QWEST COMMUNICATIONS INTERNATIONAL INC, 10-Q/A, 1998-12-09

QWEST COMMUNICATIONS INTERNATIONAL INC
10-Q/A, 1998-12-09
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-Q/A
________________

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 000-22609
________________

QWEST COMMUNICATIONS INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER)
_______________

DELAWARE 84-1339282
-------- ----------
(STATE OR OTHER JURISDICTION OF (I. R. S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

1000 QWEST TOWER
555 17TH STREET
DENVER, COLORADO 80202
----------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(303) 992-1400
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

The number of shares of Common Stock, $.01 par value, outstanding (the only
class of common stock of the Company outstanding) was 331.1 million, as of July
31, 1998.

1
<PAGE>

QWEST COMMUNICATIONS INTERNATIONAL INC.

QUARTER ENDED JUNE 30, 1998

TABLE OF CONTENTS

Part I. FINANCIAL INFORMATION PAGE
---------

Item 1. Financial Statements (Unaudited)
<C> <C> <S> <C>
Condensed Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 1998 and 1997 3
Condensed Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997 4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Three and Six Months Ended June 30, 12
1998 and 1997

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 22

Item 2. Changes in Securities and Use of Proceeds 23

Item 4. Submission Of Matters To A Vote Of Security Holders 23

Item 6. Exhibits and Reports on Form 8-K 25

Signature Page 28

</TABLE>

2
<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED FINANCIAL STATEMENTS

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(IN MILLIONS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
1998 1997 1998 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
Revenue:
Communications services $ 239.8 $ 24.0 $ 282.4 $ 44.6
Construction services 153.9 204.7 288.4 256.7
-------- ------- -------- -------
Total revenue 393.7 228.7 570.8 301.3
-------- ------- -------- -------
Operating expenses:
Access and network operations 153.6 19.7 184.5 36.8
Construction services 108.1 143.3 205.6 182.6
Selling, general and administrative 107.9 68.7 152.1 93.7
Depreciation and amortization 32.0 4.1 40.1 8.0
Merger costs 62.5 - 62.5 -
Provision for in-process research and development 750.0 - 750.0 -
-------- ------- -------- -------
Total operating expenses 1,214.1 235.8 1,394.8 321.1

Operating loss (820.4) (7.1) (824.0) (19.8)

Other (income) expense:
Interest expense, net 18.9 3.7 33.2 4.7
Interest and other income, net (6.4) (2.8) (14.4) (9.3)
-------- ------- -------- -------
Loss before income taxes (832.9) (8.0) (842.8) (15.2)

Income tax benefit (24.0) (2.4) (27.1) (4.8)
-------- ------- -------- -------
Net loss $ (808.9) $ (5.6) $ (815.7) $ (10.4)
======== ======= ======== =======

Net loss per share - basic and diluted $ (3.34) $ (0.03) $ (3.63) $ (0.06)
======== ======= ======== =======

Weighted average shares outstanding - basic and diluted 242.4 175.7 224.6 174.4
======== ======= ======== =======
</TABLE>

See accompanying notes to condensed consolidated financial statements.

3
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QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(IN MILLIONS, EXCEPT SHARE INFORMATION)
(UNAUDITED)

<TABLE>

June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 366.0 $ 379.8
Trade accounts receivable, net 216.5 58.3
Deferred income tax asset 193.2 -
Prepaid expenses and other 267.7 285.9
------------ ------------
Total current assets 1,043.4 724.0

Property and equipment, net 1,742.8 614.6

Excess of cost over net assets acquired 3,315.2 21.2

Other, net 447.4 38.3
------------ ------------
TOTAL ASSETS $ 6,548.8 $ 1,398.1
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 185.1 $ 55.9
Facility costs accrued and payable 197.2 8.3
Accrued expenses and other 645.4 251.1
------------ ------------
Total current liabilities 1,027.7 315.3

Long-term debt and capital lease obligations 1,365.3 630.5

Other long-term liabilities 484.6 70.5

Commitments and contingencies

Stockholders' equity:
Preferred stock - $.01 par value;
authorized 25.0 million shares; no
shares issued and outstanding - -
Common stock - $.01 par value; authorized
600.0 million shares; 326.9 million
shares and 206.6 million shares issued
and outstanding at June 30, 1998 and
December 31, 1997, respectively. 3.3 2.1
Paid-in capital 4,515.5 411.6
Retained earnings (847.6) (31.9)
------------ ------------
Total stockholders' equity 3,671.2 381.8
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,548.8 $ 1,398.1
============ ============
</TABLE>

See accompanying notes to condensed consolidated financial statements.

4
<PAGE>

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(IN MILLIONS)
(UNAUDITED)

<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Net cash provided by operating activities $ 100.8 $ 0.9
------------ ----------

Cash flows from investing activities:
Acquisitions, net of cash acquired (4.2) -
Investments in unconsolidated affiliates (18.2) -
Expenditures for property and equipment (413.4) (129.4)
Proceeds from sale of contract rights - 9.0
------------ ----------
Net cash used in investing activities (435.8) (120.4)
------------ ----------

Cash flows from financing activities:
Borrowings of long-term debt 328.7 298.0
Repayments of long-term debt (22.0) (165.6)
Debt issuance costs (1.2) (8.5)
Proceeds from issuance of common stock, net - 319.9
Proceeds from employee stock transactions and issuance of stock warrants 17.5 2.3
Net payments to Majority Shareholder (1.8) (19.1)
------------ ----------
Net cash provided by financing activities 321.2 427.0
------------ ----------
Net (decrease) increase in cash and cash equivalents (13.8) 307.5

Cash and cash equivalents, beginning of period 379.8 6.9
------------ ----------
Cash and cash equivalents, end of period $ 366.0 $ 314.4
============ ==========

Supplemental disclosure of cash flow information:
Cash paid for interest, net $ 16.0 $ 2.3
============ ==========
Cash paid for taxes $ 7.8 $ 0.1
============ ==========

Supplemental disclosure of significant non-cash investing and
financing activities:
Capital expenditures financed with equipment credit facility $ 27.0 $ -
============ ==========
Income tax benefit attributable to exercise of employee stock options $ 7.1 $ -
============ ==========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

5
<PAGE>

QWEST COMMUNICATIONS INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION AND BACKGROUND

Qwest Communications International Inc. and Subsidiaries (the "Company" or
"Qwest") was wholly-owned by Anschutz Company (the "Majority Shareholder") until
June 27, 1997, when the Company issued common stock in an initial public
offering (the "IPO"). As of June 30, 1998, the Majority Shareholder owned
approximately 53% of the outstanding common stock of the Company.

The Company is a developer and operator of communications networks and
facilities and operates in the telecommunications industry. It principally
provides the following services within that industry:

-- Communications Services--the Company provides switched and dedicated
voice services as well as data, video and broadband private line
services to business and consumer customers as well as on a resale
basis to other communications providers.

-- Construction Services--the Company installs fiber optic communications
systems for interexchange carriers, local telephone companies, cable
television companies, competitive access providers and other
communications entities, as well as for its own use.

(2) BASIS OF PRESENTATION

The accompanying unaudited interim condensed consolidated financial
statements as of June 30, 1998 and for the three and six months ended June 30,
1998 and 1997 include the accounts of the Company and all majority-owned
subsidiaries. All material intercompany balances and transactions have been
eliminated in consolidation. The unaudited interim condensed consolidated
financial statements reflect all adjustments, consisting of normal recurring
items, which are, in the opinion of management, necessary to present a fair
statement of the results of the interim periods presented. The results of
operations for any interim period are not necessarily indicative of results for
the full year. Such financial statements should be read in conjunction with the
audited financial statements included in the Company's Annual Report on Form 10-
K for the year ended December 31, 1997. Certain prior year balances have been
reclassified to conform with 1998 presentation.

The Company has no elements of comprehensive income other than net income.

(3) ACQUISITIONS AND OTHER TRANSACTION

(b) LCI Acquisition

On June 5, 1998, the Company acquired LCI International, Inc. and
subsidiaries ("LCI"), a communications services provider for approximately $3.9
billion in Company common stock. At the close of the acquisition (the "LCI
Merger"), the Company issued approximately 129.9 million shares of the Company's
common stock (including outstanding LCI stock options assumed by the Company),
and incurred approximately $13.5 million in direct acquisition costs. The LCI
Merger was accounted for as a purchase.

In connection with the acquisition of LCI, the Company allocated $682.0
million of the purchase price to in-process research and development ("R&D")
projects, $318.0 million to developed technology, $65 million to other
intangible assets and $3,026.0 million to goodwill. This allocation to the in-
process R&D represents the estimated fair value based on risk-adjusted cash
flows related to the incomplete projects. The developed technology, other
intangibles and goodwill are being amortized on a straight-line basis from 10 to
40 years.

The acquired R&D represents engineering and test activities associated with
the introduction of new services and information systems. Specifically, LCI had
been working on a variety of projects that are essential to delivering data
services, which are a significant departure in terms of technological complexity
from the Company's traditional voice products. These efforts are related to
redesigning and scaling the network infrastructure as well as developing the
requisite network management systems. These projects are time-consuming and
difficult to complete. If the R&D projects are not completed as planned, they
will neither satisfy the technical requirements of a changing market nor be cost
effective. Since these projects had not yet reached technological feasibility
and have no alternative future uses, there can be no guarantee as to the
achievability of the projects or the ascribed values. Accordingly, these costs
were expensed as of the acquisition date.

The Securities and Exchange Commission staff performed a limited review of
the Company's Form S-3 (File No. 333-58617) filed July 7, 1998, as amended on
September 30, 1998 and December 9, 1998. In connection with the limited review,
the Company has increased the allocation of purchase price to developed
technology and reduced the in-process R&D writeoff by $68 million. In addition,
the Company allocated $65 million of purchase price to other intangible assets
and recorded a corresponding reduction to goodwill. As a result of the increases
to developed technology and other intangible assets, the Company recorded
approximately $53.2 million of deferred tax liabilities and a corresponding
increase to goodwill.

6
<PAGE>

The aggregate purchase price was allocated as follows (in millions):

Working capital, excluding deferred taxes $ (352.1)
Deferred tax asset, net 144.4
Property and equipment 716.6
Goodwill 3,026.0
R&D 682.0
Developed technology 318.0
Other Intangible Assets 65.0
Long-term debt, excluding current portion (462.4)
Other liabilities and assets, net (207.0)
--------------
$3,930.5
--------------

LCI's results of operations have been included in the accompanying
condensed consolidated statements of operations of the Company from the date of
acquisition. The Company will complete final allocation of purchase price within
one year from the acquisition date. The items awaiting final allocation include
LCI network asset valuation and final determination of the costs to sell these
assets. It is anticipated that final allocation of purchase price will not
differ materially from the preliminary allocation.

On April 14, 1998, the Company acquired EUnet International Limited
("EUnet"), a European internet service provider with subsidiaries in 14
countries, for $158.2 million. Certain EUnet stockholders and option holders
received approximately 3.6 million shares of Company common stock, having a
value of $135.3 million, and $4.2 million in cash. Direct costs of acquisition
were $3.5 million. Of the number of shares of Company common stock issued in
the transaction, approximately 0.6 million shares were placed in escrow for two
years, and may be recovered by the Company to satisfy any indemnification
claims. At the expiration of the escrow period, these shares revert to the
EUnet stockholders. In addition, in connection with certain EUnet preference
shares outstanding, a purchase commitment was made for $15.2 million. The
Company will issue additional shares of Company common stock or cash to fulfill
this purchase commitment.

The EUnet acquisition was accounted for as a purchase. The Company
allocated $68.0 million of the purchase price to incomplete R&D projects. These
projects include the design and development of several new value-added internet
services as well as the development of the necessary customer care and network
management systems. Remaining development efforts for these projects include
various phases of design, development and testing efforts that are expected to
be completed in stages over the next 24 months. Since these projects have not
yet reached technological feasibility and have no alternative future uses, there
can be no guarantee as to the achievability of the projects or the ascribed
values. Accordingly, these costs were expensed as of the acquisition date. The
remaining intangibles from the purchase relate to developed technology and
goodwill and are being amortized on a straight-line basis over five years and
ten years, respectively.

The aggregate purchase price was allocated as follows (in millions):

Working capital $ (5.1)
Property and equipment 10.7
Deferred tax liability (50.3)
R&D 68.0
Developed technology 7.0
Goodwill 127.6
Other 0.3
--------
$ 158.2
========

The results of operations of EUnet have been included in the accompanying
condensed consolidated statements of operations of the Company from the date of
acquisition. The accompanying condensed consolidated financial statements
reflect the preliminary allocation of purchase price which is subject to
adjustment.

On March 30, 1998, the Company acquired Phoenix Network, Inc. ("Phoenix"),
a non-facilities-based reseller of long distance services. As of the close of
the acquisition, approximately 0.8 million shares of the Company common stock
having a value of approximately $27.2 million were exchanged for the outstanding
shares of Phoenix. The results of operations of Phoenix have been included in
the accompanying condensed consolidated

7
<PAGE>

statements of operations of the Company from the date of acquisition. The
Phoenix acquisition was accounted for as a purchase.

The aggregate purchase price was allocated as follows (in millions):

Working capital $(16.5)
Property and equipment 2.9
Goodwill 53.8
Other liabilities (13.0)
------
$ 27.2
======

The following pro forma operating results of the Company, LCI, Phoenix and
EUnet for the six months ended June 30, 1998 and 1997 have been prepared
assuming these acquisitions occurred on January 1, 1998 and 1997, respectively.
On a pro forma basis for the six months ended June 30, 1998 and 1997, revenue
was $1,352.0 million and $1,137.1 million, respectively, and net loss was $825.4
million, or ($2.53) per basic and diluted share, and $834.3 million, or ($2.58)
per basic and diluted share, respectively. The pro forma results do not purport
to represent what the Company's results of operations would have actually been
had the above transactions occurred on the date indicated and are not indicative
of future results.

In January 1998, the Company signed a long-term contract to provide Apex
Global Internet Services, Inc. ("AGIS"), an internet service provider,
telecommunications capacity along approximately 10,000 route miles of the Qwest
Network. The Company received, on a contingent basis, 19.99% of AGIS' common
stock and will receive up to $310.0 million in cash over an extended payment
term. The Company is restricted on the sale of AGIS' common stock, and AGIS has
the right to repurchase the common stock until the contract's second
anniversary. The Company will also receive monthly operating and maintenance
fees totaling approximately $251.0 million over the term of the multi-year
contract. Prior to delivery of the telecommunications capacity and acceptance
by AGIS, AGIS has the right to purchase interim capacity from the Company. The
total cash consideration under the contract will be reduced by 60% of the total
paid by AGIS for purchases of interim capacity. Pursuant to the terms of the
contract, AGIS may require the Company to purchase an additional $10.0 million
of its common stock. In May 1998, the Company purchased $5.0 million of AGIS's
common stock, and in July 1998, the Company purchased an additional $2.5 million
of AGIS's common stock. If the Company fails to complete at least 75% of the
AGIS network by the contract's third anniversary, AGIS may, at its option,
either accept the completed portion and pay for it on a pro rata basis or
terminate the contract and require the Company to return the consideration
received.

(4) ACCOUNTS RECEIVABLE SECURITIZATION

The Company, through its wholly-owned subsidiary, LCI, maintains an
agreement to sell a percentage ownership interest in a defined pool of trade
accounts receivable (the "Securitization Program"). Under the Securization
Program, LCI SPC I, Inc. ("SPC"), a bankruptcy-remote subsidiary of the Company,
sells accounts receivable. Receivables sold are not included in the accompanying
condensed consolidated balance sheet as of June 30, 1998. SPC had approximately
$137.0 million of accounts receivable available for sale and had sold, but not
yet collected, a total of approximately $125.0 million as of June 30, 1998. The
Company retains substantially the same risk of credit loss as if the receivables
had not been sold, and has established reserves for such estimated credit
losses.

Under the Securitization Program, the Company acts as agent for the
purchaser of the receivables by performing recordkeeping and collection
functions on the participation interest sold. The agreement also contains
certain covenants regarding the quality of the accounts receivable portfolio, as
well as financial covenants which are substantially identical to those contained
in the Company's revolving credit facility. Except in certain limited
circumstances, SPC is subject to certain contractual prohibitions concerning the
payment of dividends and the making of loans and advances to the Company.

8
<PAGE>

(5) CONSTRUCTION SERVICES

Costs and billings on uncompleted contracts included in the accompanying
consolidated financial statements were as follows (in millions):

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 669.4 $ 473.8
Estimated earnings 329.7 238.2
---------- -----------
999.1 712.0
Less: billings to date 780.8 476.8
---------- -----------
Costs and estimated earnings in excess of billings, net $ 218.3 $ 235.2
========== ===========

Revenue the Company expects to realize for work to be performed on the
above uncompleted contracts $ 320.7 $ 506.8
========== ===========
</TABLE>

The Company has entered into various agreements to provide indefeasible
rights of use of multiple fibers along the Qwest Network, an approximately
18,450 route-mile, coast-to-coast, technologically advanced fiber optic
communications network. Such agreements include contracts with three major
customers for an aggregate purchase price of approximately $1.0 billion.
Construction Services revenue relating to the contracts with these major
customers was approximately $105.2 million and $188.8 million for the three
months ended June 30, 1998 and 1997, respectively, and $211.7 million and $237.8
million for the six months ended June 30, 1998 and 1997, respectively. Progress
billings are made upon customers' acceptance of performance milestones.

Although these construction agreements provide for certain penalties if
the Company does not complete construction within the time frames specified
within the agreements, management does not anticipate that the Company will
incur any substantial penalties under these provisions.

(6) LONG-TERM DEBT

Long-term debt consisted of the following (in millions):

JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
8.29% Notes $ 310.6 $ --
9.47% Notes 373.8 356.9
10 7/8% Notes 250.0 250.0
7.25% Notes 351.7 --
Credit facility 59.7 --
Lines of credit 50.0 --
Equipment credit facility 49.6 22.6
Capital lease and other obligations 35.3 13.0
-------- --------
Total debt 1,480.7 642.5
Less current portion (115.4) (12.0)
-------- --------
Long-term debt $1,365.3 $ 630.5
======== ========

Current portion of long-term debt is included in accrued expenses and
other in the accompanying condensed consolidated balance sheets.

9
<PAGE>

In January 1998, the Company issued $450.5 million in principal amount at
maturity of 8.29% Senior Discount Notes, due 2008 (the "8.29% Notes"),
generating net proceeds of approximately $299.2 million, after deducting
offering costs. Interest on the 8.29% Notes is compounded semiannually. The
principal amount of the 8.29% Notes is due and payable in full on February 1,
2008. The 8.29% Notes are redeemable at the Company's option, in whole or in
part, at any time on or after February 1, 2003 at specified redemption prices.
In addition, prior to February 1, 2001, the Company may use the net cash
proceeds from certain equity transactions to redeem up to 35% of the 8.29% Notes
at specified redemption prices. Cash interest on the 8.29% Notes will not accrue
until February 1, 2003, and thereafter will accrue at a rate of 8.29% per annum,
and will be payable semiannually in arrears commencing on August 1, 2003, and
thereafter on February 1 and August 1 of each year. The Company has the option
of commencing cash interest on an interest payment date on or after February 1,
2001, in which case the outstanding principal amount at maturity of the 8.29%
Notes will, on such interest payment date, be reduced to the then accreted
value, and cash interest will be payable on each interest payment date
thereafter.

In July 1998, the Company completed an exchange of the 8.29% Series B
Senior Discount Notes (the "8.29% Exchange Notes"), registered under the
Securities Act of 1933, as amended, for all of the $450.5 million in principal
amount at maturity of the 8.29% Notes. The 8.29% Exchange Notes are identical in
all material respects to the originally issued 8.29% Notes.

In connection with the LCI Merger, the Company assumed LCI's existing debt
instruments, including $350.0 million of 7.25% Senior Notes, due 2007 (the
"7.25% Notes"); a $250.0 million revolving credit facility ("Credit Facility")
from a syndicate of banks; and three separate discretionary line of credit
agreements (the "Lines of Credit") with commercial banks for up to a total of
$75.0 million.

The Credit Facility bears interest at a rate consisting of two components:
the base rate component is dependent upon a market indicator; the second
component varies from 0.30% to 0.75%, based on the more favorable of the
relationship of borrowings levels to operating cash flow (the "leverage ratio")
or senior unsecured debt rating. As of June 30, 1998, the Company had $59.7
million outstanding under the Credit Facility at an interest rate of 6.0%. The
Credit Facility contains various financial covenants, the most restrictive being
the leverage ratio requirement. As of June 30, 1998, the Company was in
compliance with all Credit Facility covenants. The Credit Facility expires
December 31, 1998 and is therefore included in current liabilities in the
accompanying condensed consolidated balance sheet as of June 30, 1998.

As of June 30, 1998, $50.0 million was outstanding on the Lines of Credit
at interest rates from 6.7% to 6.9%. The Lines of Credit are short-term in
nature and are therefore included in current liabilities in the accompanying
condensed consolidated balance sheet as of June 30, 1998.

(7) INCOME TAXES

Effective with the LCI Merger, Qwest is no longer included in the
consolidated federal income tax return of its Majority Shareholder. As a
result, the tax sharing agreement with the Majority Shareholder is no longer
effective for activity after June 5, 1998. The Company is still subject to the
provisions of the tax sharing agreement for activity through June 5, 1998.

10
<PAGE>

The Company's effective tax rate for the three and six months ended June 30,
1998, differed from the statutory income tax rate primarily as a result of the
nondeductibility of R&D write-offs, and acquisition-related goodwill. The
effective tax rate for the three and six months ended June 30, 1997, was less
than the statutory rate primarily as a result of the nondeductibility of a
portion of growth share expense, as shown below (in percent):

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Federal tax at statutory rate (35.0)% (35.0)% (35.0)% (35.0)%
R&D 31.5% -- 31.1% --
Growth share plan -- 4.8% -- 2.7%
Other, net 0.6% 0.2% 0.7% 0.7%
------- ------- ------- -------
Effective tax rate (2.9)% (30.0)% (3.2)% (31.6)%
======= ======= ======= =======
</TABLE>

(8) COMMITMENTS AND CONTINGENCIES

(a) Network Construction Project and Capital Requirements

In 1996, the Company commenced construction of the Qwest Network. The
Company estimates the total cost to construct and activate the Qwest Network
(which now includes the LCI network) and complete construction of the dark fiber
sold to customers will be approximately $2.1 billion. The Company projects its
total remaining cost as of June 30, 1998 for completing the construction of the
Qwest Network will be approximately $800.0 million. This amount includes the
Company's remaining commitment through December 31, 1998 to purchase a minimum
quantity of materials for approximately $59.0 million as of June 30, 1998,
subject to quality and performance expectations, and contracts for the
construction of conduit systems aggregating approximately $60.2 million.

(b) Network and Telecommunications Capacity Exchanges

From time to time, the Company enters into agreements to acquire long-term
telecommunications capacity rights from unrelated third parties in exchange for
long-term telecommunications capacity rights along segments of the Qwest Network
under construction. In general, the exchange agreements provide for the payment
of cash by either of the parties for any period during the contract term in
which a party provides less than the contracted telecommunications capacity. The
exchange agreements provide for liquidated damages to be levied against the
Company in the event the Company fails to deliver the telecommunications
capacity, in accordance with the agreed-upon timetables.

The Company has agreements with certain telecommunications interexchange
carriers 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 minimum billing requirements and believes the minimum usage commitments will
continue to be met.

(d) Legal Matters

The Company has been named as a defendant in various litigation matters.
Management intends to vigorously defend these outstanding claims. The Company
believes it has adequate accrued loss contingencies and, that although the
ultimate outcome of these claims cannot be ascertained at this time, current
pending or threatened litigation matters will not have a material adverse impact
on the Company's results of operations or financial position.

11
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains or refers to forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 that include, among others,
(i) statements by Qwest concerning the benefits expected to result from certain
transactions, including, without limitation, synergies in the form of increased
revenues, decreased expenses and avoided expenses and expenditures that are
expected to be realized by Qwest after the closing of such transactions, (ii)
Qwest's plans to complete the Qwest Network, an approximately 18,450 route-mile,
coast-to-coast, technologically advanced fiber optic communications network, and
(iii) other statements by Qwest of expectations, beliefs, future plans and
strategies, anticipated developments and other matters that are not historical
facts. Qwest cautions the reader that these forward-looking statements are
subject to risks and uncertainties, including financial, regulatory environment,
and trend projections, that could cause actual events or results to differ
materially from those expressed or implied by the statements. Such risks and
uncertainties include those risks, uncertainties and risk factors identified,
among other places, in documents filed with Securities and Exchange Commission.
The most important factors that could prevent Qwest from achieving its stated
goals include, but are not limited to, (a) failure by Qwest to manage
effectively, cost efficiently and on a timely basis the construction of the
Qwest Network, (b) failure by Qwest to obtain and maintain all necessary rights-
of-way, (c) intense competition in Qwest's Communcations Services markets, (d)
the potential for rapid and significant changes in technology and their effect
on Qwest's operations, (e) operating and financial risks related to managing
rapid growth and integrating acquired businesses and (f) adverse changes in the
regulatory environment. These cautionary statements should be considered in
connection with any subsequent written or oral forward-looking statements that
may be issued by Qwest or persons acting on its behalf. Qwest undertakes no
obligation to review or confirm analysts' expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

OVERVIEW

The Company is a facilities-based provider of a full range of multimedia
communications services to interexchange carriers and other communications
entities as well as to businesses and consumers ("Communications Services"); and
it constructs and installs fiber optic communications systems for interexchange
carriers and other communications entities, as well as for its own use
("Construction Services").

The Company expects the completion of its domestic voice and data network in
1999. In April 1998, the Company activated the entire transcontinental portion
of the Qwest Network from Los Angeles to San Francisco to New York, thus
becoming the first network service provider to complete a transcontinental
native Internet Protocol ("IP") fiber network. The Company is also expanding
its network to carry international data and voice traffic into Mexico and
Europe. Completion of the Mexico network is scheduled for late 1998. The
network extension into Europe will be obtained through the exchange of
telecommunications capacity with Teleglobe Inc., including two STM1s (the
European equivalent of OC3 SONET circuits) crossing the Atlantic Ocean from New
York City to London, and with Global Crossing Ltd. ("Global"), including four
STM1s on Global's subsea fiber optic cable system connecting U. S. cities with
Europe. The transatlantic telecommunications capacity supports the Company's
growth into the European market.

In August 1998, the Company announced its participation in a consortium of
communications companies that is building a submarine cable system connecting
the United States to Japan. Scheduled for completion by the second quarter of
2000, the 13,125-mile four-fiber pair cable will ultimately possess the
capability to transmit information at the rate of 640 gigabits per second.

In June 1998, the Company acquired LCI International, Inc. ("LCI"), a
communications services provider, for approximately $3.9 billion in Company
common stock, which includes the assumption of all of LCI's stock options,

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and for $0.3 billion in liabilities assumed (the "LCI Merger"). The merger
qualified as a tax-free reorganization and was accounted for as a purchase.

In April 1998, the Company acquired EUnet International Limited ("EUnet"), a
European internet service provider ("ISP") with business units operating in 14
European countries for $158.2 million in Company common stock and cash. The
merger was accounted for as a purchase.

In March 1998, the Company acquired Phoenix Network, Inc. ("Phoenix") for
$27.2 million in Company common stock. Phoenix is a non-facilities-based
reseller of long distance services. The transaction qualified as a tax-free
reorganization and was accounted for as a purchase.

Communications Services. Communications Services consists of retail and
wholesale services. The Company's retail services include voice, data and video
services to business and consumer customers. The Company builds direct, end-
user relationships by developing strong distribution channels, providing
competitive pricing and superior network quality and offering enhanced, market-
driven services. The Company's wholesale services provides high-volume and
conventional dedicated line services over the Company's owned capacity and
switched services over owned and leased capacity to other communications
providers. In addition to traditional communications carriers, the Company is
marketing to ISPs, electric utility companies and other data service companies.

Construction Services. Construction Services constructs and installs fiber
optic communication systems for other communications providers, as well as for
the Company's own use. The Company began operations in 1988 constructing fiber
optic conduit systems primarily for major long distance carriers in exchange for
cash and capacity rights. The Company has entered into major construction
contracts for the sale of dark fiber to Frontier, WorldCom and GTE whereby the
Company has agreed to install and provide dark fiber to each along portions of
the Qwest Network. In addition to these contracts, the Company has signed
agreements with other communication providers for the sale of dark fiber along
the Qwest Network. Revenue from Construction Services generally is recognized
under the percentage of completion method as performance milestones relating to
the contract are satisfactorily completed. After completion of the Qwest
Network, the Company expects that revenue from Construction Services will be
less significant to the Company's operations.

RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE AND SIX MONTHS ENDED
JUNE 30, 1997

The Company reported a net loss of $808.9 million for the three months ended
June 30, 1998, compared to a net loss of $5.6 million for the same period of the
prior year. For the six months ended June 30, 1998, the Company reported a net
loss of $815.7 million compared to a net loss of $10.4 million for the six
months ended June 30, 1997. The increase in the net loss for the three and six
month periods as compared to the same periods in the prior year was primarily
due to the factors discussed below. Excluding the effect of the merger related
costs and the write-off of in-process research and development costs related to
the LCI and EUnet acquisitions, the Company's reported net loss would have been
$24.6 million for the three months ended June 30, 1998, compared to a net loss
of $5.6 million for the same period of the prior year and a net loss of $22.6
million for the six months ended June 30, 1998 compared to a net loss of $10.4
million for the same period of the prior year.

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Revenue. Selected components of revenue for the three and six months ended
June 30, 1998 and 1997, were as follows (dollars in millions):

<TABLE>
<CAPTION>
Increase Increase
Three Months (Decrease) Six Months (Decrease)
1998 1997 % 1998 1997 %
------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Communications services $ 239.8 $ 24.0 899% $ 282.4 $ 44.6 533%
Construction services 153.9 204.7 (25)% 288.4 256.7 12%
------- ------- ---------- ------- ------- ----------
Total revenue $ 393.7 $ 228.7 72% $ 570.8 $ 301.3 89%
======= ======= ========== ======= ======= ==========
</TABLE>

During the three and six months ended June 30, 1998, as compared to the same
period in the prior year, Communication Services revenue increased due to the
addition of one month of revenue from the acquisition of LCI. Additionally,
Qwest revenue, excluding LCI, increased due to growth in retail and wholesale
services and from other acquisitions.

During the three months ended June 30, 1998, as compared to the same period in
the prior year, Construction Services revenue decreased primarily due to $95.8
million of revenue relating to construction milestones which had already been
met upon signing the GTE network contract during the three months ended June 30,
1997. During the six months ended June 30, 1998, as compared to the same period
in the prior year, Construction Services revenue increased due to increased
revenue from dark fiber sales to other carriers, partially offset by the effect
of the GTE contract discussed above.

Operating Expenses. Selected components of operating expenses for the three
and six months ended June 30, 1998 and 1997, were as follows (dollars in
millions):

<TABLE>
<CAPTION>
Increase Increase
Three Months (Decrease) Six Months (Decrease)
1998 1997 % 1998 1997 %
-------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Access and network operations $ 153.6 $ 19.7 680% $ 184.5 $ 36.8 401%
Constructions services 108.1 143.3 (25)% 205.6 182.6 13%
Selling, general and
administrative 107.9 68.7 57% 152.1 93.7 62%
Depreciation and amortization 32.0 4.1 680% 40.1 8.0 401%
Merger related costs 812.5 - - 812.5 - -
-------- -------- ---------- -------- -------- ----------
Total operating expenses $1,214.1 $ 235.8 415% $1,394.8 $ 321.1 334%
======== ======== ========== ======== ======== ==========
</TABLE>

Expenses for access and network operations primarily consist of the cost of
operation of the Qwest Network, Local Exchange Carrier ("LEC") access charges
and the cost of leased capacity. The increase in access and network operations
for both the three and six months ended June 30, 1998 was primarily attributable
to growth in revenue from the LCI Merger and internally generated growth in
communication services revenue. As the Qwest Network is completed and
activated, the Company is able to serve more customer needs over its own
capacity.

Expenses for construction services consist primarily of costs to construct the
Qwest Network, including conduit, fiber, cable, construction crews and rights of
way. Costs attributable to the construction of the Qwest Network for the
Company's own use are capitalized. Expenses for construction services decreased
for the three months ended June 30, 1998 as compared to the three months ended
June 30, 1997 consistent with the decrease in revenue discussed above. During
the six months ended June 30, 1998, as compared to the same period in the prior
year, expenses for construction services increased due primarily to costs of
construction contracts relating to increased dark fiber sales revenue, partially
offset by the effect of the GTE contract discussed above.

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<PAGE>

SG&A expense includes the cost of salaries, benefits, occupancy costs,
commissions, sales and marketing expenses and administrative expenses. The
increase in SG&A was primarily due to the addition of one month of LCI SG&A
expenses, increases in expenses related to the Company's direct mail sales
program, the marketing of the Company's new brand identity and new service
offerings, administrative and information services in support of the Company's
growth, increased payroll from the recruiting and hiring of additional personnel
and increased property taxes and maintenance costs related to the increase in
fixed assets along the Qwest Network. The increase in SG&A was partially offset
by a decrease in Growth Share Plan expense. The Company has a Growth Share Plan
for certain of its employees and directors, which was the Company's management
incentive plan prior to the initial public offering. Growth Share Plan expense
for the three and six months ended June 30, 1998 was $2.5 million and $4.8
million, respectively, compared to $52.1 million and $65.2 million for the three
and six months ended June 30, 1997, respectively. Growth Share expense is not
expected to be material to the operations of the Company in the future. SG&A is
expected to increase in the short term as the Company continues to grow and as
segments of the Qwest Network become operational.

The Company's depreciation and amortization expense increased primarily due to
activating segments of the Qwest Network during the three and six months ended
June 30, 1998, purchases of additional equipment used in constructing the Qwest
Network, purchases of other fixed assets to accommodate the Company's growth and
amortization of goodwill related to the Company's acquisitions. The Company
expects that depreciation and amortization expense will continue to increase in
subsequent periods as the Company continues to activate additional segments of
the Qwest Network and amortizes goodwill recorded from acquisitions.

In connection with the acquisition of LCI, the Company allocated $682.0
million of the purchase price to in-process R&D projects, $318.0 million to
developed technology, $65 million to other intangible assets and $3,026.0
million to goodwill. The developed technology, other intangibles and goodwill
are being amortized on a straight-line basis from 10 to 40 years. This
allocation to the in-process R&D represents the estimated fair value based on
risk-adjusted cash flows related to the incomplete projects. At the date of the
merger, the development of these projects had not yet reached technological
feasibility and the R&D in progress had no alternative future uses. Accordingly,
these costs were expensed as of the merger date.

Through the use of third party appraisal consultants, the Company assessed
and allocated values to the in-process research and development. The values
assigned to these assets were determined by identifying significant research
projects for which technological feasibility had not been established. These
assets consisted of a significant number of R&D projects grouped into three
categories: (1) next-generation network systems automation tools; (2) advanced
data services, including frame relay and Internet Protocol technologies; and (3)
new operational systems and tools. Taken together, these projects, if
successful, will enable the Company to provide advanced voice and data services
as well as sophisticated network management and administration functions. A
brief description of the three categories of in-process projects is presented
below:

. R&D Related to Network Systems Automation. These R&D projects are
intended to create a new method of automating LCI's service provisioning
and network management systems, and were valued at approximately $218
million. These proprietary projects include the development of data
warehousing and new interface technologies to enable the interchange of
data across disparate networks. As of the transaction date, the Company
believes that the overall project was 60% complete. Development efforts
through June 30, 1998 have proceeded according to expectations. The
expected costs to complete the projects are approximately $4 million in
1998 and $10 million in 1999. While material progress has been made with
these projects, significant risk still is associated with their
completion. If these projects are unsuccessful, their expected
contribution to revenues and profits will not materialize.

. R&D Related to Frame Relay and IP Services. These projects involve R&D
related to the deployment of frame relay and IP technologies within the
LCI network, and are valued at approximately $155 million. With the
completion of this next-generation network, LCI will be able to address
emerging new demand trends for data services. Management considers this a
complex project due to the customized work required. As of the
transaction date, the Company believes the overall project was
approximately 60% to 70% complete as of the LCI transaction date.
Development efforts through June 30, 1998 have proceeded according to
expectations. The expected costs to complete the projects are
approximately $3 million in 1998 and $7 million in 1999. While material
progress has been made with these projects, significant risk still is
associated with their completion. If these projects are unsuccessful,
their expected contribution to revenues and profits will not materialize.

. R&D Related to Operational Systems and Tools. These projects involve R&D
related to the development of new service and network management tools
and engineering functions and were valued at approximately $309 million.
These proprietary projects are closely associated with LCI's deployment
of advanced data services. Applications enabled by these new technologies
include the ability to offer new products and service packages. As of the
transaction date, the Company believes the projects were 60% to 70%
complete. Development efforts through June 30, 1998 have proceeded
according to expectations. The expected costs to complete the projects
are approximately $10 million in 1998 and $24 million in 1999. While
material progress has been made with the R&D projects, these are unique
technologies and significant risk is associated with their completion. If
these projects are unsuccessful, their expected contribution to revenues
and profits will not materialize.

Remaining R&D efforts for these projects include various phases of technology
design, development and testing. Anticipated completion dates for the projects
in progress will occur in phases over the next two years, at which point the
Company expects to begin generating the economic benefits from the technologies.
At the time of valuation, the costs incurred and the expected costs to complete
all such projects were approximately $50 million and $60 million,
respectively.

The value assigned to purchased in-process technology was determined by
estimating the contribution of the purchased in-process technology to developing
commercially viable products, estimating the resulting net cash flows from the
expected product sales of such products, and discounting the net cash flows from
the expected product sales of such products, to their present value using a
risk-adjusted discount rate.

The Company estimates total revenues from the specific acquired in-process
technology peak in 2003 and steadily decline from 2004 through 2009 as other new
product and service technologies are expected to be introduced by the company.
These projections are based on management's estimates of market size and growth,
expected trends in technology, and the expected timing of new product
introductions.

Discounting the net cash flows back to their present values is based on the
weighted average cost of capital ("WACC"). The business enterprise is comprised
of various types of assets, each possessing different degrees of investment risk
contributing to the LCI's overall weighted average cost of capital. Intangible
assets are assessed higher risk factors due to their lack of liquidity and poor
versatility for redeployment elsewhere in the business. Reasonable returns on
monetary and fixed assets were estimated based on prevailing interest rates. The
process for quantifying intangible asset investment risk involved consideration
of the uncertainty associated with realizing discernible cash flows over the
life of the asset. A discount rate of 19% was used for valuing the in-process
research and development. This discount rate is higher than the implied WACC due
to the inherent uncertainties surrounding the successful development of the
purchased in-process technology, the useful life of such technology, the
profitability levels of such technology, and the uncertainty of technological
advances that are unknown at this time. As is standard in the appraisal of high
growth markets, projected revenues, expenses and discount rates reflect the
probability of technical and marketing successes.

The value of the in-process projects was adjusted to reflect value and
contribution of the acquired research and development. In doing so,
consideration was given to the R&D's stage of completion, the complexity of the
work completed to date, the difficulty of completing the remaining development,
costs already incurred, and the projected cost to complete projects.

The Company believes that the foregoing assumptions used in the forecasts
were reasonable at the time of the merger. The Company cannot assure, however,
that the underlying assumptions used to estimate expected project sales,
development costs or profitability, or the events associated with such projects,
will transpire as estimated. For these reasons, actual results may vary from the
projected results.

The Company expects to continue their support of these efforts and believes
the Company has a reasonable chance of successfully completing the R&D programs.
However, risk is associated with the completion of the projects and the Company
cannot assure that the projects will meet with either technological or
commercial success.

If none of these projects is successfully developed, the sales and
profitability of the Company may be adversely affected in future periods. The
failure of any particular individual project in-process would not materially
impact the Company's financial condition, results of operations or the
attractiveness of the overall LCI investment. Operating results are subject to
uncertain market events and risks, which are beyond the Company's control, such
as trends in technology, government regulations, market size and growth, and
product introduction or other actions by competitors.

Other (Income) Expense. Selected components of other (income) expense for
the three and six months ended June 30, 1998 and 1997, were as follows (dollars
in millions):

<TABLE>
<CAPTION>
Increase Increase
Three Months (Decrease) Six Months (Decrease)
1998 1997 % 1998 1997 %
------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Interest expense, net $ 18.9 $ 3.7 411% $ 33.2 $ 4.7 606%
Interest income and other (6.4) (2.8) 129% (14.4) (9.3) 55%
------ ------ ---------- ------ ------ ----------
Total other (income) expense $ 12.5 $ 0.9 1,289% $ 18.8 $ (4.6) 509%
====== ====== ========== ====== ====== ==========
</TABLE>

The increase in net interest expense resulted from an increase in long-term
indebtedness, (see "Liquidity and Capital Resources" below), partially offset by
increases in capitalized interest resulting from construction of the Qwest
Network. As the Qwest Network is completed, interest expense will increase as
the amount of capitalized interest will decrease. Interest income and other
increased due primarily to increased cash equivalent balances.

Income Taxes. Effective with the LCI Merger, Qwest is no longer included in
the consolidated federal income tax return of its Majority Shareholder. As a
result, the tax sharing agreement with the Majority Shareholder is no longer
effective for activity after June 5, 1998. The Company is still subject to the
provisions of the tax sharing agreement for activity through June 5, 1998.

The Company's effective tax rate for the three and six months ended June 30,
1998, differed from the statutory income tax rate primarily as a result of the
nondeductibility of R&D writeoffs, and acquisition-related goodwill. The
effective tax rate for the three and six months ended June 30, 1997, was less
than the statutory rate, primarily as a result of the nondeductibility of a
portion of growth share expense.

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LIQUIDITY AND CAPITAL RESOURCES

In 1997, the Company funded capital expenditures and long-term debt repayments
primarily through net proceeds from the issuance of debt and equity securities
aggregating approximately $903.6 million. Cash provided by operations was $100.8
million during the six months ended June 30, 1998. Cash used in investing
activities was $435.8 million during the six months ended June 30, 1998,
including $413.4 million to fund capital expenditures. Cash provided by
financing activities was $321.2 million during the six months ended June 30,
1998, including borrowings and repayments of long-term debt of $328.7 million
and $22.0 million, respectively.

The Company estimates the total cost to construct and activate the Qwest
Network and complete construction of dark fiber sales will be approximately $2.1
billion. Of this amount, the Company had already expended approximately $1.3
billion as of June 30, 1998. The Company anticipates remaining total cash
outlays (including capital expenditures) for these purposes of approximately
$500.0 million in 1998 and $300.0 million in 1999. Estimated total Qwest Network
expenditures for 1998 include the Company's commitment to purchase a minimum
quantity of fiber for approximately $399.0 million (subject to quality and
performance specifications), of which approximately $340.0 million had been
expended as of June 30, 1998. In addition, the Company anticipates spending
approximately $500.0 million for capital expenditures for the remainder of 1998
to support growth in Communications Services.

As of June 30, 1998, the Company has obtained the following sources of funds
which are available to complete the build-out: (i) approximately $1.25 billion
under the Frontier, WorldCom and GTE contracts and additional smaller
construction contracts for sales of dark fiber, of which approximately $750.0
million had already been received and $500.0 million remained to be paid at June
30, 1998; (ii) $90.0 million of vendor financing; (iii) $242.0 million in net
proceeds from the sale of the 10 7/8% Notes, of which approximately $124.4
million was used to pay down certain existing debt, (iv) $342.1 million in net
proceeds from the sale of the 9.47% Notes; (v) $299.2 million in net proceeds
from the sale of the 8.29% Notes and (vi) approximately $319.5 million in net
proceeds from the IPO. The Company believes that its available cash and cash
equivalent balances at June 30, 1998, cash flow from operations and its existing
credit facilities will satisfy its currently anticipated cash requirements at
least through the end of 1998.

The Credit Facility bears interest at a rate consisting of two components:
the base rate component is dependent upon a market indicator; the second
component varies from 0.30% to 0.75%, based on the more favorable of the
relationship of borrowings levels to operating cash flow (the "leverage ratio")
or senior unsecured debt rating. As of June 30, 1998, the Company had $59.7
million outstanding under the Credit Facility. The Credit Facility contains
various financial covenants, the most restrictive being the leverage ratio
requirement. As of June 30, 1998, the Company was in compliance with all Credit
Facility covenants. The Credit Facility expires December 31, 1998 and is
therefore included in current liabilities in the accompanying condensed
consolidated balance sheet as of June 30, 1998.

As of June 30, 1998, $50.0 million was outstanding on the Lines of Credit.
The Lines of Credit are short-term in nature and are therefore included in
current liabilities in the accompanying condensed consolidated balance sheet as
of June 30, 1998. The Company is in the process of renegotiating these existing
debt agreements.

The Company, through its wholly-owned subsidiary, LCI, maintains an agreement
to sell a percentage ownership interest in a defined pool of trade accounts
receivable (the "Securitization Program"). The Company can transfer an undivided
interest in the trade accounts receivable on an ongoing basis to maintain the
participation

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<PAGE>

interest up to $150.0 million. As of June 30, 1998, the Company had
approximately $137.0 million of accounts receivable available for sale and had
sold, but not yet collected, a total of approximately $125.0 million. The
Company retains substantially the same risk of credit loss as if the receivables
had not been sold, and has established reserves for such estimated credit
losses.

INDUSTRY ENVIRONMENT

Historically, the Company has operated in the $80 billion long-distance
telecommunications industry. Recent legislative and regulatory activity is
designed to create one telecommunications industry to encompass both long-
distance and local telecommunications services. The Company intends to compete
in what is estimated to be a $150 billion combined market.

The current industry environment subjects the Company to varying degrees of
regulatory oversight on both the national and state levels. There are numerous
judicial and regulatory actions that are ongoing which can impact the nature and
degree of competition in the telecommunications industry. The Company is unable
to predict the timing for resolution of these actions, or the ultimate impact of
these matters on the industry and competition. The regulatory and legislative
actions discussed below could impact the Company's pricing and cost structure by
changing access, per-line and payphone charges, or by generally increasing
competition. The Company is unable to predict what impact these changes will
have on its pricing, revenue growth or operating margin.

LEGISLATIVE MATTERS

Telecommunications Act of 1996. In February 1996, the Telecommunications
Act of 1996 ("the Act") was enacted to increase competition in the long-distance
and local telecommunications industries. The legislation is intended to open
competition in the local services market and, at the same time, contains
provisions intended to protect consumers and businesses from unfair competition
by incumbent local exchange carriers ("LECs"), including the Regional Bell
Operating Companies ("RBOCs"). The Act allows RBOCs to provide long-distance
service between LATAs to consumers inside their local service territories only
after meeting certain criteria, including a list of 14 specific "competitive
checklist" requirements for opening the local market to competition. In May
1998, the Company entered into "teaming agreements" with U.S. WEST
Communications, Inc. ("U S West") and Ameritech Corporation ("Ameritech"),
respectively, under which these RBOCs market the interLATA long distance service
of the Company to consumers in their markets. AT&T Corporation ("AT&T"), MCI
Communications Corporation ("MCI"), and other parties have filed complaints
against U.S. West in the U.S. District Court, Western District of Washington,
and against Ameritech in the U.S. District Court for the Northern District of
Illinois, Eastern Division, in regard to the teaming agreements on the grounds
that they are allegedly violative of the Telecommunications Act. The District
Court in Washington has enjoined U.S. West from activities under its teaming
agreement pending resolution of the case on the merits. The District Court in
Illinois was unwilling to similarly enjoin Ameritech, but both courts have
referred the matters to the FCC for expert determination on an expedited basis.
The Federal Communications Commission ("FCC") has since ordered Ameritech to
"stand still" in its activities under its teaming agreement. The Company has
intervened as a party in the U.S. West matter and at the FCC, and has a petition
to intervene pending in the Ameritech case.

The Act also provides a framework for the Company and other long-distance
carriers to compete with LECs by reselling local telephone service, leasing
unbundled elements of the incumbent LEC networks or building new local service
facilities. The Company has signed local service resale agreements with
Ameritech, BellSouth Corporation ("BellSouth") and Bell Atlantic Corporation
("Bell Atlantic"). The Company has also signed an interconnection agreement with
Ameritech. the Company currently competes in the local service market and is
providing local service to customers on a bundled resale basis. The Company is
also evaluating providing local service through the recombination of unbundled
network elements; however, a recent court ruling (see Local Competition Order,
below) does not require the LECs to recombine the various network elements on
behalf of local service competitors. The Company could also decide in the future
to build, or otherwise acquire, local service facilities or use a competitive
LEC other than incumbent LECs (such as the RBOCs or GTE Communications
Corporation ("GTE")) to provide local service. The Company's decision on the
timing and method of providing local service is dependent on the economic
viability and profitability of the available options, the resolution of various
operational issues and the outcome of several pending regulatory and judicial
proceedings.

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<PAGE>

In July 1997, SBC Communications Inc. ("SBC"), followed by US West and Bell
Atlantic, filed a lawsuit in the United States District Court for the Northern
District of Texas ("the District Court") challenging, on constitutional grounds,
the restrictions contained in the Act applicable only to RBOCs. The plaintiffs
sought both a declaratory judgment and an injunction against the enforcement of
the challenged provisions. On December 31, 1997, the District Court ruled that
the RBOC-specific provisions of the Act were an unconstitutional bill of
attainder. The FCC, AT&T, MCI and Sprint have appealed this ruling to the United
States Court of Appeals for the Fifth Circuit and requested a stay of this
ruling pending the outcome of the appeal. On February 11, 1998, the District
Court granted a stay, pending appeals. If the ruling is ultimately upheld, the
RBOCs may be able to provide long-distance services within their local service
territories much sooner than expected and without the detailed review and
approval process by state regulators and the FCC that is currently required
under the Act. If this decision were upheld, the Company expects an increase in
competition for long-distance services which could result in the loss of market
share and/or a decrease in operating margins. However, the Company believes
that the RBOCs' and other companies' participation in the market will provide
opportunities for the Company to sell fiber or lease long distance high volume
capacity. The Company is unable to predict the outcome of the pending appeal.

REGULATORY MATTERS

In order to implement the Act, the FCC is required to undertake a variety
of regulatory actions that impact competition in the telecommunications
industry. Many of the actions taken by the FCC to implement the Act, in addition
to the Act itself, face court challenges. Certain of these regulatory actions
are described below.

Access Charge Reform. In May 1997, the FCC issued an order designed to
reform the system of interstate access charge expenses levied by LECs on long-
distance service carriers. In the May order, the FCC used rate reductions and
increased competition in interstate access to bring interstate access charges
closer to actual economic cost. The FCC has stated that it will issue a further
order designed to permit incumbent LECs to lower interstate access charges in
response to competition. The manner in which the FCC implements its approach to
lowering access charge levels will have a material effect on the prices the
Company and its long-distance competitors pay for originating and terminating
interstate traffic. Various parties have filed petitions for reconsideration of
the May order with the FCC. Some parties, including the Company, have appealed
the May order to the Eighth Circuit, which heard oral arguments on January 15,
1998. The Company cannot predict when the Eighth Circuit will issue a ruling on
the Company's appeal. Although the ultimate outcome of the FCC and resulting
court actions are uncertain, the Company does expect lower access charges in
1998. This decrease, however, has been offset by increases in customer line
charges and charges for the universal service fund.

<PAGE>

Universal Service. The FCC released a companion order on universal service
reform in May 1997. In accordance with the Telecommunications Act, the FCC
adopted plans to implement the recommendations of a Federal-State Joint Board to
preserve universal service, including a definition of services to be supported,
and defining carriers eligible for contributing to and receiving from universal
service subsidies. The FCC ruled, among other things, that: contributions to
universal service funding be based on all interexchange carriers' gross retail
revenues from both interstate and international telecommunications services;
only common carriers providing a full complement of defined local services be
eligible for support; and up to $2.25 billion in new annual subsidies for
discounted telecommunications services used by schools, libraries, and rural
health care providers be funded by an assessment on total interstate and
intrastate revenues of all interexchange carriers. The FCC stated that it
intends to study the mechanism for continued support of universal service in
high cost areas in a subsequent proceeding. Several parties have filed
petitions for reconsideration or judicial appeals or both of this order, many of
which are still pending. Further to its study of the mechanism for support of
universal service, on April 10, 1998, the FCC released a report to Congress
suggesting that the FCC might, in a later proceeding, classify some kinds of
"phone-to-phone" voice services using the Internet protocol as
telecommunications services. Such an outcome would extend new regulatory
obligations and associated costs, including the obligation to support universal
service, to providers of those services. The Company is unable to predict the
outcome of the further FCC proceedings or the pending judicial appeals or
petitions for FCC reconsideration on its operations. The Company is required to
contribute in 1998 a percentage of its gross retail revenue to the universal
services fund and includes charges for these contributions in its 1998 billings.

CIC Codes. On April 11, 1997, the FCC released an order requiring that all
carriers transition from three-digit to four-digit Carrier Identification Codes
("CICs") by January 1, 1998. CICs are the suffix of a carrier's Carrier Access
Code ("CAC"), and the transition will expand CACs from five (10XXX) to seven
digits (101XXXX). These codes permit customers to reach their carrier of choice
from any telephone, and allows for the implementation of 10XXX alternative
services. Several parties filed petitions for reconsideration of this design,
arguing in part that this short transition (following the FCC's proposal for a
six-year transition) does not permit carriers sufficient time to make necessary
hardware and software upgrades or to educate their customers regarding the need
to dial additional digits to reach their carrier of choice. On October 22,
1997, in response to these petitions, the FCC issued an order on reconsideration
that modified the transition to create a "two-step" process. LECs must have
completed switch changes to recognize the new codes by January 1, 1998, but
interexchange carriers had until June 30, 1998 to prepare for and educate their
consumers about the change to new codes. The Company believes it is compliant
with this order. Petitions for reconsideration and judicial appeals of the
FCC's orders are pending. The Company cannot predict the outcome of these
proceedings or whether this transition period will permit adequate customer
notification.

Payphone Compensation. In September 1996, the FCC adopted rules to
implement the Act's requirement to fairly compensate payphone service providers.
This order included a specific fee to be paid to each payphone service provider
by long-distance carriers and intraLATA toll providers (including LECs) on all
"dial-around" calls, including debit card and calling card calls. In orders
released in July and September 1997, the D.C. Circuit vacated and remanded some
of the FCC's rules. In October 1997, the FCC established a default per-call rate
of $0.284 for a two-year period to respond to the DC Circuit. The FCC's action
will increase the Company's costs to carry certain calls that originate from
payphones. This decision has been appealed by several parties. In the quarter
ended March 31, 1998, the Company implemented billing procedures to charge its
customers for the expected cost of these calls. In light of this appeal and any
court action in these proceedings, the Company is unable to predict the ultimate
impact that changes to the per-call compensation rate will have on the Company.

Deployment of Advanced Telecommunications Services. Recently, the FCC
initiated two proceedings on the deployment of advanced telecommunications
services (e.g., high-speed Internet access, video telephony) and the petitions
filed by several entities pursuant to the Telecommunications Act of 1996. A
Notice of Inquiry will examine if advanced telecommunications services are being
made available to consumers on a reasonable and timely basis. The Notice of
Proposed Rulemaking offers incumbent local telephone companies the option to
provide advanced telecommunications services through a separate

19
<PAGE>

affiliate on a largely deregulated basis. The Company is unable to predict what
impact these proceedings will have on the nature of competition or how advanced
telecommunications services offered by LECs will be regulated.

Competition Petition. To date, the Company's efforts to provide local
resale service have not been profitable. The Company continues to identify and
evaluate alternatives to reselling incumbent LEC service, such as purchasing
service from competitive access providers and investments in local facilities-
based providers. In January 1998, the Company filed a petition with the FCC that
identified three critical barriers to local competition, including the absence
of non-discriminatory operational support systems, no practical and efficient
unbundled network elements, and pricing that discriminates in favor of the
RBOCs' own retail operations. To mitigate discrimination, the petition
recommends that the RBOCs be given the option to separate into wholesale and
retail units. The wholesale units would be required to provide comparable
service to new local service providers, such as the Company, and the RBOCs'
retail operations. In return, the RBOC would benefit from a rebuttable
presumption in favor of being granted in-region interLATA authority. On January
26, 1998, the FCC issued a Public Notice seeking comments on the Company's
Petition and on February 18, 1998, the Illinois Commerce Commission issued its
own Notice of Inquiry regarding the Company's proposal for structural separation
of the RBOC's retail operations.

International Settlements. Under the international settlement system,
international long distance traffic is exchanged under bilateral correspondent
agreements between facilities-based carriers in two countries. Correspondent
agreements generally are three to five years in length and provide for the
termination of traffic in, and return traffic to, the carriers' respective
countries at a negotiated accounting rate, known as the Total Accounting Rate
("TAR"). In addition, correspondent agreements provide for network coordination
and accounting and settlement procedures between the carriers. Both carriers
are responsible for their own costs and expenses related to operating their
respective halves of the end-to-end international connection.

Recently, the FCC has proposed to liberalize, and exempt certain foreign
carriers from, current settlement policies. The Company believes that the
average cost of international telephone calls will be reduced, and anticipates
further international opportunities will be created as a result of recent
worldwide trade negotiations. On February 15, 1997, representatives of 70
countries, including the United States, finalized the WTO Basic
Telecommunications Agreement ("WTO Agreement"), a compact addressing market
access, investment and pro-competitive regulatory principles in areas currently
generating over 95% of the world's telecommunications revenue. The WTO
Agreement took effect on February 5, 1998. Among other things, the agreement
provides U.S. companies market access for local, long distance and international
service in 53 historically monopolized countries through any means of network
technology, either as a facilities-based provider or as a reseller of existing
network capacity. The countries providing market access for telecommunications
services as a result of the WTO Agreement account for 99% of the world's
telecommunications revenue. Although some countries have reserved specific
exceptions, the agreement generally ensures that U.S. companies may acquire,
establish, or hold a significant stake in telecommunications companies around
the world, and that foreign companies may acquire, establish or hold such a
stake in U.S. telecommunications companies. Additionally, pro-competitive
regulatory principles based largely upon the Telecommunications Act were adopted
by 65 countries within the WTO Agreement. U.S. companies will be able to
enforce these principles, as well as the WTO Agreement's market access and
investment commitments, at the WTO and through enabling legislation in the U.S.
The Company expects to benefit from the anticipated effects of the WTO
Agreement, but cannot predict where or when such opportunities may present
themselves.

State Regulation. The Company's intrastate long distance
telecommunications operations are subject to various state laws and regulations
including, in many jurisdictions, certification and tariff filing requirements.

Generally, the Company must obtain and maintain certificates of authority
from regulatory bodies in most states in which it offers intrastate services.
In most of these jurisdictions the Company must also file and obtain prior
regulatory approval of tariffs for its intrastate services. Certificates of
authority can generally be conditioned, modified, canceled, terminated, or
revoked by state regulatory authorities for

<PAGE>

failure to comply with state law and/or the rules, regulations, and policies of
the state regulatory authorities. Fines and other penalties also may be imposed
for such violations. The Company is currently authorized to provide intrastate
services throughout the United States. The Company intends to have authority in
all states where competition is allowed.

Those states that permit the offering of intrastate/intraLATA service by
interexchange carriers generally require that end users desiring to use such
services dial special access codes. Historically, this has put the Company at a
competitive disadvantage compared with LECs whose customers can make
intrastate/intraLATA calls simply by dialing 1 plus the desired number. If a
long distance carrier's customer attempts to make an intraLATA call by simply
dialing 1 plus the desired number, the call will be routed to and completed by
the LEC. Regulatory agencies in a number of states have issued decisions that
would permit the Company and other interexchange carriers to provide intraLATA
calling on a 1 + basis. Further, the Telecommunications Act requires in most
cases that the RBOCs provide such dialing parity coincident to their providing
in-region interLATA services. The Company expects to benefit from the ability
to offer 1 + intraLATA services in states that allow this type of dialing
parity.

Local Regulation. The Company is occasionally required to obtain street
use and construction permits and licenses and/or franchises to install and
expand its fiber optic network using municipal rights-of-way. Termination of
the existing franchise or license agreements prior to their expiration dates or
a failure to renew the franchise or license agreements and a requirement that
the Company remove its facilities or abandon its network in place could have a
material adverse effect on the Company. In some municipalities where the
Company has installed or anticipates constructing networks, it will be required
to pay license or franchise fees based on a percentage of gross revenue or on a
per linear foot basis. There can be no assurance that, following the expiration
of existing franchises, fees will remain at their current levels. In addition,
the Company could be at a competitive disadvantage if its competitors do not pay
the same level of fees as the Company. However, the Telecommunications Act
requires municipalities to manage public rights-of-way in a competitively
neutral and non-discriminatory manner.

Other. The Company monitors compliance with federal, state and local
regulations governing the discharge and disposal of hazardous and
environmentally sensitive materials, including the emission of electromagnetic
radiation. The Company believes that it is in compliance with such regulations,
although there can be no assurance that any such discharge, disposal or emission
might not expose the Company to claims or actions that could have a material
adverse effect on the Company.

INDUSTRY STRUCTURE

The long-distance telecommunications market is highly competitive. The
principal competitive factors affecting the Company's market share are pricing,
regulatory and judicial developments (as described above), customer service and
diversity of services and features. The Act is expected to change the nature of
the industry by allowing carriers other than incumbent LECs to provide local
service, while permitting RBOCs to provide interLATA long-distance services. As
RBOCs are allowed into the long-distance market, the Company expects competition
within the industry to increase in both the long-distance and local markets.

Several of the Company's competitors are larger and have greater financial,
technical and marketing resources. In addition to the largest telecommunications
companies, AT&T, MCI and Sprint, or the "Big Three," the Company also competes
with hundreds of other long-distance carriers, as well as LECs, in various types
of telecommunications services. The Company's principal pricing strategy is to
offer a simple, flat-rate pricing structure with rates competitive with those of
the Big Three. Although the Company is prepared to respond to competitive
offerings from other carriers, the Company continues to believe that its Simple,
Fair and Inexpensive (SM) marketing and service pricing approach is competitive
in retaining existing customers, as well as in obtaining new customers. In 1997,
the Company introduced Exact Billing (SM), a differentiator that neither the Big
Three nor any other nationwide long-distance carrier offers, giving the Company
a competitive advantage in some markets. The Company believes that the nature of
competition will continue to change with consolidation in the industry. The
Company's ability to compete effectively will depend on maintaining exceptional
customer service and high quality, market-responsive services at prices
generally equal to or below those charged by its major competitors.

Industry Mergers. The telecommunications industry has experienced
significant merger activity in the last year. Of the many mergers that have
occurred or have been announced in the last year, the most significant include:
Bell Atlantic/NYNEX CableComms Group Inc. ("NYNEX"); SBC/Pacific Telesis Group
("PacTel"); MCI/WorldCom, Inc.; SBC/Southern New England Telephone Company; and,
most recently, AT&T/Teleport Communications Group. To date, only the Bell
Atlantic/NYNEX and SBC/PacTel mergers have received federal and state regulatory
approvals. At this time the Company is unable to predict the impact of these
mergers, if any, on the Company or competition within the industry as a whole.

21
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In March, 1998 four putative class action complaints ("Complaints") against
LCI, its directors and in two of these cases, Qwest, were filed in the Court of
Chancery of the State of Delaware in and for New Castle County ("Court"). The
Complaints each made substantially the same allegations. The plaintiffs alleged
that the consummation of the LCI Merger subjected LCI stockholders to the
control of the Majority Shareholder. The plaintiffs further alleged that the LCI
Merger constitutes a change in control of LCI and imposes heightened fiduciary
duties on the members of the LCI Board to maximize stockholder value. The
plaintiffs also alleged that the members of the LCI Board violated their
fiduciary duties by failing to auction LCI or to undertake an active "market
check" for other potential bidders. The plaintiffs had sought, among other
things, to have the Court declare the suit a proper class action, enjoin the LCI
Merger and require the members of the LCI Board to auction LCI and/or conduct a
"market check," and award monetary damages, together with costs and
disbursements.

On May 5, 1998, Qwest and LCI entered into a proposed settlement with the
plaintiffs in the Complaints. Pursuant to the Memorandum of Understanding
entered into by counsel for Qwest, LCI and the plaintiffs, Qwest and LCI agreed,
among other things, to (i) include in the Joint Proxy Statement/Prospectus for
the LCI Merger financial information with respect to the quarter ended March 31,
1998, (ii) request Lehman Brothers to issue an updated opinion with respect to
the fairness of the LCI Merger; (iii) include in the Joint Proxy
Statement/Prospectus additional disclosure regarding actions by LCI and its
representatives regarding alternative business combination transactions and (iv)
not oppose an application for legal fees and expenses by the plaintiffs'
attorneys in the amount of not more than $410,000. Pursuant to the proposed
settlement, the actions will be dismissed with prejudice and the defendants will
be released from claims that were or could have been asserted in the actions.
Because the Complaints are putative class actions, the proposed settlement is
subject to reasonable confirmatory discovery, certification of the plaintiff
class of LCI Stockholders as of March 9, 1998 through the consummation of the
LCI Merger, notice to the class and Court approval. The proposed settlement does
not affect the Phillips action discussed below. On June 3, 1998, the four
putative class action lawsuits were consolidated by an Order of the Court and
the complaint in Miri Shapiro v. William F. McConnell [sic], Julius W. Erving,
Douglas M. Karp, George M. Perrin, H. Brian Thompson, John L. Vogelstein, Thomas
J. Wayne [sic], LCI International, Inc. and Qwest Communications International
Inc., was designated as the operative complaint in the consolidated action.
Confirmatory discovery was completed in June 1998. The parties have prepared for
execution a Stipulation and Agreement of Compromise, Settlement and Release. The
parties also have prepared for submission to the Court a scheduling order for
approval of the settlement.

On April 3, 1998, in an action captioned Lionel Phillips v. LCI International
Inc. and H. Brian Thompson, the plaintiff filed a putative class action
complaint in the United States District Court for the Eastern District of
Virginia against LCI and H. Brian Thompson, the Chairman and Chief Executive
Officer of LCI. The plaintiff brought the action purportedly on behalf of
stockholders of LCI who sold LCI Common Stock between February 17, 1998 and
March 9, 1998. The plaintiff alleged, among other things, that the defendants
violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder
by making materially false and misleading statements that LCI was not for sale
at a time when negotiations between Qwest and LCI regarding a potential merger
were allegedly ongoing. The plaintiff sought, among other things, to have the
Court declare the suit a proper class action and award damages, together with
costs and disbursements. On June 25, 1998, defendants moved to dismiss the
complaint on the grounds that it failed to state a claim against defendants. By
Order dated July 20, 1998, the Court granted defendants' motion to dismiss the
complaint. The Court also granted plaintiff leave to amend the complaint within
fifteen days. On July 28, 1998, plaintiff moved for an extension of time in
which to amend the complaint. The defendants intend to move for dismissal, with
prejudice, of any amended complaint filed by the plaintiff.

The Company also has been named as a defendant in various other litigation
matters. Management intends to vigorously defend these outstanding claims. The
Company believes it has adequate accrued loss contingencies and, that although
the ultimate outcome of these claims cannot be ascertained at this time, current
pending or threatened litigation matters will not have a material adverse impact
on the Company's results of operations or financial position.

22
<PAGE>

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

In April 1998, the Company issued 3.6 million shares of its common
stock as part of the consideration for its acquisition of EUnet
International Limited ("EUnet"). The securities were issued to EUnet
shareholders and optionholders in a private placement transaction
exempt from registration under the Securities Act of 1933, as amended
("the Securities Act"). The Company is currently undertaking the
registration of the resale of the shares of the Company's common stock
under the Securities Act ("the Registration"). In addition, in
connection with the Registration, EUnet stockholders will receive
additional newly issued shares of the Company's common stock having
the value of $14.4 million, based upon an average of the Company's
common stock closing prices for 15 consecutive trading days commencing
20 trading days before the effective date of the Registration.

(d) Use of Proceeds

The Company has used approximately $187.1 million of the $319.5
million net proceeds from its initial public offering for construction
of its fiber optic communications network with the remaining net
proceeds temporarily invested in certain short-term investment grade
securities.

ITEM 4. SUBMISSION OF MATTERS TO a VOTE OF SECURITY HOLDERS

1. On May 6, 1998, the Company held its Annual Meeting of Stockholders. There
were 206,677,742 shares of Common Stock of the Company which could be voted at
the meeting, and 96.2%, or 198,756,139 shares, of Common Stock were represented
at such meeting, in person or by proxy, which constituted a quorum. The results
were as follows:

(a) Election of ten directors to serve for one-year terms until the 1999
Annual Meeting of Stockholders. All of management's nominees were
elected as directors of the Company to serve until the next annual
meeting of the stockholders and until their successors are elected and
qualified.

(b) Approval of the Qwest Communications International Inc. Equity
Incentive Plan:

For Against Abstain Broker Non-votes
----------- --------- ------- ----------------
183,697,713 5,199,713 151,307 9,707,406

23
<PAGE>

2. On June 5, 1998, the Company held a special meeting of stockholders. There
were 207,541,517 shares of Common Stock of the Company which could be voted
at the meeting, and 88.6%, or 183,908,884 shares, of Common Stock were
represented at such meeting, in person or by proxy, which constituted a
quorum. The results were as follows:

(a) Approval of the issuance of shares of Common Stock of the Company
pursuant to an Agreement and Plan of Merger dated as of March 8, 1998,
as amended, by and among the Company, a wholly owned subsidiary of the
Company and LCI International, Inc.:

For Against Abstain
----------- ------- -------
183,825,856 64,679 18,349

(b) Approval to amend the Company's Amended and Restated Certificate of
Incorporation to increase the authorized number of shares of Common
Stock of the Company from 400,000,000 to 600,000,000:

For Against Abstain
----------- ------- -------
183,791,210 66,919 50,755

24
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit No. Description
- ----------- -----------

2.1 Agreement and Plan of Merger dated as of March 8, 1998 among Qwest
Communications International Inc., Qwest 1998-L Acquisition Corp. and
LCI International, Inc. (incorporated by reference to Exhibit A to the
Joint Proxy Statement/Prospectus included as part of the Registration
Statement on Form S-4 filed by Qwest on April 10, 1998 (File No. 333-
49915)). Filed without schedules, which will be provided to the
Commission upon request.

2.2 First Amendment to Agreement and Plan of Merger dated as of March 8,
1998 among Qwest Communications International Inc., Qwest 1998-L
Acquisition Corp. and LCI International, Inc. Incorporated by
reference to the exhibit of the same number in Form S-4 (File No. 333-
49915). Filed without schedules, which will be provided to the
Commission upon request.

2.3 Amended and Restated Agreement and Plan of Merger dated as of December
31, 1997 among Phoenix Network, Inc., Qwest Communications
International Inc. and Qwest 1997-5 Acquisition Corp. Incorporated by
reference to Exhibit A to the Proxy Statement/Prospectus that is part
of the Registration Statement on Form S-4 (File No. 333-46145).

3.1 Amended and Restated Certificate of Incorporation of Qwest.
Incorporated by reference to the exhibit of the same number in Form S-
1 as declared effective on June 23, 1997 (File No. 333-25391).

3.2 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Qwest. Incorporated by reference to the exhibit of
the same number in Form S-3 (File No. 333-58617).

3.3 Bylaws of Qwest. Incorporated by reference to exhibit 3 in Form 10-Q
for the quarter ended September 30, 1997 (File No. 000-22609).

4.1 Third Amended and Restated Credit Agreement, dated as of September 5,
1997, by and among LCI International Inc., First Union National Bank,
Nationsbank of Texas, N.A., and the Bank of New York. Incorporated by
reference to exhibit 4(c)(xv) in LCI's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997.

4.2 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.

10.l Employment Agreement, dated as of October 18, 1993, between LCI
International Management Services, Inc. and Joseph A. Lawrence.
Incorporated by reference to LCI's Annual Report on Form 10-K for the
year ended December 31, 1994. *

10.2 LCI International, Inc. 1992 Stock Option Plan. Incorporated by
reference to LCI's Registration Statement No. 33-60558.*

10.3 LiTel Communications, Inc. 1993 Stock Option Plan. Incorporated by
reference to LCI's Registration Statement No. 33-60558.*

10.4 LCI International, Inc. 1994/1995 Stock Option Plan. Incorporated by
reference to LCI's Annual Report on Form 10-K for the year ended
December 31, 1993.*

25
<PAGE>

10.5 LCI International, Inc. and Subsidiaries Nonqualified Stock Option
Plan for Directors. Incorporated by reference to LCI's Registration
Statement No. 33-67368.*

10.6 LCI International, Inc. 1995/1996 Stock Option. Incorporated by
reference to LCI's Proxy Statement for the 1995 Annual Meeting of
Shareowners.*

10.7 Employment Agreement, dated as of March 20, 1994, between LCI
International, Inc. and H. Brian Thompson. Incorporated by reference
to LCI's Annual Report on Form 10-K for the year ended December 31,
1994.*

10.8 LCI International Management Services, Inc. Supplemental Executive
Retirement Plan. Incorporated by reference to LCI's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995.*

10.9 Employment Agreement, dated as of October 1, 1995 between LCI
International Management Services, Inc., and Larry Bouman.
Incorporated by reference to Exhibit 10(l)(xviii) in LCI's Annual
Report on Form 10-K for the year ended December 31, 1995.*

10.l0 1997/1998 LCI International, Inc. Stock Option Plan. Incorporated by
reference to Exhibit 10(l)(xxi) in LCI's Annual Report on Form 10-K
for the year ended December 31, 1996.*

10.l1 LCI International, Inc. and Subsidiaries Executive Incentive
Compensation Plan. Incorporated by reference to Exhibit 10(l)(xxii)
in LCI's Annual Report on Form 10-K for the year ended December 31,
1996.*

10.12 Contractor Agreement dated January 18, 1993 by and between LCI
International Telecom Corp. and American Communications Network, Inc.
Incorporated by reference to LCI's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995. Portions of this exhibit have
been omitted pursuant to a request for confidential treatment.*

10.13 Transfer and Administrative Agreement among Enterprise Funding
Corporation, LCI SPC I, Inc., LCI International Telecom Corp.,
NationsBank, N.A. and certain other parties thereto, dated August 29,
1996. Incorporated by reference to Exhibit 10(r)(i) in LCI's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.

10.14 Receivables Purchase Agreement dated August 29, 1996, among LCI
International Telecom Corp. and LCI SPC I, Inc. Incorporated by
reference to Exhibit 10(r)(ii) in LCI's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.

10.15 Subordinated Intercompany Revolving Note, dated August 29, 1996,
issued to LCI International Telecom Corp. by LCI SPC I, Inc.
Incorporated by reference to Exhibit 10(r)(iii) in LCI's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.

10.16 Support Agreement, dated August 29, 1996, by LCI International, Inc.
in favor of LCI SPC I, Inc. Incorporated by reference to Exhibit
10(r)(iv) in LCI's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996.

10.17 Participation Agreement dated as of November 1996 among LCI
International, Inc., as the Construction Agent and as the Lessee,
First Security Bank, National Association, as the Owner Trustee under
the Stuart Park Trust, the various banks and lending institutions
which are parties thereto from time to time as the Holders, the
various banks and lending institutions which are parties thereto from
time to time as the Lenders and NationsBank of

26
<PAGE>

Texas, N.A., as the Agent for the Lenders. Incorporated by reference
to Exhibit 10(s)(i) in LCI's Annual Report on Form 10-K for the year
ended December 31, 1996.

10.18 Unconditional Guaranty Agreement dated as of November 15, 1996 made by
LCI International, Inc., as Guarantor in favor of NationsBank of
Texas, N.A., as Agent for the ratable benefit of the Tranche A
Lenders. Incorporated by reference to Exhibit 10(s)(ii) in LCI's
Annual Report on Form 10-K for the year ended December 31, 1996.

10.19 Agency Agreement between LCI International, Inc., as the Construction
Agent and First Security Bank, National Association, as the Owner
Trustee under the Stuart Park Trust as the Lessor dated as of November
15, 1996. Incorporated by reference to Exhibit 10(s)(iii) in LCI's
Annual Report on Form 10-K for the year ended December 31, 1996.

10.20 Deed of Lease Agreement dated as of November 15, 1996 between First
Security Bank, National Association as the Owner Trustee under the
Stuart Park Trust, as Lessor and LCI International, Inc. as Lessee.
Incorporated by reference to Exhibit 10(s)(iv) in LCI's Annual Report
on Form 10-K for the year ended December 31, 1996.

27 Financial Data Schedule filed herewith

* Indicates a management contract or compensatory plan or arrangement

(b) Reports on Form 8-K:

During the quarter ended June 30, 1998, the Company filed the following
Current Reports on Form 8-K:

(i) On April 3, 1998, the Company filed a Current Report on
Form 8-K announcing the consummation of the merger of Phoenix
Network, Inc. and the Company, effective March 30, 1998.

(ii) On April 21, 1998, the Company filed a Current Report on
Form 8-K announcing the completion of the acquisition of EUnet
International Limited, effective April 14, 1998.

(iii) On June 12, 1998, the Company filed a Current Report on
Form 8-K announcing the consummation of the merger of LCI
International, Inc. and the Company, effective June 5, 1998.

27
<PAGE>

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

QWEST COMMUNICATIONS INTERNATIONAL INC.,
a Delaware corporation

By: /s/ Robert S. Woodruff
-------------------------------------
ROBERT S. WOODRUFF
EXECUTIVE VICE PRESIDENT--FINANCE AND
CHIEF FINANCIAL OFFICER AND TREASURER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)

August 13, 1998

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 INCLUDED IN THE COMPANY'S FORM
10-Q, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 366
<SECURITIES> 0
<RECEIVABLES> 275
<ALLOWANCES> 58
<INVENTORY> 0
<CURRENT-ASSETS> 1,043
<PP&E> 1,807
<DEPRECIATION> 64
<TOTAL-ASSETS> 6,549
<CURRENT-LIABILITIES> 1,028
<BONDS> 1,286
0
0
<COMMON> 3
<OTHER-SE> 3,668
<TOTAL-LIABILITY-AND-EQUITY> 6,549
<SALES> 571
<TOTAL-REVENUES> 571
<CGS> 390
<TOTAL-COSTS> 1,395
<OTHER-EXPENSES> (14)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> (843)
<INCOME-TAX> (27)
<INCOME-CONTINUING> (816)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (816)
<EPS-PRIMARY> (3.63)
<EPS-DILUTED> (3.63)

</TABLE>