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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 20, 1998
QWEST COMMUNICATIONS INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)
000-22609 84-1339282
(COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.)
555 SEVENTEENTH STREET, SUITE 1000, DENVER, COLORADO 80202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 303-291-1400
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NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 5. OTHER EVENTS
In October 1997, Qwest Communications International Inc. ("Qwest") acquired
SuperNet, Inc. ("SuperNet"), an internet service provider, for approximately
$20.0 million in cash, including acquisition costs.
In January 1998, Qwest signed a definitive merger agreement to acquire
Phoenix Network, Inc. ("Phoenix"), a non-facilities-based reseller of long
distance services. The transaction is subject to the approval of the Phoenix
stockholders, the receipt of certain state and federal regulatory approvals
and the satisfaction of other customary closing conditions. The meeting of
Phoenix stockholders to consider approval of the acquisition is scheduled for
March 30, 1998.
In March 1998, Qwest signed a definitive merger agreement with LCI
International Inc. ("LCI"), a communications services provider. The boards of
directors of each company have approved the merger. The terms of the merger
agreement call for the acquisition of all of LCI's outstanding common shares
and the assumption of all of LCI's stock options by Qwest. The purchase price
of the all-stock transaction is anticipated to be approximately $4.4 billion.
The merger is intended to qualify as a tax-free reorganization and will be
accounted for as a purchase. The transaction is subject to the approval of the
LCI and Qwest stockholders, the receipt of certain regulatory approvals and
the satisfaction of other customary closing conditions.
Exhibit 99.1 attached hereto contains unaudited pro forma condensed combined
financial statements of Qwest as of and for the period ended December 31,
1997, giving effect to the acquisition of SuperNet and the proposed
acquisitions of Phoenix and LCI, as well as the issuance by Qwest in January
1998 of $450.5 million of 8.29% Senior Discount Notes.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibit 99.1 Unaudited Pro Forma Condensed Combined Financial Statements
as of December 31, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Qwest Communications International
Inc.
/s/ Robert S. Woodruff
By: _________________________________
ROBERT S. WOODRUFF
Executive Vice President--Finance,
Chief Financial Officer and
Treasurer
DATE: March 20, 1998
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EXHIBIT 99.1
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
The unaudited pro forma condensed combined financial statements presented
below are derived from the historical consolidated financial statements of
Qwest Communications International Inc. ("Qwest"), SuperNet, Inc.
("SuperNet"), Phoenix Network, Inc. ("Phoenix"), and LCI International Inc.
("LCI"). The unaudited pro forma condensed combined balance sheet as of
December 31, 1997 gives pro forma effect to (i) the proposed acquisition by
Qwest of all the issued and outstanding shares of capital stock of Phoenix as
if the acquisition had occurred on December 31, 1997; (ii) the proposed
acquisition by Qwest of all the issued and outstanding shares of capital stock
of LCI as if the acquisition had occurred on December 31, 1997; and (iii) the
issuance in January 1998 by Qwest of $450,505,000 aggregate principal amount
at maturity of 8.29% Senior Discount Notes (the "8.29% Notes") as if the
issuance had occurred as of December 31, 1997. The unaudited pro forma
condensed combined statement of operations for the year ended December 31,
1997 gives pro forma effect to the acquisitions of SuperNet, Phoenix, and LCI
as if such acquisitions had occurred on January 1, 1997.
The unaudited pro forma condensed combined financial statements give effect
to the acquisitions described above under the purchase method of accounting
and are based on the assumptions and adjustments described in the accompanying
notes to the unaudited pro forma condensed combined financial statements
presented on the following pages. The fair value of the consideration will be
allocated to the assets and liabilities acquired based upon the fair values of
such assets and liabilities at the date of each respective acquisition and may
be revised for a period of up to one year. The preliminary estimates and
assumptions as to the value of the assets of Phoenix and LCI to the combined
company is based upon information available at the date of preparation of
these unaudited pro forma condensed combined financial statements, and will be
adjusted upon the final determination of such fair values. A final allocation
of the purchase price to the Phoenix and LCI assets acquired and liabilities
assumed is dependent upon analysis which has not progressed to a stage at
which there is sufficient information to make such an allocation in these pro
forma condensed combined financial statements. Qwest has undertaken a study to
determine the allocation of the purchase price to the various assets acquired,
including in-process research and development projects, and the liabilities
assumed. To the extent that a portion of the purchase price is allocated to
in-process research and development, a charge, which may be material to
Qwest's results of operations, would be recognized in the period in which the
proposed mergers occur.
The unaudited pro forma condensed combined financial statements do not
purport to represent what Qwest's results of operations or financial condition
would have actually been or what operations would be if the transactions that
give rise to the pro forma adjustments had occurred on the dates assumed. The
unaudited pro forma condensed combined financial statements below should be
read in conjunction with the historical consolidated financial statements and
related notes thereto of Qwest, Phoenix, and LCI.
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QWEST COMMUNICATIONS INTERNATIONAL INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1997
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
--------------- PRO FORMA COMBINED, ---------- PRO FORMA COMBINED,
QWEST PHOENIX ADJUSTMENTS EXCLUDING LCI LCI ADJUSTMENTS INCLUDING LCI
------ ------- ----------- ------------- ---------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 380 $-- 299 (6),(7) $ 679 $ -- $ 679
Other current assets... 344 12 356 271 13 (10) 640
------ ---- --- ------ ------ ----- ------
Total current assets.. 724 12 299 1,035 271 13 1,319
Property and equipment,
net.................... 615 3 618 671 1,289
Excess of cost over net
assets acquired, net... 21 18 22 (3) 61 359 4,202 (10) 4,622
Intangible and other
long-term assets, net.. 38 2 1 (7) 41 53 (33) (10) 61
------ ---- --- ------ ------ ----- ------
Total assets............ $1,398 $ 35 322 $1,755 $1,354 4,182 $7,291
====== ==== === ====== ====== ===== ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities..... $ 315 $ 25 1 (2) $ 341 $ 288 183 (10) $ 812
Long-term debt.......... 630 -- 300 (6) 930 413 11 (10) 1,354
Other liabilities....... 71 -- 4 (2) 75 101 176
------ ---- --- ------ ------ ----- ------
Total liabilities..... 1,016 25 305 1,346 802 194 2,342
Stockholders' equity:
Preferred stock........ -- -- -- -- --
Common stock........... 2 -- 2 1 1 (10) 3
(1) (11)
Additional paid-in
capital............... 412 53 27 (2) 439 511 4,067 (10) 4,978
(53) (4) 472 (10)
(511) (11)
(Accumulated deficit)
retained earnings..... (32) (43) 43 (4) (32) 40 (40) (11) (32)
------ ---- --- ------ ------ ----- ------
Total stockholders'
equity............... 382 10 17 409 552 3,988 4,949
Commitments and
contingencies..........
------ ---- --- ------ ------ ----- ------
Total liabilities and
stockholders' equity... $1,398 $ 35 322 $1,755 $1,354 4,182 $7,291
====== ==== === ====== ====== ===== ======
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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QWEST COMMUNICATIONS INTERNATIONAL INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
-------------- PRO FORMA COMBINED, ---------- PRO FORMA COMBINED,
QWEST PHOENIX ADJUSTMENTS EXCLUDING LCI LCI ADJUSTMENTS INCLUDING LCI
----- ------- ----------- ------------- ---------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Communications
services.............. $ 115 $ 77 6 (8) $ 198 $1,642 $1,840
Network construction
services.............. 581 -- 581 -- 581
----- ---- --- ------ ------ --- ------
696 77 6 779 1,642 2,421
----- ---- --- ------ ------ --- ------
Operating expenses:
Telecommunications
services.............. 91 57 3 (8) 151 986 1,137
Network construction
services.............. 397 -- 397 -- 397
Selling, general and
administrative........ 91 30 2 (8) 123 417 540
Merger costs........... 45 (45) (12) --
Growth share and stock
option plans.......... 73 -- 1 (8) 74 -- 74
Depreciation and
amortization.......... 20 4 2 (5) 30 96 103 (13) 229
1 (8)
3 (9)
----- ---- --- ------ ------ --- ------
672 91 12 775 1,544 58 2,377
----- ---- --- ------ ------ --- ------
Earnings (loss) from
operations............. 24 (14) (6) 4 98 (58) 44
Other (expense) income:
Interest expense, net.. (7) (1) (8) (36) 1 (14) (43)
Other income, net...... 7 -- 7 -- 7
----- ---- --- ------ ------ --- ------
Earnings (loss) before
income tax benefit.... 24 (15) (6) 3 62 (57) 8
Income tax expense...... 9 -- 9 31 12 (15) 52
----- ---- --- ------ ------ --- ------
Net earnings (loss).... $ 15 $(15) (6) $ (6) $ 31 (69) $ (44)
===== ==== === ====== ====== === ======
Earnings (loss) per
share--basic........... $0.08 $(0.03) $(0.15)
===== ====== ======
Earnings (loss) per
share--diluted......... $0.07 $(0.03) $(0.15)
===== ====== ======
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
(1) In January 1998, Qwest and Phoenix entered into the Agreement and Plan of
Merger (the "Phoenix Merger Agreement"). The terms of the Phoenix Merger
Agreement call for each outstanding share of Phoenix common stock to be
exchanged for shares of Qwest common stock having an aggregate market
value equal to $28.5 million, reduced by certain adjustments and
limitations to approximately $26.8 million, and future payments of $4.0
million. The proposed acquisition is subject to certain closing
conditions that include approval by the stockholders of Phoenix.
On March 8, 1998, Qwest and LCI entered into the Agreement and Plan of
Merger (the "LCI Merger Agreement"). The terms of the LCI Merger Agreement
call for each share of LCI common stock to be exchanged for shares of
Qwest common stock. The actual number of shares of Qwest common stock to
be exchanged for each LCI share will be determined by dividing $42.00 by a
volume weighted average of trading prices for Qwest common stock for a
specified 15-day period prior to the closing, but will not be less than
1.0625 shares (if Qwest's average stock price exceeds $39.53) or more than
1.5583 shares (if Qwest's average stock price is less than $26.95). If
Qwest's average stock price is less than $26.95, LCI may terminate the
merger unless Qwest then agrees to exchange for each share of LCI the
number of Qwest shares determined by dividing $42.00 by such average
price. The proposed acquisition is subject to certain closing conditions
that include approval by the stockholders of LCI.
(2) Represents the purchase by Qwest of Phoenix's outstanding capital stock
and the incurrence of related transaction costs. Additional information
regarding the aggregate purchase price is set forth below (amounts in
millions):
<TABLE>
<S> <C>
Aggregate value of stock consideration................................. $27
Future payments........................................................ 4
Estimated direct costs of the acquisition.............................. 1
---
Aggregate purchase price to be allocated to net assets acquired........ $32
===
</TABLE>
(3) Represents the increase to Phoenix's intangible assets to reflect the
preliminary allocation of the purchase price. For pro forma purposes, the
intangible assets have been amortized over an assumed weighted average
useful life of fifteen years. The actual purchase price allocation that
will be made may differ from such assumptions, and the actual useful
lives assigned to the intangible assets may differ from the assumed
weighted average useful life used in preparing the pro forma condensed
combined financial statements.
(4) Represents the elimination of the historical equity of Phoenix.
(5) Represents the amortization of intangible assets that results from the
preliminary Phoenix purchase price allocation. Such amortization is
calculated using an estimated weighted average useful life of 15 years.
See note 3.
(6) Represents the issuance in January 1998 by Qwest of 8.29% Senior Discount
Notes (the "8.29% Notes"), yielding gross proceeds to Qwest of
approximately $300 million. The 8.29% Notes will mature on February 1,
2008.
(7) Represents debt issuance costs related to the 8.29% Notes.
(8) On October 22, 1997, Qwest acquired from an unrelated third party all the
outstanding shares of common stock, and common stock issued at the
closing of the acquisition of SuperNet for $20.0 million in cash. The
acquisition was accounted for using the purchase method of accounting,
and the purchase price was allocated on that basis to the net assets
acquired. The historical statement of operations of Qwest includes the
operating results of SuperNet beginning October 22, 1997. This pro forma
adjustment represents SuperNet's unaudited results of operations for the
period January 1, 1997 to October 21, 1997.
(9) Represents amortization for the period January 1, 1997 to October 21,
1997 of intangible assets that resulted from the SuperNet purchase price
allocation, totaling approximately $19.2 million.
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NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
(10) Represents the purchase by Qwest of LCI's outstanding common stock, the
assumption of certain liabilities, the incurrence of related transaction
costs, and the initial allocation of the pro forma purchase price.
<TABLE>
<CAPTION>
(AMOUNTS
IN MILLIONS)
<S> <C>
Aggregate value of stock consideration(a).................... $4,068
Value of LCI outstanding stock options, to be assumed by
Qwest(b).................................................... 472
Estimated direct costs of the acquisition.................... 10
------
Pro forma purchase price..................................... 4,550
Net book value of net assets acquired........................ 552
------
Excess of purchase price over net assets acquired............ $3,998
======
Allocation of excess of purchase price over net assets
acquired:
Other intangible assets(d)................................. $ (33)
Goodwill (net of existing goodwill)(e)..................... 4,202
Debt premium(f)............................................ (11)
Change in control payments(c).............................. (38)
Deferred federal income taxes(g)........................... 13
Other merger costs and liabilities(h)...................... (135)
------
Total........................................................ $3,998
======
</TABLE>
(a) Represents the estimated value of Qwest common stock issuable for the
acquisition of the approximately 96.8 million shares of LCI common
stock outstanding. Assuming an average trading price of $39.53, Qwest
would issue approximately 102.9 million shares of common stock to
acquire the LCI outstanding shares.
(b) Represents the assumption by Qwest of the approximately 14.3 million
stock options outstanding under LCI's stock option plans.
(c) LCI has an agreement with an unrelated third-party sales agent (the
"Sales Agent"), whereby the Sales Agent would receive a payment in the
event of a change in control of LCI. The proposed acquisition of LCI
by Qwest would constitute a change in control and trigger the change
in control payment pursuant to this agreement.
(d) Represents a reduction to certain other assets of LCI to reflect their
fair value.
(e) Represents the increase to LCI's intangible assets to reflect the
preliminary allocation of the purchase price. For pro forma purposes,
the intangible assets have been amortized over an assumed useful life
of 40 years. The actual purchase price allocation that will be made
may differ from such assumptions, and the actual useful lives assigned
to the intangible assets may differ from the assumed useful life used
in preparing the pro forma condensed combined financial statements. In
addition, to the extent that a portion of the purchase price is
allocated to in-process research and development, a charge which may
be material to Qwest's results of operations, would be recognized in
the period in which the Qwest/LCI merger occurs.
(f) Represents the difference between the carrying value and the fair
value of LCI's debt.
(g) Represents net deferred income tax assets related to purchase
accounting adjustments.
(h) Represents estimated provisions for purchase commitments, duplicate
facilities and equipment, severance costs, and LCI's costs related to
the acquisition.
(11) Represents the elimination of the historical equity of LCI.
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NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997
(UNAUDITED)
(12) Represents the reversal of merger costs recognized by LCI in the
acquisition of US Long Distance.
(13) Represents the amortization of intangible assets that results from the
preliminary LCI purchase price allocation, net of the reversal of
amortization expense recognized on certain LCI intangible assets for
which no purchase price has been assigned. Goodwill amortization is
calculated using an estimated useful life of 40 years. See note 10.
(14) Represents the amortization of debt premium over the 10-year life of the
underlying debt.
(15) Represents the assumed income tax effect of the pro forma adjustment
relating to the reversal of LCI's historical merger costs and the
amortization of debt premium.
(16) Transactions among Qwest, SuperNet, Phoenix, and LCI are not significant.
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