<PAGE>
_______________________________________________________________________________
_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 1-3040
U S WEST Communications, Inc.
A Colorado Corporation IRS Employer No. 84-0273800
1801 California Street, Denver, Colorado 80202
Telephone Number (303) 896-3099
THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF U S WEST, INC., MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1) OF FORM 10-Q AND IS
THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO
GENERAL INSTRUCTION H(2).
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No __
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
PART I - FINANCIAL INFORMATION
1. Financial Statements
Consolidated Statements of Operations -
Three months ended March 31, 1995 and 1994 3
Condensed Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1995 and 1994 6
Consolidated Statements of Shareowner's Equity -
Three months ended March 31, 1995 and 1994 7
Notes to Consolidated Financial Statements 8
2. Management's Analysis - (Reduced disclosure format pursuant to
General Instruction H(2)) 10
PART II - OTHER INFORMATION
6. Exhibits and Reports on Form 8-K 18
</TABLE>
2
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
DOLLARS IN MILLIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUES
Local service $1,050 $ 985
Interstate access service 589 562
Intrastate access service 188 174
Long-distance network service 299 351
Other services 151 146
-----------------
Total operating revenues 2,277 2,218
OPERATING EXPENSES
Employee-related expenses 730 717
Other operating expenses 391 398
Taxes other than income taxes 103 97
Depreciation and amortization 494 465
-----------------
Total operating expenses 1,718 1,677
Income from operations 559 541
Interest expense 91 80
Gain on sales of rural telephone exchanges 63 24
Other expense - net 13 10
-----------------
Income before income taxes 518 475
Provision for income taxes 195 178
-----------------
NET INCOME $ 323 $ 297
-----------------
-----------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
DOLLARS IN MILLIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 41 $ 114
Accounts receivable 1,422 1,450
Materials and supplies 130 120
Deferred tax asset 277 280
Other 62 48
-------------------
Total current assets 1,932 2,012
-------------------
Gross property, plant and equipment 29,579 29,406
Accumulated depreciation 16,698 16,444
Property, plant and equipment - net 12,881 12,962
Other assets 797 726
-------------------
Total assets $15,610 $15,700
-------------------
-------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
DOLLARS IN MILLIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities
Short-term debt $ 1,707 $ 1,485
Accounts payable 690 883
Employee compensation 257 283
Current portion of restructuring charges 342 317
Other 1,040 883
---------------------
Total current liabilities 4,036 3,851
---------------------
Long-term debt 4,279 4,242
Postretirement and other postemployment benefit
obligations 2,168 2,393
Deferred taxes, credits and other 1,443 1,530
Shareowner's equity
Common shares - one share without par value 7,286 7,286
Cumulative deficit (3,602) (3,602)
---------------------
Total shareowner's equity 3,684 3,684
---------------------
Total liabilities and shareowner's equity $15,610 $15,700
---------------------
---------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
DOLLARS IN MILLIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 323 $ 297
Adjustments:
Depreciation and amortization 494 465
Gains on sales of rural telephone exchanges (63) (24)
Deferred income taxes and amortization
of investment tax credits 37 26
Changes in operating assets and liabilities:
Restructuring payments (77) (21)
Accounts receivable 28 31
Materials, supplies and other (31) (41)
Accounts payable and accrued liabilities 38 33
Other - net (243) (275)
----------------
Cash provided by operating activities 506 491
----------------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (539) (605)
Proceeds from disposals of property, plant
and equipment 93 18
----------------
Cash used for investing activities (446) (587)
----------------
FINANCING ACTIVITIES
Net proceeds from short-term debt 225 71
Proceeds from issuance of long-term debt - 182
Repayments of long-term debt (18) (116)
Dividends paid (340) (319)
Equity infusions from parent - 256
----------------
Cash (used for) provided by financing activities (133) 74
----------------
CASH AND CASH EQUIVALENTS
Decrease (73) (22)
Beginning balance 114 67
----------------
Ending balance $ 41 $ 45
----------------
----------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
CONSOLIDATED STATEMENTS OF SHAREOWNERS'S EQUITY (UNAUDITED)
DOLLARS IN MILLIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON SHARES
Balance at beginning of period $ 7,286 $ 6,742
Equity infusions from parent - 256
Other - -
-------------------
Balance at end of period 7,286 6,998
CUMULATIVE DEFICIT
Balance at beginning of period (3,602) (3,602)
Net income 323 297
Dividends declared (323) (297)
-------------------
Balance at end of period (3,602) (3,602)
TOTAL SHAREOWNER'S EQUITY $ 3,684 $ 3,396
-------------------
-------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(UNAUDITED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements have been prepared by U S WEST
Communications, Inc. (the "Company"), pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). Certain information and
footnote disclosures normally accompanying financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such SEC rules and regulations. In the opinion of the
Company's management, the Consolidated Financial Statements include all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the financial information set forth therein. It is suggested
that these Consolidated Financial Statements be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K
for the year ended December 31, 1994.
Certain reclassifications within the Consolidated Financial Statements have
been made to conform to the current year presentation.
B. RECAPITALIZATION PROPOSAL
The Board of Directors of U S WEST, Inc. ("U S WEST"), a Colorado
corporation, has adopted a proposal (the "Recapitalization Proposal") that
would change the state of incorporation of U S WEST from Colorado to Delaware
and create two classes of common stock that are intended to reflect
separately the performance of U S WEST's communications and multimedia
businesses. Under the Recapitalization Proposal, shareholders of U S WEST
will be asked to approve an Agreement and Plan of Merger between U S WEST and
U S WEST, Inc., a Delaware corporation and wholly owned subsidiary of U S
WEST ("U S WEST Delaware"), pursuant to which U S WEST would be merged (the
"Merger") with and into U S WEST Delaware with U S WEST Delaware continuing
as the surviving corporation. In connection with the Merger, the Certificate
of Incorporation of U S WEST Delaware would be amended and (as so amended and
restated, the "Restated Certificate") to, among other things, designate two
classes of common stock of U S WEST Delaware, one class of which would be
authorized as U S WEST Communications Group Common Stock ("Communications
Stock"), and the other class of which would be authorized as U S WEST Media
Group Common Stock ("Media Stock"). Upon consummation of the Merger, each
share of existing common stock of U S WEST would be automatically converted
into one share of Communications Stock and one share of Media Stock.
8
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
(UNAUDITED)
B. RECAPITALIZATION PROPOSAL (CONTINUED)
The Communications Stock and Media Stock are designed to provide shareholders
with separate securities that are intended to reflect separately the
communications businesses of U S WEST Communications and certain other
subsidiaries of U S WEST (the "Communications Group") and U S WEST's
multimedia businesses (the "Media Group" and, together with the
Communications Group, the "Groups").
The Communications Group is comprised of U S WEST Communications, U S WEST
Communications Services, Inc., U S WEST Federal Services, Inc., U S WEST
Advanced Technologies, Inc. and U S WEST Business Resources, Inc.
Under the Recapitalization Proposal, dividends to be paid to the holders of
Communications Stock will initially be at a quarterly rate of $0.535 per
share. Dividends on the Communications Stock will be paid at the discretion
of the Board of Directors of U S WEST, Inc., based primarily upon the
financial condition, results of operations and business requirements of the
Communications Group and U S WEST as a whole.
A preliminary proxy statement on the Recapitalization Proposal was filed with
the Securities and Exchange Commission on May 12, 1995.
C. CONTINGENCIES
There are pending regulatory actions in local regulatory jurisdictions that
call for price decreases, refunds or both. In one such instance, the Utah
Supreme Court has remanded a Utah Public Service Commission ("PSC") order to
the PSC for reconsideration, thereby establishing certain exceptions to the
rule against retroactive ratemaking: 1) unforeseen and extraordinary events,
and 2) misconduct. The PSC's initial order denied a refund request from an
interexchange carrier and other parties that relates to the Tax Reform Act of
1986. This action is still in the discovery process. If a formal filing -
made in accordance with the remand from the Supreme Court - alleges that the
exceptions apply, the range of possible risk is $0 to $140.
9
<PAGE>
Item 2. Management's Analysis (DOLLARS IN MILLIONS)
RESULTS OF OPERATIONS
Comparative details of operations for the three months ended March 31 follow:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues $2,277 $2,218
Operating expenses
Employee-related expenses 730 717
Other operating expenses 391 398
Taxes other than income taxes 103 97
Depreciation and amortization 494 465
Interest expense 91 80
Gains on sales of rural telephone exchanges 63 24
Other expense - net 13 10
------------------
Income before income taxes 518 475
Provision for income taxes 195 178
------------------
Net income $ 323 $ 297
------------------
------------------
</TABLE>
At March 31, 1995, the Company's net income was $323, a $26, or 8.8 percent,
increase over the same period last year. Absent the effects of the sale of
certain rural telephone exchanges, net income increased $2, or 0.7 percent,
over the same period last year. Net income is normalized for gains on the
sale of certain rural telephone exchanges of $39 and $15 in 1995 and 1994,
respectively.
Volume growth also resulted in a 4.7 percent increase in earnings before
interest, taxes, depreciation and amortization, and other ("EBITDA"). The
Company believes EBIDTA is an important indicator of the operational strength
of the business.
10
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Analysis (DOLLARS IN MILLIONS)
OPERATING REVENUES
Total operating revenues were $2,277, a $59 or 2.7% increase over the prior
year. In the table below, price changes primarily represent the aggregate
effects of price changes resulting from regulatory proceedings and growth
represents increased market penetration (through increased access lines and
additional sales of products and services to existing customers). Different
regulatory commissions govern the interstate and intrastate jurisdictions,
resulting in varying price and refund impacts.
<TABLE>
<CAPTION>
Lower
Price (Higher) Inc(Dec)
Change Refund Growth Other $ %
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Local service $ 2 $ 9 $ 54 - $ 65 6.6
Interstate access (8) (9) 44 - 27 4.8
Intrastate access (5) 2 11 6 14 8.0
Long-distance network (9) - (12) (31) (52) (14.8)
Other services - - - 5 5 3.4
- -------------------------------------------------------------------------------
Total revenues $(20) $ 2 $ 97 $(20) $ 59 2.7
- -------------------------------------------------------------------------------
</TABLE>
LOCAL SERVICE
The increase in local service revenues was attributable to access line growth
of 494,000 lines, or 3.5 percent. Absent the effects of the sale of certain
rural telephone exchanges, access lines increased by 585,000 lines, or 4.2
percent.
INTERSTATE ACCESS SERVICE
Higher revenues from interstate access services resulted from an increase of
9.2 percent in interstate billed access minutes of use, which more than
offset the effects of price decreases.
INTRASTATE ACCESS SERVICE
Intrastate access charges increased as a result of higher demand and the
effects of multiple toll carrier plans implemented in Oregon and Washington,
in the second quarter of 1994 (see "Long-Distance Network Service").
11
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Analysis (DOLLARS IN MILLIONS)
OPERATING REVENUES (CONTINUED)
LONG-DISTANCE NETWORK SERVICE
The effects of competition continue to impact long-distance revenues as well
as the effects of multiple toll carrier plans implemented in Oregon and
Washington in May and July of 1994, respectively. These regulatory
arrangements allow independent telephone companies to act as toll carriers.
The impact in the first quarter of 1995 was a decrease of $31 in
long-distance revenue, partially offset by an increase of $6 in intrastate
access revenue and a decrease of $21 in access fees (otherwise paid to
independent companies).
OTHER SERVICES
The increase in other services revenues is largely due to continued market
penetration of new service offerings.
OPERATING EXPENSES
Total operating expenses were $1,718, a $41 or 2.4% increase over the same
period last year.
Higher employee-related costs of $30 were primarily a result of additional
overtime payments and contract labor, which were primarily related to the
implementation of customer service and streamlining initiatives. Partially
offsetting the increases were lower health-care benefit costs, including a
reduction in the accrual for postretirement benefits, and a true-up of certain
benefit costs.
The decrease in other operating expenses was attributable to the reduction in
access expense related to the effects of the multiple toll carrier plans (see
"Long-Distance Network Service"). Additional costs of services and products
provided by affiliates partially offset this increase.
The increase in depreciation and amortization expense was primarily a result
of a higher depreciable asset base and increased depreciation rates.
12
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Analysis (DOLLARS IN MILLIONS)
INTEREST AND OTHER
Interest expense increased as a result of higher amounts of short-term debt
combined with the effects of higher interest rates.
PROVISION FOR INCOME TAXES
Income tax expense increased primarily due to an increase in income before
income taxes.
RESTRUCTURING
The Company's 1993 results reflected an $880 million restructuring charge
(pretax). The related restructuring plan (the "Restructuring Plan") is
designed to provide faster, more responsive customer services while reducing
the costs of providing these services. As part of the Restructuring Plan, the
Company is developing new systems that will enable it to monitor networks to
reduce the risk of service interruptions, activate telephone service on
demand, provide automated inventory systems and centralize its service
centers so that customers can have their telecommunications needs resolved
with one phone call. The Company is consolidating its 560 customer service
centers into 26 centers in 10 cities and reducing its total work force by
approximately 9,000 employees (including the remaining employee reductions
associated with the restructuring plan announced in 1991).
Following is a schedule of the costs included in the Restructuring Plan:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Actual Estimate
------------------------------
1994 1995 1996 1997 Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash expenditures:
Employee separation $ 19 $ 61 $ 72 $ 73 $225
Systems development 118 128 114 - 360
Real estate 50 80 - - 130
Relocation 21 54 4 26 105
Retraining and other 8 19 10 23 60
---------------------------------------
Total cash expenditures 216 342 200 122 880
Remaining 1991 plan employee costs 56 - - - 56
---------------------------------------
Total (1) $272 $342 $200 $122 $936
---------------------------------------
---------------------------------------
<FN>
(1) The Restructuring Plan also provides for capital expenditures of $440
over the life of the Restructuring Plan.
</TABLE>
13
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Analysis (DOLLARS IN MILLIONS)
RESTRUCTURING (CONTINUED)
Employee separation costs include severance payments, health-care coverage
and postemployment education benefits. Systems development costs include the
replacement of existing, single-purpose systems with new systems designed to
provide integrated, end-to-end customer service. The work-force reductions
would not be possible without the development and installation of the new
systems, which will eliminate the current, labor-intensive interfaces between
existing processes. Real estate costs include preparation costs for the new
service centers. The relocation and retraining costs are related to moving
employees to the new service centers and retraining employees on the new
methods and systems required in the new, restructured mode of operation. For
a more complete description of restructuring costs, refer to the Company's
Form 10-K for the year ended December 31, 1994.
The Company estimates that full implementation of the Restructuring Plan will
reduce employee-related expenses by approximately $400 per year. These
savings are expected to be offset by the effects of inflation.
PROGRESS UNDER THE RESTRUCTURING PLAN:
- --------------------------------------
Following is a reconciliation of restructuring activity during first quarter
1995:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Reserve Balance Reserve Balance
December 31, 1994 1995 Activity March 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee separations
Managerial $ 70 $ 4 $ 66
Occupational 136 9 127
-----------------------------------------------------
Total 206 13 193
Systems Development
Service delivery 52 3 49
Service assurance 52 7 45
Capacity provisioning 122 24 98
All other 16 0 16
-----------------------------------------------------
Total 242 34 208
Real estate 80 22 58
Relocation 84 5 79
Retraining and other 52 3 49
-----------------------------------------------------
Total $664 $ 77 $587
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
14
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Analysis (DOLLARS IN MILLIONS)
RESTRUCTURING (CONTINUED)
PROGRESS UNDER THE RESTRUCTURING PLAN: (continued)
- --------------------------------------
<TABLE>
<CAPTION>
1994 1995 Total
Separations Separations Separations
--------------------------------------------
<S> <C> <C> <C>
Employee separations
Managerial 497 125 622
Occupational 1,683 491 2,174
--------------------------------------------
Total 2,180 616 2,796
--------------------------------------------
--------------------------------------------
</TABLE>
RECAPITALIZATION PROPOSAL
The Board has adopted a proposal that would change the state of incorporation
of U S WEST from Colorado to Delaware and create two classes of common stock,
the Communications Stock and the Media Stock, which are intended to reflect
separately the performance of the communications and multimedia businesses.
For a more complete discussion on the Recapitalization Proposal see Footnote
B in the Notes to the Consolidated Financial Statements.
A preliminary proxy statement on the Recapitalization Proposal was filed with
the Securities and Exchange Commission on May 12, 1995.
OTHER ITEMS
U S WEST from time to time engages in discussions regarding acquisitions.
U S WEST may fund such acquisitions with internally generated funds, debt or
equity. The incurrence of indebtedness to fund such acquisitions and/or the
assumption of indebtedness in connection with acquisitions, if significant,
could result in a downgrading of the credit rating of U S WEST or the Company.
REGULATORY
On April 24, 1995, the Regional Bell Operating Companies ("RBOCs") asked the
D.C. District Court, which has jurisdiction over construction,
implementation, modification and enforcement of the modified final judgment
("MFJ"), for a waiver of the MFJ's restriction on the provision by the RBOCs
of information services on an interexchange basis. The request for a waiver
follows recommendations by the Department of Justice that the RBOCs be
allowed to provide information services on an interexchange basis.
15
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Analysis (DOLLARS IN MILLIONS)
OTHER ITEMS (CONTINUED)
REGULATORY (CONTINUED)
The Company's interstate services have been subject to price cap regulation
since January 1991. Price caps are an alternative form of regulation
designed to limit prices rather than profits. However, the FCC's price cap
plan includes sharing of earnings in excess of authorized levels. In March
1995, the FCC issued an interim order on price cap regulation. This order
increases the productivity factor used in the price cap index, thus reducing
the access prices paid by interexchange carriers to local telephone
companies. The interim order also provides for a no-sharing productivity
factor option and for increased flexibility for adjusting prices downward in
response to competition. During the past several years the Company has used
the higher productivity factor in determining its access prices.
Consequently, no significant impact is expected in 1995 as a result of the
interim order.
In January 1995, the 9th U.S. Circuit Court of Appeals in San Francisco
upheld the June 15, 1994, Seattle Federal District Court ruling that affirmed
U S WEST's challenge to the constitutionality of the telephone company video
programming restriction in the 1984 Cable Act. The Act prevents telephone
companies from providing video programming within their regions. U S WEST
argued and the courts agreed, that the restriction violates its First
Amendment right to free speech. The decision would allow the Company to
provide video programming directly to its regional telephone subscribers. The
Federal Government can appeal to the U. S. Supreme Court. U S WEST
Communications is evaluating its options in light of this ruling. In January
1995, the FCC instituted a proceeding to modify and promulgate rules on the
provision of video programming. In March 1995, the FCC announced that it
would not enforce its cross-ownership ban on local exchange carriers
providing video programming directly to subscribers in their local telephone
exchange service areas.
16
<PAGE>
Form 10-Q - Part I U S WEST Communications, Inc.
Item 2. Management's Analysis (DOLLARS IN MILLIONS)
OTHER ITEMS (CONTINUED)
REGULATORY (CONTINUED)
Though Congress failed to pass telecommunications reform legislation in 1994,
new telecommunications legislation has been introduced in 1995. The thrust of
this legislation is to open up the network of local exchange carriers to
further competition, and to eliminate certain prohibitions upon local
exchange carriers entering into other lines of business. The proposed
legislation would (i) open local exchange service to competition and preempt
states from imposing barriers preventing such competition, (ii) impose new
unbundling and interconnection requirements on local exchange carrier
networks, (iii) remove the MFJ prohibitions on interLATA services and
manufacturing if certain competitive conditions are met, (iv) transfer any
remaining MFJ requirements (including the MFJ's nondiscrimination provisions)
to the FCC's jurisdiction and (v) eliminate any remaining cable and telephone
company cross-ownership restrictions. There is, however, uncertainty concerning
the outcome of such legislation. The passing of such legislation would
significantly change the competitive landscape of the telecommunications
industry as a whole.
CONTINGENCIES
There are pending regulatory actions in local regulatory jurisdictions that
call for price decreases, refunds or both. In one such instance, the Utah
Supreme Court has remanded a Utah Public Service Commission ("PSC") order to
the PSC for reconsideration, thereby establishing certain exceptions to the
rule against retroactive ratemaking: 1) unforeseen and extraordinary events,
and 2) misconduct. The Commission's initial order denied a refund request
from an interexchange carrier and other parties that relates to the Tax
Reform Act of 1986. This action is still in the discovery process. If a
formal filing - made in accordance with the remand from the Supreme Court -
alleges that the exceptions apply, the range of possible risk is $0 to $140.
17
<PAGE>
Form 10-Q - Part II U S WEST Communications, Inc.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
EXHIBIT NO.
- -----------
12 Statement regarding computation of earnings to fixed charges ratio of
U S WEST Communications, Inc.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K Filed During the First Quarter:
No reports on Form 8-K were filed during the first quarter of 1995.
18
<PAGE>
Form 10-Q - Part II U S WEST Communications, Inc.
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.
May 15, 1995 /s/ James T. Helwig
-------------------
U S WEST Communications, Inc.
James T. Helwig
Vice President - Chief
Financial Officer
19
<PAGE>
U S WEST Communications, Inc.
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
Quarter Ended
3/31/95 3/31/94
- ----------------------------------------------------- --------- ---------
<S> <C> <C>
Income before income taxes $ 518 $ 475
Interest expense (net of amounts capitalized) 91 80
Interest factor on rentals (1/3) 15 18
----- -----
Earnings $ 624 $ 573
Interest expense 99 86
Interest factor on rentals (1/3) 15 18
----- -----
Fixed charges $ 114 $ 104
Ratio of earnings to fixed charges 5.47 5.51
- ----------------------------------------------------- ----- -----
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 41
<SECURITIES> 0
<RECEIVABLES> 1422
<ALLOWANCES> 0
<INVENTORY> 131
<CURRENT-ASSETS> 1932
<PP&E> 29,578
<DEPRECIATION> 16,698
<TOTAL-ASSETS> 15,610
<CURRENT-LIABILITIES> 4036
<BONDS> 5986
<COMMON> 7285
0
0
<OTHER-SE> (3602)
<TOTAL-LIABILITY-AND-EQUITY> 15,610
<SALES> 2277
<TOTAL-REVENUES> 2277
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1719
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91
<INCOME-PRETAX> 518
<INCOME-TAX> 195
<INCOME-CONTINUING> 323
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 323
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
