QWEST COMMUNICATIONS REPORTS STRONG THIRD QUARTER 2000 FINANCIAL RESULTS
WHILE SUCCESSFULLY INTEGRATING $77 BILLION COMPANY
REVENUE, EBITDA AND EPS EXCEEDED ANALYST EXPECTATIONS;
QWEST ON TRACK TO ACHIEVE REVENUE, EBITDA AND EPS TARGETS FOR 2000;
REVENUE GROWTH DRIVEN BY INTERNET, DATA SERVICES
Third quarter highlights compared to previous year:
o Total revenue grew on a normalized pro forma basis 12.4 percent to
$4.77 billion, on track to meet or exceed 2000 revenue targets
o Commercial services revenue grew by 24.3 percent, driven primarily by
Internet and data services
o Internet and data revenue grew more than 50 percent and now makes up
nearly 23 percent of total revenue
o Internet and data revenue growth represents two-thirds of Qwest total
revenue growth
o EBITDA grew by 14.3 percent, reflecting strong revenue growth and
continued cost efficiencies, driving margins from 38.5 percent to 39.1
percent
o Earnings Per Share (EPS) increased to 14 cents per share versus 12
cents a share a year ago, representing a 16.7 percent increase
o The company eliminated 4,500 jobs in September, three months ahead of
schedule
o Five new CyberCentersSM opened this quarter
o Delayed installations, total provisioning commitments, repair
commitments and out-of-service results at the best levels in the last
several years
DENVER, OCTOBER 24, 2000 - Qwest Communications International Inc. (NYSE: Q),
the broadband Internet communications company, today announced strong third
quarter results produced while successfully integrating operations to create a
$75 billion large cap growth company. Qwest completed its acquisition of U S
WEST on June 30.
Results exceeded the consensus of analysts' expectations for revenues, earnings
before interest, taxes, depreciation and amortization (EBITDA) and earnings per
share for the quarter. This is the fourteenth consecutive quarter that the
company has met or exceeded analyst expectations.
"Our results for the quarter reflect Qwest's continued execution and ability to
exploit revenue opportunities in key sectors of our industry," said Joseph P.
Nacchio, Qwest's chairman and CEO. "I'm proud of the Qwest team for producing
these results while in the middle of a complex merger."
<PAGE>
Total revenue of $4.77 billion was a 12.4 percent increase versus pro-forma
normalized 1999 third quarter revenue of $4.24 billion. Total revenue was driven
by Internet and data services growth of more than 50 percent, which comprised
more than two-thirds of the total revenue increase for the quarter. Commercial
revenues grew in excess of 24 percent driven by strength in Internet and data
services, which now represent nearly 23 percent of the company's total revenue.
Consumer and small business revenues grew 6.5 percent during the same period,
reflecting the company's success in bundling products and selling wireless and
DSL services. These sales were partially offset by the ongoing pivot away from
lower margin out-of-region switched long distance services.
Third quarter EBITDA of $1.86 billion represents annual growth of 14.3 percent
as revenue growth continues to outpace expense increases, resulting in margin
improvement from 38.5 percent in the third quarter of 1999 to 39.1 percent this
quarter.
Qwest remains on track to achieve its 2000 revenue target of $18.8 to $19.1
billion and $7.4 billion of EBITDA.
"We are very pleased with these strong financial results for the quarter.
Internet and data services continued to drive revenue growth," said Robert S.
Woodruff, Qwest executive vice president and CFO. "We are well positioned to
attain our long term revenue, EBITDA and EPS targets."
Excluding non-recurring items, the company's third quarter net earnings grew by
18.5 percent to $231 million. EPS was $0.14 per diluted share, an increase of
16.7 percent from third quarter of 1999. Included in the non-recurring items are
merger-related and other one-time pre-tax charges totaling $1.03 billion and
other non-operating income of $272 million from net realized gains on
investments and asset sales. Including the non-recurring items, the company
reported a loss of $0.15 per share for third quarter 2000.
Synergy teams continued to eliminate duplication in the organization and
centralize work functions to improve operations and the delivery of services to
customers. Approximately 4,500 non-customer facing jobs were eliminated by the
end of the third quarter.
COMMERCIAL, SMALL BUSINESS AND CONSUMER MARKETS
Qwest continued to aggressively drive initiatives designed to promote growth in
its Internet and data businesses, including integrating Qwest and U S WEST
operations into Qwest Global Business and focusing all of the IP networking
functions into a single team within Qwest Internet Solutions to drive faster
product and service responses to customer requirements.
Qwest continued to penetrate national and global accounts with its portfolio of
broadband Internet applications and services and recorded more than $450 million
of new contracted revenue during the quarter. More than 40 percent of the
contracts awarded during the third quarter were from large, multinational and
U.S.-based companies including, a $27 million, three-year agreement with Cox
Enterprises, Inc., one of the nation's leading media and automotive re-marketing
companies. The agreement is an extension of an existing two-year relationship
between the two companies and calls for Qwest to deliver a wide variety of
Internet, data and communications services.
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<PAGE>
Qwest Cyber.Solutions (QCS) was awarded a multi-year, multimillion dollar
contract from Mitsubishi Silicon America (MSA) to provide Application Service
Provider (ASP) solutions that improve Mitsubishi's enterprise resource planning
activities, particularly in the areas of business data warehousing and
production planning. QCS also announced an $18 million, five-year ASP contract
with Redback Networks Inc. for enterprise resource planning, customer
relationship management and manufacturing operations.
In the third quarter, Qwest Wireless added 38,000 customers and is on track to
meet its year-end target of 800,000 subscribers. Qwest also expanded the
penetration of bundled services, reaching two million residential customers for
the multi-feature Custom Choice package. Additionally, among the top 10 percent
of residential customers, average monthly revenue per customer has increased
from $68 in April 1998 to $105 at the end of September 2000.
INTERNET AND DATA SERVICES
Qwest announced in the quarter the opening of five new CyberCenters in Atlanta;
Columbus, Ohio; Denver; Miami; and Tampa, Fla. With the addition of these key
Web-hosting facilities, Qwest now operates a total of 14 CyberCenters
nationwide. The company plans to open an additional 10 centers by the end of
2001 for a total of 24 CyberCenters.
Strong market demand for Internet and data networks fueled growth in excess of
50% for Qwest's dedicated Internet access, hosting, DSL, virtual private
network, frame relay, ATM and Internet professional services.
Qwest continued to expand its presence in local markets by offering end-to-end
high-speed broadband services, including DSL Internet access, to businesses in
California and Texas. New Qwest Local Broadband services are now available in
Sacramento, San Francisco, San Jose, Los Angeles, Orange County and San Diego in
California, and four Texas markets beginning tomorrow. Qwest plans to expand its
local broadband services to 11 markets by year-end. Qwest is building local
fiber rings in 25 major metropolitan markets outside the 14 states where it
provides local service. Customers will have direct, high-speed connections, from
256k to OC-192, to Qwest's global broadband Internet network.
Qwest delivered early on its commitment to offer DSL high-speed Internet service
in 72 markets in 14 western states by the end of 2000 by reaching that number in
the third quarter. Qwest added an additional 38,000 subscribers during the
quarter and now has 213,000 DSL subscribers - an increase of more than 166
percent over the same period in 1999 - and is on track for its target of 250,000
subscribers by year-end 2000.
Qwest Digital Media (QDM), a subsidiary that provides end-to-end digital
multimedia services via broadband distribution, was launched in September. CEO
David Woodrow, former executive vice president at Cox Communications Inc., is
pioneering the storage, management and delivery of digital content, particularly
the convergence of traditional and digital media. QDM is the only company
offering media providers a complete portfolio of managed content services,
including Webcasting and video on demand.
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<PAGE>
SERVICE AND COMPETITION
During the quarter, Qwest implemented several new initiatives to promote
competition, improve customer service and streamline the company to focus on the
successful delivery of key products and services, particularly in the 14 states
where Qwest provides local telephone service. Early service improvement results
include:
o September levels of delayed installations were the second lowest in the
last seven years and 67 percent below what they were a year ago;
o Total provisioning commitments were met 97.6 percent of the time, which
is the best result in five years;
o Year-to-date repair commitments are the best they have been in five
years;
o Out-of-service results are at an all-time best performance level,
putting Qwest at or near the top in the industry for residential
results.
To quickly open local markets, comply with the Telecommunications Act of 1996
and achieve long distance reentry, Qwest launched initiatives for CLECs
(Competitive Local Exchange Carriers) that will speed the deployment of services
and increase the efficiency of their networks. The initiatives include:
CLEC-to-CLEC connections for mutually exchanging local traffic; allowing
collocation of high-speed packet data switches in Qwest central offices;
offering CLECs the option of pre-ordering unbundled dedicated interoffice
transport; offering a single point of interconnection per Local Access Transport
Area (LATA); offering CLECs a 90 day collocation interval and the ability to
reserve collocation space.
INTERNATIONAL
Ross B. Lau was named in the quarter to be Qwest president of international
business. Lau, based in Hong Kong, is leading Qwest's global expansion efforts
into new markets, including Japan and the Pacific Rim countries. Lau was with
Nortel Networks Limited, where he was president and chief operating officer for
service provider solutions in Asia.
Qwest announced in the quarter that its European joint venture, KPNQwest, opened
its first Mega-CyberCenters(TM) to provide European firms with access to
state-of-the-art hosting and co-location services with superior bandwidth
speeds. The new 108,000 square-foot Munich facility is directly connected to
KPNQwest's 12,500 mile EuroRings(TM) macro-capacity fiber-optic network. It is
the largest facility of its type in Germany and was built on time and on budget.
ABOUT QWEST
Qwest Communications International Inc. (NYSE: Q) is a leader in reliable,
scalable and secure broadband Internet-based data, voice and image
communications for businesses and consumers. The Qwest Macro Capacity(R) Fiber
Network, designed with the newest optical networking equipment for speed and
efficiency, spans more than 104,000 miles globally. For more information, please
visit the Qwest web site at www.qwest.com.
# # #
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<PAGE>
This release may contain forward-looking statements that involve risks and
uncertainties. These statements may differ materially from actual future events
or results. Readers are referred to the documents filed by Qwest and U S WEST,
Inc. with the Securities and Exchange Commission, specifically the most recent
reports which identify important risk factors that could cause actual results to
differ from those contained in the forward-looking statements, including
potential fluctuations in quarterly results, dependence on new product
development, rapid technological and market change, failure to maintain rights
of way, financial risk management and future growth subject to risks, adverse
changes in the regulatory or legislative environment, and failure to achieve the
synergies and financial results expected from the acquisition of U S WEST. This
release may also include analysts' estimates and other information prepared by
third parties. Qwest assumes no responsibility for any information prepared by
third parties. Qwest undertakes no obligation to update the information
contained on its website or in this release, to review or confirm analysts'
expectations or estimates or to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
The Qwest logo is a registered trademark of, and CyberCenter is a service mark
of, Qwest Communications International Inc. in the U.S. and certain other
countries.
Contacts: Tyler Gronbach
Qwest Media Relations
(303) 992-2155
[email protected]
Matt Barkett
Qwest Media Relations
(303) 992-2085
[email protected]
Lee Wolfe
Qwest Investor Relations
(800) 567-7296
[email protected]
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<TABLE>
<CAPTION>
Attachment A
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONSOLIDATED PRO FORMA STATEMENTS OF INCOME (1)(2)
(UNAUDITED)
Quarter Ended Nine Months Ended
September 30, September 30,
In millions, except -------------------------- % ------------------------ %
per share amounts 2000 1999 Change 2000 1999 Change
---------------------------------------- ------------ ----------- ------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Commercial services $ 2,421 $ 1,948 24.3 $ 6,881 $ 5,254 31.0
Consumer and small business services 1,694 1,591 6.5 5,009 4,665 7.4
Directory services 351 336 4.5 1,029 981 4.9
Switched access services 299 365 (18.1) 1,017 1,127 (9.8)
----------- ----------- ---------- ---------
Total operating revenues 4,765 4,240 12.4 13,936 12,027 15.9
OPERATING EXPENSES
Cost of sales 1,703 1,554 9.6 4,974 4,271 16.5
Selling, general and administrative 1,198 1,055 13.6 3,580 3,133 14.3
----------- ----------- ---------- ---------
EBITDA 1,864 1,631 14.3 5,382 4,623 16.4
Depreciation 727 632 15.0 2,002 1,881 6.4
Goodwill and other intangible amortization 317 317 - 951 951 -
----------- ----------- ---------- ---------
Operating income 820 682 20.2 2,429 1,791 35.6
OTHER EXPENSE
Interest expense 314 246 27.6 807 633 27.5
Other expense (income)-net 5 (16) (131.3) 24 8 200.0
----------- ----------- ---------- ---------
Total other expense-net 319 230 38.7 831 641 29.6
----------- ----------- ---------- ---------
Income before income taxes 501 452 10.8 1,598 1,150 39.0
Income tax provision 270 257 5.1 873 690 26.5
----------- ----------- ---------- ---------
NET INCOME $ 231 $ 195 18.5 $ 725 $ 460 57.6
=========== =========== ========== =========
Basic earnings per share $ 0.14 $ 0.12 16.7 $ 0.44 $ 0.29 51.7
=========== =========== ========== =========
Basic average shares outstanding 1,662 1,619 2.7 1,644 1,593 3.2
=========== =========== ========== =========
Diluted earnings per share $ 0.14 $ 0.12 16.7 $ 0.43 $ 0.28 53.6
=========== =========== ========== =========
Diluted average shares outstanding 1,695 1,658 2.2 1,686 1,637 3.0
=========== =========== ========== =========
Diluted cash earnings per share $ 0.30 $ 0.29 3.4 $ 0.93 $ 0.79 17.7
=========== =========== ========== =========
</TABLE>
(1) The consolidated pro forma statements give retroactive effect as though the
acquisition of U S WEST, Inc. by Qwest Communications International Inc.
(the "Merger") had occurred as of the beginning of the periods presented.
Shares outstanding and earnings per share have been restated to give
retroactive effect to the exchange ratio effected in the Merger. In
addition, results have been adjusted to eliminate the impacts of
non-recurring items, such as merger costs, asset write-offs and
impairments, gains/losses on the sale of investments and fixed assets,
change in the market value of investments, one-time litigation charges,
elimination of in-region long-distance activity and elimination of Qwest
construction activity. The results have also been adjusted to reflect the
change in accounting principle to recognize revenue and expenses for
directory publishing under the "point of publication method" from the
"amortization method" as if the change in accounting principle had been
adopted as of January 1, 1999. The Merger has been accounted for as a
purchase transaction. The purchase price allocation is preliminary and is
subject to change. Accordingly, net earnings and earnings per share are
subject to change. Certain reclassifications have been made to prior
periods to conform to the current presentation.
(2) Diluted cash earnings per share represent diluted earnings per share
adjusted to add back the after- tax amortization of goodwill and other
intangible assets resulting from the Merger.
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<PAGE>
Attachment B
QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, June 30,
IN MILLIONS 2000 2000
------------------------------------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 417 $ 900
Accounts receivable - net 4,236 3,832
Inventories and supplies 252 322
Prepaid and other 841 750
------------ ------------
Total current assets 5,746 5,804
Property, plant and equipment - net 23,840 23,627
Goodwill and intangibles - net 39,748 36,941
Other assets - net 2,754 3,476
------------ ------------
Total assets $ 72,088 $ 69,848
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 2,795 $ 4,736
Accounts payable 1,842 1,820
Accrued expenses and other current liabilities 4,086 2,741
Advance billings and deposits 377 414
------------ ------------
Total current liabilities 9,100 9,711
Long-term debt 15,560 13,429
Postretirement and other postemployment
benefit obligations 2,668 2,823
Deferred taxes, credits and other 3,468 2,495
Stockholders' equity 41,292 41,390
------------ ------------
Total liabilities and
stockholders' equity $ 72,088 $ 69,848
============ ============
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<PAGE>
<TABLE>
<CAPTION>
Attachment C
QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED CONSOLIDATED DATA
1999-2000
As of and for the
Quarter Ended
September 30,
--------------------------------------- %
2000 1999 Change
----------------- ----------------- ----------------
<S> <C> <C> <C>
DSL (in 14 state region):
Subscribers (thousands) 213 80 166.3%
DSL Equipped Central Offices 285 237 20.3%
Subscribers per Equipped Central Office 748 338 121.3%
Wireless/PCS
Revenues (millions)(1) $121 $65 86.2%
Subscribers (thousands) 691 344 100.9%
ARPU (dollars) $55 $58 (5.2%)
Penetration 4.22% 2.50% 68.8%
Capital Expenditures (millions)(2) $2,079 $1,474 41.0%
Voice Grade Equivalent Access Lines (000):
Business 26,970 20,257 33.1%
Consumer 12,576 12,070 4.2%
---------------- ---------------- --------------
Total Voice Grade Equivalent 39,546 32,327 22.3%
================ ================ ==============
Nine months ended September 30,
--------------------------------------- %
2000 1999 Change
----------------- ----------------- ----------------
<S> <C> <C> <C>
(1) Revenues (millions) $346 $158 119.0%
(2) Capital Expenditures (millions) $6,751 $4,006 68.5%
</TABLE>
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