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<PAGE>
UNITED STATES
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, 1997
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.
<TABLE>
<CAPTION>
<S> <C>
A Colorado Corporation IRS Employer No. 84-0273800
</TABLE>
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)(a) and (b) 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 __
-
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<PAGE>
<TABLE>
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Form 10-Q - Part I
Part I U S WEST Communications, Inc.
</TABLE>
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Item Page
- ---- ----
PART I - FINANCIAL INFORMATION
1. Financial Statements
Consolidated Statements of Operations -
Three Months Ended March 31, 1997 and 1996 3
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
2. Management's Analysis of the Results of Operations - (Reduced
disclosure format pursuant to General Instruction H(2)) 9
PART II - OTHER INFORMATION
1. Legal Proceedings 15
6. Exhibits and Reports on Form 8-K 15
</TABLE>
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED STATEMENTS OF U S WEST COMMUNICATIONS, INC.
OPERATIONS (Unaudited)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Three Three
Months Months
Ended Ended
March 31, March 31,
Dollars in millions 1997 1996
---------- ----------
Operating revenues:
Local service $ 1,231 $ 1,145
Interstate access service 687 622
Intrastate access service 200 190
Long-distance network services 250 290
Other services 179 161
---------- ----------
Total operating revenues 2,547 2,408
Operating expenses:
Employee-related expenses 806 813
Other operating expenses 450 389
Taxes other than income taxes 105 95
Depreciation and amortization 522 511
---------- ----------
Total operating expenses 1,883 1,808
---------- ----------
Income from operations 664 600
Interest expense 96 103
Gain on sale of rural telephone exchanges 18 -
Other expense - net 22 17
---------- ----------
Income before income taxes and cumulative effect of
change in accounting principle 564 480
Provision for income taxes 215 183
---------- ----------
Income before cumulative effect of change in
accounting principle 349 297
Cumulative effect of change in accounting principle - net of tax - 34
---------- ----------
NET INCOME $ 349 $ 331
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED BALANCE SHEETS U S WEST COMMUNICATIONS, INC.
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
Dollars in millions 1997 1996
- ----------------------------------------- ---------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 82 $ 92
Accounts and notes receivable - net 1,489 1,550
Inventories and supplies 107 109
Deferred tax asset 122 152
Prepaid and other 74 57
---------- -------------
Total current assets 1,874 1,960
---------- -------------
Gross property, plant and equipment 32,568 32,451
Less accumulated depreciation 18,839 18,522
---------- -------------
Property, plant and equipment - net 13,729 13,929
Other assets 768 743
---------- -------------
Total assets $ 16,371 $ 16,632
========== =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED BALANCE SHEETS U S WEST COMMUNICATIONS, INC.
(Unaudited), continued
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
Dollars in millions 1997 1996
----------- --------------
LIABILITIES AND SHAREOWNER'S EQUITY
Current liabilities:
Short-term debt $ 375 $ 834
Accounts payable 1,027 998
Employee compensation 239 308
Dividends payable 349 307
Advanced billing and customer deposits 259 250
Accrued property taxes 244 193
Other 728 561
----------- --------------
Total current liabilities 3,221 3,451
----------- --------------
Long-term debt 5,362 5,375
Post-retirement and other post-employment
benefit obligations 2,330 2,347
Deferred income taxes 806 807
Deferred credits and other 515 592
Contingencies (See Note B to the Consolidated
Financial Statements)
Shareowner's equity:
Common shares - one share without par value,
owned by parent 7,754 7,677
Cumulative deficit (3,617) (3,617)
----------- --------------
Total shareowner's equity 4,137 4,060
----------- --------------
Total liabilities and shareowner's equity $ 16,371 $ 16,632
=========== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q - Part I
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED STATEMENTS OF U S WEST COMMUNICATIONS, INC.
CASH FLOWS (Unaudited)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Three Three
Months Months
Ended Ended
March 31, March 31,
Dollars in millions 1997 1996
- ------------------------------------------------------ ----------- -----------
OPERATING ACTIVITIES
Net income $ 349 $ 331
Adjustments to net income:
Depreciation and amortization 522 511
Gain on sale of rural telephone exchanges (18) -
Cumulative effect of change in accounting
principle - (34)
Deferred income taxes and amortization
of investment tax credits 22 22
Changes in operating assets and liabilities:
Restructuring payments (29) (42)
Post-retirement medical and life costs, net
of cash fundings (11) (44)
Accounts receivable 60 93
Inventories, supplies and other current assets (3) (31)
Accounts payable and accrued liabilities 222 29
Other - net (12) 2
----------- -----------
Cash provided by operating activities 1,102 837
----------- -----------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (395) (637)
Proceeds from sale of rural telephone exchanges 7 -
Payments on disposals of property, plant
and equipment (7) (7)
----------- -----------
Cash (used for) investing activities (395) (644)
----------- -----------
FINANCING ACTIVITIES
Repayments of short-term debt - net (429) (93)
Repayments of long-term debt (54) (24)
Dividends paid on common stock (307) (308)
Equity infusions from U S WEST Communications Group 73 88
----------- -----------
Cash (used for) financing activities (717) (337)
----------- -----------
CASH AND CASH EQUIVALENTS
Decrease (10) (144)
Beginning balance 92 191
----------- -----------
Ending balance $ 82 $ 47
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Form 10-Q - Part I
U S WEST COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 1997
(Dollars in millions)
(Unaudited)
A. Summary of Significant Accounting Policies
Basis of Presentation
U S WEST Communications, Inc. (the "Company") is incorporated under the laws
of the State of Colorado and is an indirect, wholly owned subsidiary of U S
WEST, Inc. ("U S WEST").
The Consolidated Financial Statements have been prepared by the Company,
pursuant to the interim reporting 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 ("GAAP") 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 the 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, 1996.
Certain reclassifications within the Consolidated Financial Statements have
been made to conform to the current year presentation.
B. 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 hearing, thereby establishing two 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
interexchange carriers and other parties related to the Tax Reform Act of
1986. The range of possible risk is $0 to $160 at March 31, 1997.
In 1996, the Washington State Utilities and Transportation Commission ("WUTC"
or the "Commission") acted on the Company's 1995 rate request. The Company had
sought to increase revenues by primarily raising rates for basic residential
services over a four-year period. The two major issues in this proceeding
involve the Company's request for improved capital recovery and elimination of
the imputation of Yellow Pages revenue. Instead of granting the Company's
rate request, the Commission ordered approximately $91.5 in annual net
revenue reductions, effective May 1, 1996.
<PAGE>
Form 10-Q - Part I
U S WEST COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions)
(Unaudited)
Based on the above ruling, the Company filed a lawsuit with the King County
Superior Court (the "Court") for an appeal of the order, a temporary stay of
the ordered rate reduction and an authorization to implement a revenue
increase. The Court declined to change the WUTC order. The Company appealed
the Court's decision to the Washington State Supreme Court (the "State Supreme
Court") which, on January 22, 1997, granted a stay of the order, pending the
State Supreme Court's full review of the appeal which will begin in the second
quarter of 1997.
Effective May 1, 1996, the Company began collecting revenues subject to refund
with interest. The cumulative amount of revenues collected subject to refund
as of March 31, 1997, is approximately $95. The Company expects its appeal to
be successful and has not accrued any of the amounts subject to refund.
However, an adverse judgment on the appeal would have a significant impact on
the future results of operations.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Analysis of the Results of Operations (Dollars in
millions)
Some of the information presented in or in connection with this report
constitutes "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Company believes that
its expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that
actual results will not differ materially from its expectations. Factors that
could cause actual results to differ from expectations include: (i) different
than anticipated competition from new entrants into the local exchange and
intraLATA toll markets, (ii) changes in demand for the Company's products and
services, including optional custom calling features, (iii) different than
anticipated employee levels, capital expenditures, and operating expenses as a
result of unusually rapid, in-region growth, (iv) the gain or loss of
significant customers, (v) pending regulatory actions in state jurisdictions,
and (vi) regulatory changes affecting the telecommunications industry,
including changes that could have an impact on the competitive environment in
the local exchange market.
RESULTS OF OPERATIONS - FIRST QUARTER 1997 COMPARED WITH FIRST QUARTER 1996
Following are details of the Company's reported net income, normalized to
exclude the effects of certain non-operating items.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Three
Months Months
Ended Ended Increase Increase
March 31, March 31, (Decrease) (Decrease)
1997 1996 Dollars Percent
----------- ----------- ----------- ----------
Reported net income $ 349 $ 331 $ 18 5.4
Adjustments to reported net income:
Gain on sale of rural telephone
exchanges (1)<F1> (11) - (11) -
Cumulative effect of change in
accounting principle (2)<F2> - (34) 34 -
Current year effect of change in
accounting principle (2) - (5) 5 -
----------- ----------- ----------- ----------
Normalized income $ 338 $ 292 $ 46 15.8
=========== =========== =========== ==========
<FN>
<F1>
(1) In first-quarter 1997, the Company sold certain rural telephone exchanges in
Nebraska for a pretax gain of $18 and an after tax gain of $11.
<F2>
(2) Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."
</FN>
</TABLE>
During 1997, the Company's normalized income increased $46, or 15.8 percent,
to $338. Earnings before interest, taxes, depreciation, amortization and other
("EBITDA") increased $75, or 6.8 percent, to $1,186. EBITDA also excludes the
gain on sale of certain rural telephone exchanges in 1997. The increases are
primarily due to higher demand for services and continued cost control
efforts, which accelerated in the latter half of 1996. The Company
anticipates net income growth will be partially offset by increased costs
related to growth initiatives and interconnection requirements.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Analysis of the Results of Operations (Dollars in
millions), continued
The Company believes EBITDA is an important indicator of the operational
performance of its businesses. EBITDA, however, should not be considered as
an alternative to operating or net income as an indicator of the performance
of the Company's business or as an alternative to cash flows from operating
activities as a measure of liquidity, in each case determined in accordance
with GAAP.
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which, among other things, requires that companies no longer record
depreciation expense on assets held for sale. Adoption of SFAS No. 121
resulted in a one-time gain of $34 (net of tax of $22), related to the
cumulative effect of change in accounting principle.
Operating Revenues
An analysis of operating revenues follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase Increase
Three Months Ended Price Lower (Decrease) (Decrease)
March 31, 1997 1996 Demand Changes Refunds Other Dollars Percent
- --------------------- ------ ------ -------- --------- -------- ------- ----------- ----------
Local service $1,231 $1,145 $ 101 $ (10) $ 5 $ (10) $ 86 7.5
Interstate access 687 622 64 (5) 10 (4) 65 10.5
Intrastate access 200 190 9 2 - (1) 10 5.3
Long-distance network 250 290 (22) (1) - (17) (40) (13.8)
Other services 179 161 - - - 18 18 11.2
------ ------ -------- --------- -------- ------- ----------- ----------
Total $2,547 $2,408 $ 152 $ (14) $ 15 $ (14) $ 139 5.8
====== ====== ======== ========= ======== ======= =========== ==========
</TABLE>
Local service revenues increased $86, or 7.5 percent, to $1,231, primarily as
a result of access line growth and increased demand for new product and
service offerings, and existing central office features. Total reported
access lines increased 562,000, or 3.7 percent, during the past 12 months, of
which 250,000 was attributable to second lines. Second line installations
increased 28.6 percent. Access lines grew 688,000, or 4.6 percent, when
adjusted for sales of approximately 126,000 rural telephone access lines
during the past twelve months. Partially offsetting the increase in local
service revenues was the effect of lower wireless interconnection access
prices as mandated by the Telecommunications Act of 1996, which reduced local
service revenues by $16.
Higher interstate access revenues are primarily attributable to access line
growth, a 6.6 percent increase in billed interstate access minutes of use and
increased demand for private line services. True-ups of $18 to the 1996
sharing related accruals for refunds to interexchange carriers also
contributed to the increase in interstate access revenues. These true-ups
more than offset the current year sharing related accruals. The increase in
intrastate access revenues was primarily attributable to a 8.5 percent
increase in billed intrastate access minutes of use and increased demand for
private line services.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Analysis of the Results of Operations (Dollars in
millions), continued
Long-distance network service revenues decreased $40, or 13.8 percent, as
compared with 1996, primarily due to the effects of competition and the
implementation of multiple toll carrier plans ("MTCPs") in Iowa and Nebraska
in 1996, and in Oregon and Washington in first-quarter 1997. The MTCPs
essentially allow independent telephone companies to act as toll carriers.
During 1997, the MTCPs reduced long-distance revenues by $17, which was offset
by increased intrastate access revenues of $2 and decreased other operating
expenses (i.e., access expense) of $14.
Excluding the effects of the MTCPs, long-distance network service revenues
decreased 7.9 percent. Erosion of long-distance network service revenues will
continue due to the loss of exclusivity of 1+ dialing in Minnesota and
Arizona, and continued dial-around activity in other states within the
Communications Group's 14 state region. The Communications Group is partially
mitigating competitive losses through competitive pricing of intraLATA
long-distance services and increased promotional efforts to retain customers.
During 1997, revenues from other services increased $18, or 11.2 percent,
primarily as a result of continued market penetration in voice messaging
services, and increased inside wire maintenance services and billing and
collection service revenues.
Future revenues at U S WEST Communications may be affected by pending
regulatory actions in federal and local regulatory jurisdictions.
Costs and Expenses
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Three
Months Months
Ended Ended Increase Increase
March 31, March 31, (Decrease) (Decrease)
1997 1996 Dollars Percent
---------- ---------- ----------- ----------
Employee-related expenses $ 806 $ 813 $ (7) (0.9)
Other operating expenses 450 389 61 15.7
Taxes other than income taxes 105 95 10 10.5
Depreciation and amortization 522 511 11 2.2
Interest expense 96 103 (7) (6.8)
Other expense - net 22 17 5 29.4
---------- ---------- ----------- ----------
</TABLE>
Employee-related expenses decreased slightly in 1997, primarily due to lower
salaries and wages, and overtime. Salaries and wages decreased primarily as a
result of employee reductions totaling 3,873 during the last twelve months.
However, this decrease was largely offset by the effects of inflation-driven
wage increases. The reduction in overtime is primarily the result of
continued cost control efforts which accelerated in the latter half of 1996.
Partially offsetting these decreases were higher contract labor costs and an
increase in the post-retirement benefits accrual. The contract labor increase
primarily relates to marketing and sales efforts associated with a special
advertising promotion of caller identification and additional costs related to
systems development.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Analysis of the Results of Operations (Dollars in
millions), continued
The increase in other operating expenses is primarily due to higher
advertising expenses, of which approximately $30 is attributable to a special
advertising promotion of caller identification. Also contributing to the
increase was a reserve adjustment associated with billing and collection
activities performed for interexchange carriers, and increased consulting and
professional fees primarily related to new business opportunities.
The increase in taxes other than income taxes is primarily due to increased
use and gross receipts tax.
The decrease in interest expense is primarily due to lower average debt levels
and lower interest rates as compared to 1996. Partially offsetting the
decrease in interest expense was a decrease in the amount of interest
capitalized resulting from a lower average balance of telecommunications plant
under construction.
RESTRUCTURING CHARGE
In 1993, the Company incurred an $880 restructuring charge (pretax). The
related restructuring plan, which is expected to be substantially complete by
the end of 1997, is designed to provide faster, more responsive customer
services, while reducing the costs of providing these services.
During the first quarter, the restructuring reserve decreased $29 to a balance
of $94 at March 31, 1997. Reserve usage is primarily a result of expenditures
for employee separation and systems development costs. First-quarter 1997
employee separations were 207, bringing the cumulative employee separations
under the restructuring plan to 7,379.
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 hearing, thereby establishing two 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
interexchange carriers and other parties related to the Tax Reform Act of
1986. The range of possible risk is $0 to $160 at March 31, 1997.
In 1996, the Washington State Utilities and Transportation Commission ("WUTC"
or the "Commission") acted on the Company's 1995 rate request. The Company had
sought to increase revenues by primarily raising rates for basic residential
services over a four-year period. The two major issues in this proceeding
involve the Company's request for improved capital recovery and elimination of
the imputation of Yellow Pages revenue. Instead of granting the Company's
rate request, the Commission ordered approximately $91.5 in annual net
revenue reductions, effective May 1, 1996.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Analysis of the Results of Operations (Dollars in
millions), continued
Based on the above ruling, the Company filed a lawsuit with the King County
Superior Court (the "Court") for an appeal of the order, a temporary stay of
the ordered rate reduction and an authorization to implement a revenue
increase. The Court declined to change the WUTC order. The Company appealed
the Court's decision to the Washington State Supreme Court (the "State Supreme
Court") which, on January 22, 1997, granted a stay of the order, pending the
State Supreme Court's full review of the appeal which will begin in the second
quarter of 1997.
Effective May 1, 1996, the Company began collecting revenues subject to refund
with interest. The cumulative amount of revenues collected subject to refund
as of March 31, 1997, is approximately $95. The Company expects its appeal to
be successful and has not accrued any of the amounts subject to refund.
However, an adverse judgment on the appeal would have a significant impact on
the future results of operations.
REGULATORY ENVIRONMENT
On May 7, 1997, the Federal Communications Commission ("FCC") announced three
decisions that will establish rules to implement the Universal Service
provision of the Telecommunications Act of 1996 ("the Universal Service
Order"), as well as rules to restructure the access charge system ("the Access
Reform Order") and the FCC's current price cap plan (the "Price Cap Order").
Universal Service
Under the Universal Service Order, all providers of interstate
telecommunications services will contribute to universal service funding,
which will be based on assessments against these service providers' end-user
revenues. The Universal Service Order deferred defining a new explicit
mechanism to support high-cost service in areas served by non-rural telephone
companies, such as the Company, until January 1, 1999. Until the explicit
mechanism is put in place, the existing universal service support mechanisms
were left intact, except to the extent modified by the FCC's Access Reform and
Price Cap Orders discussed below.
The FCC's Universal Service Order also includes the establishment of two
separate funds to help connect eligible schools, libraries and rural health
care providers to the global telecommunications network.
Federal Access Reform
The FCC rejected proposals to immediately base access rates on total service
long run incremental costs. The FCC will instead rely on market forces to
bring access rates to competitive levels over time. The FCC will issue
detailed rules at a later date.
<PAGE>
Form 10-Q - Part I
Item 2. Management's Analysis of the Results of Operations (Dollars in
millions), continued
The Access Reform Order will generally remove non-traffic sensitive costs from
minutes-of-use access charges. The FCC concluded these non-traffic sensitive
costs should be generally recovered through flat-rate charges against
interexchange carriers, multi-line business users and additional residential
lines. The Access Reform Order will also affirm the tentative conclusions
reached in the Notice of Proposed Rulemaking issued in December 1996 that
incumbent local exchange carriers ("LECs") may not assess interstate access
charges on information service providers and purchasers of unbundled network
elements. The FCC will separately address issues surrounding information
service providers' usage of the public switched network in a related Notice of
Inquiry. The impacts of access reform will occur over a number of years and
the effects on the Company cannot be evaluated until the order and
accompanying rules are issued. Competition from new entrant local exchange
carriers will also affect the Company's access revenues.
Price Cap Order
The FCC's Price Cap Order will require LECs that are subject to price cap
regulation to increase their price cap index productivity factor to 6.5
percent. The order will eliminate the lower productivity factor options
(i.e., 4.0 percent and 4.7 percent) that required sharing of earnings above a
specified level and will require LECs to set their 1997 price cap index
assuming that the 6.5 factor had been in effect at the time of the 1996 tariff
filing. The Price Cap Order will require price cap incumbent LECs to file
revisions to their interstate access tariffs in compliance with the new rules
to be effective July 1, 1997. The effects of the Price Cap Order on the
Company cannot be evaluated until a later date when the FCC releases its order
and new rules.
OTHER ITEMS
On March 31, 1997, Standard and Poor's lowered the Company's senior unsecured
debt rating from A plus to A. This downgrading is a result of a modified
rating criteria implemented by Standard and Poor's to reflect the changing
telecommunications regulatory environment.
In January 1997, the Company purchased personal communications service
licenses in the FCC's block auction of D and E spectrum. The purchase price
of approximately $57 will be paid as the licenses are granted.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Form 10-Q - Part I U S WEST Communications, Inc.
</TABLE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are subject to claims and proceedings arising
in the ordinary course of business. While complete assurance cannot be given
as to the outcome of any contingent liabilities, in the opinion of the
Company, any financial impact to which the Company and its subsidiaries are
subject is not expected to be material in amount to the Company's operating
results or its financial position.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
Exhibit No.
- -----------
12 Statement regarding computation of earnings to fixed charges
ratio of U S WEST Communications, Inc.
</TABLE>
(b) Reports on Form 8-K Filed During the First Quarter of 1997:
No reports on Form 8-K have been filed for the Company during the
first quarter of 1997.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Form 10-Q - Part II U S WEST Communications, Inc.
</TABLE>
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 14, 1997
/s/ Allan R. Spies
-----------------------
U S WEST Communications, Inc.
Allan R. Spies
Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT 12
U S WEST COMMUNICATIONS, Inc.
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
<S> <C> <C>
Quarter Ended
3/31/97 3/31/96
- -------------------------------------------------- --------
Income before income taxes, extra-
ordinary item and cumulative effect
of change in accounting principles $564 $480
Interest expense (net of amounts
capitalized) 96 103
Interest factor on rentals (1/3) 15 13
-------- --------
Earnings $675 $596
Interest expense $103 $116
Interest factor on rentals (1/3) 15 13
-------- --------
Fixed charges $118 $129
Ratio of earnings to fixed charges 5.72 4.62
- -------------------------------------------------- --------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000068622
<NAME> U S WEST COMMUNICATIONS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 82
<SECURITIES> 0
<RECEIVABLES> 1,489
<ALLOWANCES> 0
<INVENTORY> 107
<CURRENT-ASSETS> 1,874
<PP&E> 32,568
<DEPRECIATION> 18,839
<TOTAL-ASSETS> 16,371
<CURRENT-LIABILITIES> 3,221
<BONDS> 5,362
0
0
<COMMON> 7,754
<OTHER-SE> (3,617)
<TOTAL-LIABILITY-AND-EQUITY> 16,371
<SALES> 2,547
<TOTAL-REVENUES> 2,547
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,883
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> 564
<INCOME-TAX> 215
<INCOME-CONTINUING> 349
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 349
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
