<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 11-K
ANNUAL REPORT
____________________
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
____________________
For the Fiscal Year Ended December 31, 1998
____________________
QWEST COMMUNICATIONS INTERNATIONAL INC. 401(k) PLAN
Commission File No. 000-22609
_____________________
Qwest Communications International Inc. 401(k) Plan
700 Qwest Tower
555 Seventeenth Street
Denver, CO 80202
(303) 992-1400
(Name of issuer of securities held pursuant to the plan and address of its
principal executive office)
===============================================================================
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. 401(k) PLAN
---------------------------------------------------
INDEX TO FINANCIAL STATEMENTS AND
---------------------------------
SUPPLEMENTAL SCHEDULES
----------------------
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS:
Statement of Net Assets Available for Plan Benefits
with Fund Information as of December 31, 1998 2
Statement of Net Assets Available for Plan Benefits
with Fund Information as of December 31, 1997 3
Statement of Changes in Net Assets Available for
Plan Benefits with Fund Information for the Year
Ended December 31, 1998 4
NOTES TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES 5-11
SUPPLEMENTAL SCHEDULES:
Schedule I--Item 27a--Schedule of Assets Held for
Investment Purposes as of December 31, 1998 12
Schedule II--Item 27b--Schedule of Loans or Fixed Income
Obligations in Default as of December 31, 1998 13
Schedule III--Item 27d--Schedule of Reportable Transactions
for the Year Ended December 31, 1998 14
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Participants and Plan Administrative Committee of the
Qwest Communications International Inc. 401(k) Plan:
We have audited the accompanying statements of net assets available for plan
benefits with fund information of the QWEST COMMUNICATIONS INTERNATIONAL INC.
401(k) PLAN (the "Plan") as of December 31, 1998 and 1997, and the related
statement of changes in net assets available for plan benefits with fund
information for the year ended December 31, 1998. These financial statements
are the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1998 and 1997, and the changes in net assets available for plan
benefits for the year ended December 31, 1998, in conformity with generally
accepted accounting principles.
As further discussed in Note 1, the Plan was frozen effective December 31, 1998.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
held for investment purposes, loans or fixed income obligations in default and
reportable transactions are presented for the purpose of additional analysis and
are not a required part of the basic financial statements but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. These supplemental schedules are the responsibility of the Plan's
management. The fund information in the statements of net assets available for
plan benefits and the statement of changes in net assets available for plan
benefits is presented for purposes of additional analysis rather than to present
the net assets available for plan benefits and changes in net assets available
for plan benefits of each fund. The supplemental schedules and fund information
have been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Denver, Colorado,
June 28, 1999.
-1-
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. 401(k) PLAN
---------------------------------------------------
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND INFORMATION
-------------------------------------------------------------------------
AS OF DECEMBER 31, 1998
-----------------------
<TABLE>
<CAPTION>
Non-
Participant
Directed Participant Directed
----------- ---------------------------------------------------------
Qwest Qwest Invesco MFS
Common Common Stable MFS Emerging
Stock Stock Value Research Growth
Fund Cash Fund Fund Fund Fund
----------- -------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENTS (Note 2):
Cash $ - $104,365 $ - $ - $ - $ -
Mutual funds - - - - 1,291,714 1,819,493
Collective trust - - - 717,294 - -
Employer stock 934,068 - 3,438,061 - - -
Participant loans - - - - - -
-------- -------- ---------- -------- ---------- ----------
Total
investments 934,068 104,365 3,438,061 717,294 1,291,714 1,819,493
-------- -------- ---------- -------- ---------- ----------
RECEIVABLES:
Employer
contributions 51,160 - 14,931 2,021 6,687 7,590
Participant
contributions - - 85,250 8,735 34,528 34,886
-------- -------- ---------- -------- ---------- ----------
Total
receivables 51,160 - 100,181 10,756 41,215 42,476
-------- -------- ---------- -------- ---------- ----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $985,228 $104,365 $3,538,242 $728,050 $1,332,929 $1,861,969
======== ======== ========== ======== ========== ==========
<CAPTION>
Participant Directed
---------------------------------------------------------------
Dodge FPA
GAM Mutual & Cox New Participant
International Beacon Balanced Income Loan
Fund Fund Fund Fund Fund Total
------------- ---------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENTS (Note 2):
Cash $ - $ - $ - $ - $ - $ 104,365
Mutual funds 1,230,720 1,304,397 1,082,200 146,927 - 6,875,451
Collective trust - - - - - 717,294
Employer stock - - - - - 4,372,129
Participant loans - - - - 367,109 367,109
---------- ---------- ---------- -------- ------------ ------------
Total
investments 1,230,720 1,304,397 1,082,200 146,927 367,109 12,436,348
---------- ---------- ---------- -------- ------------ ------------
RECEIVABLES:
Employer
contributions 5,607 4,894 5,392 595 - 98,877
Participant
contributions 25,073 26,766 20,502 3,371 - 239,111
---------- ---------- ---------- -------- ------------ -----------
Total
receivables 30,680 31,660 25,894 3,966 - 337,988
---------- ---------- ---------- -------- ------------ -----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $1,261,400 $1,336,057 $1,108,094 $150,893 $367,109 $12,774,336
========== ========== ========== ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
-2-
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. 401(k) PLAN
----------------------------------------------------
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND INFORMATION
-------------------------------------------------------------------------
AS OF DECEMBER 31, 1997
-----------------------
<TABLE>
<CAPTION>
Participant Directed
-------------------------------------------------------------------
New
England Invesco MFS Crabbe
Stable Stable MFS Emerging GAM Huson
Value Value Research Growth International Special
Fund Fund Fund Fund Fund Fund
------- -------- -------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENTS (Note 2):
Guaranteed
interest fund $86,255 $ - $ - $ - $ - $ -
Mutual funds - - 295,633 1,339,348 734,848 459,122
Collective trust - 538,211 - - - -
Participant loans - - - - - -
------- -------- -------- ---------- ---------- --------
Total
investments 86,255 538,211 295,633 1,339,348 734,848 459,122
------- -------- -------- ---------- -------- --------
RECEIVABLES:
Employer
contributions - 5,234 5,774 15,626 6,718 3,896
Participant
contributions - 4,420 6,316 15,750 7,230 3,803
------- -------- -------- ---------- -------- --------
Total
receivables - 9,654 12,090 31,376 13,948 7,699
------- -------- -------- ---------- -------- --------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $86,255 $547,865 $307,723 $1,370,724 $748,796 $466,821
======= ======== ======== ========== ======== ========
<CAPTION>
Participant Directed
--------------------------------------------
Dodge FPA
Mutual & Cox New Participant
Beacon Balanced Income Loan
Fund Fund Fund Fund Total
-------- -------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
INVESTMENTS (Note 2):
Guaranteed
interest fund $ - $ - $ - $ - $ 86,255
Mutual funds 948,514 792,080 190,681 - 4,760,226
Collective trust - - - - 538,211
Participant loans - - - 129,798 129,798
-------- -------- -------- -------- ----------
Total
investments 948,514 792,080 190,681 129,798 5,514,490
-------- -------- -------- -------- ----------
RECEIVABLES:
Employer
contributions 8,295 6,392 1,595 - 53,530
Participant
contributions 8,390 6,535 1,524 - 53,968
-------- -------- -------- -------- ----------
Total
receivables 16,685 12,927 3,119 - 107,498
-------- -------- -------- -------- ----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $965,199 $805,007 $193,800 $129,798 $5,621,988
======== ======== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
-3-
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. 401(k) PLAN
----------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND
------------------------------------------------------------------------
INFORMATION
-----------
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------
<TABLE>
<CAPTION>
Non-
Participant
Directed Participant Directed
------------ ------------------------------------------------------------------------
New
Qwest Qwest England Invesco MFS
Common Common Stable Stable MFS Emerging
Stock Stock Value Value Research Growth
Fund Cash Fund Fund Fund Fund Fund
------------ -------- ---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
ATTRIBUTED TO:
Contributions-
Participant $ - $ - $1,014,029 $ - $109,190 $ 420,583 $ 506,723
Employer 758,750 - 221,438 - 64,604 119,710 172,066
Rollovers - - 484,025 - 166,555 155,190 145,060
Investment
income (loss)-
Interest and
dividends - - - 3,230 36,051 - -
Net appreciation
(depreciation)
in fair
value of
investments 252,514 - 968,116 - - 176,552 408,258
------------ -------- ---------- -------- -------- ---------- ----------
Total
additions 1,011,264 - 2,687,608 3,230 376,400 872,035 1,232,107
DEDUCTIONS FROM NET
ASSETS ATTRIBUTED
TO:
Distributions to
participants (17,684) - (84,012) (7,655) (86,145) (48,185) (362,136)
Administrative
fees - - (367) (1,344) (2,352) (56) (56)
------------ -------- ---------- -------- -------- ---------- ----------
Total
deductions (17,684) - (84,379) (8,999) (88,497) (48,241) (362,192)
LOAN ACTIVITY, net - - (4,965) - (47,922) (44,452) (62,862)
INTERFUND TRANSFERS, net (8,352) 104,365 939,978 (80,486) (59,796) 245,864 (315,808)
------------ -------- ---------- -------- -------- ---------- ----------
Net increase
(decrease) 985,228 104,365 3,538,242 (86,255) 180,185 1,025,206 491,245
NET ASSETS AVAILABLE
FOR PLAN BENEFITS,
beginning of year - - - 86,255 547,865 307,723 1,370,724
------------ -------- ---------- -------- -------- ---------- ----------
NET ASSETS AVAILABLE
FOR PLAN BENEFITS,
end of year $ 985,228 $104,365 $3,538,242 $ - $728,050 $1,332,929 $1,861,969
============ ======== ========== ======== ======== ========== ==========
<CAPTION>
Participant Directed
--------------------------------------------------------------------------------
Crabbe Dodge FPA
GAM Huson Mutual & Cox New Participant
International Special Beacon Balanced Income Loan
Fund Fund Fund Fund Fund Fund Total
------------- --------- ---------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
ATTRIBUTED TO:
Contributions-
Participant $ 371,557 $ 50,462 $ 336,006 $ 306,940 $ 47,299 $ - $ 3,162,789
Employer 122,289 32,304 119,399 110,099 16,517 - 1,737,176
Rollovers 117,229 12,873 170,947 107,009 14,778 - 1,373,666
Investment
income (loss)-
Interest and
dividends 15,888 - 39,404 31,404 11,827 14,796 152,600
Net appreciation
(depreciation)
in fair
value of
investments 29,525 (116,301) 1,576 34,741 (5,815) - 1,749,166
---------- --------- ---------- ---------- -------- -------- -----------
Total 656,488 (20,662) 667,332 590,193 84,606 14,796 8,175,397
additions
DEDUCTIONS FROM NET
ASSETS ATTRIBUTED
TO:
Distributions to
participants (94,099) (39,607) (47,788) (167,562) (31,119) (31,053) (1,017,045)
Administrative
fees (1) - (25) - - (1,803) (6,004)
---------- --------- ---------- ---------- -------- -------- -----------
Total
deductions (94,100) (39,607) (47,813) (167,562) (31,119) (32,856) (1,023,049)
LOAN ACTIVITY, net (30,596) (3,184) (40,950) (19,069) (1,371) 255,371 -
INTERFUND TRANSFERS, net (19,188) (403,368) (207,711) (100,475) (95,023) - -
---------- --------- ---------- ---------- -------- -------- -----------
Net increase
(decrease) 512,604 (466,821) 370,858 303,087 (42,907) 237,311 7,152,348
NET ASSETS AVAILABLE
FOR PLAN BENEFITS,
beginning of year 748,796 466,821 965,199 805,007 193,800 129,798 5,621,988
---------- --------- ---------- ---------- -------- -------- -----------
NET ASSETS AVAILABLE
FOR PLAN BENEFITS,
end of year $1,261,400 $ - $1,336,057 $1,108,094 $150,893 $367,109 $12,774,336
========== ========= ========== ========== ======== ======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
-4-
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC. 401(k) PLAN
---------------------------------------------------
NOTES TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
--------------------------------------------------------
AS OF DECEMBER 31, 1998 AND 1997
--------------------------------
(1) DESCRIPTION OF PLAN
-------------------
The following description of the Qwest Communications International Inc. 401(k)
Plan (the "Plan") provides only general information. Participants should refer
to the Plan document for a more complete description of the Plan's provisions.
General
-------
The Plan was established effective July 1, 1992 by SP Telecommunications, Inc.,
the predecessor of Qwest Communications International Inc. ("Qwest" or the
"Company"). The Plan was amended and restated effective April 1, 1998 and
further amended July 1, 1998 and August 1, 1998. The Plan is a defined
contribution plan which covers substantially all employees of Qwest who meet the
eligibility requirements, and is subject to the provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA"). Benefits under the Plan are
not guaranteed by the Pension Benefit Guaranty Corporation.
Plan Amendments
---------------
Phoenix Network, Inc. ("Phoenix") was acquired by the Company in March of 1998.
Effective April 1, 1998, the Plan was amended to allow eligible Phoenix
employees, as defined, to participate in the Plan on the effective date. The
amendment also granted prior service credit for participation and vesting for
these employees.
Supernet, Inc. ("Supernet") was acquired by the Company in October of 1997.
Effective May 1, 1998, the Plan was amended to allow eligible Supernet
employees, as defined, to participate in the Plan on the effective date. The
amendment also granted prior service credit for all Plan purposes for these
employees.
Effective as of the close of business on December 31, 1998, the Plan assets were
frozen. No contributions are being made to the Plan with respect to
compensation paid for any period after December 31, 1998. See Note 7 for a
discussion of the subsequent merger of the Plan.
Other Plan amendments are discussed in the notes that follow.
-5-
<PAGE>
Trust
-----
Trustee and recordkeeping services are performed by EMJAY Corporation ("EMJAY").
Plan assets are held under a trust agreement (the "Trust") maintained by EMJAY
(the "Trustee"). Investment advisory services are performed by Qwon Investment
Consultants, Inc. ("Qwon").
Eligibility
-----------
Prior to August 1, 1998, employees were eligible to participate in the Plan on
the first day of any month that coincided with or followed their completion of
one year of service (1,000 hours of service, as defined).
Effective August 1, 1998, the Plan was amended and restated to allow employees
to make salary deferral contributions to the Plan on the first day of the month
that coincides with or follows 30 days of continuous employment with the
Company. Upon completion of one year of service (1,000 hours of service, as
defined), the employee became eligible to participate in the Company's matching
and profit sharing contributions.
Contributions
-------------
Participant Salary Deferral Contributions
Prior to July 1, 1998, participants could elect to contribute to the Plan on a
pre-tax basis up to 9% of their eligible compensation, as defined by the Plan
document. On July 1, 1998, the Plan was amended to allow participants to
contribute up to 15% of their eligible compensation, as defined. Participant
pre-tax contributions were limited to comply with statutory regulations ($10,000
in 1998).
Company Matching and Profit Sharing Contributions
Prior to April 1, 1998, the Company matched employee contributions up to 3% of
the participant's eligible compensation. The Company also made a profit sharing
contribution equal to 3% of the participant's eligible compensation regardless
of the participant's contributions to the Plan.
On April 1, 1998, the Plan was amended to make Company matching and profit
sharing contributions discretionary, and to allow the employer matching
contribution, if any, to be made in a combination of cash and shares of Qwest
stock. For the year ended December 31, 1998, the Company contributed $1,737,176
to the Plan for matching contributions. The combination used for allocation
purposes of the employer matching contribution in 1998 was as follows:
The cash portion was equal to $0.50 for each $1.00 contributed by the
participant for the Plan year, up to 6% of the participant's eligible
compensation, as defined, for the Plan year. The stock portion was equal to
$0.575 for each $1.00 contributed by the participant for the Plan year, up to
6% of the participant's eligible compensation, as defined, for the Plan year.
The Company profit sharing contribution is allocated based on compensation.
There was no profit sharing contribution made for the period from April 1, 1998
to December 31, 1998.
-6-
<PAGE>
Rollover Contributions
The Plan provides that the Trustee may accept from a participant a contribution
representing distributions from another plan which meets the requirements of the
Internal Revenue Code (the "IRC"), as further described in the Plan document.
Such "rollover contributions" shall be fully vested and shall not be subject to,
or affect in any way, the maximum annual contribution limitation.
Total annual additions under the Plan and all other plans sponsored by the
Company are limited to the lesser of 25% of eligible compensation, as defined,
or $30,000. Annual additions are defined as the participant's contributions and
the Company's matching and profit sharing contributions.
Vesting
-------
Participants vest immediately upon entering the Plan.
Participant Accounts
--------------------
Each participant's account is credited with the participant's contributions,
Company matching contributions and the Company profit sharing contribution, if
any. Separate accounts are maintained for each participant. Participants'
accounts are adjusted daily to reflect unrealized appreciation or depreciation
of investments, income, gains or losses on disposition of assets and any other
investment transactions.
Payment of Benefits
-------------------
Upon retirement, termination of employment or death, each participant or
beneficiary is entitled to receive amounts in accordance with the terms and
conditions of the Plan. Participants may also make certain in-service voluntary
withdrawals and hardship withdrawals if certain criteria are met.
Investment Options
------------------
A participant may direct their account in any of the following investment
options:
Qwest Common Stock Fund - This fund invests in shares of Qwest Common Stock.
-----------------------
The purpose of this fund is to allow employees to invest in the Company's
common stock. A portion of the employer matching contribution was invested
in the Company's common stock. This became an investment option effective
April 1, 1998.
Invesco Stable Value Fund - This fund invests in contracts with insurance
-------------------------
companies, banks and other financial institutions. The contracts promise a
specific rate of return for a stated period of time. Since credit quality is
the foundation for the portfolio, all investments made for the fund are rated
AA or better at the time of purchase, and in recent years, the underlying
assets are held in a separate account or trust which is protected from the
general creditors of the contract issuer.
-7-
<PAGE>
MFS Research Fund - This fund invests a substantial portion of its assets in
-----------------
the common stocks or securities convertible to common stocks of companies
believed to possess better than average prospects for long-term growth. The
fund may invest in securities whose principal characteristic is income rather
than growth. The fund is managed by a team of equity analysts and based on
an industry group allocation.
MFS Emerging Growth Fund - The fund primarily invests in common stocks of
------------------------
small and medium sized companies early in their life cycle.
GAM International Fund - This fund invests primarily in international
-----------------------
equities, although it may invest a substantial portion of its assets in debt
securities. The fund primarily invests in Canada, the United Kingdom,
continental Europe and the Pacific Basin.
Crabbe Huson Special Fund - This fund invests primarily in common stocks but
-------------------------
can also invest in preferred stocks and bonds. It is limited to invest no
more than 35% of its assets in foreign securities. It uses a basic value
approach and looks at the market price of a security and its value as an
ongoing business. Effective August 31, 1998, this fund ceased to be an
investment option.
Mutual Beacon Fund - This fund invests in common and preferred stocks and
------------------
corporate debt securities of any credit quality that are trading at prices
below their intrinsic value. The fund may also invest 50% of its assets in
securities of companies involved in mergers, consolidation, liquidations and
reorganizations.
Dodge & Cox Balanced Fund - This fund may invest up to 75% of its assets in
-------------------------
common stocks and convertible securities. The balance of the assets is
invested in investment-grade fixed-income securities.
FPA New Income Fund - This fund invests a minimum of 75% of its assets in
-------------------
U.S. Government securities, non-convertible debt securities rated AA or
better, U.S. dollar-denominated Canadian government debt, repurchase
agreements and cash. The balance may be invested in securities rated below
AA and/or convertible securities.
Participant Loan Fund - This fund allows participants to borrow from their
---------------------
fund accounts.
Participants may change their investment options at any time.
In addition to the previous funds, assets were held during the year in the New
England Stable Value Fund, which invests in guaranteed investment contracts.
Prior to 1995, participants were allowed to invest in this fund. When EMJAY
became the trustee and recordkeeper, no additional investments were allowed into
this fund, but the participants could keep their balances in the fund. Large
fees were imposed upon participants who received distributions earlier than the
maturity date, which was during 1998. As the fees expired in 1998, all
participants transferred their balances to other funds prior to December 31,
1998.
-8-
<PAGE>
The cost basis of the Plan's investments was $10,698,578 and $5,092,352 as of
December 31, 1998 and 1997, respectively. The fair market value of individual
investments that represent 5% or more of the Plan's net assets as of December
31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Qwest Common Stock $4,372,129 $ -
Invesco Stable Value Fund 717,294 538,211
MFS Research Fund 1,291,714 295,633
MFS Emerging Growth Fund 1,819,493 1,339,348
GAM International Fund 1,230,720 734,848
Crabbe Huson Special Fund - 459,122
Mutual Beacon Fund 1,304,397 948,514
Dodge & Cox Balanced Fund 1,082,200 792,080
</TABLE>
Loans
-----
Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum equal to the lesser of $50,000 or 50% of their account balance.
Participants may take out only one loan in a twelve-month period and may have no
more than three loans outstanding at one time. Loan terms range from 1 - 5
years or up to 15 years for the purchase of a primary residence. The loans are
secured by the balance in the participant's account and bear interest at a rate
commensurate with local prevailing rates as determined by the Plan's third-party
administrator. Principal and interest is paid through payroll deductions.
Voting
------
In 1998, all shares of Qwest credited to a participant's accounts were voted by
the participants in accordance with the Plan's provisions.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Accounting
-------------------
The accompanying financial statements are prepared on the accrual basis of
accounting. The preparation of the financial statements in conformity with
generally accepted accounting principles requires the Plan's management to use
estimates and assumptions that affect the accompanying financial statements and
disclosures. Actual results could differ from these estimates. Purchases and
sales of securities are recorded on a trade date basis.
Valuation of Investments
------------------------
Investments in mutual funds and employer stock are valued at fair value based on
quoted market prices.
The Plan's New England Stable Value Fund was not fully benefit-responsive and in
accordance with SOP 94-4, "Reporting of Investment Contracts Held by Health and
Welfare Benefit Plans and Defined-Contribution Pension Plans" ("SOP 94-4"), is
required to be recorded at fair value. The
-9-
<PAGE>
New England Stable Value Fund is stated at contract value as this approximated
fair value. The contract value represents contributions made plus a specified
rate of return (4.1% in 1998), less distributions to participants. This fund
matured during 1998 and was liquidated from the Plan as of December 31, 1998 .
The Plan's Invesco Stable Value Fund invests in a collective trust fund which
invests in guaranteed investment contracts and synthetic guaranteed investment
contracts. These contracts are carried at cost plus accrued interest, which
approximates fair market value. The investment in the collective trust fund in
the accompanying financial statements is valued at the Plan's proportionate
interest in the fund as of the financial statement date. Interest rates earned
on the investment change daily. The average yield for the year ended December
31, 1998 was approximately 6.33%. The crediting interest rate as of December
31, 1998 and 1997 was 5.74% and 6.63%, respectively.
Participant loans and cash are valued at cost which approximates fair value.
Income Recognition
------------------
In the statement of changes in net assets available for plan benefits with fund
information, the net appreciation (depreciation) in the fair value of
investments consists of realized gains (losses) and the unrealized appreciation
(depreciation) on those investments.
Interest income is recorded on the accrual basis and dividends are recorded on
the ex-dividend date.
Payment of Benefits
-------------------
Benefits are recorded when paid.
Administrative Fees
-------------------
The Company pays most administrative expenses of the Plan. The Plan paid
certain expenses totaling $6,004 for the Plan year.
(3) PLAN TERMINATION
----------------
The Company had the right under the Plan to discontinue contributions at any
time, and to terminate the Plan subject to the provisions of ERISA. See Note 7
for subsequent merger of the Plan.
(4) TAX STATUS
----------
The Plan obtained its latest determination letter on July 7, 1995, in which the
Internal Revenue Service ("IRS") stated that the Plan, as then designated, was
in compliance with the applicable requirements of the IRC. The Plan has been
amended since receiving the determination letter and a new determination letter
has not been requested. However, the Plan administrator believes that the Plan
is currently designated and being operated in compliance with the applicable
requirements of the IRC.
-10-
<PAGE>
(5) RELATED PARTY TRANSACTIONS
--------------------------
Certain Plan investments are shares of Qwest Communications International Inc.
Common Stock, which qualify as related-party transactions.
(6) RISKS AND UNCERTAINTIES
-----------------------
The Plan provides for various investments in mutual funds, collective trust and
Company stock. Investments, in general, are exposed to various risks, such as
interest rate, credit and overall market volatility risk. Due to the level of
risk associated with certain investments, it is reasonably possible that changes
in the values of the investments will occur in the near term and that such
changes could materially affect participants' account balances and the amounts
reported in the statements of net assets available for plan benefits with fund
information.
At December 31, 1998, the Plan held no derivative instruments directly.
However, the Plan held such instruments indirectly through their investments in
mutual funds, which under their trust agreements, may invest in such
instruments. These instruments consist mainly of futures contracts and options.
Credit risk exists with respect to these instruments. The credit related gains
and losses during the year ended December 31, 1998 were immaterial.
(7) SUBSEQUENT EVENTS
-----------------
The Board of Directors of the Company resolved to adopt the Qwest Communications
401(k) Savings Plan (the "New Plan") effective January 1, 1999 for the benefit
of eligible employees of the Company and its participating subsidiaries.
Merrill Lynch Trust Company FSB has been designated as the trustee and
recordkeeper of the New Plan. Effective April 30, 1999, the Plan merged into
the New Plan and all assets and liabilities of the Plan became assets and
liabilities of the New Plan effective as of that date. Physical transfer of the
assets from the Plan to the New Plan occurred in May and June of 1999.
-11-
<PAGE>
SCHEDULE I
QWEST COMMUNICATIONS INTERNATIONAL INC. 401(k) PLAN
---------------------------------------------------
ITEM 27a--SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
---------------------------------------------------------
AS OF DECEMBER 31, 1998
-----------------------
<TABLE>
<CAPTION>
Name of Issue, Borrower, Current
Lessor or Similar Party Description of Investment Value Cost
- ------------------------ ------------------------- ----------- -----------
<S> <C> <C> <C>
Cash Cash $ 104,365 $ 104,365
Qwest Common Stock* Employer Stock 4,372,129 3,174,975
Invesco Stable Value Fund Collective Trust 717,294 717,294
MFS Research Fund Mutual Fund 1,291,714 1,175,208
MFS Emerging Growth Fund Mutual Fund 1,819,493 1,423,185
GAM International Fund Mutual Fund 1,230,720 1,147,876
Mutual Beacon Fund Mutual Fund 1,304,397 1,369,635
Dodge & Cox Balanced Fund Mutual Fund 1,082,200 1,067,931
FPA New Income Fund Mutual Fund 146,927 151,000
Participant Loan Fund Interest rates ranging
from 8.75% to 9.5% 367,109 367,109
----------- -----------
$12,436,348 $10,698,578
=========== ===========
</TABLE>
*Party-in-interest (Note 5).
The accompanying notes are an
integral part of this schedule.
-12-
<PAGE>
SCHEDULE II
QWEST COMMUNICATIONS INTERNATIONAL INC. 401(k) PLAN
---------------------------------------------------
ITEM 27b--SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS IN DEFAULT
------------------------------------------------------------------
AS OF DECEMBER 31, 1998
-----------------------
<TABLE>
<CAPTION>
Amount Received
Identity During Unpaid
And Original Reporting Year Balance Detailed Description of Loan Amount Overdue
Address Amount ------------------------- at End (Origination Date, Due Date, --------------------
of Obligor of Loan Principal Interest of Year Interest Rate) Principal Interest
- ---------- ------- --------- -------- ------- ---------------------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Kevin Sharp $5,000 $ - $ - $5,000 Note dated May 13, 1998, $617 $261
555 17th St. due May 31, 2002, 9.5% interest
Denver, CO
80202
Deborah Krystynak $2,000 $ 362 $ 85 $1,343 Note dated June 23, 1997, $271 $ 48
555 17th St. due June 30, 2000, 9.5% interest
Denver, CO
80202
</TABLE>
The accompanying notes are an integral part of this schedule.
-13-
<PAGE>
SCHEDULE III
QWEST COMMUNICATIONS INTERNATIONAL INC. 401(k) PLAN
---------------------------------------------------
ITEM 27d--SCHEDULE OF REPORTABLE TRANSACTIONS
---------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------
<TABLE>
<CAPTION>
Purchases Sales
------------------------ --------------------------------------------
Number of Purchase Number of Selling Cost Net
Name of Issuer or Party Involved/Description Transactions Price (a) Transactions Price (a) Basis Gain/(Loss)
- ------------------------------------------------- ------------ -------- ------------ -------- ----- ----------
Series of transactions involving securities of the same issue that in the aggregate exceed five percent of the net Plan assets
at the beginning of the year:
<S> <C> <C> <C> <C> <C> <C>
EMJAY Corporation - Qwest Common Stock* 69 $3,417,516 44 $266,016 $242,540 $ 23,476
EMJAY Corporation - Invesco Stable Value Fund 63 607,020 72 427,936 427,936 -
EMJAY Corporation - MFS Research Fund 75 1,163,242 67 297,851 280,586 17,265
EMJAY Corporation - MFS Emerging Growth Fund 81 995,404 85 907,093 715,901 191,192
EMJAY Corporation - GAM International Fund 75 850,611 74 384,264 320,976 63,288
EMJAY Corporation - Crabbe Huson Special Fund 46 122,403 50 465,224 596,035 (130,811)
EMJAY Corporation - Mutual Beacon Fund 67 874,844 83 445,234 412,255 32,979
EMJAY Corporation - Dodge & Cox Balanced Fund 66 822,637 66 510,276 470,459 39,817
EMJAY Corporation - FPA New Income Fund 52 151,970 49 188,784 188,151 633
<CAPTION>
Single transactions involving securities that exceed five percent of the net Plan assets at the beginning of the year:
<S> <C> <C> <C> <C> <C> <C>
EMJAY Corporation - MFS Emerging Growth Fund - $ - 1 $297,575 $221,703 $ 75,872
EMJAY Corporation - Qwest Common Stock* 1 650,761 - - - -
</TABLE>
(a) The current value of the assets on the transaction date is equal to the
purchase/sales price on that date.
* Party-in-interest (Note 5).
The accompanying notes are an integral part of this schedule.
-14-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
Qwest Communications International Inc. 401(k) Plan
June 28, 1999 /s/ Drake S. Tempest
------------------------------------------
Drake S. Tempest
Executive Vice President, General Counsel,
Corporate Secretary
-15-
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated June 28, 1999, included in this Form 11-K, into
the Company's previously filed Form S-8 Registration Statement File No. 33-
47349.
/s/ Arthur Andersen LLP
Denver, Colorado
June 28, 1999
