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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 30, 2000
COMMISSION FILE NUMBER 000-22609
QWEST COMMUNICATIONS INTERNATIONAL INC.
(Exact name of registrant specified in its charter)
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<CAPTION>
<S> <C>
Delaware 84-1339282
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
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1801 CALIFORNIA STREET
DENVER, COLORADO 80202
(Address of principal executive offices)
(303) 992-1400
(Registrant's telephone number, including area code)
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<PAGE>
Item 2. Acquisition or Disposition of Assets
On June 30, 2000, the Registrant consummated the merger of U S WEST,
Inc., a Delaware corporation ("U S WEST"), with and into the Registrant. Each
outstanding share of U S WEST common stock was converted into the right to
receive 1.72932 shares of Qwest Communications International Inc. ("Qwest")
common stock and cash in lieu of fractional shares, resulting in the issuance of
approximately 882 million shares of Qwest common stock. Outstanding U S WEST
common stock options were converted into options to acquire Qwest common stock
based upon the same exchange ratio.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired
The audited financial statements as of December 31, 1999 and 1998 and for
the three years ended December 31, 1999 of Qwest, including the report of
independent auditors, were previously reported in Qwest's Annual Report
on Form 10-K, dated March 17, 2000.
The unaudited financial statements of Qwest as of June 30, 2000 and for
the six months ended June 30, 2000 and 1999 were previously reported in
Qwest's Quarterly Report on Form 10-Q, dated August 11, 2000.
(b) Pro forma financial information
Pursuant to paragraph (a)(4) of Item 7 of Form 8-K, the Registrant hereby
files the pro forma financial information listed in the Index on page F-1
herein.
(c) Exhibits
See Exhibit Index
<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 hereunto 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
August 11, 2000
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Index to Financial Statements and Other Information
Financial Statements Page Numbers
Unaudited Pro Forma Condensed Combined
Financial Information F-2
Pro Forma Condensed Combined Statement of Operations
Six Months Ended June 30, 2000 F-3
Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 1999 F-4
Notes to Unaudited Pro Forma Condensed Combined
Financial Information F-5
Exhibits F-7
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Unaudited Pro Forma Condensed Combined
Financial Information
The unaudited pro forma information set forth below gives effect to the
merger of U S WEST, Inc. ("U S WEST") with and into Qwest Communications
International Inc. ("Qwest" or the "Company") as if it had been completed on
January 1, 1999, subject to the assumptions and adjustments in the accompanying
notes to the pro forma information. The unaudited pro forma condensed combined
financial information is derived from the historical financial statements of
Qwest and U S WEST.
Qwest will account for the merger under the purchase method of accounting.
Under the purchase method of accounting, the acquiring enterprise for accounting
purposes in a business combination effected through the exchange of stock is
presumptively the enterprise whose former common shareholders either retain or
receive the larger portion of the voting rights in the combined enterprise. U S
WEST has been deemed the acquiror for accounting purposes and its assets and
liabilities will be brought forward at their historical net book values. A new
basis will be established for Qwest's assets and liabilities based upon the fair
values thereof at the time of the merger and may be revised for a period of up
to one year from the date of the merger. The purchase accounting adjustments
made in connection with the development of the unaudited pro forma condensed
combined financial information are preliminary and have been made solely for
purposes of developing such unaudited pro forma condensed combined financial
information and will be adjusted upon the final determination of the fair
values.
The pro forma adjustments do not reflect any operating efficiencies or cost
savings that may be achieved with respect to the combined companies nor do they
include any adjustments to historical sales for any future price changes.
Further, the pro forma condensed combined statements of operations do not
reflect Qwest's discontinuance of interLATA services within the U S WEST 14
state region. InterLATA revenues earned by Qwest from the U S WEST 14 state
region were approximately $155 million for the six months ended June 30, 2000
and $251 million for the year ended December 31, 1999. The combined company will
incur certain integration-related expenses not reflected in the pro forma
financial information as a result of the elimination of duplicate facilities,
operational realignment and related workforce reductions. Such costs would
generally be recognized as a liability assumed as of the merger date resulting
in additional goodwill if they relate to facilities or workforce previously
aligned with Qwest, and would be expensed if they relate to facilities or
workforce previously aligned with U S WEST. The assessment of integration
related expenses is ongoing. The following pro forma information is not
necessarily indicative of the financial position or operating results that would
have occurred had the merger been consummated on the dates discussed above, or
at the beginning of the periods, during which such transactions are being given
effect. The pro forma adjustments reflecting the consummation of the merger are
based upon the assumptions set forth in the notes hereto, including the
conversion of all of the outstanding shares of U S WEST into the right to
receive approximately 882 million shares of Qwest common stock and the
conversion of U S WEST stock options into Qwest stock options.
Qwest is unaware of events other than those disclosed in these pro forma
notes that would require a material change to the preliminary purchase price
allocation. However, a final determination of necessary purchase accounting
adjustments will be made upon the completion of a study to determine the fair
value of certain of Qwest's assets and liabilities, including intangible assets
and in-process research and development. Refer to Note 1 for a discussion of the
sensitivity to earnings that may occur as a result of the final determination of
fair value. The actual financial position and results of operations will differ,
perhaps significantly, from the pro forma amounts reflected herein because of a
variety of factors, including access to additional information and changes in
value not currently identified.
F-2
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QWEST COMMUNICATIONS INTERNATIONAL INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Six Months Ended June 30, 2000
(Unaudited)
(In Millions, Except Per Share Information)
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<CAPTION>
Historical (2)
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Pro Forma Pro Forma
Qwest U S WEST Adjustments Combined
------------ ------------- --------------- --------------
Revenue:
<S> <C> <C> <C> <C>
Communications services $ 2,499 $ 6,827 $ 9,326
Operating Expenses:
Operating expenses 2,007 3,761 5,768
Depreciation and amortization 247 1,186 $ (78) (3) 1,810
363 (4)
92 (5)
Merger costs 87 306 (393) (7) -
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2,341 5,253 (16) 7,578
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Earnings from operations 158 1,574 16 1,748
Other expense (income):
Interest expense, net 75 418 493
Other, net (39) 703 664
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Earnings before income taxes 122 453 16 591
Income tax expense 102 170 124 (7) 396
------------ ------------- ------------ --------------
Net earnings $ 20 $ 283 $ (108) $ 195
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Net earnings per share - basic $ 0.03 $ 0.32 (6) $ 0.12 (6)
============ ============= ==============
Net earnings per share - diluted $ 0.03 $ 0.32 (6) $ 0.12 (6)
============ ============= ==============
Weighted average shares outstanding - basic 757 882 (6) 1,639 (6)
============ ============= ==============
Weighted average shares outstanding - diluted 791 895 (6) 1,686 (6)
============ ============= ==============
See accompanying notes to unaudited pro forma condensed combined financial information.
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F-3
<PAGE>
QWEST COMMUNICATIONS INTERNATIONAL INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(Unaudited)
(In Millions, Except Per Share Information)
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<CAPTION>
Historical (2)
--------------------------------
Pro Forma Pro Forma
Qwest U S WEST Adjustments Combined
------------- -------------- --------------- --------------
Revenue:
<S> <C> <C> <C> <C>
Communications services $ 3,703 $ 13,182 $ 16,885
Construction services 225 - 225
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3,928 13,182 17,110
Operating Expenses:
Operating expenses 3,168 7,478 10,646
Depreciation and amortization 404 2,367 $ (154) (3) 3,526
725 (4)
184 (5)
Merger costs 32 282 (314) (7) -
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3,604 10,127 441 14,172
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Earnings from operations 324 3,055 (441) 2,938
Other expense (income):
Interest expense, net 151 736 887
Gain on KPNQwest investment (414) - (414)
Other, net 3 417 420
------------- -------------- ------------ --------------
Earnings before income taxes 584 1,902 (441) 2,045
Income tax expense 125 800 4 (7) 929
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Net earnings $ 459 $ 1,102 $ (445) $ 1,116
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Net earnings per share - basic $ 0.63 $ 1.26 (6) $ 0.70 (6)
============= ============== ==============
Net earnings per share - diluted $ 0.60 $ 1.25 (6) $ 0.68 (6)
============= ============== ==============
Weighted average shares outstanding - basic 728 872 (6) 1,600 (6)
============= ============== ==============
Weighted average shares outstanding - diluted 764 881 (6) 1,645 (6)
============= ============== ==============
See accompanying notes to unaudited pro forma condensed combined financial information.
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F-4
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Notes to Unaudited Pro Forma Condensed Combined Financial Information
1. U S WEST has been deemed the acquiror for accounting purposes and its
assets and liabilities will be brought forward at their net book values. A
new basis will be established for Qwest's assets and liabilities by
relating the total merger consideration to the fair values thereof.
The following represents the step-up of Qwest's assets and liabilities to
fair value (in millions, except per share amounts):
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Qwest common stock price ...................................................................... $50
Shares of Qwest common stock outstanding ...................................................... 772
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38,600
Historical net book value of Qwest ........................................................... (7,146)
Fair value of Qwest options (determined using the Black-Scholes model) ....................... 1,404
Estimated merger costs to be incurred by U S WEST ............................................. 100
------------
Step-up of Qwest assets and liabilities to fair value....................................... 32,958
Pro forma adjustments relating to:
Existing Qwest intangible assets............................................................ 3,601
Investment in KPNQwest...................................................................... (7,365)
Debt........................................................................................ (57)
Deferred tax impacts........................................................................ (121)
------------
Preliminary goodwill........................................................................... $29,016
============
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Upon completion of a valuation, the step-up in the fair value of Qwest's
assets and liabilities will be allocated to its specific identifiable
tangible and intangible assets and liabilities. A preliminary allocation of
the purchase price has been made to certain identifiable tangible and
intangible assets and liabilities of Qwest, based upon information
available to management at the date of the preparation of the accompanying
pro forma condensed combined financial information. The final allocation of
fair value may also include certain in-process research and development
projects, other intangible assets such as customer relationships, and other
tangible assets and liabilities.
Consideration allocated to in-process research and development projects
would be recorded as a charge against net income in the period the amount
is determined. Each $1 billion of consideration allocated to in-process
research and development would increase net income by $25 million annually
by reducing goodwill amortization expense. A preliminary estimate of
in-process research and development will not be available until the
completion of a valuation of each project in process as of the merger date.
Assuming an estimated useful life of 10 years, each $1 billion of
consideration allocated to intangible assets other than goodwill would
decrease net income by $75 million annually. The combined company will
incur certain integration-related expenses not reflected in the pro forma
financial information as a result of the elimination of duplicate
facilities, operational realignment and related workforce reductions. Such
costs will generally be recognized as a liability assumed resulting in
additional goodwill if these costs relate to facilities or workforce
previously aligned with Qwest, and will be expensed if these costs relate
to facilities or workforce previously aligned with U S WEST.
Each outstanding share of U S WEST common stock was converted into the
right to receive 1.72932 shares of Qwest common stock and cash in lieu of
fractional shares, resulting in the issuance of approximately 882 million
shares of Qwest common stock. Outstanding U S WEST common stock options
were converted into options to acquire Qwest common stock based upon the
same exchange ratio.
F-5
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2. These columns reflect the historical results of operations of the
respective companies.
3. Represents the reversal of Qwest amortization as originally recorded. The
adjustment discussed in Note 4 records amortization expense based on the
intangible assets created by the merger.
4. This entry represents the amortization of goodwill resulting from the
preliminary allocation of the merger consideration over the fair value of
Qwest's identifiable net assets. The amount of excess consideration
allocated to goodwill will be amortized over 40 years. The factors
considered in determining the appropriate amortization period included the
expected life of the associated technology, legal and regulatory issues,
future changes in technology, anticipated market demand and competition. An
allocation to workforce and other intangible assets with shorter
amortization periods will be made, although the amounts allocated are not
expected to be material. As discussed in Note 1, amounts allocated to other
assets such as intangible assets may be amortized over shorter periods
resulting in a lower net income. Amounts allocated to goodwill will also be
impacted by any in-process research and development charge recorded.
5. Represents amortization of the fair market value adjustment on Qwest's
investment in KPNQwest. Qwest currently owns approximately 44% of KPNQwest.
The difference between the fair market value and Qwest's proportionate
share of the underlying equity of KPNQwest creates a basis difference.
6. The pro forma net earnings per share assumes the conversion of U S WEST
shares into the right to receive 1.72932 Qwest shares. U S WEST's
historical net earnings per share and weighted average shares have been
restated to reflect the number of equivalent shares received in the merger.
7. Represents the elimination of merger costs incurred by Qwest and U S WEST
and the related adjustment to income taxes.
F-6
<PAGE>
Exhibits and Reports on Form 8-K
The following exhibits are filed as part of this current report on Form
8-K:
Exhibit Number Exhibit
2.1 Agreement and Plan of Merger dated as of July 18, 1999 between U S
WEST, Inc. and Qwest (incorporated herein by reference to Qwest's
Report on Form S-4 dated September 17, 1999)
10.36 Voting Agreement dated as of July 18, 1999 among each of the
shareholders listed on the signature page thereto and U S WEST, Inc.
(incorporated herein by reference to Qwest's Report on Form S-4 dated
September 17, 1999)
F-7