and greater competition.The Company believes it will continue to experience furtherdeclines in
intraLATA long-distance revenues as competition increases.
To compete more effectivelyand providebetter value,Qwest continued to sell bundled products and services at prices lower than they could be
sold individually in exchange for longer-term customer commitments and higher overall per customer revenue.As a result,Qwest has added
730,000 subscribers to its CustomChoice(SM)package (which includes a home phone line and the choice of 20 calling features)in 2000,with
total subscribers exceeding 2,000,000 as of year end.Total subscribers to the Company's other significant bundled offering,Total Package(SM)
(bundled wireless,wirelineand Internet services package),exceeded 121,000 at December 31,2000.
During 1999 and 2000,the Company committed to sell approximately 800,000 access lines within the l4-state local service area.In 1999,
definitive sales agreements were reached for the sale of 570,000 lines for approximately $1.8 billion in cash,subject to adjustment.In 2000,the
sale of 20,000 access lines in North Dakota and South Dakota were consummated resulting in proceeds of $19 million and gains of $11 million.
The transfer of ownership of the remaining access lines,which will occur on a state-by-state basis,is expected to be completed by the first
quarter of 2002.The pending sales are subject to regulatory approvals and other customary closing conditions.In addition,on February 26,
2001,the Company announced that it does not have plans to sell
12
a significant number of additional access line he present time.Sales of these rural access li vill exert downward pressure on revenue
growthas these sales are finalized.
EXPENSES
Cost of services.Cost of services includes the following costs directly attributable to a product or service:salaries and wages,materials and
supplies,contracted engineering services,network access costs,computer systems support,and the cost of products sold.
Cost of services as a percent of revenue was 35.6 percent on a pro forma basis for both 2000 and 1999.Higher sales of early life cycle data
products,increased competition and mandatory regulatory rate reductions on access products all impacted the gross margin.Although the gross
margin remained flat year-over-year,total cost of services rose in 2000.Continued investments in early life cycle Web hosting,wireless and
local broadband access products and customer service increased costs.These increases in costs were offset by network efficiencies gained
through the elimination of redundant capacity and workforce and an increase in capitalized salaries and wages associated with higher capital
investment.In addition,cost of services was also impacted by a reduction in the other post-retirement benefit costs and an increase in the
pension credit in 2000 (which resulted primarily from higher than expected returns on plan assets).
On January 5,2001,Qwest announced an agreement with its major unions,the Communications Workers of America and the International
Brotherhood of Electrical Workers,to extend the existing union contracts for another two years,through August of 2003.The extensions
include a 3.5 percent wage increase in 2001,a 5 percent wage increase in 2002,a 6 percent pension increase in 2002,and a 10 percent pension
increase in 2003.Excluding anticipated future cost synergies,these scheduled changes will increase cost of services in future years.
Selling,general and administrative expenses.Selling,general and administrative (SG&A)expenses include salaries and wages not directly
attributable to a product or service,sales commissions,bad debt charges,rent for administrative space,advertising,professional service fees
and taxes other than income taxes.
Pro forma SG&A,as a percentage of revenue,improvedto 25.5 percent in 2000 compared to 26.6 percent in 1999.SG&A expenses decreased
as a percentage of revenues because of Merger-related reductions in staffresulting from the separation of more than 4,500 employees,other
post-employment expense reductions,and an increase in the pension credit.These decreases were partially offset by increases in bad debts and
property taxes.
Excluding a one-time gain on curtailment of retiree medical benefits in 2000,Qwest recorded a pension credit,net of post-retirement costs,of
$299 million ($182 million after-tax or $0.14 per diluted share).In 1999,Qwest recorded a pension expense,net of post-retirement costs,of $8
million ($5 million after-tax or $0.01 per diluted share).See Note 6 of Qwest's consolidated financial statements for additional information.
Decisions on pension assumptions and the resulting pension impact for all periods prior to January 2001,were made by the management of US
WEST prior to its acquisition by Qwest on June 30,2000.
EBITDA.Because of the factors described above,pro forma EBITDA improvedfrom 37.9 percent of revenues in 1999 to 38.9 percent in 2000.
Depreciation expense.Depreciation expense increased 7.4 percent as compared to 1999 primarily due to higher overall property,plant and
equipment resulting from continued investment in the Company's network to meet service demands.In addition,Qwest continues to invest in
growthareas such as Internet and data services,Web hosting,wireless,and broadband access.Additional capital investments were also made to
improvecustomer service levels.
Goodwill and other intangible amortization expense.Substantially all of the goodwill and other intangible amortization resulted from the
Merger.The preliminarypurchase price allocation to these assets was $4.1 billion to identifiedintangibles and $27.9 billion to goodwill.The
amounts allocated to tradenames and goodwill are being amortized over 40 years.The remaining intangible assets are being amortized over
periods ranging from 3 to 10 years.The allocation of purchase price is preliminaryand may change upon completion of an appraisal currently
being performedon the acquired assets and liabilities of Qwest (the acquired entity for accounting purposes).The effect of any such change is
not expected to be material.
13
Merger-related and other charges.Qwest inc,i Merger-related and other charges totaling $2 billion.A breakdown of these costs is asfollows:
YEAR ENDED
DECEMBER 31,2000
(DOLLARS IN
MILLIONS)
Contractual settlements and terminations...........$654
Merger bonuses and severance costs.............443
Write-off of access lines...................226
Termination of software development projects.......114
Post-retirement benefit plan curtailment gain......(106)
Other Merger-related costs and charges.............421
Total Merger-related and other charges...$1,752
Contractual settlements and termination losses of $654 million represents the costs incurred to cancel various commitments no longer deemed
necessary as a result of the Merger and to settle various claims related to the Merger.
In connection with the Merger,management identifieda workforcereduction of over 4,500 employees primarilyto eliminate duplicate
functions.These employees were terminated prior to December 31,2000.Of these,1,078 employees voluntarilyseparated without receiving
benefit packages.A severance charge of $341 million relates to employees involuntarily separated during fiscal 2000.Merger bonuses of $102
million represents bonus payments triggered by the successful completion of the Merger.
The Company leases dedicated special-purpose access lines to CompetitiveLocal Exchange Carriers (CLECs).Given current industry
conditions and regulatory changes affecting CLECs,the Company evaluated those leased assets for impairment.The Company concluded that
the fair value of those assets was minimal and took a $226 million charge.The assets are operated by the Company's wholesale services
segment.
Followingthe Merger,management reviewed all internal software projects in process,and determined that certain projects should no longer be
pursued.Because the projects were incomplete and abandoned,the fair value of such incomplete software was determined to be zero and $l 14
million of capitalized software costs were written off.The abandoned projects included a significant billing system replacement and a customer
database system.
Other costs of $421 million include legal charges related to the Merger,professional fees,re-branding costs,relocation costs and other costs
related to the integration of the two companies.
Offsettingthe Merger-related costs was a $106 million post-retirement benefit plan curtailment gain.This gain resulted from the post-Merger
termination of retiree medical benefits for all formerUS WEST employees who did not have 20 years of service by December 31,2000 or
wouldnot be service pension eligible by December 31,2003.
Other expense --net.Interest expense on a pro forma basis was $1.116 billion for 2000,compared to $887 million for 1999.Increased interest
expense resulted from higher debt levels [incurred as a result of increased capital expenditures and the acquisition of 39 million shares of
Global Crossing Ltd.(Global Crossing)common stock in June 1999]and overall higher interest rates on commercial paper borrowings.
Partially offsetting the increase in interest expense was an increase in pro forma capitalized interest in 2000 to $155 million from $83 million in
1999.The increase in capitalized interest was due to an increase in construction projects.
During 1999,US WEST acquired approximately 39 million shares in Global Crossing at a per share price of $62.75 in connection with the
proposed merger of US WEST and Global Crossing.Later that year,US WEST and Qwest announced plans for the Merger thereby
terminating the US WEST --Global Crossing combination.Upon termination of the merger in 1999,US WEST incurred a one-time charge of
$282 million to dissolve the proposed merger with Global Crossing.The charge included a cash payment of $140 million to
14
Global Crossing,the transfer to Global Cros:af $140 million of Global Crossing common a previously purchased by the Company and
$2 million of miscellaneous costs.
In late 1999,US WEST incurred a $367 million loss on the sale of 24 million shares of Global Crossing common stock.In connection with
that sale,US WEST entered into an equity return swap that expires in 2001.The swap is reflected at market value in the accompanying
consolidated financial statements.The market value of the swap declined by $470 million and $56 million in 2000 and 1999,respectively.The
Company also recorded a loss of $447 million in the second quarter of 2000,when it determined the decline in its remaining investment in
Global Crossing common stock was other than temporary.The Company disposed of its remaining investment in the third quarter of 2000,
recognizing a gain of $50 million.
In 2000,Qwest sold the majority of its non-strategic equity investments resulting in a net gain of $277 million.There were no such dispositions
in 1999.Qwest also completed the sale of20,000 access lines in North Dakota and South Dakota generating proceeds of $l9 million and gains
of approximately $ll million.These gains were reduced by a net loss on the sale of fixed assets of $39 million.
Provision for income taxes.The effectivetax rate for 2000 decreased to 53.6 percent on a pro forma basis compared to 59.3 percent in 1999.
The decrease in 2000 from the 1999 effectivetax rate resulted primarily from fixed,non-deductible goodwillcharges being amortized over pro
forma pre-tax income of $2.144 billion in 2000 versus pro forma pre-tax income of $1.591 billion in 1999.
Net income (loss).Income before the cumulative effect of the change in accounting for directory revenues in 1999 decreased from $1.102
billion in 1999 to a net loss of $81 million in 2000 principallybecause of Merger-related charges of $1.752 billion.On a pro forma basis,net
income increased from 3.9 percent of revenues to 5.2 percent of revenues in 2000 because of the effect of the items described above.
15
Fikkoa wo onnvoo-Financial Tnsicht Av tem .Tnc.Convright 2001.All riahts reserved.
1999 Compared with 1998
In connection with the Merger,US WEST was deemed the accounting acquirer and its historical results for fiscal 1999 and 1998 have been
carried forwardas those of the newly combined company.Followingare the historical results of US WEST for fiscal 1999 and 1998.
YEAR ENDED
DECEMBER 31,
-----------------INCREASE %
1999 1998 (DECREASE)CHANGE
(DOLLARS IN MILLIONS)
Revenues:
Commercial services..........................$4,689 $4,390 $299 6.8
Consumer and small business services................5,571 5,146 425 8.3
Directory services...................1,436 1,318 118 9.0
Switched access services...................1,486 1,541 (55)(3.6)
Total revenues.....................13,182 12,395 787 6.3
Operating expenses:
Cost of services...................................3,990 3,564 426 12.0
Selling,general and administrative expenses........3,488 3,583 (95)(2.7)
EBITDA...................5,704 5,248 456 8.7
Depreciation.....................2,348 2,198 150 6.8
Amortization....................19 1 18 1,800.0
Total operating expenses....................9,845 9,346 499 5.3
Operating income......................3,337 3,049 288 9.4
Other expense (income):
Interest expense --net............................736 543 193 35.5
Decline in market value of financial instruments....56 --56
Expenses related to terminated merger...............282 --282
Loss on sale of investments.....................367 --367 --
Other (income)expense --net....................(6)87 (93)(106.9)
Total other expense --net..................1,435 630 805 127.8
Income before income taxes and cumulative effect of
change in accounting principle......................1,902 2,419 (517)(21.4)
Provision for income taxes...................800 911 (111)(12.2)
Income before cumulative effect of change in
accounting principle.............................1,102 1,508 (406)(26.9)
Cumulative effect of change in accounting
principle --net of tax.......................240 --240
Net income.........................$1,342 $1,508 $(166)(11.0)
REVENUES
Total revenues for 1999 increased by 6.3 percent as a result of growingdemand for data services which increased private line and special
access services revenues,greater sales of residential wireless,an increase in sales of vertical features,growth in inside wire maintenance plans,
local number portabilitycharges,interconnection charges,subscriber line charges and increases in the subscriber base of the Company's DSL
data services.
Also contributing to the growth in revenue were increased sales of Qwest.net(R),the national expansion of the Company's data business and
increased sales of customer equipment.In addition,revenues derivedfrom the directory publishing business increased by $118 million
primarily as a result of growingsales of premium advertisements,price changes and the impact of a change in accounting principle.Effective
in 1999,Qwest Dex,Inc.(Qwest Dex)changed to the point of publication method of accounting,under which the Company
16
recognizes revenues and expenses at the time elated directory is published.Previously,rev s and expenses were recognized under the
deferral method under which revenues and expenses were recognized over the lives of the directories,generally one year.The methodology
was changed to align Qwest Dex's revenue and expense policy with the earnings process and to better reflect the operating activity of the
business.Directory services for 1998 do not include the effect of the directory publishing change in accounting principle.Adjusting 1998
revenues for the effects of the change in accounting principle,directory services revenues increased by $87 million,or 6.4 percent.
Other areas of revenue growth include increased consumer and carrier access charges.At December 31,1999,the Company had added 408,000
residential and business access lines,an increase of 2.5 percent over the end of 1998.Of this increase,residential second line installations
accounted for 187,000 lines,an increase of 11.8 percent as compared with 1998.Second line additions by residential and small business
customers increased primarily as a result of the growingdemand for Internet access and data transport capabilities.Increasing demand to use
the Company's networks by IXCs drove access minutes of use up by 5 percent during 1999.
Partially offsetting the revenue increases were decreases in long-distance services and mandated rate reductions.The Company's long-distance
services declined by $211 million.Increased competition,strategic price reductions,and expansion in the number and size of extended service
areas accounted for the majority of the decrease.Also contributing to the decline were mandatory rate reductions of $40 million in 1999.As of
December 3l,1999,customers in all 14 states in which the Company provides local service were able to choose an alternative providerfor
intraLATA calls withoutdialing a special access code when placing a call.
Federal and state mandated rate changes also offset a portion of the revenue increase.Excluding the long-distance rate changes discussed
above,the remaining rate changes totaled $180 million.Most of these rate reductions were directly attributable to the implementation of the
FCC's access reform order relating to the Telecommunications Act of 1996 dealing with interstate access pricing.
AlthoughQwest's revenues continued to grow in 1999,some areas of service experienced a decline in growth rates from 1998,particularly
retail and wholesale basic monthly services and calling services.The drop in the growthrate was primarilyattributable to increased
competition as well as the Company's customer retention strategy of offering bundles of services to customers at lower prices in return for
entering into longer-term contracts.
During 1999,the Company committed to sell approximately 800,000 access lines within the 14-state local service area.In 1999,definitive sales
agreements were reached for the sale of 570,000 lines for approximately $1.8 billion in cash,subject to adjustment.The transfer of ownership
of the access lines,which will occur on a state-by-state basis,is expected to be completed by the first quarter of 2002.The pending sales are
subject to regulatory approvals and other customary closing conditions.In addition,on February 26,2001,the Company announced that it does
not have plans to sell a significant number of additional lines at the present time.
EXPENSES
Cost of services.The cost of services increase year-over-year was attributable to several items.First,growing sales in the Company's wireless,
data and directory businesses contributed to the increased costs of product sales.Second,the Company experienced higher access and
interconnection expenses resulting from regulatory rulings that require Qwest to pay access charges to carriers for calls that originate on the
Company's network and terminate on other carriers'networks.Part of the access expense increase was offset by reductions in access expense
due to end-users dialing toll calls directly to IXCs and bypassing the Company's network.Third,labor costs grew due to an increase in the
number of employees as the result of a concerted effort by the Company to improvecustomer service.Finally,directory publishingcosts were
greater as a result of the directory publishing change in accounting principle.The effects of the change in accounting principlewere not
reflected in 1998 results.
Partially offsetting some of these increases was the impact of net pension credits.In addition,cost of sales was further reduced by the 1999
capitalization of certain costs associated with developing internal use software due to the adoption of the American Institute of CertifiedPublic
Accountants'Statement of Position (SOP)98-
17
skiEDGARpro 11Y nann 23 TER Ght SVReems.Tnc.©Convright 2001.All rights reserved.
1,Accounting for the Costs of Computer Sof :Developed or Obtained for Internal Use.In rdance with the SOP,$188 million of costs
formerlyexpensed were capitalized in 1999.
Selling,general and administrative expenses.Included in 1998 were $129 million of Separation costs and asset impairment charges.
Additionally,1998 results did not include the effects of the directory publishing change in accounting principle.Including the effects of the
change in accounting principle in 1998 and excluding the Separation costs and asset impairment charges,SG&A expenses increased $27
million or 0.8 percent in 1999 over 1998.Offsetting increases in SG&A expenses was the effect of capitalizing $226 million of software costs
in 1999 primarily associated with developing internal use software in accordance with SOP 98-1.
Qwest recorded a pension expense,net of post-retirement costs,of $8 million ($5 million after-tax or $0.01 per diluted share)in 1999 and $66
million ($40 million after-tax or $0.05 per diluted share)for the year ended December 31,1998.See Note 6 of Qwest's consolidated financial
statements for additional information.
EBITDA.The EBITDA margin increased from 42.3 percent of revenues in 1998 to 43.3 percent in 1999 because of the effects of the items
discussed above.
Depreciation expense.Depreciation expense increased 6.8 percent primarily due to higher overall property,plant and equipment balances
resulting from continued investment in the Company's network.Additionally,the Company incurred amortization costs related to the
capitalization of internal use software in accordance with SOP 98-1 and reduced the useful lives of certain assets due to changes in technology,
both of which caused greater depreciation expense.Partially offsetting the increases was the cessation of depreciation associated with access
lines that the Company plans to sell.
Other expense --net.Interest expense was $736 million for 1999 compared to $543 million for 1998.The increase in interest expense in 1999
was primarily attributable to debt incurred to acquire 39 million shares of Global Crossing common stock and the $3.9 billion in debt assumed
in the Separation.
The Company incurred a one-time charge in 1999 of $282 million to dissolve the proposed merger of US WEST with Global Crossing.The
charge included a cash payment of $l40 million to Global Crossing,the transfer to Global Crossing of $140 million of Global Crossing
common stock previouslypurchased by US WEST and $2 million of miscellaneous costs.
The Company incurred a $367 million loss in 1999 on the sale of 24 million shares of Global Crossing common stock.In connection with this
transaction,Qwest entered into an equity return swap that is reflected at market value in the accompanying consolidated financial statements.In
1999,the market value of the swap declined by $56 million.
Also included in other expense-net was other income of $6 million in 1999,compared to other expense of $87 million in 1998.The decrease in
other expense-net was due to a reduction in regulatory interest expense,a reduction in interest expense on a federal income tax audit,gains on
sales of real estate,net gains on sales of marketable securities,reduced contributions to an affiliatedfoundation and interest earned on a gross
receipts tax settlement.
Provision for income taxes.The effectivetax rate in 1999 was 42.1 percent compared to 37.7 percent in 1998.The increase in the effectivetax
rate in 1999 was primarily attributable to the exclusion of the tax benefitfor terminated merger-related expenses.Excluding the effects of
terminated merger-related expenses,the effectivetax rate in 1999 was 36.6 percent compared to 37.7 percent in 1998.The decrease from the
1998 effectivetax rate resulted primarilyfrom certain non-deductible Separation costs in 1998 and the increase in tax-exempt dividendincome
in 1999.
Net income.Income before the cumulative effect of the change in accounting principle decreased from 12.2 percent of revenues in 1998 to 8.4
percent in 1999 because of the effect of the items discussed above.
Prior to 1999,Qwest Dex recognized revenues and expenses related to publishing directories using the deferral method,under which revenues
and expenses were recognized over the lives of the directories,generally one year.Effectivein the fourth quarter of 1999,Qwest Dex changed
to the point of publication method of accounting,which recognizes revenues and expenses at the time the directory is published.This change in
methodology was made to better align Qwest Dex's revenue and expense recognition with the earnings process and to better reflect the
operating activity of the business.The accounting change resulted in a one-time increase in net income of $240 million (net of income tax of
$153 million),or $0.27 per diluted share,which is reported as the cumulative effect (as of January 1,1999)of a change in accounting principle.
The Company
18
IEDG^Roro Enlire Financial Tnsicht Svstems.Inc.©Covyright 2001.All rights reserved.
restated its 1999 quarterly results of operatio give effect to the point of publication metho ich increased net income by $13 million,or
$0.01 per diluted share.On a restated basis,use of the point of publication method would have mcreased 1998 net income by $12 million,or
$0.01 per diluted share.
LIQUIDITYAND CAPITAL RESOURCES
Operating Activities.Cash providedby operations was $3.681 billion,$4.546 billion and $3.927 billion in 2000,1999 and 1998,respectively.
The decrease in operating cash flow in 2000 was primarily caused by Merger-related costs of $995 million.Merger-related costs of $523
million remained accrued at December 31,2000.The majority of these costs are expected to be paid in the first two quarters of fiscal 2001.
Accounts receivable increased as a result of higher sales,the customer profile of accounts receivable at year end reflecting the combined entity
and an increase in days outstanding from 58 in 1999 to 74 in 2000.Increases in other working capital also reduced cash flows from operations.
InvestingActivities.Capital expenditures were $6.597 billion,$3.944 billion and $2.672 billion,in 2000,1999 and 1998,respectively.Capital
expenditures have been focused on modernization and expansion of the telecommunications network,expansion of the wireless,local
broadband and the data communications networks,as well as construction of CyberCenters(SM)in major markets.
The Company plans to invest $9.5 billion in capital expenditures in the same areas during 2001.The Company expects that cash needs will be
funded through operations and additional borrowings.
In January 2001,Qwest re-acquired 22.22 million shares of its common stock from BellSouth Corporation (BellSouth)for $1.0 billion in cash.
The repurchased shares will be available to satisfy the Company's obligations under its employee benefits and options programs.As part of the
transaction,BellSouth agreed to purchase $250 million in services from Qwest over the next five years.BellSouth will pay for these services
with shares of Qwest common stock.
Financing Activities.Cash providedby financing activities was $l.189 billion and $1.945 billion in 2000 and 1999,respectively.Cash used for
financingactivities was $1.136 billion in 1998.Net borrowings of approximately $1.4 billion were incurred in 2000 principallyto fund the
Company's construction activities described above.The net proceeds from short-term and long-term borrowings in 1999 of approximately $3.3
billion were,in part,utilized to finance the Global Crossing tender offer.In 1998,net borrowings increased by $4.2 billion to $9.9 billion at
December 31,1998,of which approximately $3.9 billion was attributable to the debt assumed at the Separation date.
The Company paid dividends on its common shares totaling $542 million,$1.187 billion and $1.056 billion in 2000,1999 and 1998,
respectively.The decrease in 2000 was due to a change in the Company's dividendpolicy after the Merger.The Company currently anticipates
annual dividends of approximately $0.05 per common share.
Qwest maintains commercial paper programs to finance purchases of telecommunications equipment.As of December 31,2000,the Company
had a syndicated credit facility with a total borrowingcapacity of $4.0 billion.
In March 2001,the Company completed a cash tender for certain outstanding debt.The Company repurchased all but approximately $40
million of the $1.2 billion in principal subject to the tender.The tender offerswere conducted to retire the bonds because of their high coupon
rates and to reduce interest cost to the Company.In connection with these tender offers,the indentures were amended to remove restrictive
covenants and certain default provisions.
Also in February 2001,the Company issued $2.25 billion of notes due in 2011 at 7.25 percent per annum,and $1.0 billion of notes due in 2031
at 7.75 percent per annum.The proceeds of these notes were used to repay outstanding commercial paper.
19
EDG 0 Source:Financial Insight Systems,Inc.©Copyright 2001.All rights reserved.
ITEM 7A.QUANTITATIVEAND QUAL'TIVE DISCLOSURES ABOUT MARKE7 SK
The informationunder the caption Quantitative and Qualitative Disclosures About Market Risk on page 38 of Qwest's 2000 Annual Report is
incorporated herein by reference.
ITEM 8.CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Qwest's Consolidated Financial Statements and related Notes thereto and the Independent Auditors'Report on pages 42-68 of Qwest's 2000
Annual Report,as well as the unaudited information set forth in Note 11 --Selected Consolidated Quarterly Financial Data on page 67 of
Qwest's 2000 Annual Report,are incorporated herein by reference.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
We have nothing to report under this item.
PART Ill
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11.EXECUTIVE COMPENSATION
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The informationrequired by items 10,l 1,12 and l 3 of Part III of this annual report on Form 10-K is incorporated by reference from and will
be contained in Qwest's definitive proxy statement for its annual meeting of stockholders to be filed with the SEC by April 30,2001.
20
tÑ EDGARpm Source:Financial Insight Systems,Inc.©Copyright 2001.All rights reserved.
PARTIV
ITEM 14.FINANCIAL STATEMENT SCHEDULES,REPORTS ON FORM 8-K AND EXHIBITS
(a)Documents filed as part of the report:
PAGE
(1)Report of Independent Auditors...................*
Financial Statements covered by Report of Independent
Auditors:
Consolidated Statements of Operations for the years ended
December 31,2000,1999 and 1998..................*
Consolidated Balance Sheets as of December 31,2000 and
1999...........................................*
Consolidated Statements of Cash Flows for the years ended
December 31,2000,1999 and 1998..................*
Consolidated Statements of Stockholders'Equity for the
years ended December 31,2000,1999 and 1998...........*
Notes to the Consolidated Financial Statements..........*
*Incorporated herein by reference to the appropriate portions of the registrant's annual report to shareowners for the fiscal year ended
December31,2000.(SeePaull.)
(b)ReponsonForn8-K:
Qwest filed the following reports on Form 8-K during the fourth quarter of 2000:
(1)On September 8,2000,Qwest filed a report on Form 8-K regarding certain expected financial results for 2000 and 2001.
(2)On September 13,2000,Qwest filed a report on Form 8-K regarding capital projects providedat an analyst conference on September 11,
2000.
(3)On October 25,2000,Qwest filed a report on Form 8-K regarding its third quarter 2000 results of operations.
(4)On November3,2000,Qwest filed a report on Form 8-K regarding an analyst meeting held October 31,2000 in New York.
(5)On December 21,2000,Qwest filed a report on Form 8-K regarding a conference call with investors.
(c)Exhibits:
Exhibits identifiedin parentheses below are on file with the Commission and are incorporated herein by reference.All other exhibits are
providedas part of this electronic submission.
EXHIBIT
NUMBER DESCRIPTION
(2.1)--Separation Agreement,dated June 5,1998,between US
WEST,Inc.(renamed Mediaone Group,Inc.)(MediaOne
Group)and USW-C,Inc (renamed US WEST,Inc.)(US
WEST),(incorporated by reference to US WEST's Current
Report on Form 8-K/A dated June 26,1998,File No.
1-14087).
(2.2)--Amendment to the Separation Agreement between MediaOne
Group and US WEST dated June 12,1998 (incorporated by
reference to US WEST's Annual Report on Form 10-K/A for
the year ended December 31,1998,File No.1-14087).
(3.1)--Amended and Restated Certificate of Incorporation of
Qwest (incorporated by reference to Qwest's Registration
Statement on Form S-4/A,File No.333-81149,filed
Sept er 17,1999).
21
EDGARpro Annn,P-Financial Insicht SYStems.Inc.CODvright 2001.All rights reserved.
EXHIBIT
NUMBER DESCRIPTION
(3.2)--Amended and Restated Bylaws of Qwest (incorporatedbyreferencetoQwest's Annual Report on Form 10-K,
filed March 16,2001,for the year ended December 31,
2000).(4.1)***--Indenture,dated as of October 15,1997,with Bankers
Trust Company (including form of Qwest's 9.47%Senior
Discount Notes due 2007 and 9.47%Series B Senior
Discount Notes due 2007 as an exhibit thereto).(4.2)****--Indenture,dated as of August 28,1997,with Bankers
Trust Company (including form of Qwest's 10 7/8%Series B
Senior Discount Notes due 2007 as an exhibit thereto).(4.3)****--Indenture dated as of January 29,1998 with Bankers Trust
Company (including form of Qwest's 8.29%Senior Discount
Notes due 2008 and 8.29%Series B Senior Discount Notes
due 2008 as an exhibit thereto).
(4.4)--Indenture,dated as of November 4,1998,with Bankers
Trust Company (including form of Qwest's 7.50%Senior
Discount Notes due 2008 and 7.50%Series B Senior
Discount Notes due 2008 as an exhibit thereto)(incorporated by reference to Qwest's Registration
Statement on Form S-4,File No.333-71603,filed
February 2,1999).
(4.5)--Indenture,dated as of November 27,1998,with Bankers
Trust Company (including form of Qwest's 7.25%Senior
Discount Notes due 2008 and 7.25%Series B Senior
Discount Notes due 2008 as an exhibit thereto)(incorporated by reference to Qwest's Registration
Statement on Form S-4,File No.333-71603,filed February
2,1999).
(4.6)--Registration Agreement,dated November 27,1998,with
.Salomon Brothers Inc.relating to Qwest's 7.25%Senior
Discount Notes due 2008 (incorporated by reference to
Qwest's Registration Statement on Form S-4,File No.
333-71603,filed February 2,1999).
(4.7)--Indenture,dated as of June 23,1997,between LCI
International,Inc.and First Trust National Association,
as trustee,providing for the issuance of Senior Debt
Securities,including Resolutions of the Pricing
Committee of the Board of Directors establishing the
terms of the 7.25%Senior Notes due June 15,2007
(incorporated by reference to Exhibit 4(c)in LCI's
Current Report on Form 8-K,dated June 23,1997).
(4.8)--Registration Rights Agreement,dated August 20,1999,
between US WEST Capital Funding,Inc.,US WEST,Inc.,
J.P.Morgan Securities,Inc.and Merrill Lynch,Pierce,
Fenner &Smith Incorporated (incorporated by reference to
US WEST's Form S-4 Registration Statement,File No.
333-92523,filed December 10,1999).
(4.9)--Indenture,dated as of June 29,1998,by and among US
WEST Capital Funding,Inc.,US WEST,Inc.,and The First
National Bank of Chicago (now known as Bank One Trust
Company,National Association),as Trustee (incorporated
by reference to US WEST's Current Report on Form 8-K,
dated November 18,1998,File No.1-14087).
(4.10)--First Supplemental Indenture,dated as of June 30,2000,
by and among US WEST Capital Funding,Inc.,US WEST,
Inc.,Qwest Communications International Inc.,and Bank
One Trust Company,as Trustee (incorporated by reference
to Qwest's quarterly report on Form 10-Q for the quarter
ended June 30,2000).
fÑŠEDGARpro gnnro FinanOÍAl Tnsicht RVRIAmR.Tnc.CODvricht 2001.All rights reserved.
(10.1)**--Grow Share Plan,as amended,effect October 1,
1996.
22
«Erdcoraan e-,,,--,.Y,,,,4,1 T-c,dexht-C,rol-T r,("es «rv,,wh AA1 7\ll v9ex½¾e vocovaro
EXHIBIT
GUMBER DESCRIPTION
(10.2)--Equity Incentive Plan,as amended (incorporated by
reference from Exhibit A to Qwest's definitive proxy
statement on Schedule 14A,filed March 17,2000).*
(10.3)--Qwest Communications International Inc.Employee Stock
Purchase Plan (incorporated by reference to Qwest's
Preliminary Proxy Statement for the Annual Meeting of
Stockholders filed February 26,1999).*
(10.4)--Qwest Communications International Inc.DeferredCompensationPlan(incorporated by reference to Qwest's
Annual Report on Form 10-K for the year ended December
31,1998).*
(10.5)****--Equity Compensation Plan for Non-Employee Directors.*
(10.6)--Qwest Communications International Inc.401-K Plan
(incorporated by reference to Qwest's Annual Report on
Form 10-K for the year ended December 31,1998).*
(10.7)**--Employment Agreement dated December 21,1996 with Joseph
P.Nacchio.*
(10.8)****--Growth Share Plan Agreement with Joseph P.Nacchio,
effective January 1,1997,and Amendment thereto.*
(10.9)****--Non-Qualified Stock Option Agreement with Joseph P.Nacchio,effective June 23,1997.*
(10.11)--Employment Agreement dated October 6,1998 with Drake S.
Tempest (incorporated by reference to Qwest's Annual
Report on Form 10-K,filed March 16,2001,for the year
ended December 31,2000).*
(10.12)--Employment Agreement dated October 18,2000 with Stephen
M.Jacobsen (incorporated by reference to Qwest's Annual
Report on Form 10-K,filed March 16,2001,for the year
ended December 31,2000).*
(10.13)--Employment Agreement dated May 20,1999 with Afshin
Mohebbi (incorporated by reference to Qwest's Annual
Report on Form 10-K,filed March 16,2001,for the year
ended December 31,2000).*
(10.14)****--Employment Agreement dated October 8,1997 with Lewis O.Wilks.*
(10.15)**#--IRU Agreement dated as of October 18,1996 with Frontier
Communications International Inc.(10.16)**#--IRU Agreement dated as of February 26,1996 with WorldCom
Network Services,Inc.(10.17)**#--IRU Agreement dated as of May 2,1997 with GTE.
(10.18)--Common Stock Purchase Agreement,dated as of December 13,
1998,with Microsoft Corporation (incorporated by
reference to Qwest's Current Report on Form 8-K,filed
December 16,1998).
(10.19)--Registration Rights Agreement,dated as of December 14,
1998,with Microsoft Corporation (incorporated by
reference to Qwest's Current Report on Form 8-K,filed
December 16,1998).
(10.20)--Registration Rights Agreement,dated as of April 18,
1999,with Anschutz Company and Anschutz Family
Investment Company LLC (incorporated by reference to
Qwest's Current Report on Form 8-K/A,filed April 28,
1999).
(10.21)--Common Stock Purchase Agreement,dated as of April 19,
1999,with BellSouth Enterprises,Inc.(incorporated by
reference to Qwest's Current Report on Form 8-K/A,filedApril28,1999).
(10.22)--Registration Rights Agreement,dated as of April 19,
1999,with BellSouth Enterprises,Inc.(incorporated by
reference to Qwest's Current Report on Form 8-K/A,filedApril28,1999).
(10.23)--Securities Purchase Agreement dated January 16,2001 with
BellSouth Corporation (incorporated by reference to Qwest's Annual
Report on Form 10-K,filed March 16,2001,for the year ended
December 31,2000).
Skm^4 Source·Financial Insight Svstems.Inc.©Coovright 2001.All rights reserved.
23
EDGMPN SOUrceFinancial IDSight Svstems,Inc.©Covyright 2001.All rights reserved.
EXHIBIT
NUMBER DESCRIPTION
(10.24)--Purchase Agreement by and among Qwest,Slingshot
Networks,LLC and Anschutz Digital Media,Inc.,dated
September 26,1999 (incorporated by reference to Qwest'squarterlyreportonForm10-Q for the quarter ended
September 30,1999).
(10.25)--Unit Purchase Agreement,dated June 21,2000,by and
among U.S.Telesource,Inc.and Anschutz Digital Media,
Inc.(incorporated by reference to Qwest's quarterly
report on Form 10-Q for the quarter ended June 30,2000).
(10.26)--Second Amended and Restated Operating Agreement of
Slingshot Networks,LLC entered into as of June 21,2000
between Anschutz Digital Media,Inc.and U.S.Telesource,
Inc.(incorporated by reference to Qwest's quarterly
report on Form 10-Q for the quarter ended June 30,2000).
(10.27)--Employee Matters Agreement between MediaOne Group and US
WEST,dated June 5,1998 (incorporated by reference to
US WEST's Current Report on Form 8-K/A,dated June 26,
1998,File No.1-14087).
(10.28)--Tax Sharing Agreement between MediaOne Group and US
WEST,dated June 5,1998 (incorporated by reference to
US WEST's Current Report on Form 8-K/A,dated June 26,
1998,File No.1-14087).
(10.29)--360-Day $4.0 billion Credit Agreement,dated as of May 5,
2000,among US WEST,Inc.,US WEST Capital Funding,
Inc.,US WEST Communications,Inc.,.the banks listed
therein,and Morgan Guaranty Trust Company of New York,
as administrative agent (incorporated by reference to US
WEST's quarterly report on Form 10-Q for the quarter
ended March 31,2000).
(10.30)--Purchase Agreement,dated July 3,2000,among Qwest
Capital Funding,Inc.,Qwest Communications International
Inc.and Salomon Smith Barney Inc.(incorporated by
reference to Qwest's quarterly report on Form 10-Q for
the quarter ended June 30,2000).
(10.31)--Purchase Agreement,dated August 16,2000,among Qwest
Capital Funding,Inc.,Qwest Communications International
Inc.,Salomon Smith Barney Inc.and Lehman Brothers Inc.
as Representatives of the several initial purchasers
listed therein (incorporated by reference to Qwest'squarterlyreportonForm10-Q for the quarter ended
September 30,2000).
(10.32)--Registration Rights Agreement,dated August 16,2000,
among Qwest Capital Funding,Inc.,Qwest Communications
International Inc.,Salomon Smith Barney Inc.and Lehman
Brothers Inc.as Representatives of the several initial
purchasers listed therein (incorporated by reference to
Qwest's quarterly report on Form 10-Q for the quarter
ended September 30,2000).
(10.33)--Purchase Agreement,dated February 7,2001,among Qwest
Capital Funding,Inc.,Qwest Communications International
Inc.,Banc of America Securities LLC and Chase Securities
Inc.as Representatives of the several initial purchasers
listed therein (incorporated by reference to Qwest's
Annual Report on Form 10-K,filed March 16,2001,for the
year ended December 31,2000).
(10.34)--Registration Rights Agreement,dated February 14,2001,
among Qwest Capital Funding,Inc.,Qwest Communications
International Inc.,Banc of America Securities LLC and
Chase Securities Inc.as Representatives of the several
initial purchasers listed therein (incorporated by
re ence to Qwest's Annual Report Form 10-K,filed
Mal a 16,2001,for the year ended L ember 31,2000).
24
jŠEDGAApro ponypp.Mngne Tngicht Svstems.Inc.©Convricht 2001.All rights reserved.
EXHIBIT
NUMBER DESCRIPTION
(10.35)--Form of Agreement for Purchase and sale of Telephone
Exchanges,dated as of June 16,1999,between Citizens
Utilities Company and US WEST Communications,Inc.(incorporated by reference to US WEST's Current Report
on Form 8-K,dated June 17,1999).
(10.36)--Qwest Communications International Inc.,Deferred
Compensation Plan for Nonemployee Directors,effective as
of July 1,2000 (incorporated by reference to Qwest's
Annual Report on Form 10-K,filed March 16,2001,for the
year ended December 31,2000).*
(10.37)--Amended and Restated Qwest Digital Media,LLC Growth
Share Plan (as of June 1,2000)(incorporated by
reference to Qwest's Annual Report on Form 10-K,filed
March 16,2001,for the year ended December 31,2000).*
(12)--Computation of Ratio of Earnings to Fixed Charges
(incorporated by reference to Qwest's Annual Report on
Form 10-K,filed March 16,2001,for the year ended
December 31,2000).
13 --Portions of Qwest's Annual Report to shareowners for the
fiscal year ended December 31,2000.Only the information
incorporated by reference into this Form 10-K/A is included
in the exhibit.
(21)--Subsidiaries of the Registrant (incorporated by reference
to Qwest's Annual Report on Form 10-K,filed March 16,2001,
for the year ended December 31,2000)..
23 --Consent of Arthur Andersen LLP.
(99)--Annual Report on Form 11-K for the US WEST Savings
Plan/ESOP for the year ended December 31,1999(incorporated by reference to US WEST's Annual Report on
Form 10-K,File No.1-14087,Paper Copy (P)).
()Previously filed.
*Executive Compensation Plans and Arrangements.
**Incorporated by reference in Form S-1 as declared effective on June 23,1997 (File No.333-25391).
***Incorporated by reference to exhibit 4.1 in Form S-4 as declared effectiveon January 5,1998 (File No.333-42847).
****Incorporated by reference in Qwest's Form 10-K for the year ended December 31,1997.
#Portions have been omitted pursuant to a request for confidential treatment.
25
IEDGARoro OnnYOAEnn Al Tnq Ght VR†Tnc.Convricht 2001.All richts reserved.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)of the Securities Exchange Act of 1934,the registrant has duly caused this Amendment No.
l to Form 10-K to be signed on its behalfby the undersigned,thereunto duly authorized,in the City of Denver,State of Colorado,on August
17,2001.
Qwest Communications International Inc.,a Delaware corporation
By:/s/ROBIN R .SZELIGA
Robin R.Szeliga
Executive Vice President --Finance and
Chief Financial Officer
26
fiklEDGARpro Rn117 -FinAncial Tnsicht Svstems.Inc.©Convright 2001.All rights reserved.
EXHIBITINDEX
EXHIBIT
NUMBER DESCRIPTION
(2.1)--Separation Agreement,dated June 5,1998,between US
WEST,Inc.(renamed MediaOne Group,Inc.)(MediaOne
Group)and USW-C,Inc (renamed US WEST,Inc.)(US
WEST),(incorporated by reference to US WEST's Current
Report on Form 8-K/A dated June 26,1998,File No.
1-14087).
(2.2)--Amendment to the Separation Agreement between MediaOne
Group and US WEST dated June 12,1998 (incorporated by
reference to US WEST's Annual Report on Form 10-K/A for
the year ended December 31,1998,File No.1-14087).
(3.1)--Amended and Restated Certificate of Incorporation of
Qwest (incorporated by reference to Qwest's Registration
Statement on Form S-4/A,File No.333-81149,filed
September 17,1999)(incorporated by reference to Qwest's
Annual Report on Form 10-k for the year ended December
31,2000).
(3.2)--Amended and Restated Bylaws of Qwest (incorporated by
reference to Qwest's Annual Report on Form 10-K,filed
March 16,2001,for the year ended December 31,2000).(4.1)***--Indenture,dated as of October 15,1997,with Bankers
Trust Company (including form of Qwest's 9.47%Senior
Discount Notes due 2007 and 9.47%Series B Senior
Discount Notes due 2007 as an exhibit thereto).(4.2)****--Indenture,dated as of August 28,1997,with Bankers
Trust Company (including form of Qwest's 10 7/8%Series B
Senior Discount Notes due 2007 as an exhibit thereto).(4.3)****--Indenture dated as of January 29,1998 with Bankers Trust
Company (including form of Qwest's 8.29%Senior Discount
Notes due 2008 and 8.29%Series B Senior Discount Notes
due 2008 as an exhibit thereto).
(4.4)--Indenture,dated as of November 4,1998,with Bankers
Trust Company (including form of Qwest's 7.50%Senior
Discount Notes due 2008 and 7.50%Series B Senior
Discount Notes due 2008 as an exhibit thereto)(incorporated by reference to Qwest's Registration
Statement on Form S-4,File No.333-71603,filed
February 2,1999).
(4.5)--Indenture,dated as of November 27,1998,with Bankers
Trust Company (including form of Qwest's 7.25%Senior
Discount Notes due 2008 and 7.25%Series B Senior
Discount Notes due 2008 as an exhibit thereto)(incorporated by reference to Qwest's Registration
Statement on Form S-4,File No.333-71603,filed February
2,1999).
(4.6)--Registration Agreement,dated November 27,1998,with
Salomon Brothers Inc.relating to Qwest's 7.25%Senior
Discount Notes due 2008 (incorporated by reference to
Qwest's Registration Statement on Form S-4,File No.
333-71603,filed February 2,1999).
(4.7)--Indenture,dated as of June 23,1997,between LCI
International,Inc.and First Trust National Association,
as trustee,providing for the issuance of Senior Debt
Securities,including Resolutions of the Pricing
Committee of the Board of Directors establishing the
terms of the 7.25%Senior Notes due June 15,2007
(incorporated by reference to Exhibit 4(c)in LCI's
Current Report on Form 8-K,dated June 23,1997).
<mleocanero e arr,--winancial Tnmiche ovmesm Tnc ce convricht 2001.All riahts reserved.
lŠEDGAR Ronre -Financial Tnsicht Svstems.Inc.©Convright 2001.All rights reserved.
EXHIBIT
NUMBER DESCRIPTION
(4.8)--Registration Rights Agreement,dated August 20,1999,
between US WEST Capital Funding,Inc.,US WEST,Inc.,
J.P.Morgan Securities,Inc.and Merrill Lynch,Pierce,
Fenner &Smith Incorporated (incorporated by reference to
US WEST's Form S-4 Registration Statement,File No.
333-92523,filed December 10,1999).
(4.9)--Indenture,dated as of June 29,1998,by and among US
WEST Capital Funding,Inc.,US WEST,Inc.,and The First
National Bank of Chicago (now known as Bank One Trust
Company,National Association),as Trustee (incorporated
by reference to US WEST's Current Report on Form 8-K,
dated November 18,1998,File No.1-14087).
(4.10)--First Supplemental Indenture,dated as of June 30,2000,
by and among US WEST Capital Funding,Inc.,US WEST,
Inc.,Qwest Communications International Inc.,and Bank
One Trust Company,as Trustee (incorporated by reference
to Qwest's quarterly report on Form 10-Q for the quarter
ended June 30,2000).(10.1)**--Growth Share Plan,as amended,effective October 1,
1996.*
(10.2)--Equity Incentive Plan,as amended (incorporated by
reference from Exhibit A to Qwest's definitive proxy
statement on Schedule 14A,filed March 17,2000).*
(10.3)--Qwest Communications International Inc.Employee Stock
Purchase Plan (incorporated by referenoe to Qwest's
Preliminary Proxy Statement for the Annual Meeting of
Stockholders filed February 26,1999).*
(10.4)--Qwest Communications International Inc.Deferred
Compensation Plan (incorporated by reference to Qwest's
Annual Report on Form 10-K for the year ended December
31,1998).*
(10.5)****--Equity Compensation Plan for Non-Employee Directors.*
(10.6)--Qwest Communications International Inc.401-K Plan
(incorporated by reference to Qwest's Annual Report on
Form 10-K for the year ended December 31,1998).*
(10.7)**--Employment Agreement dated December 21,1996 with Joseph
P.Nacchio.*
(10.8)****--Growth Share Plan Agreement with Joseph P.Nacchio,
effective January 1,1997,and Amendment thereto.*
(10.9)****--Non-Qualified Stock Option Agreement with Joseph P.
Nacchio,effective June 23,1997.*
(10.11)--Employment Agreement dated October 6,1998 with Drake S.
Tempest (incorporated by reference to Qwest's Annual
Report on Form 10-K,filed March 16,2001,for the year
ended December 31,2000).*
(10.12)--Employment Agreement dated October 18,2000 with Stephen
M.Jacobsen (incorporated by reference to Qwest's Annual
Report on Form 10-K,filed March 16,2001,for the year
ended December 31,2000).*
(10.13)--Employment Agreement dated May 20,1999 with Afshin
Mohebbi (incorporated by reference to Qwest's Annual
Report on Form 10-K,filed March 16,2001,for the year
ended December 31,2000).*
(10.14)****--Employment Agreement dated October 8,1997 with Lewis O.
Wilks.*
(10.15)**#--IRU Agreement dated as of October 18,1996 with Frontier
Communications International Inc.(10.16)**#--IRU Agreement dated as of February 26,1996 with WorldCom
Network Services,Inc.(10.17)**#--IRU Agreement dated as of May 2,1997 with GTE.
(10.18)--Comm'Stock Purchase Agreement,date s of December 13,
1998,.vith Microsoft Corporation (incomorated by
reference to Qwest's Current Report on Form 8-K,filed
December 16,1998).
<fselEDGARoto C ny e-TMnancial Tn icht Ov tems.Tnc Convricht 2001.A3]richts reserved.
EXHIBIT
NUMBER DESCRIPTION
(10.19)--Registration Rights Agreement,dated as of December 14,
1998,with Microsoft Corporation (incorporated by
reference to Qwest's Current Report on Form 8-K,filed
December 16,1998).
(10.20)--Registration Rights Agreement,dated as of April 18,
1999,with Anschutz Company and Anschutz Family
Investment Company LLC (incorporated by reference to
Qwest's Current Report on Form 8-K/A,filed April 28,
1999).
(10.21)--Common Stock Purchase Agreement,dated as of April 19,
1999,with BellSouth Enterprises,Inc.(incorporated by
reference to Qwest's Current Report on Form 8-K/A,filed
April 28,1999).
(10.22)--Registration Rights Agreement,dated as of April 19,
1999,with BellSouth Enterprises,Inc.(incorporated by
reference to Qwest's Current Report on Form 8-K/A,filed
April 28,1999).
(10.23)--Securities Purchase Agreement dated January 16,2001 with
BellSouth Corporation (incorporated by reference to Qwest's
Annual Report on Form 10kK,filed March 16,2001,for the year
ended December 31,2000).
(10.24)--Purchase Agreement by and among Qwest,Slingshot
Networks,LLC and Anschutz Digital Media,Inc.,dated
September 26,1999 (incorporated by reference to Qwest's
quarterly report on Form 10-Q for the quarter ended
September 30,1999).
(10.25)--Unit Purchase Agreement,dated June 21,2000,by and
among U.S.Telesource,Inc.and Anschutz Digital Media,
Inc.(incorporated by reference to Qwest's quarterly
report on Form 10-Q for the quarter ended June 30,2000).
(10.26)--.Second Amended and Restated Operating Agreement of
Slingshot Networks,LLC entered into as of June 21,2000
between Anschutz Digital Media,Inc.and U.S.Telesource,
Inc.(incorporated by reference to Qwest's quarterly
report on Form 10-Q for the quarter ended June 30,2000).
(10.27)--Employee Matters Agreement between MediaOne Group and US
WEST,dated June 5,1998 (incorporated by reference to
US WEST's Current Report on Form 8-K/A,dated June 26,
1998,File No.1-14087).
(10.28)--Tax Sharing Agreement between MediaOne Group and US
WEST,dated June 5,1998 (incorporated by reference to
US WEST's Current Report on Form 8-K/A,dated June 26,
1998,File No.1-14087).
(10.29)--360-Day $4.0 billion Credit Agreement,dated as of May 5,
2000,among US WEST,Inc.,US WEST Capital Funding,
Inc.,US WEST Communications,Inc.,the banks listed
therein,and Morgan Guaranty Trust Company of New York,
as administrative agent (incorporated by reference to US
WEST's quarterly report on Form 10-Q for the quarter
ended March 31,2000).
(10.30)--Purchase Agreement,dated July 3,2000,among Qwest
Capital Funding,Inc.,Qwest Communications International
Inc.and Salomon Smith Barney Inc.(incorporated by
reference to Qwest's quarterly report on Form 10-Q for
the quarter ended June 30,2000).
(10.31)--Purchase Agreement,dated August 16,2000,among Qwest
Capital Funding,Inc.,Qwest Communications International
Inc.,Salomon Smith Barney Inc.and Lehman Brothers Inc.
as Representatives of the several initial purchasers
listed therein (incorporated by reference to Qwest's
f¢klEoaAnoro e nvr,o.Fin noial Tnmiribt-Ovat-omm.Tnc (c)Convricht 20f)1.All richte reserve<S.
quart y report on Form 10-Q for the rter ended
Septe er 30,2000).
IEDGARpro Ronrco-Pinancial Tnsicht Svstems.Inc.©Convright 2001.All rights reserved.
EXHIBIT
GUMBER DESCRIPTION
(10.32)--Registration Rights Agreement,dated August 16,2000,
among Qwest Capital Funding,Inc.,Qwest Communications
International Inc.,Salomon Smith Barney Inc.and Lehman
Brothers Inc.as Representatives of the several initialpurchaserslistedtherein(incorporated by reference toQwest's quarterly report on Form 10-Q for the quarter
ended September 30,2000).(10.33)--Purchase Agreement,dated February 7,2001,among QwestCapitalFunding,Inc.,Qwest Communications International
Inc.,Banc of America Securities LLC and Chase Securities
Inc.as Representatives of the several initial purchaserslistedtherein(incorporated by reference to Qwest's AnnualReportonForm10-K for the year ended December 31,2000).(10.34)--Registration Rights Agreement,dated February 14,2001,
among Qwest Capital Funding,Inc.,Qwest Communications
International Inc.,Banc of America Securities LLC and
Chase Securities Inc.as Representatives of the several
initial purchasers listed therein (incorporated by
reference to Qwest's Annual Report on Form 10-K for the
year ended December 31,2000).(10.35)--Form of Agreement for Purchase and Sale of TelephoneExchanges,dated as of June 16,1999,between Citizens
Utilities Company and US WEST Communications,Inc.(incorporated by reference to US WEST's Current Report
on Form 8-K,dated June 17,1999).
(10.36)--Qwest Communications International Inc.,DeferredCompensationPlanforNonemployeeDirectors,effective asofJuly1,2000 (incorporated by reference to Qwest's AnnualReportonForm10-K,filed March 16,2001,for the year ended
December 31,2000).*
(10.37)--,Amended and Restated Qwest Digital Media,LLC Growth
Share Plan (as of June 1,2000)(incorporated by
reference to Qwest's Annual Report on Form 10-K,filed
March 16,2001,for the year ended December 31,2000).*
(12)--Computation of Ratio of Earnings to Fixed Charges(incorporated by reference to Qwest's Annual Report
on Form 10-K,filed March 16,2001,for the year ended
December 31,2000).
13 --Portions of Qwest's Annual Report to shareowners for the
fiscal year ended December 31,2000.Only the informationincorporatedbyreferenceintothisForm10-K/A is included
in the exhibit.
(21)--Subsidiaries of the Registrant (incorporated by reference
to Qwest's Annual Report on Form 10-K,filed March 16,2001,
for the year ended December 31,2000).
23 --Consent of Arthur Andersen LLP.
(99)--Annual Report on Form 11-K for the US WEST SavingsPlan/ESOP for the year ended December 31,1999(incorporated by reference to US WEST's Annual Report on
Form 10-K,File No.1-14087,Paper Copy (P)).
()Previously filed.
*Executive Compensation Plans and Arrangements.
**Incorporated by reference in Form S-1 as declared effective on June 23,1997 (File No.333-25391).
***Incorporated by reference to exhibit 4.1 arm S-4 as declared effectiveon January 5,l'File No.333-42847).
****Incorporated by reference in Qwest's Form 10-K for the year ended December 31,1997.
#Portions have been omitted pursuant to a request for confidential treatment.
IEDGARoro Cmnvr,o-Win nr'l TngiCIht Svntomm.Tnc ODVriCht 2ÛÛ1 .All riahts reserved.
EXHIBIT 13
SELECTED PORTIONS OF QWEST'S 2000 ANNUAL REPORT TO SHAREHOLDERS
Following are portions of the financial section of Qwest's 2000 Annual Report.Our 2000 Annual Report will be available on the Internet
beginning March 20,2001.To view the annual report online,visit our website at www.qwest.com/shareholder2001.
You may also request that a printed copy be mailed to you in one of two ways:
(1)by completing the literature request form at www.qwest.com/about/investor and then select request materials or
(2)by writing to Investor Relations,Qwest Communications International Inc.,1801 California Street,51st Floor,Denver,Colorado 80202.
FINANCIAL CONTENTS
F-2 F-3 F-4 F-8 F-31
QUANTITATIVE INDEPENDENT FINANCIAL NOTES TO MARKET FOR
AND QUALITATIVE AUDITORS 'REPORT STATEMENTS CONSOLIDATED REGISTRANT 'S COMMON
DISCLOSURES ABOUT FINANCIAL STOCK AND RELATED
MARKET RISK STATEMENTS STOCKHOLDER MATTERS
QUANTITATIVEAND QUALITATIVE 'CLOSURESABOUT MARKET RISK
The Company is exposed to market risks arising from changes in interest rates.The objective of Qwest's interest rate risk management program
is to manage the level and volatility of its interest expense.The Company may employ derivativefinancial instruments to manage its interest
rate risk exposure.Qwest has also employed financial derivatives to hedge foreign currency exposures associated with particular debt issues.
As of December 31,2000 and 1999,approximately $2.4 billion and $2.3 billion,respectively,of floating-rate debt was exposed to changes in
interest rates.This exposure was primarily linked to commercial paper rates and changes in 3-month London Interbank OfferedRates
(LIBOR).A hypothetical increase of one-percentage point in commercial paper rates and 3-month LIBOR would increase annual pre-tax
interest expenses by $24 million.As of December 31,2000 and 1999,the Company also had approximately $1.2 billion and $522 million,
respectively,of long-term fixed rate debt obligations maturing in the following 12 months.Any new debt obtained to refmance this debt would
be exposed to changes in interest rates.A hypothetical 10 percent change in the interest rates on this debt would not have had a material effect
on the Company's 2000 earnings.
As of December 31,2000 and 1999,Qwest had outstanding cross-currency swaps with notional amounts of $133 million.The cross-currency
swaps synthetically transform 93 million and 94 million of Swiss Franc borrowings at December 31,2000 and 1999,respectively,into U.S.
dollar obligations.Any gains (losses)on the cross-currency swaps would be offset by losses (gains)on the Swiss Franc debt obligations.
As of December 31,2000 and 1999,Qwest had entered into equity swaps with a notional amount of $761 million and $1.140 billion,
respectively,relating to 24 million shares of Global Crossing common stock previously owned by the Company.In connection with the equity
swaps,the Company entered into equity collars on 12 million shares and swaps without collars on the remaining 12 million shares.The equity
collars restrict the magnitude of any gains or losses generated by the equity swaps on the collared shares.A hypothetical 10 percent reduction
in the market price of Global Crossing common shares,based upon a market value per share of $14.25 on December 31,2000,would decrease
the market value of the Company's net position by $17 million.A hypothetical increase of one-percentage point in interest rates would decrease
the market value of the Company's net position by $2 million.The swaps mature in three equal increments in February,May and August 2001.
Other assets at December 31,2000 included marketable equity securities recorded at a fair value of $58 million net ofunrealizedlosses of $32
million.The securities have exposure to price risk.The estimated potential loss in fair value resulting from a hypothetical 10 percent decrease
in prices quoted by stock exchanges would decrease the fair value of the Company's marketable equity securities by $6 million.
NEW ACCOUNTING STANDARD
In June 1998,the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS)No.133,Accounting for
DerivativeInstruments and Hedging Activities.SFAS No.133 requires,among other things,that all derivativeinstruments 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
hedge accounting criteria are met.The adoption of SFAS No.133 on January 1,2001 did not have a material impact on the Company's
consolidated financial statements.
F-2
(ViklEDGARoro conte -noncial Tn icht Avstoms.Tnc CO Convricht 2001.All riahts reserved.
REP T OF INDEPENDENT PUBLIC ACCOUF NTS
To Qwest Communications International Inc.:
We have audited the accompanying consolidated balance sheets of Qwest Communications International Inc.and subsidiaries as of December
31,2000 and 1999,and the related consolidated statements of operations,stockholders'equity and cash flows for each of the three years in the
period ended December 31,2000.These consolidated fmancial statements are the responsibility of the Company's management.Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States.Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.An audit
includes examining,on a test basis,evidence supporting the amounts and disclosures in the financial statements.An audit also includes
assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall financial statement
presentation.We believe that our audits providea reasonable basis for our opinion.
In our opinion,the financial statements referred to above present fairly,in all material respects,the financial position of Qwest
Communications International Inc.and subsidiaries as of December 31,2000 and 1999,and the results of their operations and their cash flows
for each of the three years in the period ended December 31,2000,in conformitywith accounting principles generally accepted in the United
States.
/s/Arthur Andersen LLP
Denver,Colorado
January 24,2001.
F-3
<mdEDGARpro Onnrc nann Al TER Cht ÑVAtems.Tnc.©Convricht 2001.All rights reserved.
QWT COMMUNICATIONS INTERNATIONA NC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
2000 1999 1998
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
Revenues:
Commercial services.......................................$7,424 $4,689 $4,390
Consumer and small business services......................6,372 5,571 5,146
Directory services..............1,530 1,436 1,318
Switched access services..............1,284 1,486 1,541
Total revenues...............16,610 13,182 12,395
Operating expenses:
Cost of services..........................................5,433 3,990 3,564
Selling,general and administrative.......................4,260 3,488 3,583
Depreciation..............2,617 2,348 2,198
Amortization........................725 19 1
Merger --related and other charges..............1,752
Total operating expenses.................14,787 9,845 9,346
Operating income..............1,823 3,337 3,049
Other expense (income):
Interest expense --net............................1,041 736 543
Decline in market value of financial instruments..........917 56
Expenses related to terminated merger.....................--282
(Gain)loss on sale of investments..............(327)367
Other expense (income)--net.............66 (6)87
Total other expense --net................1,697 1,435 630
Income before income taxes and cumulative effect of change
in accounting principle................126 1,902 2,419
Provision for income taxes...............207 800 911
(Loss)income before cumulative effect of change in
accounting principle...................................(81)1,102 1,508
Cumulative effect of change in accounting principle --net
of tax.................
--240
Net (loss)income......................$(81)$1,342 $1,508
Basic (loss)earnings per share:
(Loss)income before cumulative effect of change in
accounting principle..................................$(0.06)$1.26 $1.76
Cumulative effect of change in accounting principle.......--0.28
Basic (loss)earnings per share.......................$(0.06)$1.54 $1.76
Diluted (loss)earnings per share:
(Loss)income before cumulative effect of Change in
accounting principle..................................$(0.06)$1.25 $1.75
Cumulative effect of change in accounting principle.......--0.27
Diluted (loss)earnings per share......................$(0.06)$1.52 $1.75
Basic weighted average shares outstanding (in 000's)........1,272,088 872,309 854,967
Diluted weighted average shares outstanding (in 000's)......1,272,088 880,753 862,581
goa^*Po Source:Financial Insight Systems,Inc.©Copyright 2001.All rights reserved.
The accompanying notes are an integral part bese consolidated financial statements.
F-4
<mlEDGARpro gn11rr,4-IMnancial Tnsicht Svstems.Inc.©Convright 2001.All rights reserved.
QW"I COMMUNICATIONS INTERNATIONI 'NC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
2000 1999
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents..............................$154 $78
Accounts receivable,net of allowances of $301 and $88,respectively..........................4,235 2,455
Receivable from sale of investments...........--1,140
Inventories and supplies..............275 272
Deferred tax assets................72 46Prepaidsandother...............640 201
Total current assets......................5,376 4,192
Property,plant and equipment --net...................25,583 16,404
Goodwill and other intangible assets --net.................32,327 501
Investments....................8,186 1,290
Other assets.....................2,029 885
Total assets....................=$73,501 $23,272
LIABILITIES AND STOCKHOLDERS'EQUITY
Current liabilities:
Current borrowings.......................$3,645 $2,882
Accounts payable.....................................2,049 1,700
Accrued expenses and other current liabilities............3,806 1,840
Advance billings and customer deposits...................393 344
Total current liabilities...................9,893 6,766
Long-term borrowings....................................15,421 10,189
Post-retirement and other post-employment benefitobligations..........................2,735 2,890
Deferred income taxes...................1,768 1,191
Deferred credits and other.....................2,380 981
Commitments and contingencies (Note 9)
Stockholders'equity:
Preferred stock --$1.00 par value,200,000,000 shares
authorized,none issued and outstanding............----
Common stock --$0.01 par value,5 billion shares
authorized,1,672,218,763 and 875,995,661 issued,
1,672,218,763 and 875,469,943 outstanding..............17 9
Additional paid-in capital.....................41,289 647
Retained earnings.................................24 377
Accumulated other comprehensive (loss)income.............(26)222
Total stockholders'equity....................41,304 1,255
Total liabilities and stockholders'equity........$73,501 $23,272
The accompanying notes are an integral part ese consolidated financial statements.
F-5
EDGARp"SOllrce FinanCial ÎDSight Systems,Inc.©Copyright 2001.All rights reserved.
QW 'COMMUNICATIONS INTERNATIONr NC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
2000 1999 1998
(DOLLARS IN MILLIONS)
OPERATING ACTIVITIES
Net (loss)income..........................$(81)$1,342 $1,508
Adjustments to net (loss)income:Depreciation and amortization.......................3,342 2,367 2,199
Loss on investments and derivatives...................590 423
Provision for bad debts....................484 158 141
Asset impairment charge...............................340 --35
Cumulative effect of change in accounting principle....--(240)
Deferred income taxes...........................219 225 106
Changes in operating assets and liabilities:
Accounts receivable..................................(899)(284)(167)
Inventories,supplies and other current assets.........(184)(106)(12)
Accounts payable,accrued expenses and advance
billings................106 345 (13)
Other.................(236)316 130
Cash provided by operating activities...................3,681 4,546 3,927
INVESTING ACTIVITIES
Expenditures for property,plant and equipment............(6,597)(3,944)(2,672)
Cash acquired in connection with Merger...................407 ----
Proceeds from sale of equity securities...................868
Proceeds from 1999 sale of Global Crossing securities.....1,140 ----
Purchases of securities...................................(510)(2,464)
Other....................................................(102)(54)(97)
Cash used for investing activities....................(4,794)(6,462)(2,769)
FINANCING ACTIVITIES
Net (repayments of)proceeds from current borrowings......(2,200)1,304 887
Proceeds from long-term borrowings...................4,266 2,062 3,781
Repayments of long-term borrowings..................(655)(336)(442)
Dividends paid on common stock.....................(542)(1,187)(1,056)
Proceeds from issuance of common stock..................320 102 88
Cash paid in connection with Separation.................----(4,348)
Purchases of treasury stock.............----(46)
Cash provided by (used for)financing activities..........1,189 1,945 (1 136)
CASH AND CASH EQUIVALENTS
Increase (decrease)................76 29 22
Beginning balance.................78 49 27
Ending balance....................$154 $78 $49
The accompanying notes are an integral part of these consolidated financial statements.
F-6
QW ©COMMUNICATIONS INTERNATION-NC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY
QWEST PRE-OTHER
COMMON SEPARATION COMMON RETAINED COMPREHENSIVE
STOCK EQUITY STOCK EARNINGS INCOME TOTAL
(SHARES IN (DOLLARS IN MILLIONS)
THOUSANDS)
BALANCE,DECEMBER 31,1997........837,881 $4,367 $--$--$4,367
Net income from January 1,1998 to
June 12,1998..................--747 ----$747 747
Dividends declared on common
stock.....................--(528)--(528)
Pre-Separation transfers to
Parent..........................--(146)----(146)
Common stock issuances............1,902 55 ----55
Treasury stock purchases..........(992)(32)----(32)
Other.............................--2 ----2
June 12,1998 Separation..........--(4,465)4,465
Dex Indebtedness..................----(3,829)--(3,829)
Issuance of common stock atSeparation.....................28,786 --850 --850
Distribution to MediaOnestockholdersforDex...........--(850)--(850)
Cost of debt refinancing uponSeparation......................----(140)--(140)
Common stock issuances............2,630 --58 --58
Treasury stock purchases..........(527)--(15)--(15)
Net income from June 13,1998 to
December 31,1998.............-----761 761 761
Total comprehensive income........--------$1,508
Dividends declared on common
stock...........................------(538)(538)
Other.............................----(7)--(7)
BALANCE,DECEMBER 31,1998........869,680 --532 223 755
Net income........................------1,342 $1,342 1,342
Other comprehensive income,net of
taxes........................----222 222 222
Total comprehensive income........--------$1,564
Dividends declared on common
stock...........................------(1,188)(1,188)
Common stock issuances............5,790 --124 --124
BALANCE,DECEMBER 31,1999........875,470 --656 599 1,255
Net loss..........................------(81)$(81)(81)
Other comprehensive loss,net of
taxes.......................---(248)(248)(248)
Total comprehensive loss..........----$(329)
Issuance of shares in connection
with Merger.....................775,175 --40,020 --40,020
Dividends declared on commonstock...........................------(272)(272)
Common stock issuances............21,574 --630 --630
BALANCE,DECEMBER 31,2000........1,672,219 $--$41,306 $(2)$41,304
The accompanying notes are an integral part of these consolidated financial statements.
F-7
sšWooAnow convoo-Wnancial Insicht Svstems.Inc.©Convright 2001.All rights reserved.
QM "COMMUNICATIONS INTERNATION.NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,2000,1999,AND 1998
NOTE 1:BUSINESS AND BACKGROUND
Qwest Communications International Inc.(Qwest or the Company)is a leading broadband Internet communications company incorporated
under the laws of the State of Delaware.
Merger.On June 30,2000,Qwest completed its merger (the Merger)with US WEST,Inc.(US WEST).US WEST was deemed the
accounting acquirer and its historical financial statements have been carried forwardas those of the newly combined company.In connection
with the Merger,each outstanding share of US WEST common stock was converted into the right to receive 1.72932 shares of Qwest common
stock.In addition,all outstanding US WEST stock options were converted into options to acquire Qwest common stock.All share and per
share amounts have been restated to give retroactive effect to the exchange ratio.
The Merger has been accounted for as a reverse acquisition under the purchase method of accounting with US WEST being deemed the
accounting acquirer and Qwest the acquired entity.The total value of the consideration was approximately $40 billion,which has been
allocated to the identifiabletangible and intangible assets and liabilities of Qwest.The preliminarypurchase price allocation was as follows:(i)
$8.0 billion to tangible assets and liabilities,net;(ii)$4.1 billion to identifiedintangibles,including product technology,customer lists,
tradenames and assembled workforce;and (iii)$27.9 billion to goodwill.The amounts allocated to identifiableintangible assets and goodwill
are being amortized over periods ranging from 3 to 40 years.The allocation of purchase price is preliminaryand may change upon completion
of an appraisal currently being performed on the acquired assets and liabilities of Qwest.The effect of any such change is not expected to be
material.
The results of operations for Qwest priorto the Merger are not reflected in the accompanying consolidated statements of operations.Following
is the results of operations for Qwest for the periods prior to the Merger:
YEAR ENDED
DECEMBER 31,JANUARY 1,THRU
---------------JUNE 30,
1998 1999 2000
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNT)
Revenues.......................................$2,243 $3,928 $2,499
Operating expenses:
Operating expenses...............................1,948 3,168 2,007
Depreciation and amortization.....................202 404 247
Merger costs...............................847 32 87
Total operating expenses....................2,997 3,604 2,341
(Loss)earnings from operations.....................(754)324 158
Other expense (income)--net....................96 (260)36
(Loss)earnings before income taxes...................(850)584 122
Income tax (benefit)expense.....................(6)125 102
Net (loss)income.......................$(844)$459 $20
(Loss)earnings per share:
Basic.................................$(1.51)$0.63 $0.03
Diluted.....................................$(1.51)$0.60 $0.03
F-8
QM "COMMUNICATIONS INTERNATION,NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
The following unaudited pro forma results of operations are presented assuming the Merger had been completed on January 1,1999:
YEAR ENDED
DECEMBER 31,
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS)
Revenues......................$18,954 $16,594
Net (loss)income.....................(531)492
Diluted (loss)earnings per share.....................$(0.32)$0.30
Pro forma diluted loss per share for the year ended December 31,2000 excludes approximately 38 million incremental shares attributable to
options due to their anti-dilutiveeffect as a result of the pro forma loss for that period.
For the year ended December 31,2000,Qwest incurred Merger-related and other charges totaling $1.752 billion.A breakdown of these costs is
as follows:
2000
(DOLLARS IN MILLIONS)
Contractual settlements and terminations...........$654
Merger bonuses and severance costs.................443
Write-off of access lines..........................226
Termination of software development projects.......114
Post-retirement benefit plan curtailment gain......(106)
Other Merger-related costs and charges.............421
Total Merger-related and other charges...$1,752
Contractual settlements and termination losses of $654 million represent the costs incurred to cancel various commitments no longer deemed
necessary as a result of the Merger and to settle various claims related to the Merger.
In connection with the Merger,management identifieda workforce reduction of over 4,500 employees primarilyto eliminate duplicate
functions.These employees were terminated prior to December 31,2000.Of these,1,078 employees voluntarilyseparated without receiving
benefit packages.A severance charge of $34 l million relates to the employees involuntarily separated during fiscal 2000.Merger bonuses of
$102 million represent bonus payments triggered by the successful completion of the Merger.
The Company leases dedicated special-purpose access lines to Competitive Local Exchange Carriers (CLECs).Givencurrent industry
conditions and regulatory changes affecting CLECs,the Company evaluated those leased assets for impairment.The Company concluded that
the fair value of those assets was minimal and took a $226 million charge.The assets are operated by the Company's wholesale services
segment.
Followingthe Merger,management reviewedall internal software projects in process,and determined that certain projects should no longer be
pursued.Because the projects were incomplete and abandoned,the fair value of such incomplete software was determined to be zero and $114
million of capitalized software costs were written off.The abandoned projects included a significant billing system replacement and a customer
database system.
Other costs of $421 million include legal charges related to the Merger,professional fees,re-branding costs,relocation costs and other costs
related to the integration of the two companies.
t-rr-rCCC.I
Ch
r-C
QW 'COMMUNICATIONS INTERNATION/VC.
NOTESTO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Offsetting the Merger-related costs was a $106 million post-retirement benefit plan curtailment gain.This gain resulted from the post-Merger
termination of retiree medical benefits for all former US WEST employees that did not have 20 years of service by December 31,2000,or
wouldnot be service pension eligible by December 31,2003.
A summary of Merger-related costs accrued at June 30,2000,and subsequent charges against those accruals follows:
JANUARY 1,DECEMBER 31,
2 0 0 0 CURRENT CURRENT 2 0 0 0
BALANCE PROVISION UTILIZATION BALANCE
(DOLLARS IN MILLIONS)
Contractual settlements and terminations......$--$654 $359 $295
Merger bonuses and severance costs...........443 313 130
Other accrued costs...........
--185 87 98
Total accrued costs at Merger
date...................$--1,282 $759 $523
Asset impairment charges.................340
Charges incurred subsequent to the Merger.....130
Total Merger-related and other
charges............$1,752
Management anticipates that the majority ofthe Merger-related accruals will be paid by June 30,2001.
In connection with the Merger,US WEST and Global Crossing Ltd.(Global Crossing)agreed to terminate their merger agreement.In
consideration for terminating the merger agreement,US WEST paid Global Crossing $140 million in cash and 2,231,076 shares (that US
WEST previouslypurchased in the open market)of Global Crossing common stock for which US WEST paid $140 million.These termination
payments,together with costs of approximately $2 million,were charged to other expense in 1999,Qwest also agreed to purchase $140 million
in services from Global Crossing over fouryears at the best commercially available prices offeredby Global Crossing.As of December 31,
2000,Qwest had purchased $135 million in services under this agreement.
US WEST Separation.On June 12,1998,US WEST's former parent company (the Parent),separated into two independent companies (the
Separation).Prior to the Separation,the Parent conducted its business through two groups:
(i)the US WEST Communications Group (the Communications Group),which included the communications businesses of US WEST,and
(ii)the US WEST Media Group (the Media Group),which included the multimedia and directories businesses.As part of the Separation,the
Parent contributed to US WEST the businesses of the Communications Group and the domestic directories business of the Media Group
known as US WEST Dex,Inc.(Dex).The Parent continued to operate as an independent public company comprised of the businesses of the
Media Group other than Dex and was renamed MediaOne,Inc.
In connection with the transfer of Dex to US WEST:(i)the Parent distributed to holders of Media Group common stock,approximately
28,786,000 shares of US WEST common stock with an aggregate value of $850 million;and
(ii)US WEST refinanced $3.9 billion of debt formerlyallocated to the Media Group (the Dex Indebtedness).
Certain fmancial effects of the Separation,including interest expense associated with refinancing the Dex Indebtedness and the dilutive effect
of the issuance of shares to Media Group shareholders for Dex,are not reflected in the accompanying historical consolidated statements of
operations prior to the Separation.In addition,for the period from January 1,1998 to June 12,1998,the consolidated financial statements
include an allocation of certain costs,expenses,assets and liabilities from the Parent to US WEST.The amount of costs allocated were not
necessarily indicativeof the costs that would have been incurred if US WEST had operated as a stand-alone company.
F-10
ABIEDGARpro Source·Financial Insight Systems,Inc.©Copyright 2001.All rights reserved.
QW 'COMMUNICATIONS INTERNATION/NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
NOTE 2:SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation.The accompanying consolidated fmancial statements include the accounts of the Company and all material majority-
owned subsidiaries.All significant intercompany amounts and transactions have been eliminated.
Use of Estimates.The preparation of financial statements in conformitywith generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes.Actual
results could differ from those estimates.
Reclassifications.Certain prior year balances have been reclassified to conform to the current year presentation.
Change in Accounting Principle.Prior to 1999,Qwest Dex,Inc.(Qwest Dex)recognized revenues and expenses related to publishing
directories using the deferral method,under which revenues and expenses were recognized over the lives of the directories,generally one year.
Effectivein the fourth quarter of 1999,Qwest Dex changed to the point of publication method of accounting,under which the Company
recognizes revenues and expenses at the time the directory is published.This change in methodology was made to better align Qwest Dex's
revenue and expense recognition with the earnings process and to better reflect the operating activity of the business.The change in accounting
principle resulted in a one-time increase in net income of $240 million (net of income tax of $153 million),or $0.27 per diluted share,which is
reported as the cumulative effect (as of January 1,1999)of a change in accounting principle.The Company restated its 1999 quarterly results
of operations to give effect to the point of publication method which increased net income by $13 million,or $0.01 per diluted share.On a
restated basis,use of the point of publication method would have increased net income in 1998 by $12 million,or $0.01 per diluted share.
Revenue Recognition.Revenues are recognized when services are provided.Payments received in advance are deferred until the service is
provided.Up-frontfees received are deferred and recognized over the longer of the contractual period or the expected customer relationship,
generally 2 to 10 years.The fees include activation fees and installation charges.
Occasionally,the Company sells capacity on its network to other telecommunication providers.Sales of capacity are accounted for as either
sales-type leases,operating leases or service agreements depending upon the terms of the transaction.Revenues related to sales of capacity that
meet the criteria of a sales-type lease are recognized at the time of deliveryof the capacity to the customer.If title is not transferred or if the
other requirements for sales-type lease accounting are not met,revenue is recognized ratably over the term of the agreement.
AdvertisingCosts.Costs related to advertising are generally expensed as incurred.Advertisingexpense was $470 million,$308 million and
$263 million in 2000,1999 and 1998,respectively.
Income Taxes.The provisionfor income taxes consists of an amount for taxes currently payable and an amount for tax consequences deferred
to future periods.
Unrealized HoldingGain (Loss)on Equity Securities.The Company's equity investments in certain publicly traded companies are recorded at
fair market value.Realized gains and losses on securities are determined on the specific identificationmethod.
Cash and Cash Equivalents.Cash and cash equivalents include highly liquid investments with original maturities of three months or less that
are readily convertible into cash and are not subject to significant risk from fluctuations in interest rates.Fair values of cash,cash equivalents
and current amounts receivable and payable approximate carrying values due to their short-term nature.
F-11
QW "COMMUNICATIONS INTERNATION2 NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Inventories.Inventories held for sale (primarily wireless handsets)are carried at the lower of cost or market on a first-in,first-out basis.
Inventories used internally are carried at average cost,except for significant individualitems that are valued based upon specific costs.
Property,Plant and Equipment.Property,plant and equipment is carried at cost and is depreciated using straight-line group methods.Generally,
under the group method,when an asset is sold or retired,the cost is deducted from property,plant and equipment and charged to accumulated
depreciation without recognition of a gain or loss.Leasehold improvements are amortized over the lesser of the useful lives of the assets or the
lease term.Expenditures for maintenance and repairs are expensed as incurred.Networkconstruction costs,including interest during
construction,are capitalized.
Valuation of Long-LivedAssets.The Company assesses the impairment of long-livedassets whenever changes in circumstances indicate that
their carrying value may not be recoverable.If the total expected future cash flows or salvage value is less than the carrying value of the asset,
the asset is written down to its fair value.
Customer Acquisition Costs.The Company defers the initial direct cost of obtaining a customer to the extent there is sufficient revenue
guaranteed under the arrangement to ensure the realizability of the capitalized costs.Deferred customer acquisition costs are amortized over the
expected life of the customer relationship.
Intangibles.Intangible assets arising from business combinations are amortized on a straight-line basis over their estimated useful lives.The
components of intangibles are as follows:
DECEMBER 31,
ESTIMATED LIFE O
(DOLLARS IN MILLIONS)
Goodwill...........................40 years $27,923 $--
Product technology...........................10 years 2,200 --
Customer list.................................10 years 1,200 --
Assembled workforce...............................3 years 100 --
Tradename.....................................40 years 600 --
Other..........................................5 to 40 years 950 533
32,973 533
Less:accumulated amortization................(646)(32)
Goodwill and other intangible assets --net...........$32,327 $501
Computer Software.Internally used software,whether purchased or developed,is capitalized and amortized over an estimated useful life of 5
years.Capitalized computer software costs of $1.173 billion and $618 million at December 2000 and 1999,respectively,are recorded in Other
Assets.Amortization of capitalized computer software costs totaled $269 million,$l08 million and $84 million in 2000,1999 and 1998,
respectively.During 2000,$114 million of capitalized computer software costs were written-off due primarilyto the abandonment of a
significant billing system replacement project and a customer database system project.This charge is included in Merger-related and other
charges.
F-l2
QM "COMMUNICATIONS INTERNATION.NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
Accrued Expenses and Other Current Liabilities.Accrued expenses and other current liabilities consist of the following:
DECEMBER 31,
2000 1999
(DOLLARS IN MILLIONS)
Accrued interest.....................$318 $207
Employee compensation.................644 439
Accrual for Merger-related costs...............523
Dividends payable...........--271
Accrued property taxes...............79 218
Other...................2,242 705
Total accrued expenses and other current
liabilities..................$3,806 $1,840
Derivative Instruments.The Company,from time to time,enters into derivativefinancial instruments.The objective of the Company's interest
rate risk management program is to obtain the minimum total cost of debt over time consistent with an acceptable level of interest rate
volatility.This objectivewas achieved in 2000 through the type of debt issued and cross-currency swaps that convert foreign-denominated debt
to U.S.dollar-denominated debt.
Under a cross-currency swap,the Company agrees with another party to exchange U.S.dollars for foreign currency based on a notional
amount,at specified intervals over a defined term.Cross-currency swaps are accounted for using synthetic instrument accounting if the index,
maturity and amount of the instruments match the terms of the underlying debt.Under synthetic instrument accounting,the cross-currency
swaps and the foreigncurrency debt are combined and accounted for as if U.S.dollar-denominated debt was issued directly.Beginning January
1,2001,the Company began accounting for cross-currency swaps under Statement of Financial Accounting Standards (SFAS)No.133,
Accounting for DerivativeInstruments and Hedging Activities.Under SFAS No.133,the Company will carry the swap at fair market value on
the balance sheet.Future changes in the fair value of the cross-currency swaps that meet the criteria for hedge accounting will be recorded in
accumulated other comprehensive income.
The Company also entered into equity swaps to modify its risk exposure to changes in the market price of the Global Crossing common stock
previouslyowned by the Company.Under these equity swaps,the Company agreed with another party to exchange payments based on a
notional amount at specific intervals over a defined term.In exchange for making payments based upon an interest rate index,the Company
received (rendered)payments based upon increases (decreases)in the market price of Global Crossing common stock.Qwest sold its remaining
shares of Global Crossing in 2000;however,the equity swaps remained outstanding as of December 31,2000.These swaps,which mature in
2001,are carried at fair value on the balance sheet with any change in fair value recognized in earnings.
F-l3
QV T COMMUNICATIONS INTERNATION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
The following table summarizes the terms of outstanding cross-currency and equity swaps at December 31,2000 and 1999.Cross-currency
swaps are tied to the Swiss Franc and have a fair value (liability)of $(40)million and $(36)million at December 31,2000 and 1999,
respectively.Amounts received on the equity swaps are tied to changes in the market price of Global Crossing common shares and paid rates
are tied to one-and three-month London Interbank OfferedRates.Equity collars have also been entered into in conjunction with the equity
swaps to limit the magnitude of any gains or losses on the equity swaps.
DECEMBER 31,2000 DECEMBER 31,1999
WEIGHTED AVERAGE WEIGHTED AVERAGE
RATE RATE
NOTIONAL -----------------NOTIONAL
AMOUNT MATURITIES RECEIVE PAY AMOUNT MATURITIES RECEIVE PAY
(DOLLARS IN MILLIONS)Cross-currency...........$133 2001 --6.51%$133 2001 --6.51%Equity...................761 2001 --7.17%1,140 2001 --6.41%
In the event Qwest is owed money under the swap agreements,the Company could be exposed to risk in the event of nonperformance by
counterparties.Qwest does not require any collateral from these counterparties.The Company manages this exposure by monitoring the credit
standing of the counterparties and establishing dollar and term limitations that correspond to the respective credit rating of each counterparty.
At December 31,2000,deferred credits of $7 million and deferred charges of $48 million on closed forwardcontracts are included as part of
the carrying value of the underlying debt.The deferred credits and charges are recognized as yield adjustments over the life of the debt that
matures at various dates through 2043.
Stock Options.Stock incentive plans are accounted for using the intrinsic value method under which no compensation expense is recognized
for options granted to employees with a strike price that equals or exceeds the value of the underlying security on the measurement date.
Comprehensive Income.Comprehensive income includes the following components:
YEAR ENDED
DECEMBER 31,
2000 1999
(DOLLARS IN
MILLIONS)
Unrealized (losses)gains on marketable securities,net of
reclassification adjustments..........................$(397)$366Foreigntranslationlosses.................................(7)--
Income tax benefit (provision)related to items of othercomprehensiveincome......................156 (144)
Other comprehensive (loss)income.........................$(248)$222
Reclassification adjustments for gains and losses included in income consisted of the following:
YEAR ENDED
DECEMBER 31,
2000 1999
(DOLLARS IN
fiklEDGARpro OnnYo -9 nane al TOS ChÍ SVRŸRER.Inc.CO Convricht 2001 All richts reserved.
MILLIONS)
Realized net gains (losses)included in income..............$292 $(454)
Other than temporary loss charged to income.................(480)--
Income tax benefit related to items reclassified into
income...................................66 176
Total reclassification adjustments................$(122)$(278)
F-14
QV T COMMUNICATIONS INTERNATION.NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
Earnings Per Share.The following reflects the computation of diluted shares outstanding for 2000,1999 and 1998.Diluted shares outstanding
for the year ended December 31,2000 excludes approximately 21 million incremental shares related to stock options.These shares were
excluded due to their anti-dilutiveeffect as a result of Qwest's net loss for the year ended December 31,2000.
YEAR ENDED DECEMBER 31,
2000 1999 1998
(SHARES IN THOUSANDS)
Basic weighted average shares......................1,272,088 872,309 854,967
Stock options...........--8,444 7,614
Diluted weighted average shares....................1,272,088 880,753 862,581
New Accounting Standards.On June 15,1998,the Financial Accounting Standards Board issued SFAS No.133,Accounting for Derivative
Instruments and Hedging Activities.SFAS No.133 requires,among other things,that all derivative instruments be recognized at fair value as
assets or liabilities in the consolidated balance sheets with changes in fair value recognized currently in earnings unless specific hedge
accounting criteria are met.The adoption of SFAS No.133 on January l,2001 did not have a material impact on the Company's financial
statements.
In December 1999,the Securities and Exchange Commission (SEC)issued StaffAccounting BuHetin (SAB)No.101,Revenue Recognition in
Financial Statements.SAB No.101 requires,in certain cases,nonrefundable up-frontfees for services to be deferred and recognized over the
expected period of performance.SAB No.101 also permits the direct costs incurred in obtaining the customer to be deferred and recognized
over the expected life of the customer relationship.The Company adopted SAB No.101 in the fourthquarter of fiscal 2000,with effect from
January 1,2000.There was no cumulative effect on earnings from the adoption of SAB No.101.
NOTE 3:INVESTMENTS
Investment in Qwest Digital Media,LLC.In September 1999,Qwest and Anschutz Digital Media,Inc.(ADMI),an affiliateof Qwest's
principal stockholder,Anschutz Company,entered into an agreement to form a venture named Qwest Digital Media,LLC (QDM,formerly
known as Slingshot Networks,LLC)to provideadvanced digital production,post-production and transmission facilities,digital media storage
and distribution services,telephony-based data storage and enhanced services,access and routing services.Qwest has contributed an $85
million promissory note payable over nine years at an annual interest rate of 6 percent and purchased a 25 percent interest in QDM from ADMI
for a $43 million,8 percent note payable in January 2001.In January 2001,Qwest repaid the $43 million note and obtained control over QDM.
Qwest will consolidate QDM beginning in fiscal 2001.
Investment in KPNQwest,N.V.In April 1999,Qwest and KPN Telecom B.V.(KPN)formed a joint venture (KPNQwest)to create a pan-
European IP-based fiber optic network,linked to Qwest's network in North America,for data and multimedia services.Qwest and KPN each
initially owned 50 percent of KPNQwest.On November12,1999,KPNQwest consummated an initial public offering(KPNQwest's IPO)
whereby 50.6 million shares of common stock were issued generating approximately $1.0 billion in proceeds.As a result of KPNQwest's IPO,
the public owns approximately 11 percent of KPNQwest's shares and the remainder are owned equally by Qwest and KPN.Qwest's investment
in KPNQwest is accounted for under the equity method.
F-15
5 EDGARpro ennrom.Financial Insicht Svstems.Inc.©Convright 2001.All rights reserved.
Q''T COMMUNICATIONS INTERNATIOl'INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
Below are the summarized financial results for KPNQwest as of and for the year ended December 3l,2000 and as of and for the nine monthsendedDecember31,1999.
DECEMBER 31,
2000 1999
(DOLLARS IN MILLIONS)
Total assets...................$2,717 $2,575Totalliabilities..................1,506 1,170Revenue.................425 199
Loss from operations..................201 76
Net loss....................$128 $62
The Company's share of KPNQwest's losses was $34 million in 2000.At December 31,2000,KPNQwest had a market capitalization of $8.55billion.
Other.The Company's equity investments in other publicly traded companies consisted of the following (dollars in millions):
DECEMBER 31,2000 DECEMBER 31,1999
UNREALIZED UNREALIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE COST GAINS LOSSES FAIR VALUE
$90 $30 $(62)$58 $842 $533 $(167)$1,208
NOTE 4:PROPERTY,PLANT AND EQUIPMENT
The components of property,plant and equipment are as follows:
DECEMBER 31,
DEPRECIABLE -------------
LIVES 2000 1999
(DOLLARS IN MILLIONS)Land and buildings.....................30-38 years $3,473 $2,535Communicationsequipment....................2-14 years 18,319 15,828
Other network equipment....................8-57 years 19,273 15,021Generalpurposecomputersandother....................5-11 years 3,755 3,396Constructioninprogress............--3,498 1,346
48,318 38,126Less:accumulated depreciation...........(22,735)(21,722)
Property,plant and equipment --net............$25 583 $16,404
Capitalized Interest.Interest related to qualifyingconstruction projects is capitalized and included in the depreciable basis of the asset beingbuilt.Amounts capitalized were $l51 million,$27 million and $25 million in 2000,1999 and 1998,respectively.
Leasing Arrangements.Certain office faciliti :al estate and equipment are subject to operat eases.Rent expense under operating leases
for2000,1999 and 1998 was $528 million,$2oy million and $2l0 million,respectively.At December 31,2000,the future minimum rental
payments under noncancelable operating leases for the years 2001 through 2005 and thereafter are $316 million,$242 million,$219 million,
$227 million,$l95 million and $959 million,respectively.
Assets Held for Sale.During 1999 and 2000,the Company committed to sell approximately 800,000 access lines within the 14-state local
service area.In 1999,definitivesales agreements were reached for the sale of 570,000 lines for approximately $1.8 billion in cash,subject to
adjustment.In 2000,the sale of 20,000 access
F-l 6
QW 'COMMUNICATIONS INTERNATION,NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
lines in North Dakota and South Dakota were consummated resulting in proceeds of $l9 million and gains of $ll million.The transfer of
ownership of the remaining access lines,which will occur on a state-by-state basis,is expected to be completed by the first quarter of 2002.
The pending sales are subject to regulatory approvals and other customary closing conditions.
The Company has also identifiedbandwidth capacity on its existing network that is held for sale or lease to telecommunications providers and
others.This capacity was recorded at fair value,less estimated costs to sell,in connection with the Merger.
NOTE 5:BORROWINGS
Current Borrowings
Current borrowings consist of:
DECEMBER 31,
2000 1999
(DOLLARS IN MILLIONS)
Commercial paper......................................$2,106 $1,265
Short-term notes and current portion of long-term
borrowings...............................1,539 1,617
Total current borrowings......................$3,645 $2,882
The weighted average interest rate on commercial paper was 7.33 percent and
6.53 percent at December 31,2000 and 1999,respectively.
Qwest maintains commercial paper programs to finance the purchase of telecommunications assets.The Company also enters into lines of
credit as backup facilities in issuing commercial paper.At December 31,2000,Qwest had a $4.0 billion syndicated credit facility that expires
in May of200l.As of December 31,2000,there was no outstanding balance.The syndicated credit facility agreement requires Qwest to pay a
quarterly fee based upon the Company's long-term debt agency ratings.The facility fee on the total credit facility available ranges from 0.07
percent to 0.08 percent.
Long-term Borrowings
Long-term borrowings consist principallyof debentures and medium-term notes with the following interest rates and maturities at December
31:
MATURITIES
INTEREST RATES 2002 2003 2004 2005 THEREAFTER TOTAL 2000 TOTAL 1999
(DOLLARS IN MILLIONS)
Up to 5%.........................$100 $50 $--$--$--$150 $150
Above 5%to 6%...................----100 41 390 531 579
Above 6%to 7%...................750 43 --899 3,579 5,271 6,611
Above 7%to 8%...................299 1,062 750 --5,979 8,090 2,367
Above 8%to 9%...................--------630 630 243
Above 9%to 10%..................--------473 473
Above 10%to 11%.................--------162 162
$1,149 $1,155 $850 $940 $11,213 15,307 9,950
Capital lease obligations........224 115
Other............................(110)124
Total...........$15,421 $10,189
F-l7
I EDGARoro Convrmo.L,4n nr,,l Tnadaht-Quefome Tnc (O ('Anvr ryht-9 1 All T ryhi-o recorvarl
QW 'COMMUNICATIONS INTERNATION,NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
The Company's borrowings have a fair value of $l8.4 billion and $12.1 billion at December 31,2000 and 1999,respectively.The fair values of
the Company's borrowings are based on quoted market prices where available or,if not available,based on discounting future cash flows using
current interest rates.
Interest paid by the Company,net of amounts capitalized,was $964 million,$595 million and $640 million in 2000,1999 and 1998,
respectively.
Indentures for certain notes contain covenants that,among other things,limit the ability of the Company and certain of its subsidiaries (the
Restricted Subsidiaries)to issue preferred stock,pay dividends or make other distributions,repurchase capital stock or subordinated
indebtedness,create liens,enter into transactions with affiliates,sell assets of the Company or its Restricted Subsidiaries,issue or sell capital
stock of the Company's Restricted Subsidiaries or enter into mergers and consolidations.
NOTE 6:EMPLOYEE BENEFITS
Pension,Post-retirement and Other Post-employment Benefits
Qwest has a noncontributory defined benefit pension plan (the Pension Plan)for substantially all management and occupational employees and
post-retirement healthcare and life insurance plans for retirees.The Company also provides post-employment benefits for certain former
employees.
Prior to the Separation,US WEST participated in the defined benefit pension plan and post-retirement healthcare and life insurance plans
sponsored by its Parent.Accordingly,the Company's financial statements for periods prior to the Separation reflect an allocation of costs from
the Parent for its employees and retirees.On June 12,1998,US WEST assumed sponsorship of the Parent's benefit plans.
In conjunction with the Merger,the Company made the following changes to its employee benefit plans.EffectiveSeptember 7,2000,
employees will not be eligible to receive retiree medical and life benefits unless they had either at least 20 years of service by December 31,
2000 or will be service pension eligible by December 31,2003.The elimination of the retiree medical benefits decreased the other post-
employment benefits expense for 2000 by approximately $l7 million.In addition,the elimination is accounted for as a plan curtailment,
resulting in a one-time gain of approximately $106 million.This gain was recorded as an offset to Merger-related costs.The plan was also
changed for all future retirees.Employees who retained the benefits will begin paying contributions in 2004 except for those employees who
retired prior to September 7,2000.
Qwest also modifiedthe pension plan benefits,effectiveJanuary 1,2001,for all former US WEST management employees who did not have
20 years of service by December 31,2000,or who will not be service pension eligible by December 31,2003.For employees who do not meet
this criteria,the years of service credited under the defined lump sum formula were frozen;the benefit will be adjusted for future compensation
levels.Future benefits will equal 3 percent of pay,plus a return as defined in the plan.All management employees,other than those who
remain eligible under the previous formulas,will be eligible to participate in the 3-percent-of-pay plan.
EffectiveAugust l 1,2000,the Pension Plan was amended to provideadditional pension benefits to plan participants who are involuntarily
separated from the Company between August 11,2000,and June 30,2001.The amount of the benefit is based on pay and service and ranges
from a minimum of four months up to a maximum of one year of an employee's base pay.
Pension benefits for management employees prior to January 1,2001 were based upon their salary and years of service while occupational
employee benefits were generally based upon job classification and years of service.Pension and post-retirement costs are recognized over the
period in which the employee renders services and becomes eligible to receive benefits as determined by using the projected unit credit method.
Qwest's fundingpolicy is to make contributions with the objective of accumulating sufficient assets to pay all benefits when due.No pension
fundingwas required in 2000,1999 or 1998.
F-18
QW 'COMMUNICATIONS INTERNATION/NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
The components of the pension and post-retirement benefit (credit)cost are as follows:
PENSION COST YEAR POST-RETIREMENT BENEFIT COST
ENDED DECEMBER 31,YEAR ENDED DECEMBER 31,
2000 1999 1998 2000 1999 1998
(DOLLARS IN MILLIONS)
Service cost....................$182 $203 $189 $49 $70 $72
Interest cost.....................702 658 639 337 326 319
Expected return on plan assets........(1,068)(935)(852)(271)(229)(213)
Amortization of transition asset......(79)(79)(79)
Amortization of prior service cost....2 2 2 12 20 19
Plan curtailment.............------(106)
Recognized net actuarial gain.........(58)----(107)(28)(30)
Net (credit)cost.....................$(319)$(151)$(101)$(86)$159 $167
The actuarial assumptions used to compute the pension and post-retirement benefit (credit)cost are as follows:
PENSION POST-RETIREMENT
YEAR ENDED BENEFITS YEAR ENDED
DECEMBER 31,DECEMBER 31,
2000 1999 1998 2000 1999 1998
(IN PERCENT)
Weighted average discount rate................8.00%6.75%7.00%8.00%6.75%7.00%
Weighted average rate of compensation
increase.................................4.65%4.65%5.50%N/A N/A N/A
Expected long-term rate of return on plan
assets........................9.40%8.80%8.50%9.40%8.80%8.50%
Followingis a reconciliation of the benefit obligation for the pension and post-retirement plans:
POST-RETIREMENT
PENSION COST YEAR BENEFIT COST YEAR
ENDED DECEMBER 31,ENDED DECEMBER 31,
2000 1999 2000 1999
(DOLLARS IN MILLIONS)
Benefit obligation at beginning of year.....$8,877 $9,622 $4,344 $4,825
Service cost............................182 203 49 70
Interest cost..........................702 658 337 326
Actuarial loss (gain).....................513 (884)301 (690)
Plan amendments................----(169)4
Special termination benefits................27 ------
Plan curtailment...........................----(106)--
Benefits paid..............................(831)(722)(256)(191)
Benefit obligation at end of year...........$9,470 $8,877 $4,500 $4,344
F-19
IMEDGARoro CA99er,o.W9n nr,,1 Tncaryb Q re¥ome Tnt,(8 ('Anvricht 9 1 All richtm YA Yv fl
QW''COMMUNICATIONS INTERNATIONA SC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
Followingis a reconciliation of the change in the fair value of plan assets for the pension and post-retirement plans:
POST-RETIREMENT
PENSION YEAR ENDED BENEFIT YEAR ENDED
DECEMBER 31,DECEMBER 31,
2000 1999 2000 1999
(DOLLARS IN MILLIONS)Fair value of plan assets at beginning of
year................................$14,593 $12,925 $2,886 $2,604Actualreturnonplanassets...............(78)2,509 (68)575
Net employer withdrawals...........----(245)(212)
Divestitures...........--(8)--(1)Section 420 transfer...............(90)(111)90 111Benefitspaid................(831)(722)(256)(191)
Fair value of plan assets at year end...........$13,594 $14,593 $2,407 $2,886
In December 2000 and 1999,under provisions of Section 420 of the Internal Revenue Code,$90 million and $111 million,respectively,of
pension assets were transferred to the post-retirement benefit plan to pay for current year retiree health care benefits.In 2000 and 1999,$300
million and $230 million,respectively,of Life Insurance and Welfare Trust assets were transferred to the Company to pay for employee
welfare benefits.
The following table represents the funded status of the pension and post-retirement plans:
POST-RETIREMENT
PENSION YEAR ENDED BENEFIT YEAR ENDED
DECEMBER 31,DECEMBER 31,
2000 1999 2000 1999
(DOLLARS IN MILLIONS)
Funded (unfunded)status.....................$4,124 $5,716 $(2,093)$(1,458)Unrecognized net actuarial gain.................(2,922)(4,640)(730)(1,479)
Unamortized prior service (benefit)cost........--2 (58)125
Balance of unrecognized transition asset........(308)(387)----
Prepaid (accrued)benefit cost..................$894 $691 $(2,881)$(2,812)
The actuarial assumptions used to compute the funded (unfunded)status for the plans are as follows:
POST-RETIREMENT
PENSION YEAR BENEFIT YEAR
ENDED ENDED
DECEMBER 31,DECEMBER 31,
2000 1999 2000 1999
(IN PERCENT)Weighted average discount rate..........................7.75%8.00%7.75%8.00%Weighted average rate of compensation increase..........4.65%4.65%N/A N/A
ŠkEDGMpro ConvooTMnanciAl Tnc cht EvmfemR.Tnc.Convricht 2001.All riabts reserved.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
For measurement purposes,an 8 percent annual rate of increase in the healthcare cost trend rate for 2000 is assumed.The healthcare cost trend
rate is assumed to gradually decline to an ultimate rate of 5 percent in 20l 1.A one percent change in the assumed healthcare cost trend rate
wouldhave had the following effects in 2000:
ONE PERCENT CHANGE
INCREASE DECREASE
(DOLLARS IN MILLIONS)
Effect on the aggregate of the service and interest cost
components of net periodic post-retirement benefit cost...$30 $(26)
Effect on accumulated post-retirement benefit obligation....257 (240)
On January 5,2001,Qwest announced an agreement with its major unions,the Communications Workers of America and the International
Brotherhood of Electrical Workers,to extend the existing union contracts for another two years,through August of 2003.The extensions
include a 3.5 percent wage increase in 2001,a 5 percent wage increase in 2002,a 6 percent pension increase in 2002,and a 10 percent pension
increase in 2003.These changes are not reflected in either the pension oi post-retirement benefit computations for the periods December 31,
2000,1999 and 1998 presented above.
NOTE 7:INCOME TAXES
The components of the provisionfor income taxes are as follows:
YEAR ENDED
DECEMBER 31,
2000 1999 1998
(DOLLARS IN MILLIONS)
FEDERAL :
Current..............................$(23)$530 $685
Deferred..............................196 156 90
173 686 775
STATE AND LOCAL:
Current........................11 45 108
Deferred.........................23 69 28
34 114 136
Provision for income taxes........................$207 $800 $911
Qwest paid $115 million,$472 million and $678 million for income taxes in 2000,1999 and 1998,respectively.
F-21
QW "COMMUNICATIONS INTERNATION NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
The effectivetax rate differs from the statutory tax rate as follows:
YEAR ENDED
DECEMBER 31,
2000 1999 1998
Federal statutory tax rate.........................35.0%35.0%35.0%
State income taxes --net of federal effect.................3.4 3.5 3.7
Goodwill amortization.........................107.4 --
Non-deductible Merger-related charges...................46.2 5.7
KPNQwest loss.....................10.7 ----
ESOP dividend..................(9.4)(0.9)(0.6)
Other..................(29.0)(1.2)(0.4)
Effective tax rate......................164.3%42.1%37.7%
The components of the net deferred tax liability are as follows:
DECEMBER 31,
2000 1999
(DOLLARS IN MILLIONS)
Property,plant and equipment.....................$1,677 $1,955
Intangible assets...................................1,447 --
State deferred taxes --net of federal effect...............406 293
Investments............................--128
Revenue recognition................................447 208
Other...............................135 35
Deferred tax liabilities........................4,112 2,619
Net operating loss carryforward.....................933 --
Investments.................................25 --
Post-retirement benefits --net of pension..................717 776
State deferred taxes --net of federal effect...............243 165
Other..........................498 533
Deferred tax assets......................2,416 1,474
Net deferred tax liability...................$1,696 $1,145
As of December 31,2000,Qwest had operating loss carryforwards of $2.7 billion that will expire between 2003 and 2020.Management
believes it is more likely than not that future taxable income will be sufficient to fully recover the existing net deferred tax asset associated with
the net operating loss carryforward.
The Company's investment in its foreign corporate joint venture,KPNQwest,is essentially permanent in duration.As a result,Qwest has not
recorded deferred income taxes related to its investment in KPNQwest.The amount of unrecorded deferred income taxes at December 3l,
2000,was $2.8 billion.The temporary differences would become taxable upon the sale of KPNQwest or if earnings were repatriated into the
United States.
The Company had unamortized investment tax -edits of $154 million and $160 million as of D ember 31,2000 and 1999.
F-22
dWIEDGARoro Onny o.Ein n l Tn¢ch Qvc omc:Tnc 6 OUVT GB 9Û 1 Àll T ؾfR TOR TV (1
QV T COMMUNICATIONS INTERNATION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
NOTE 8:STOCKHOLDERS'EQUITY
Common Stock ($0.01 par value).In conjunction with the Separation on June 12,1998,the Parent redeemed each issued and outstanding shareofCommunicationsGroupstock(other than shares of Communications Group stock held as treasury stock)for one share of US WEST
common stock.Each share of Communications Group stock held as treasury stock by the Parent was cancelled.For presentation purposes,Communications Group stock shares outstanding prior to June 12,1998,are shown as US WEST shares.Also for presentation purposes,in
connection with the Merger,shares outstanding have been adjusted to reflect the conversion rate of 1.72932 Qwest shares for every US WEST
share.
Preferred Stock.Under the Company's charter,the Board of Directors has the authority,without shareholder approval,to create one or more
classes or series within a class of preferred stock,to issue shares of preferred stock in such class or series up to the maximum number of sharesoftherelevantclassorseriesofpreferredstockauthorized,and to determine the preferences,rights,privileges and restrictions of any such
class or series,including the dividendrights,votingrights,the rights and terms of redemption,the rights and terms of conversion,liquidation
preferences,the number of shares constituting any such class or series and the designation of such class or series.Acting under this authority,the Company's Board of Directors could create and issue a class or series of preferred stock with rights,privileges or restrictions,and adopt a
shareholder rights plan,having the effect of discriminating against an existing or prospective holder of securities as a result of such shareholderbeneficiallyowningorcommencingatenderofferforasubstantialamountoftheCompany's common stock.One of the effects of authorizedbutunissuedandunreservedsharesofcapitalstockmaybetorendermoredifficultordiscourageanattemptbyapotentialacquirertoobtaincontroloftheCompanybymeansofamerger,tender offer,proxy contest or otherwise,and thereby protect the continuity of the Company's
management.The issuance of such shares of capital stock may have the effect of delaying,deferring or preventing a change in control of theCompanywithoutanyfurtheractionbytheshareholdersoftheCompany.The Company has no present intention to adopt a shareholder rightsplan,but could do so without shareholder approval at any future time.
As of December 31,2000,there were no shares of preferred stock issued and outstanding.
Dividends.Qwest declared dividends of $0.3l and $1.36 per share of common stock during 2000 and 1999,respectively.
Stock Options.Prior to the Merger,U Š WEST adopted stock plans under which the Company could grant awards in the form of stock options,
stock appreciation rights,restricted stock and phantom units,as well as substitute stock options and restricted stock awards.In connection withtheMerger,all outstanding options prior to the Mergerannouncement have vested.Options granted after that date and prior to June 30,2000
continue to vest according to the vesting requirements in the plan.
F-23
QW 'COMMUNICATIONS INTERNATION2 NC.
NOTESTO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
Summarized below is the activity of the US WEST plans prior to the Merger:
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
(IN THOUSANDS)Outstanding January 1,1998.................30,469 $18.06Granted.................16,582 29.38Exercised..............(4,289)13.32Canceledorexpired................(1,211)21.39
Outstanding December 31,1998.................41,551 22.23Granted..................21,736 31.20Exercised..............(5,205)18.62Canceledorexpired...............(2,056)23.38
Outstanding December 31,1999................56,026 25.52
Granted................10,830 41.20Exercised...............(7,586)18.80
Canceled or expired................(6,822)36.27
Outstanding June 30,2000 (Merger date).................52,448 $29.64
Options to purchase 33.9 million shares,22.7 million shares and 10.2 million shares of US WEST (accounting acquirer)common stock at
weighted average per share exercise prices of $26.67,$19.94 and $17.43,were exercisable at June 30,2000,December 31,1999 and December
31,1998,respectively.
On June 23,1997,Qwest adopted the Equity Incentive Plan,which was amended and restated on June 1,1998.This plan permits the grant ofnon-qualifiedstock options,incentive.stock options,stock appreciation rights,restricted stock,stock units and other stock grants.The
maximum number of shares of common stock that may be issued under the Equity Incentive Plan at any time pursuant to awards is equal to
10%of the aggregate number of common shares issued and outstanding (determined as of the close of trading on the New York Stock
Exchange on the preceding trading day).As of December 31,2000,the maximum number of shares available was 167 million.
The Company's Compensation Committee determines the exercise price for each option;however,stock options must have an exercise price
that is at least equal to the fair market value of the common stock on the date the stock option is granted,subject to certain restrictions.Stock
option awards generally vest in equal increments over a five-yearperiod,and awards granted under the Equity Incentive Plan will immediately
vest upon any change in control of the Company,as defmed,unless providedotherwise by the Compensation Committee at the time of grant.
Options granted in 2000,1999 and 1998 have terms ranging from six to ten years.
F-24
QW 'COMMUNICATIONS INTERNATION/NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Summarized below is the activity of the Qwest (acquired entity for accounting purposes)plans prior to the Merger and combined Qwest
activitysubsequenttothenderg;er:
NUMBER OF WEIGHTED AVERAGE
SRARES EXERCISE PRICE
(IN THOUSANDS)
Outstanding January 1,1998................27,892 $7.95
Granted................................26,278 16.84
Assumed in connection with LCI merger................31,540 8.32
Exercised.................(23,314)6.83
Canceled or expired.................(2,094)13.29
Outstanding December 31,1998.................60,302 12.02
Granted...............35,262 31.69
Exercised................(13,827)9.68
Canceled or expired.................(12,826)17.12
Outstanding December 31,1999................68,911 21.48
Granted................................41,698 45.52
US WEST options converted upon Merger................52,448 29.64
Exercised.....................(20,834)16.21
Canceled or expired..................(12,145)34.65
Outstanding December 31,2000..................130,078 $32 19
Options to purchase 22.7 million and 10.2 million shares of Qwest common stock (the acquired entity for accounting purposes)at weighted
average exercise prices of $19.94 and $17.43 were exercisable at December 31,1999 and 1998,respectively.
The outstanding options at December 31,2000 have the following characteristics (shares in thousands):
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE(YEARS)PRICE EXERCISABLE PRICE
$0.00-$19.00...................22,640 6.35 $12.06 16,470 $12.28
$19.01-$29.00...................27,648 7.83 25.75 14,082 23.62
$29.01-$33.00..................20,322 8.18 30.49 12,403 30.14$33.01-$42.00...................28,605 8.90 38.73 9,536 38.09$42.01-$49.00.................20,369 9.62 46.43 224 45.07
$49.01-$60.00..................10,494 9.50 50.40 18 49.92
Total..................130,078 8.28 $32.19 52,733 $24.33
F-25
QW 'COMMUNICATIONS INTERNATION/NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
Had the Company accounted for employee stock option grants under the fair value method prescribed by SFAS No.123,Accounting for Stock-
Based Compensation,the pro forma results wouldhave been as follows:
YEAR ENDED DECEMBER 31,
2000 1999 1998
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
Net (loss)income:
As reported.....................$(81)$1,342 $1,508
Pro forma......................(167)1,293 1,479(Loss)earnings per share:
As reported --basic......................$(0.06)$1.54 $1.76
As reported --diluted.....................(0.06)1.52 1.75
Pro forma --basic......................(0.13)1.48 1.73
Pro forma --diluted....................(0.13)1.47 1.71
Followingare the weighted average assumptions used with the Black-Scholes option-pricingmodel to estimate the fair value of options granted
during 2000,1999 and 1998:
YEAR ENDED DECEMBER 31,
2000 1999 1998
Risk-free interest rate................................6.0%5.6%5.5%Expected dividend yield..............................1.0%0.0%4.2%Expected option life (years)..........................4.7 4.0 4.0Expectedstockpricevolatility........................52.6%57.0%22.9%Weighted average grant date fair value....................$23.03 $27.87 $8.75
Approximately31 million shares of common stock were available for grant at December 31,2000.Approximately 75 million shares of
common stock were reserved for issuance at December 31,2000.
Employee Stock Purchase Plan.In October 1998,Qwest (the acquired entity for accounting purposes)instituted an Employee Stock Purchase
Plan (ESPP).The Company is authorized to issue approximately 1.6 million shares of Qwest common stock to eligible employees.Under the
terms of the ESPP,eligible employees may authorize payroll deductions of up to 15%of their base compensation,as defined,to purchase
Qwest common stock at a price of 85%of the fair market value of the Qwest common stock on the last trading day of the month in which the
Qwest common stock is purchased.Shares purchased prior to the Merger were 253,766 in 2000;443,242 in 1999 and 21,134 in 1998.Shares
purchased subsequent to the Merger were 349,868 in 2000.
GrowthShare Plan.Qwest (the acquired entity for accounting purposes)had a Growth Share Plan for certain of its employees and directors.A
Growth Share is a unit of value based on the increase in value of Qwest over a specified measurement period.Upon vesting,settlement of eachGrowthShareismadeinQwestcommonstock.All Growth Share grants have been made based on a beginning Qwest value that was greater
than or equal to the fair value of Qwest at the grant date.
Prior to the Merger,Qwest recognized approximately $3.5 million,$6 million and $9 million of expense for the Growth Share Plan in 2000,
1999 and 1998,respectively.Subsequent to the Merger,the Company recognized $3.5 million of expense in 2000.
F-26
QW 'COMMUNICATIONS INTERNATIONA NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
The following table summarizes the activity of the number of shares of Qwest common stock allocated for the settlement of outstandingGrowthShares:
NUMBER OF
SHARES
December 31,1997 outstanding balance....................625,426
1998 settlements.........................(65,472)
December 31,1998 outstanding balance....................559,954
1999 settlements..................(37,516)
December 31,1999 outstanding balance..................522,438
2000 settlements...................(165,715)
December 31,2000 outstanding balance....................356,723
Due to the Merger,all GrowthShares were vested at December 3l,2000 and approximately $29 million was included in other liabilities related
to outstanding Growth Shares.In the first quarter of2001,the Company issued approximately 357,000 shares ofQwest common stock in
settlement of all remaining vested Growth Shares.
NOTE 9:COMMITMENTS AND CONTINGENCIES
Commitments
Take-or-Pay Contracts.In July 1999,the Company and Global Crossing entered into a purchase agreement under which Qwest agreed to
purchase services from Global Crossing over a four-yearperiod in a total amount of $l40 million.This agreement was entered into in
connection with the termination of the US WEST and Global Crossing merger.At the end of the two-year period followingthe signing of the
agreement,Qwest must pay Global Crossing an amount equal to the difference between $140 million and the amount of services purchased
under the agreement at that time.The amount of the differentialpayment will be credited by Global Crossing against all purchases by Qwest of
services from Global Crossing during the remaining two years of the agreement.Under the agreement,Qwest is entitled to purchase services on
any of Global Crossing's network segments at the most favorablecommercially available prices offeredby Global Crossing.As of December
31,2000,Qwest had purchased $l35 million in services under this agreement.
Qwest CyberCenters (SM).In March 2000,Qwest and IBM Global Services (IBM)formed a strategic business alliance to delivernext-
generation e-business services and applications through the construction and activation of CyberCenters throughout North America.IBM,as
the contractor,will build and provideoperational support for 28 CyberCenters for Qwest.IBM will lease hosting space in these CyberCenters
and will purchase telecommunications services from Qwest,with the total revenue expected to be approximately $2.5 billion over the seven-
year term of the agreement.Under this alliance,Qwest agreed to purchase equipment and services from IBM,as contractor,over a seven-year
period,which combined with the construction services,is expected to be approximately $2.5 billion.As of December 31,2000,Qwest had
purchased $26 million in equipment and services under this agreement.
Minimum Usage Requirements.The Company has agreements with certain telecommunications inter-exchange carriers (IXCs)and third party
vendors that require the Company to maintain minimum monthly and/or annual billings based on usage.The Company has historically met all
requirements and believes the minimum usage commitments will continue to be met.
Contingencies
Litigation.In January 2001,an amended purported class action complaint was filed against Qwest and certain current and formerofficers and
directors on behalf of stockholders of US WEST.The complaint alleges
F-27
QV T COMMUNICATIONS INTERNATION NC.
NOTESTO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
that Qwest has a duty to pay a quarterly dividendto US WEST stockholders of record as of June 30,2000.Plaintiffs furtherclaim that thedefendants'efforts to close the Merger in advance of the record date and the defendants'failure to pay the dividendbreaches fiduciary dutiesowedtostockholdersofUSWEST.Qwest has filed a motion to dismiss the complaint,which is pending.
ThroughDecember 2000,seven purported class action complaints have been filed in various state courts against Qwest and US WEST onbehalfofcustomersinthestatesofArizona,Colorado,Minnesota,New Mexico,Oregon,Utah and Washington.The complaints allege,amongotherthings,that from 1993 to the present,US WEST,in violationof alleged statutory and common law obligations,willfullydelayed theprovisionoflocaltelephoneservicetothepurportedclassmembers.In addition,the complaints allege that US WEST misrepresented the dateonwhichsuchlocaltelephoneservicewastobeprovidedtothepurportedclassmembers.The complaints seek compensatory damages forpurportedclassmembers,disgorgement of profits and punitivedamages.As of November 11,2000,the parties have signed agreements to settlethecomplaints.The agreements are subject to a variety of conditions,including court approval.
In April 1999,CSX Transportation,Inc.filed a complaint in federal district court in Jacksonville,Florida against Qwest claiming breach of a1995contract.Discovery in the case is ongoing and the trial is scheduled to commence in October 2001.
ThroughDecember 2000,several purported class actions have been filed in various state courts against Qwest on behalfof landowners inGeorgia,Indiana,Kansas,Louisiana,Missouri,Oregon,Tennessee and Texas.The complaints challenge Qwest's right to install its fiber opticcablenetworkinrailroadrights-of-way.The complaints allege that the railroads own a limited property right-of-waythat did not include therighttopermitQwesttoinstallitsfiberopticcablenetworkontheplaintiffs'property.The Indiana action purports to be on behalfof a national
class of landowners adjacent to railroad rights-of-wayover which the Qwest network passes;the Georgia,Kansas,Louisiana,Missouri,Oregon,Tennessee and Texas actions purportto be on behalfof a class of such landowners in Georgia,Kansas,Louisiana,Missouri,Oregon,Tennessee and Texas,respectively.The complaints seek damages on theories of trespass and unjust enrichment,as well as punitivedamages.The Company received,and may in the future receive,additional claims and demands that may be based on similar or differentlegal theories.
From March 2,2000 to March 9,2000,five purported class action complaints were filed against Qwest in state court in Delaware on behalfofQweststockholders.The complaints allege that Qwest and its directors breached their fiduciaryduty by entering into the Merger and byagreeingnottosolicitalternativetransactions.Since the filing of the complaints,there has been no discovery or other activity in the cases.
On March 17,2000,and March 20,2000,two class action complaints were filed in federal district court in Delaware against Qwest and JosephNacchioonbehalfofUSWESTstockholders.The complaints allege,among other things,that Qwest and Mr.Nacchio made material falsestatementsregardingQwest's intent to solicit an alternative transaction to the Merger.Since the filing of the complaints,there has been nodiscoveryorotheractivityinthecases.
In 1999,12 purported class action complaints were filed against US WEST and its directors on behalfof US WEST stockholders.Each of thecomplaintsallegethatthedefendantsbreachedtheirfiduciarydutiestotheclassmembersbyrefusingtoseekallbonafideoffersforUSWESTandrefusingtoconsidertheQwestproposal.Since the filing of the complaints,there has been no discovery or other activity in thecases.
Various other litigation matters have been filed against Qwest.Management intends to vigorouslydefend these outstanding claims.
Qwest has providedforthe above matters in its financial statements as of December 31,2000.The Company does not expect any materialadverseimpactsinexcessofsuchprovisionasaresultoftheultimateresolutionofthesematters.
F-28
QW "COMMUNICATIONS INTERNATION/NC.
NOTESTO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
Intellectual Property.Qwest frequently receives offers to take licenses for patent and other intellectual rights,including rights held by
competitors in the telecommunications industry,in exchange for royalties or other substantial consideration.Qwest also regularlyreceives
allegations that Qwest products or services infringe upon various intellectual property rights,together with demands that Qwest discontinue the
alleged infringement.The Company normally investigates such offers and allegations and responds appropriately,including defending itself
vigorouslywhen appropriate.There can be no assurance that,if one or more of these allegations proved to have merit and involvedsignificant
rights or royalties,it would not have a material adverse effect on Qwest.
Contingent Payment Arrangements.In connection with the Merger,Qwest was required to divest transport services between local access and
transport areas (LATAs)within US WEST's 14-state region local service area.In June 2000,the Company sold its interLATA customer base,
along with other assets.Under the terms of the agreement,the purchase price paid is subject to adjustment for revenue fluctuations during the
90 days subsequent to the agreement date.Depending on certain circumstances,the revenue adjustment may not be settled until the end of the
first quarter 2001.Qwest does not expect the adjustment,if any,to have a material adverse impact on its consolidated results of operations or
financial position.
Regulatory Matters.Qwest has pending regulatory actions in local regulatory jurisdictions which call for price decreases,refunds or both.
These actions are generally routine and incidental to Qwest's business.
From time to time,Qwest receives complaints and becomes subject to investigations regarding tarriffs,slamming (the practice of changing
long-distance carriers without the customer's consent)and other matters.In 2000,the California Public Utilities Commission opened an
investigation relating to certain slamming complaints.A purported class action complaint was filed in federal court in Connecticut containing
slamming allegations.The Attorney General of Connecticut has also filed a similar complaint in state court in Connecticut.Qwest may receive
complaints or become subject to investigations in the future.Such complaints or investigations could result in the imposition of certain fines
and other penalties.
NOTE 10:SEGMENT INFORMATION
Qwest operates in four segments:retail services,wholesale services,network services and directory services.The retail services segment
provides local telephone services,long-distance services,wireless services and data services.The wholesale services segment provides (i)
exchange access services that connect customers to the facilities of IXCs and (ii)interconnection to the Qwest telecommunications network to
CLECs.The network services segment provides access to the Qwest telecommunications network,including Qwest's informationtechnologies,
primarily to the Company's retail services and wholesale services segments.The directory services segment publishes White and Yellow Pages
telephone directories and provides electronic directory and other information services.Qwest provides the majority of its 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 the Company's segments.The accounting policies used are the same as those used in the consolidated financial
statements.The other category includes unallocated corporate expenses and
F-29
QW *COMMUNICATIONS INTERNATION,NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
revenues.Beginning in fiscal 2000,Qwest internally tracks only the assets and capital expenditures of its Directory Services segment.
Reconciling items include unallocated assets and capital expenditures.
TOTAL
COMMUNICATIONSRETAILWHOLESALENETWORKANDRELATED DIRECTORY RECONCILING
SERVICES SERVICES SERVICES SERVICES SERVICES OTHER ITEMS COMBINED
(DOLLARS IN MILLIONS)2000
External revenues......$11,913 $3,194 $353 $15,460 $1,546 $--(396)$16,610Intersegment
revenues.............121 --99 220 15 --(235)EBITDA(1)..............7,236 2,523 (2,962)6,797 896 (322)--7,371Assets.................--------829 --72,672 73,501Capitalexpenditures...--------41 --6,556 6,5971999Externalrevenues......9,022 2,871 242 12,135 1,446 --(399)13,182Intersegment
revenues.............87 --60 147 10 --(157)EBITDA.................6,111 2,157 (2,793)5,475 741 (116)--6,100Assets.................--------819 --22,453 23,272Capitalexpenditures...587 111 3,199 3,897 48 (1)--3,9441998
External revenues......8,556 2,590 214 11,360 1,277 --(242)12,395Intersegment
revenues.............28 --70 .98 10 --(108)EBITDA.................6,194 1,908 (2,776)5,326 657 (234)--5,749Assets.................--------524 --17,883 18,407Capitalexpenditures...362 --2,143 2,505 42 125 --2,672
(1)Earnings before interest,income taxes,depreciation and amortization (EBITDA)does not include non-recurring and non-operating items
such as Merger costs,asset write-offs and impairments,gains/losses on the sale of investments and fixed assets,changes in the market values of
investments,one-time legal charges,in-regionlong-distance activity,Qwest construction activity,Separation charges,regulatory accruals and
sales of local telephone exchanges.EBITDA does not represent cash flow for the periods presented and should not be considered as an
alternative to net earnings
(loss)as an indicator of the Company's 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.
A reconciliation from Segment EBITDA to pre-tax income follows:
YEAR ENDED DECEMBER 31,
2000 1999 1998
(DOLLARS IN MILLIONS)
Segment EBITDA.............................$7,371 $6,100 $5,749
Less:Separation costs..................----129Merger-related and other charges........................1,752 ----
Other expense --net......................1,697 1,435 630
Taxes other than income taxes.....................454 396 372Depreciationandamortization.........................3,342 2,367 2,199
Pre-tax income...........................$126 $1,902 $2,419
F-30
olEDGARPM Enllyce-Financial Insicht Svstems.Inc.©Convright 2001.All rights reserved.
QW T COMMUNICATIONS INTERNATION NC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
NOTE 11:QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTERLY FINANCIAL DATA
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
(DOLLARS IN MILLIONS)
2000
Revenues....................$3,377 $3,450 $4,765 $5,018
Net income (loss)................404 (121)(248)(116)Earnings (loss)per share:
Basic.................0.46 (0.14)(0.15)(0.07)Diluted...................0.45 (0.14)(0.15)(0.07)
1999
Revenues.....................................$3,168 $3,227 $3,296 $3,491
Net income..................................634 406 136 166Earningspershare:
Basic.................0.73 0.47 0.16 0.19Diluted..................0.72 0.46 0.15 0.19
NOTE 12:SUBSEQUENTEVENTS
In January 2001,Qwest repurchased 22.22 million shares ofits common stock from BellSouth Corporation (BellSouth)for $1.0 billion in cash.
The repurchased shares will be available to satisfy the Company's obligations under its employee benefits and options programs.As part of the
transaction,BellSouth agreed to purchaše $250 million in services from Qwest over the next five years.BellSouth will pay for these services in
sharesofǾvestconunonstock.
MARKET FOR RFGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The United States market for trading in Qwest common stock is the New York Stock Exchange.As of March 5,2001,the Company's common
stock was held by approximately 491,036 stockholders of record.
MARKET PRICE
PER SHARE MARKET AND DIVIDEND DATA HIGH LOW CLOSE DIVIDENDS(1)
2000
First quarter.....................$79.0000 $65.1250 $72.6250 $0.5350
Second quarter(2)....................91.0000 66.0000 85.7500 0.0000Thirdquarter.....................57.8750 43.5000 48.1250 0.0000
Fourth quarter.....................51.4375 32.3750 40.8750 0.0000
1999
First quarter.....................$65.6250 $53.3125 $55.0625 $0.5350
Second quarter.....................62.2500 51.5625 58.7500 0.7500Thirdquarter..................60.2500 51.7500 57.0625 0.5350
Fourth quarter....................73.0000 57.0000 72.0000 0.5350
(1)The decrease in 2000 dividends was due to a change in the Company's dividendpolicy after the merger between Qwest and US WEST
(2)The merger between Qwest and US WEST was effectiveJune 30,2000.The stock prices prior to June 30,2000 reflect the price of US
WEST common stock.On June 30,2000,each share of US WEST common stock was converted into the right to receive 1.72932 shares of
Qwest common stock and cash in lieu of fractional shares.
F-31
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants,we hereby consent to the incorporation by reference of our reports dated January 24,2001,on the
consolidated balance sheets of Qwest Communications International Inc.(the Company)as of December 31,2000 and of USW-C,Inc.,its
predecessor,as of December 3l,1999 and 1998,and the related consolidated statements of income,stockholders'equity and cash flows for
each of the three years in the period ended December 31,2000,included in this Form 10-K/A for the year ended December 31,2000 and into
the Company's previouslyfiled Registration Statements on Form S-4/A 333-81149 and on Forms S-4 333-92523 and 333-71603.
/s/Arthur Andersen LLP
Denver,Colorado,
August 17,2001.
EDGARp 11T UnADC BÎ IDSicht SVSteTilS,Inc.CODVright 2001.All rights reserved.
End of Filing
EDGARpro Source:Financial Insight Systems,Inc.©Copyright 2001.All rights reserved.
ATTACHMENT E
04/16/02
The followingnumbers are currentlydesignated customer contacts for Qwest Communications
Corporation ("QCC"):
Principle business office telephone:[phone]
Facsimile number:[phone]
Toll free customer service numbers for products and services:
Business services:[phone]
Residential services:[phone]
The followingnumbers will be the designated customer contacts for QCC post-271 relief:
Principle business office telephone:[phone]
Facsimile number:[phone]
Toll free customer service numbers for long distance products and services:
Business customers:
If Qwest Corporation is your local provider:[phone]
If Qwest Corporation is not your local provider:[phone]
Residential customers:
If Qwest Corporation is your local provider:[phone]
If Qwest Corporation is not your local provider:[phone]
Residential primary interexchangecarrier ("PIC")disputes:[phone]