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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</TABLE>
COMMISSION FILE NO. 1-8611
U S WEST, INC.
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A COLORADO I.R.S. EMPLOYER IDENTIFICATION
CORPORATION NO. 84-0926774
</TABLE>
7800 EAST ORCHARD ROAD, ENGLEWOOD, COLORADO 80111
TELEPHONE NUMBER (303) 793-6500
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE IN
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock (without par value) New York Stock Exchange
Pacific Stock Exchange
Liquid Yield Option Notes, due 2011 New York Stock Exchange
(convertible to common stock under
certain circumstances)
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Securities registered pursuant to Section 12(g) of the Act:
None
At January 31, 1995, 468,435,778 shares of common stock were outstanding.
At January 31, 1995, the aggregate market value of the voting stock held by
non-affiliates was approximately $18,250,730,316.
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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DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrant's 1994 Annual Report to Shareowners are
incorporated by reference into Parts I, II and IV.
Portions of the Registrant's definitive Proxy Statement dated March 16,
1995, to be issued in connection with the 1995 Annual Meeting of Shareowners are
incorporated by reference into Parts II and III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
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TABLE OF CONTENTS
PART I
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ITEM PAGE
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1. Business...................................................................... 1
2. Properties.................................................................... 6
3. Legal Proceedings............................................................. 6
4. Submission of Matters to a Vote of Security Holders........................... 7
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters..... 8
6. Selected Financial Data....................................................... 8
7. Management's Discussion and Analysis of Financial Condition and
8Results of Operations...................................................... 8
8. Consolidated Financial Statements and Supplementary Data...................... 8
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................................ 8
PART III
10. Directors and Executive Officers of the Registrant............................ 8
11. Executive Compensation........................................................ 8
12. Security Ownership of Certain Beneficial Owners and Management................ 8
13. Certain Relationships and Related Transactions................................ 8
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 9
Independent Accountants' Report............................................... 14
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PART I
ITEM 1. BUSINESS.
GENERAL
U S WEST, Inc. ("U S WEST") was incorporated under the laws of the State of
Colorado and has its principal executive offices at 7800 East Orchard Road,
Englewood, Colorado 80111, telephone number (303) 793-6500. U S WEST is a
diversified global communications company engaged in the telecommunications,
directory publishing, marketing and, most recently, entertainment services
businesses. Telecommunications services are provided by U S WEST's principal
subsidiary, U S WEST Communications, Inc., to more than 25 million residential
and business customers in the states of Arizona, Colorado, Idaho, Iowa,
Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota,
Utah, Washington and Wyoming (collectively, the "U S WEST Region"). Directory
publishing, marketing and entertainment services as well as cellular mobile
communications services are provided by other U S WEST subsidiaries to customers
both inside and outside the U S WEST Region. (Financial information concerning
U S WEST's operations is set forth in the Consolidated Financial Statements and
Notes thereto in the U S WEST 1994 Annual Report to Shareowners (the "1994
Annual Report"), which is incorporated herein by reference.) U S WEST and its
subsidiaries had 61,505 employees at December 31, 1994.
RECENT DEVELOPMENTS
U S WEST COMMUNICATIONS
Development of Multimedia Network. In 1993, U S WEST announced its
intention to build a multimedia telecommunications network (the "Multimedia
Network") capable of providing voice, data and video services to customers
within the U S WEST Region. U S WEST expects that it will ultimately deliver a
variety of integrated communications, entertainment and information services and
other high speed digital services, including data applications, through the
Multimedia Network in selected areas of the U S WEST Region. These integrated
services, including video-on-demand, targeted advertising, home shopping,
interactive games, high-definition broadcast television and two-way, video
telephony are expected to become available over time as the Multimedia Network
develops. U S WEST began limited testing of its Multimedia Network in Omaha,
Nebraska in December, 1994. A market trial will begin in 1995 in an area that
will cover up to 50,000 homes. U S WEST is seeking approval from the Federal
Communications Commission (the "FCC") to install Multimedia Network architecture
in several other cities within the U S WEST Region. The results of the technical
and market trials will be incorporated into the network configuration and future
service offerings.
Re-engineering. U S WEST also announced in 1993 that U S WEST
Communications would implement a plan (the "Re-engineering Plan") designed to
provide faster, more responsive customer service and improved repair
capabilities while reducing the costs of providing these services. Pursuant to
the Re-engineering Plan, U S WEST Communications 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. U S WEST Communications
is also gradually reducing its work force by approximately 9,000 employees and
consolidating the operations of its existing 560 customer centers into 26
customer centers in ten cities. Implementation of the Re-engineering Plan is
expected to extend into 1997, rather than being completed in 1996 as originally
scheduled. In the third quarter of 1993, U S WEST accrued a one-time, after-tax
charge of $610 million for costs associated with the Re-engineering Plan,
including employee training costs, severance benefits, employee relocations
costs and building preparation and system installation costs. While U S WEST
estimates that total employee and related costs will be reduced upon completion
of the Re-engineering Plan, these savings are expected to be offset by the
effects of inflation. (See "Restructuring Charges" under Management's Discussion
and Analysis of Financial Condition and Results of Operations on p. 14 of the
1994 Annual Report, which is incorporated by reference herein.)
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Discontinuance of SFAS 71 Accounting. In 1993, U S WEST incurred a $3.1
billion non-cash, extraordinary charge, net of an income tax benefit of $2.3
billion, against its earnings in conjunction with its decision to discontinue
accounting for the operations of U S WEST Communications in accordance with
Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation" ("SFAS 71"). SFAS 71 generally applies to
regulated companies that meet certain requirements, including a requirement that
a company be able to recover its costs, notwithstanding competition, by charging
its customers at prices established by a regulator. U S WEST's decision to
discontinue accounting for the operations of U S WEST Communications in
accordance with SFAS 71 is based on the belief that the development of
multimedia technology, competition and market conditions, more than prices
established by regulators, will determine the future cost recovery by U S WEST
Communications. As a result of this accounting change, the remaining asset lives
of U S WEST Communications' telephone plant were shortened to more closely
reflect the useful life of such plant. U S WEST Communications' financial
reporting for regulatory purposes was not affected by the change. U S WEST
Communications expects that it will continue to work with regulators to set
appropriate prices that reflect changing market conditions, including shorter
asset lives.
CABLE INVESTMENTS
On December 6, 1994, U S WEST purchased Wometco Cable Corp. and Georgia
Cable Holdings (the "Atlanta Cable Properties") for $1.2 billion, consisting of
$745 million in cash and $459 million in common stock. Together, the Atlanta
Cable Properties serve about 65 percent of the cable customers in the
metropolitan Atlanta area. U S WEST expects that it will eventually offer local
exchange services as well as multimedia services in the Atlanta area as a result
of this acquisition.
In 1993, U S WEST acquired 25.51% pro rata priority capital and residual
equity interests in Time Warner Entertainment Company, L.P. ("TWE") for an
aggregate purchase price of approximately $2.55 billion, consisting of
approximately $1.53 billion in cash and approximately $1.02 billion in the form
of a four-year promissory note bearing interest at a rate of 4.391% per annum
(the "TWE Investment"). TWE owns and operates substantially all of the filmed
entertainment (including Warner Bros.), programming (including HBO and Cinemax)
and cable operations previously owned and operated by Time Warner Inc. TWE is
the second-largest domestic multiple system cable operator, owning or operating
22 of the top 100 cable systems in the United States.
U S WEST has an option to increase its equity interests in TWE from 25.51%
to 31.84%. The option is exercisable, in whole or in part, between January 1,
1999 and May 31, 2005 upon the attainment of certain earnings thresholds for an
aggregate cash exercise price of $1.25 billion to $1.8 billion (depending on the
year of exercise). At the election of U S WEST or TWE, the exercise price will
be payable by surrendering a portion of the equity interests receivable upon
exercise of such option. In connection with the TWE Investment, U S WEST
acquired 12.75% of the common stock of Time Warner Entertainment Japan Inc., a
joint venture company established to expand and develop the market for
entertainment services in Japan.
DOMESTIC WIRELESS SERVICES
On July 25, 1994, AirTouch Communications ("AirTouch") and U S WEST
announced an agreement to combine their domestic wireless operations. AirTouch's
initial equity ownership of the wireless joint venture will be approximately 70
percent and U S WEST's will be 30 percent. This joint venture will provide
U S WEST with an expanded wireless presence and economies of scale. The joint
venture will have a presence in 9 of the top 20 cellular markets in the country.
The transaction is expected to close in the second quarter of 1995 upon
obtaining certain federal and state regulatory approvals. Each company's
cellular operations initially will continue to operate as separate entities
owned by the individual partners, but upon closing will report to a joint
Wireless Management Company, which will provide support services.
A merger of the two companies' operations will take place upon the earlier
of four years from July 25, 1994, the lifting of certain MFJ restrictions, or at
AirTouch's option. The agreement gives U S WEST strategic flexibility, including
the right to exchange its interest in the joint venture for up to 19.9 percent
of
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AirTouch common stock, with any excess amounts to be received in the form of
AirTouch non-voting preferred stock. A Partnership Committee, led by the
president and chief operating officer of AirTouch and three other AirTouch
representatives, three U S WEST representatives and one mutually agreed upon
independent representative will oversee the companies' domestic cellular
operations.
On December 5, 1994, a partnership formed by the AirTouch/U S WEST joint
venture and the Bell Atlantic/NYNEX partnership began bidding on personal
communications services ("PCS") licenses that are being auctioned by the FCC.
The combined companies own cellular licenses in 15 of the top 20 cities and
serve over five million customers. The partnership, known as PCS PrimeCo, is
eligible to bid for PCS licenses in 26 markets, representing more than 100
million POPS. This entity will be governed by a board made up of three members
from the Bell Atlantic/NYNEX partnership and three members from the
AirTouch/U S WEST joint venture. A second partnership will develop a national
branding and marketing strategy and a common "look and feel" for both cellular
and PCS customers. The cellular properties of Bell Atlantic/NYNEX will not be
merged with those of AirTouch/U S WEST.
PERSONAL COMMUNICATIONS SERVICES
In 1993, Mercury One-2-One, a 50-50 joint venture between U S WEST and
Cable & Wireless PLC, launched the world's first commercial PCS in the United
Kingdom. Mercury One-2-One's PCS is a digital cellular communications service
designed to offer consumers higher quality service, increased privacy and more
features at lower prices than existing cellular communications systems. To meet
growing customer demand, Mercury One-2-One has expanded its coverage to reach 30
percent of the U.K. population.
TELEWEST INITIAL PUBLIC OFFERING
In 1994, TeleWest Communications PLC ("TeleWest"), a venture with
Tele-Communications, Inc., completed an initial public offering of its common
stock. U S WEST's interest in TeleWest was reduced from 50 percent to 37.8
percent as a result of the offering, but based on the offering price, its
interest is valued at U.S. $1.1 billion. TeleWest is the largest provider of
combined cable television and telephone service in the world. The combined
services are provided over a multimedia network which has been designed to
provide a wide range of interactive and integrated entertainment,
telecommunication and information services as they become available in the
future. TeleWest owns all or part of 23 franchises that encompass 3.6 million
homes. Through TeleWest, U S WEST has gained experience in packaging video and
telephone service that it utilizes in other parts of the world.
DISCONTINUANCE OF CAPITAL ASSETS SEGMENT
In 1993, in connection with its decision to concentrate its resources and
efforts on developing its telecommunications business, U S WEST determined to
treat its capital assets business segment (the "Capital Assets segment") as a
discontinued operation and announced its intention to dispose of the businesses
comprising that segment. U S WEST's remaining business segment, "Communications
and Related Services," comprises the continuing operations of U S WEST. U S WEST
continues to make progress in disposing of its Capital Assets segment in
accordance with its plan of disposition.
In May, 1994, U S WEST sold 7.5 million shares of Financial Security
Assurance Holdings Ltd. ("FSA"), including 2 million shares to Fund American
Enterprises Holdings, Inc. ("FFC"), in an initial public offering of FSA common
stock. In June, 1994, an additional 600,000 shares were issued in connection
with an over-allotment option. U S WEST received $154 million in net proceeds
from the offering. In conjunction with the sale of FSA shares to FFC, U S WEST
issued 50,000 shares of a class of newly created cumulative redeemable preferred
stock. FFC's voting rights in FSA increased to 21.0 percent through a
combination of direct share ownership of common and preferred FSA shares and a
voting trust agreement with U S WEST. U S WEST's voting rights are 49.8 percent.
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During 1994, U S WEST Real Estate, Inc. continued the liquidation of its
real estate portfolio, selling 12 buildings, six parcels of land and other
assets for approximately $327 million U S WEST expects that the liquidation of
this portfolio will be substantially completed by 1998.
U S WEST'S CONTINUING OPERATIONS
U S WEST Communications. U S WEST Communications was formed January 1,
1991, when Northwestern Bell Telephone Company ("Northwestern Bell") and Pacific
Northwest Bell Telephone Company ("Pacific Northwest Bell") were merged into The
Mountain States Telephone and Telegraph Company ("Mountain States"), which
simultaneously changed its name to U S WEST Communications, Inc. U S WEST
acquired ownership of Mountain Bell, Northwestern Bell and Pacific Northwest
Bell on January 1, 1984, when American Telephone and Telegraph Company ("AT&T")
transferred its ownership interests in these three wholly owned operating
telephone companies to U S WEST. This divestiture was made pursuant to a
court-approved consent decree entitled the "Modification of Final Judgment"
("MFJ") which arose out of an antitrust action brought by the United States
Department of Justice against AT&T.
Operations of U S WEST Communications. U S WEST Communications serves
approximately 80% of the population in the U S WEST Region and approximately 40%
of the land area. At December 31, 1994, U S WEST Communications had
approximately 14,336,000 telephone network access lines in service, a 3.6%
increase over year end 1993.
Under the terms of the MFJ, the U S WEST Region was divided into 29
geographical areas called "Local Access and Transport Areas" ("LATAs") with each
LATA generally centered on a metropolitan area or other identifiable community
of interest. The principal types of telecommunications services offered by
U S WEST Communications are (i) local service, (ii) exchange access service
(which connects customers to the facilities of interLATA service providers), and
(iii) intraLATA long distance network service. For the year ended December 31,
1994, local service, exchange access service and intraLATA long distance network
service accounted for 37%, 27% and 12%, respectively, of the sales and other
revenues of U S WEST's continuing operations. In 1994, revenues from a single
customer, AT&T, accounted for approximately 10% of the sales and other revenues
of U S WEST's continuing operations.
U S WEST Communications incurred capital expenditures of approximately
$2.45 billion in 1994 and expects to incur approximately $2.1 billion in 1995.
The 1994 capital expenditures of U S WEST Communications were substantially
devoted to the continued modernization of telephone plant, including investments
in fiber optic cable, in order to improve customer services and network
productivity.
Central to U S WEST Communications' competitive strategy in 1994 were its
efforts respecting the Multimedia Network and the Re-engineering Plan. See
"Recent Developments -- U S WEST Communications."
Regulation of U S WEST Communications. U S WEST Communications is subject
to varying degrees of regulation by state commissions with respect to intrastate
rates and service, and access charge tariffs. Under traditional rate of return
regulation, intrastate rates are generally set on the basis of the amount of
revenues needed to produce an authorized rate of return.
U S WEST Communications has sought alternative forms of regulations
("AFOR") plans which provide for competitive parity, enhanced pricing
flexibility and improved capability in bringing to market new products and
services. In a number of states where AFOR plans have been adopted, such actions
have been accompanied by requirements to refund revenues, reduce existing rates
or upgrade service, any of which could have adverse short-term effects on
earnings. Similar agreements may have resulted under traditional rate of return
regulation. (See "State Regulatory Issues" under Management's Discussion and
Analysis of Financial Condition and Results of Operations on p. 22 of the 1994
Annual Report, which is incorporated by reference herein.)
U S WEST Communications is also subject to the jurisdiction of the FCC with
respect to interstate access tariffs (that specify the charges for the
origination and termination of interstate communications) and
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other matters. U S WEST's interstate services have been subject to price cap
regulation since January 1991. Price caps are a form of incentive regulation
and, ostensibly, limit prices rather than profits. However, the FCC's price cap
plan includes sharing of earnings in excess of authorized levels. The Company
believes that competition will ultimately be the determining factor in pricing
telecommunications services. (See "Federal Regulatory Issues" under Management's
Discussion and Analysis of Financial Condition and Results of Operations on p.
21 of the 1994 Annual Report, which is incorporated by reference herein.)
Congress failed to pass telecommunications reform legislation in 1994. It
is expected that new telecommunications legislation will be introduced in 1995.
However, there is uncertainty concerning the scope and the direction of that
legislation. U S WEST believes that it is in the public interest to lift all
competitive restrictions, placing all competitors under the same rules. Such
action would lead to wider consumer choices, and ensure the industry's
technological development and long-term financial health.
Competition. U S WEST believes that the convergence of the communications,
entertainment and information services businesses will lead to increased
competition for U S WEST from companies in industries with which U S WEST did
not historically compete. U S WEST Communications' principal competitors are
competitive access providers ("CAPs") and interexchange carriers. In recent
years, potential competitors have expanded to include cable television
companies, combined cable television/telecommunications companies and cellular
companies. Cable television companies are expected to increase competition by
offering telecommunications and other information services. Combined cable
television and telecommunications companies are expected to increase competition
for local telephone and alternative exchange access services as well as those
services expected to be available through the Multimedia Network. AT&T's
entrance into the cellular communications market through its acquisition of
McCaw Cellular Communications, Inc. may create increased competition in local
exchange as well as cellular services.
Currently, competition from long distance companies is eroding U S WEST
Communications' market share of intraLATA long distance services such as Wide
Area Telephone Service and "800." These revenues have steadily declined over the
last several years as customers have migrated to interexchange carriers who have
the ability to offer these services on both an intraLATA and interLATA basis.
U S WEST and its affiliates are prohibited from providing interLATA long
distance services.
The impact of increased competition on the operations of U S WEST
Communications will be influenced by the future actions of regulators and
legislators who increasingly are advocating competition. The loss of local
exchange customers to competitors would affect multiple revenue streams of
U S WEST and could have a material adverse effect on its operations.
Other U S WEST Subsidiaries and Investments. Other continuing operations
include subsidiaries engaged in (i) publishing services, primarily "Yellow
Pages" and other directories, (ii) designing, engineering and operating mobile
telecommunications systems, (iii) cellular and land-line telecommunications,
network infrastructure and cable television businesses in certain foreign
countries, and (iv) entertainment services.
U S WEST Marketing Resources Group, Inc. ("Marketing Resources"), which
accounted for about 9% of U S WEST's 1994 revenues from continuing operations,
publishes about 300 white and yellow page directories in the U S WEST Region.
Marketing Resources competes with local and national publishers of directories,
as well as other advertising media such as newspapers, magazines, broadcast
media and direct mail. Marketing Resources intends to focus on enhancing core
products, developing and packaging new information products through new and
existing databases.
U S WEST NewVector Group, Inc. ("NewVector"), which accounted for
approximately 7% of U S WEST's 1994 revenues from continuing operations,
provides communications and information products and services, including
cellular services, over wireless networks in 31 Metropolitan Service Areas and
34 Rural Service Areas, primarily located in the U S WEST Region. Competition
for full service cellular customers is currently limited to holders of the two
cellular licenses granted in a given cellular market. Despite its rapid growth,
the cellular industry is faced with many challenges including the introduction
of new technologies, increased competition and an uncertain regulatory
environment. In 1994, NewVector agreed to combine its domestic wireless services
with those of AirTouch, and to be part of a partnership including AirTouch, Bell
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Atlantic and NYNEX that would bid on PCS licenses that are being auctioned by
the FCC. See "Recent Developments -- Domestic Wireless Services."
U S WEST Multimedia Communications, Inc. ("Multimedia Communications") was
formed to manage U S WEST's cable investments, and has primary responsibility
for aiding U S WEST in achieving its strategic goal of becoming a leading
provider of interactive, integrated communications, entertainment and
information services outside the U S WEST Region.
Multimedia Communications is also responsible for identifying and pursuing
alliances, acquisitions and/or investments that complement U S WEST's strategy.
U S WEST is seeking to strengthen its national out-of-region presence by
acquiring or forming alliances with other communications, entertainment and
information services companies throughout the United States. The first major
step toward that goal was the TWE Investment made in 1993. More recently,
U S WEST acquired the Atlanta Cable Properties. See "Recent
Developments -- Cable Investments."
U S WEST will continue to employ strategic alliances and will also make
direct investments in assets or businesses that are consistent with its business
strategies. Financing for new investments will primarily come from a combination
of new debt and equity. In the event of a new investment of substantial
magnitude, the Company may also re-evaluate its use of internally generated
cash, the feasibility of further acquisitions, the possibility of sales of
assets and the capital structure.
During 1994, U S WEST continued expanding its international ventures, which
include investments in cable television and telecommunications, wireless
communications including PCS, directory publishing, and international networks.
The Company completed its purchase of Thomson Directories, a publisher of 155
telephone directories that reach 80 percent of the households in Great Britain.
The Company also purchased 49 percent of Listel, a Brazilian company that
produces telephone directories, and acquired a minority interest in Binariang
Sdn Bhd, a Malaysian telecommunications company that holds four licenses that
enable it to become a second network operator in Malaysia.
U S WEST's net investment in international ventures approximated $988
million (inclusive of consolidated entities) at December 31, 1994, approximately
68% of which is in the United Kingdom. Of the total international investment,
approximately 53% is invested in cable television joint ventures, mostly in the
United Kingdom and Western Europe.
Because U S WEST's international investments are in new, developing
businesses, they typically are in a high growth, reinvestment phase for several
years and do not show net income or positive cash flow until they become more
mature. Consequently, start-up losses from these investments, in total, are
expected to increase in 1995 and possibly beyond. The Company's future
commitment to international ventures is currently planned at about $400 million
in 1995, but could increase as new opportunities become available.
ITEM 2. PROPERTIES.
The properties of U S WEST do not lend themselves to description by
character and location of principal units. At December 31, 1994, the majority of
U S WEST property was utilized in providing telecommunications services by
U S WEST Communications. Substantially all of U S WEST Communications' central
office equipment is located in owned buildings situated on land owned in fee,
while many garages and administrative and business offices are in leased
quarters.
ITEM 3. LEGAL PROCEEDINGS.
U S WEST 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 U S WEST, any
financial impact to which U S WEST and its subsidiaries are subject is not
expected to be material in amount to U S WEST's operating results or its
financial position.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF U S WEST
Pursuant to General Instructions G(3), the following information is
included as an additional item in Part I:
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DATE ASSUMED
PRESENT
POSITION AGE POSITION
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A. Gary Ames(1).......... President & Chief Executive 50 1990
Officer
of U S WEST Communications
James T. Anderson........ Vice President & Treasurer 55 1984
Richard J. Callahan...... Executive Vice President, 53 1988
U S WEST,
& President, U S WEST
International and Business
Development Group
Charles M. Lillis........ Executive Vice President & 53 1987
President and Chief Executive
Officer,
U S WEST Diversified Group
C. Scott McClellan(2).... Acting Executive Vice President 46 1994
Richard D. McCormick..... Chairman of the Board, 54 1986(3)
Chief Executive Officer &
President
James M. Osterhoff(4).... Executive Vice President & 58 1991
Chief Financial Officer
Lorne G. Rubis........... Vice President 44 1992
Charles P. Russ, III..... Executive Vice President, 50 1992
General Counsel & Secretary
Judith A. Servoss........ Vice President 49 1987
James H. Stever.......... Executive Vice President 51 1993
</TABLE>
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(1) Mr. Ames, while not an officer of U S WEST, performs significant policy
making functions equivalent to those typically performed by an officer.
(2) Mr. McClellan was appointed Acting Executive Vice President effective
October 10, 1994.
(3) Mr. McCormick was appointed Chief Executive Officer on January 1, 1991, and
was elected Chairman of the Board effective May 1, 1992.
(4) Mr. Osterhoff has announced his retirement from U S WEST but will remain in
his present position until a successor is named.
Executive Officers are not elected for a fixed term of office, but serve at
the discretion of the Board of Directors.
Each of the above executive officers has held a managerial position with
U S WEST or an affiliate of U S WEST since 1990, except for Messrs. Osterhoff,
Rubis and Russ. Mr. Osterhoff was Vice President -- Finance and Chief Financial
Officer of Digital Equipment Corporation from 1985 to 1991. Mr. Rubis was Vice
President -- Quality for U S WEST International and Business Development Group,
a division of U S WEST, from 1991 to 1992; Director -- Quality and Service
Improvement for U S WEST NewVector Group, Inc., a subsidiary of U S WEST, from
1990 to 1991. Prior to joining the U S WEST family, Mr. Rubis worked as an
independent labor relations consultant and as co-founder and principal of
Workplace One, Ltd., a Canadian-based consulting firm, from 1979 to 1988. In
1988, he merged his firm with Deltapoint Corp., a Seattle-based Quality
Improvement consulting firm. Mr. Russ was Vice President, Secretary and General
Counsel of NCR Corporation from February, 1984 to June, 1992.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this item is included on page 54 of the 1994
Annual Report under the heading "Note 18: Quarterly Financial Data (Unaudited)"
and is incorporated herein by reference. The U.S. markets for trading in
U S WEST common stock are the New York Stock Exchange and the Pacific Stock
Exchange. As of December 31, 1994, U S WEST common stock was held by
approximately 816,099 shareholders of record.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is included on page 1 of the 1994
Annual Report under the heading "Financial Highlights" and is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this item is included on pages 7 through 31 of
the 1994 Annual Report and is incorporated herein by reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is included on pages 33 through 54 of
the 1994 Annual Report and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item with respect to executive officers is
set forth in Part I, page 10, under the caption "Executive Officers of
U S WEST."
The information required by this item with respect to Directors is included
in the U S WEST definitive Proxy Statement dated March 16, 1995 ("Proxy
Statement") under "Election of Directors" on pages 4 and 5 and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included in the Proxy Statement
under "Executive Compensation" on pages 10 through 16 and "Compensation of
Directors" on pages 2 and 3 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is included in the Proxy Statement
under "Securities Owned by Management" on page 3 and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
8
<PAGE> 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following independent accountants' report and consolidated financial
statements are incorporated by reference in Part II of this report on Form
10-K:
<TABLE>
<CAPTION>
PAGE NUMBER
OF ANNUAL REPORT
----------------
<S> <C> <C>
(1) Report of Independent Accountants.................................... 32
(2) Consolidated Financial Statements:
Consolidated Statements of Operations -- for the years ended December
31, 1994, 1993 and 1992.............................................. 33
Consolidated Balance Sheets as of December 31, 1994 and 1993......... 34
Consolidated Statements of Cash Flows -- for the years ended December
31, 1994, 1993 and 1992.............................................. 35
Consolidated Statements of Shareowners' Equity for years ended
December 31, 1994, 1993 and 1992..................................... 36
Notes to Consolidated Financial Statements........................... 37 through 54
</TABLE>
<TABLE>
<CAPTION>
PAGE NUMBER
----------------
<S> <C> <C>
(3) Consolidated Financial Statement Schedule:
Report of Independent Accountants.................................... 14
II -- Valuation and Qualifying Accounts.............................. S-1
</TABLE>
Financial statement schedules other than those listed above have been omitted
because the required information is contained in the financial statements and
notes thereto, or because such schedules are not required or applicable.
(b) Reports on Form 8-K:
U S WEST filed the following reports on Form 8-K during the fourth quarter
of 1994:
(i) report dated October 17, 1994 relating to a release of earnings
for the period ended September 30, 1994;
(ii) report dated December 8, 1994 announcing its plan to buy back
stock, and the completion of the Atlanta Cable properties acquisition.
9
<PAGE> 12
(c) Exhibits:
Exhibits identified in parentheses below, on file with the Securities and
Exchange Commission ("SEC"), are incorporated herein by reference as exhibits
hereto.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------------------
<S> <C>
(3a) -- Articles of Incorporation of U S WEST, Inc. dated September 22, 1983
(Exhibit 3a to Registration Statement No. 2-87861).
(3a.1) -- Articles of Amendment to the Articles of Incorporation of U S WEST,
Inc. dated June 6, 1988 (Exhibit 3b to Form 10-K, date of report
March 29, 1989, File No. 1-8611).
(3a.2) -- Articles of Amendment to the Articles of Incorporation of U S WEST,
Inc. dated May 3, 1991 (Exhibit 3c to Form SE filed on March 5, 1992,
File No. 1-8611).
3a.3 -- Articles of Amendment to the Articles of Incorporation of U S WEST,
Inc. dated September 1, 1994.
(3b) -- Bylaws of the Registrant as amended August 5, 1994 (Exhibit 3-D to
Form S-4 Registration Statement No. 33-55289 filed August 30, 1994).
4 -- No instrument which defines the rights of holders of long and
intermediate term debt of U S WEST, Inc. and all of its subsidiaries
is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A).
Pursuant to this regulation, the Registrant hereby agrees to furnish
a copy of any such instrument to the SEC upon request.
(10a) -- Reorganization and Divestiture Agreement dated as of November 1,
1983, between American Telephone and Telegraph Company and its
affiliates, U S WEST, Inc., The Mountain States Telephone and
Telegraph Company, Northwestern Bell Telephone Company, Pacific
Northwest Bell Telephone Company and NewVector Communications, Inc.
(Exhibit 10a to Form 10-K, date of report March 8, 1984, File No.
1-3501).
(10b) -- Shared Network Facilities Agreement dated as of January 1, 1984,
between American Telephone and Telegraph Company, AT&T Communications
of the Midwest, Inc., The Mountain States Telephone and Telegraph
Company, Northwestern Bell Telephone Company and Pacific Northwest
Bell Telephone Company (Exhibit 10b to Form 10-K, date of report
March 8, 1984, File No. 1-3501).
(10c) -- Agreement Concerning Termination of the Standard Supply Contract
effective December 31, 1983, between American Telephone and Telegraph
Company, Western Electric Company, Incorporated, The Mountain States
Telephone and Telegraph Company, Northwestern Bell Telephone Company,
Pacific Northwest Bell Telephone Company and Central Services
Organization (Exhibit 10d to Form 10-K, date of report March 8, 1984,
File No, 1-3501).
(10d) -- Agreement Concerning Certain Centrally Developed Computer Systems
effective December 31, 1983, between American Telephone and Telegraph
Company, Western Electric Company, Incorporated, The Mountain States
Telephone and Telegraph Company, Northwestern Bell Telephone Company,
Pacific Northwest Bell Telephone Company and Central Services
Organization (Exhibit 10e to Form 10-K, date of report March 8, 1984,
File No. 1-3501).
(10e) -- Agreement Concerning Patents, Technical Information and Copyrights
effective December 31, 1983, between American Telephone and Telegraph
Company and U S WEST, Inc. (Exhibit 10f to Form 10-K, date of report
March 8, 1984, File No. 1-3501).
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------------------
<S> <C>
(10f) -- AMPS Software Agreement effective December 31, 1983, between American
Telephone and Telegraph Company and NewVector Communications, Inc.
(Exhibit 10h to Form 10-K, date of report March 28, 1984, File No.
1-8611).
(10g) -- Agreement Concerning Contingent Liabilities, Tax Matters and
Termination of Certain Agreements dated as of November 1, 1983,
between American Telephone and Telegraph Company, U S WEST, Inc., The
Mountain States Telephone and Telegraph Company, Northwestern Bell
Telephone Company, Pacific Northwest Bell Telephone Company and
NewVector Communications, Inc. (Exhibit 10h to Form 10-K, date of
report March 8, 1984, File No. 1-3501).
(10h) -- Agreement Concerning Trademarks, Trade Names and Service Marks
effective December 31, 1983, between American Telephone and Telegraph
Company, American Information Technologies Corporation, Bell Atlantic
Corporation, BellSouth Corporation, Cincinnati Bell, Inc., NYNEX
Corporation, Pacific Telesis Group, The Southern New England
Telephone Company, Southwestern Bell Corporation and U S WEST, Inc.
(Exhibit 10i to Form 10-K, date of report March 8, 1984, File No.
1-3501).
(10i) -- U S WEST, Inc. Short-Term Incentive Plan (Exhibit 10i to Form 10-K
filed March 19, 1993, File No. 1-8611).
(10j) -- Financial Counseling Program for Officers of U S WEST (Exhibit 10-ee
to Registration Statement No. 2-87861).
(10k) -- U S WEST Deferred Compensation Plan for Non-Employee Directors
(Exhibit 10-ff to Registration Statement No. 2-87861).
(10l) -- Description of U S WEST Insurance Plan of Non-Employee Directors'
Travel and Accident Insurance (Exhibit 10-gg to Registration
Statement No. 2-87861).
(10m) -- Extract from the U S WEST Management Pension Plan regarding
limitations on and payments of pension amounts which exceed the
limitations contained in the Employee Retirement Income Security Act
(Exhibit 10-hh to Registration Statement No. 2-87861).
(10n) -- U S WEST Executive Non-Qualified Pension Plan (Exhibit 10o to Form
10-K, date of report March 29, 1989, File No. 1-8611).
(10o) -- U S WEST Deferred Compensation Plan (Exhibit 10o to Form SE filed
March 5, 1992, File No. 1-8611).
(10p) -- Description of U S WEST Directors' Retirement Benefit Plan (Exhibit
10p to Form SE filed March 5, 1992, File No. 1-8611).
10q -- U S WEST, Inc. 1994 Stock Plan.
(10r) -- Shareholders' Agreement dated as of January 1, 1988 among Ameritech
Services, Inc., Bell Atlantic Management Services, Inc., BellSouth
Services Incorporated, NYNEX Service Company, Pacific Bell,
Southwestern Bell Telephone Company, The Mountain States Telephone
and Telegraph Company, Northwestern Bell Telephone Company and
Pacific Northwest Bell Telephone Company (Exhibit 10r to Form SE
filed March 5, 1992, File No. 1-8611).
(10s) -- U S WEST Senior Management Long Term Disability and Survivor
Protection Plan (Exhibit 10-dd to Registration Statement No.
2-87861).
(10t) -- U S WEST Mid-Career Pension Plan (Exhibit 10u to Form 10-K, date of
report March 29, 1989, File No. 1-8611).
10u -- Form of U S WEST, Inc. Non-Qualified Stock Option Agreement.
10v -- Form of U S WEST, Inc. Restricted Stock Agreement.
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------------------
<S> <C>
10w -- Employment letter from Richard D. McCormick to Charles P. Russ, III
dated May 11, 1992.
(10y) -- Assignment Agreement, dated July 13, 1993, between U S WEST Overseas
Operations, Inc. and Richard J. Callahan (Exhibit (10a) to Form 10-Q
filed November 5, 1993).
(10z) -- Agreement for Services, dated July 13, 1993, between U S WEST, Inc.
and Richard J. Callahan (Exhibit (10b) to Form 10-Q filed November 5,
1993).
(10aa) -- Admission Agreement dated as of May 16, 1993 between Time Warner
Entertainment Company, L.P. and U S WEST, Inc. (Exhibit 10 to Form
8-K filed May 24, 1993).
10ab -- Form of Executive Change of Control Agreement.
10ac -- Form of Change of Control Agreement for Chief Executive Officer.
10ad -- U S WEST, Inc. Executive Long-Term Incentive Plan.
10ae -- U S WEST, Inc. Executive Short-Term Incentive Plan.
11 -- Statement Re Computation of Per Share Earnings.
12 -- Computation of Ratio of Earnings to Fixed Charges of U S WEST, Inc.
and U S WEST Financial Services, Inc.
13 -- 1994 Annual Report to Shareowners.
21 -- Subsidiaries of U S WEST, Inc.
23 -- Consent of Independent Accountants.
24 -- Powers of Attorney.
27 -- Financial Data Schedule.
99a -- Annual Report on Form 11-K for the U S WEST Savings Plan/ESOP for
Salaried Employees for the year ended December 31, 1994, to be filed
by amendment.
99b -- Annual Report on Form 11-K for the U S WEST Savings and Security
Plan/ESOP for the year ended December 31, 1994, to be filed by
amendment.
</TABLE>
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Englewood, State of Colorado, on March 7, 1995.
U S WEST, Inc.
By: /s/ JAMES M. OSTERHOFF
James M. Osterhoff
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<S> <C>
Principal Executive Officer
/s/ RICHARD D. MCCORMICK* Chairman of the Board, President
and Chief Executive Officer
Principal Financial Officer:
/s/ JAMES M. OSTERHOFF* Executive Vice President and
Chief Financial Officer
Directors:
/s/ RICHARD B. CHENEY*
/s/ REMEDIOS DIAZ-OLIVER*
/s/ GRANT A. DOVE*
/s/ ALLAN D. GILMOUR*
/s/ PIERSON M. GRIEVE*
/s/ SHIRLEY M. HUFSTEDLER*
/s/ ALLEN F. JACOBSON*
/s/ RICHARD D. MCCORMICK*
/s/ MARILYN C. NELSON*
/s/ FRANK P. POPOFF*
/s/ GLEN L. RYLAND*
/s/ JERRY O. WILLIAMS*
/s/ DANIEL YANKELOVICH*
*By: /s/ JAMES M. OSTERHOFF
James M. Osterhoff
(for himself and as Attorney-in-Fact)
</TABLE>
Dated March 7, 1995
13
<PAGE> 16
INDEPENDENT ACCOUNTANTS' REPORT
Our report on the consolidated financial statements of U S WEST, Inc.,
which includes an explanatory paragraph regarding the discontinuance of
accounting for the operations of U S WEST Communications, Inc. in accordance
with Statement of Financial Accounting Standard No. 71, "Accounting for the
Effects of Certain Types of Regulation," in 1993, and a change in the method of
accounting for postretirement benefits other than pensions and other
postemployment benefits in 1992, has been incorporated by reference in this Form
10-K from page 32 of the 1994 Annual Report to Shareowners of U S WEST, Inc. In
connection with our audits or such consolidated financial statements, we have
also audited the related consolidated financial statement schedules listed in
the index on page 12 of this Form 10-K for the years ended December 31, 1994,
1993 and 1992.
In our opinion, the consolidated financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND
COOPERS & LYBRAND L.L.P.
Denver, Colorado
January 18, 1995
14
<PAGE> 17
U S WEST, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED BALANCE AT
BEGINNING CHARGED TO TO OTHER END OF
OF PERIOD EXPENSE ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS:
ALLOWANCE FOR CREDIT LOSSES
Year 1994........................................... $ 54 $ 91(a) $ 3 $ 86(b) $ 62
Year 1993........................................... 59 83(a) 1 89(b) 54
Year 1992........................................... 59 89(a) 11 100(b) 59
RESERVES RELATED TO 1993 BUSINESS RESTRUCTURING,
INCLUDING FORCE AND FACILITY CONSOLIDATION
Year 1993........................................... $935 $ 0 $ 0 $229 $706
Year 1993........................................... 0 1,000 0 65 935
RESERVES RELATED TO 1991 BUSINESS RESTRUCTURING,
INCLUDING FORCE REDUCTIONS AND THE WRITE OFF OF
CERTAIN INTANGIBLE ASSETS
Year 1994........................................... $ 95 $ 0 $ 0 $ 95 $ 0
Year 1993........................................... 215 0 0 120 95
Year 1992........................................... 314 0 0 99 215
DISCONTINUED OPERATIONS:
ALLOWANCE FOR CREDIT LOSSES
Year 1994........................................... $ 64 $ 13 $ 0 $ 22(b) $ 55
Year 1993........................................... 63 149 (52)(c) 96(b) 64
Year 1992........................................... 62 20 7 26(b) 63
LOSS RESERVE ON FINANCIAL GUARANTEES(d)
Year 1994........................................... $ 36 $ 40 $(36)(e) $ 0 $ 40
Year 1993........................................... 72 103 0 139 36
Year 1992........................................... 12 68 0 8 72
OTHER(f)
Year 1994........................................... $ 0 $ 0 $ 0 $ 0 $ 0
Year 1993........................................... 86 0 3 89(c) 0
Year 1992........................................... 84 0 8 6 86
RESERVES RELATED TO 1991 BUSINESS RESTRUCTURING,
INCLUDING REAL ESTATE VALUATION ALLOWANCE AND 1993
PROVISION FOR LOSS ON DISPOSAL OF THE CAPITAL ASSETS
SEGMENT
Year 1994........................................... $336 $ 0 $ 0 $217 $119
Year 1993........................................... 402 120(g) 0 186 336
Year 1992........................................... 500 0 0 98 402
</TABLE>
- ---------------
NOTE: Certain reclassifications within the schedule have been made to conform to
the current year presentation.
(a) Does not include amounts charged directly to expense. These amounts were
$10, $10 and $9 for 1994, 1993 and 1992, respectively.
(b) Represents credit losses written off during the period, less collection of
amounts previously written off.
(c) Primarily due to sale of U S WEST Financial Services finance receivables and
assets.
(d) The company adopted SFAS No. 113, "Accounting and Reporting for Reinsurance
of Short-Duration and Long-Duration Contracts" in 1993. SFAS No. 113
requires reinsurance receivables to be reflected as assets rather than
netted against the loss reserve. Prior years have been restated for
comparability.
(e) This amount relates to loss reserves of Financial Security Assurance at the
beginning of 1994. Financial Security Assurance is now accounted for under
the equity method.
(f) Primarily valuation allowance related to the 1990 purchase of a $294 face
amount mobile home loan portfolio for $197.
(g) Provision for estimated loss on disposal of the Capital Assets segment of
$100 and an additional provision of $20 to reflect the cumulative effect on
deferred taxes of the 1993 federally mandated increase in income tax rates.
S-1
<PAGE> 18
(U S WEST LOGO)
(RECYCLED PAPER LOGO)
RECYCLED PAPER
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------- ------
<S> <C> <C>
(3a) -- Articles of Incorporation of U S WEST, Inc. dated September 22, 1983
(Exhibit 3a to Registration Statement No. 2-87861).
(3a.1) -- Articles of Amendment to the Articles of Incorporation of U S WEST,
Inc. dated June 6, 1988 (Exhibit 3b to Form 10-K, date of report
March 29, 1989, File No. 1-8611).
(3a.2) -- Articles of Amendment to the Articles of Incorporation of U S WEST,
Inc. dated May 3, 1991 (Exhibit 3c to Form SE filed on March 5, 1992,
File No. 1-8611).
3a.3 -- Articles of Amendment to the Articles of Incorporation of U S WEST,
Inc. dated September 1, 1994.
(3b) -- Bylaws of the Registrant as amended August 5, 1994 (Exhibit 3-D to
Form S-4 Registration Statement No. 33-55289 filed August 30, 1994).
4 -- No instrument which defines the rights of holders of long and
intermediate term debt of U S WEST, Inc. and all of its subsidiaries
is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A).
Pursuant to this regulation, the Registrant hereby agrees to furnish
a copy of any such instrument to the SEC upon request.
(10a) -- Reorganization and Divestiture Agreement dated as of November 1,
1983, between American Telephone and Telegraph Company and its
affiliates, U S WEST, Inc., The Mountain States Telephone and
Telegraph Company, Northwestern Bell Telephone Company, Pacific
Northwest Bell Telephone Company and NewVector Communications, Inc.
(Exhibit 10a to Form 10-K, date of report March 8, 1984, File No.
1-3501).
(10b) -- Shared Network Facilities Agreement dated as of January 1, 1984,
between American Telephone and Telegraph Company, AT&T Communications
of the Midwest, Inc., The Mountain States Telephone and Telegraph
Company, Northwestern Bell Telephone Company and Pacific Northwest
Bell Telephone Company (Exhibit 10b to Form 10-K, date of report
March 8, 1984, File No. 1-3501).
(10c) -- Agreement Concerning Termination of the Standard Supply Contract
effective December 31, 1983, between American Telephone and Telegraph
Company, Western Electric Company, Incorporated, The Mountain States
Telephone and Telegraph Company, Northwestern Bell Telephone Company,
Pacific Northwest Bell Telephone Company and Central Services
Organization (Exhibit 10d to Form 10-K, date of report March 8, 1984,
File No, 1-3501).
(10d) -- Agreement Concerning Certain Centrally Developed Computer Systems
effective December 31, 1983, between American Telephone and Telegraph
Company, Western Electric Company, Incorporated, The Mountain States
Telephone and Telegraph Company, Northwestern Bell Telephone Company,
Pacific Northwest Bell Telephone Company and Central Services
Organization (Exhibit 10e to Form 10-K, date of report March 8, 1984,
File No. 1-3501).
(10e) -- Agreement Concerning Patents, Technical Information and Copyrights
effective December 31, 1983, between American Telephone and Telegraph
Company and U S WEST, Inc. (Exhibit 10f to Form 10-K, date of report
March 8, 1984, File No. 1-3501).
(10f) -- AMPS Software Agreement effective December 31, 1983, between American
Telephone and Telegraph Company and NewVector Communications, Inc.
(Exhibit 10h to Form 10-K, date of report March 28, 1984, File No.
1-8611).
(10g) -- Agreement Concerning Contingent Liabilities, Tax Matters and
Termination of Certain Agreements dated as of November 1, 1983,
between American Telephone and Telegraph Company, U S WEST, Inc., The
Mountain States Telephone and Telegraph Company, Northwestern Bell
Telephone Company, Pacific Northwest Bell Telephone Company and
NewVector Communications, Inc. (Exhibit 10h to Form 10-K, date of
report March 8, 1984, File No. 1-3501).
(10h) -- Agreement Concerning Trademarks, Trade Names and Service Marks
effective December 31, 1983, between American Telephone and Telegraph
Company, American Information Technologies Corporation, Bell Atlantic
Corporation, BellSouth Corporation, Cincinnati Bell, Inc., NYNEX
Corporation, Pacific Telesis Group, The Southern New England
Telephone Company, Southwestern Bell Corporation and U S WEST, Inc.
(Exhibit 10i to Form 10-K, date of report March 8, 1984, File No.
1-3501).
(10i) -- U S WEST, Inc. Short-Term Incentive Plan (Exhibit 10i to Form 10-K
filed March 19, 1993, File No. 1-8611).
(10j) -- Financial Counseling Program for Officers of U S WEST (Exhibit 10-ee
to Registration Statement No. 2-87861).
(10k) -- U S WEST Deferred Compensation Plan for Non-Employee Directors
(Exhibit 10-ff to Registration Statement No. 2-87861).
(10l) -- Description of U S WEST Insurance Plan of Non-Employee Directors'
Travel and Accident Insurance (Exhibit 10-gg to Registration
Statement No. 2-87861).
(10m) -- Extract from the U S WEST Management Pension Plan regarding
limitations on and payments of pension amounts which exceed the
limitations contained in the Employee Retirement Income Security Act
(Exhibit 10-hh to Registration Statement No. 2-87861).
(10n) -- U S WEST Executive Non-Qualified Pension Plan (Exhibit 10o to Form
10-K, date of report March 29, 1989, File No. 1-8611).
(10o) -- U S WEST Deferred Compensation Plan (Exhibit 10o to Form SE filed
March 5, 1992, File No. 1-8611).
(10p) -- Description of U S WEST Directors' Retirement Benefit Plan (Exhibit
10p to Form SE filed March 5, 1992, File No. 1-8611).
10q -- U S WEST, Inc. 1994 Stock Plan.
(10r) -- Shareholders' Agreement dated as of January 1, 1988 among Ameritech
Services, Inc., Bell Atlantic Management Services, Inc., BellSouth
Services Incorporated, NYNEX Service Company, Pacific Bell,
Southwestern Bell Telephone Company, The Mountain States Telephone
and Telegraph Company, Northwestern Bell Telephone Company and
Pacific Northwest Bell Telephone Company (Exhibit 10r to Form SE
filed March 5, 1992, File No. 1-8611).
(10s) -- U S WEST Senior Management Long Term Disability and Survivor
Protection Plan (Exhibit 10-dd to Registration Statement No.
2-87861).
(10t) -- U S WEST Mid-Career Pension Plan (Exhibit 10u to Form 10-K, date of
report March 29, 1989, File No. 1-8611).
10u -- Form of U S WEST, Inc. Non-Qualified Stock Option Agreement.
10v -- Form of U S WEST, Inc. Restricted Stock Agreement.
10w -- Employment letter from Richard D. McCormick to Charles P. Russ, III
dated May 11, 1992.
(10y) -- Assignment Agreement, dated July 13, 1993, between U S WEST Overseas
Operations, Inc. and Richard J. Callahan (Exhibit (10a) to Form 10-Q
filed November 5, 1993).
(10z) -- Agreement for Services, dated July 13, 1993, between U S WEST, Inc.
and Richard J. Callahan (Exhibit (10b) to Form 10-Q filed November 5,
1993).
(10aa) -- Admission Agreement dated as of May 16, 1993 between Time Warner
Entertainment Company, L.P. and U S WEST, Inc. (Exhibit 10 to Form
8-K filed May 24, 1993).
10ab -- Form of Executive Change of Control Agreement.
10ac -- Form of Change of Control Agreement for Chief Executive Officer.
10ad -- U S WEST, Inc. Executive Long-Term Incentive Plan.
10ae -- U S WEST, Inc. Executive Short-Term Incentive Plan.
11 -- Statement Re Computation of Per Share Earnings.
12 -- Computation of Ratio of Earnings to Fixed Charges of U S WEST, Inc.
and U S WEST Financial Services, Inc.
13 -- 1994 Annual Report to Shareowners.
21 -- Subsidiaries of U S WEST, Inc.
23 -- Consent of Independent Accountants.
24 -- Powers of Attorney.
27 -- Financial Data Schedule.
99a -- Annual Report on Form 11-K for the U S WEST Savings Plan/ESOP for
Salaried Employees for the year ended December 31, 1994, to be filed
by amendment.
99b -- Annual Report on Form 11-K for the U S WEST Savings and Security
Plan/ESOP for the year ended December 31, 1994, to be filed by
amendment.
</TABLE>
<PAGE> 1
PAGE 1
EXHIBIT 3a.3
ARTICLES OF INCORPORATION
OF
U S WEST, INC.
FILED WITH THE COLORADO SECRETARY OF STATE
ON
SEPTEMBER 22, 1983
As Last Amended on September 1, 1994
<PAGE> 2
PAGE 2
[STATE SEAL]
STATE OF COLORADO
DEPARTMENT OF
STATE
CERTIFICATE
I, NATALIE MEYER, Secretary of State of the State of Colorado hereby
certify that ACCORDING TO THE RECORDS OF THIS OFFICE, ARTICLES OF AMENDMENT
WERE FILED ON SEPTEMBER 1, 1994 DESIGNATING SERIES OF STOCK FOR
U S WEST, INC.
(COLORADO CORPORATION)
Dated: SEPTEMBER 1, 1994
/s/ NATALIE MEYER
- -------------------------
SECRETARY OF STATE
<PAGE> 3
PAGE 3
CERTIFICATE OF DESIGNATIONS
OF
SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK
$1.00 Par Value
of
US WEST, Inc.
Pursuant to Section 7-106-102 of the Business Corporation
Act of the State of Colorado
We, James T. Anderson, Vice President and Treasurer, and Stephen E.
Brilz, Assistant Secretary, of U S WEST, Inc. (the "Corporation"), a
corporation organized and existing under the Business Corporation Act of the
State of Colorado, in accordance with the provisions of Section 7-106-102
thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Articles of Incorporation of the Corporation, the Board of Directors on
May 6, 1994, adopted the following resolutions creating a series of fifty
thousand (50,000) shares of Preferred Stock, par value $1.00 per share,
designated as Series B Cumulative Redeemable Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its
Articles of Incorporation, a series of Preferred Stock of the Corporation be,
and it hereby is, created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof, are as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as Series B Cumulative Redeemable Preferred Stock, par value
$1.00 per share (the "Series B Preferred Stock"), and the number of shares
constituting such series shall be fifty thousand (50,000).
Section 2. DIVIDENDS.
(a) The holders of shares of the Series B Preferred Stock shall be
entitled to receive, when, as and if declared by the
<PAGE> 4
PAGE 4
Board of Directors out of funds of the Corporation legally available thereof,
cumulative cash dividends on the shares of the Series B Preferred Stock at the
rate of $70.00 per annum per share, and no more, payable in equal quarterly
installments on the first business day of November, February, May and August,
in each year, commencing on the first business day of November, 1994. Such
dividends shall accrue and be cumulative from the date of original issue of
each share of the Series B Preferred Stock, whether or not declared and
whether or not there shall be funds legally available for the payment thereof.
Each such dividend shall be paid to the holders of record of the shares of
the Series B Preferred Stock as they appear on the share register of the
Corporation on such record date, not more than 30 days nor less than 10 days
preceding the dividend payment date thereof, as shall be fixed by the Board of
Directors or a duly authorized committee thereof. Dividends in arrears may be
declared and paid at any time without reference to any regular dividend
payment date.
(b) If dividends are not paid in full, or declared in full and sums
set apart for the full payment thereof, upon the shares of the Series B
Preferred Stock and shares of any other preferred stock ranking on a parity as
to dividends with the Series B Preferred Stock, all dividends declared upon
shares of the Series B Preferred Stock and of any other preferred stock
ranking on a parity as to dividends with the Series B Preferred Stock shall be
paid or declared pro rata so that in all cases the amount of dividends paid or
declared per share on the Series B Preferred Stock and on such other shares of
preferred stock shall bear to each other the same ratio that accumulated
dividends per share, including dividends accrued or dividends in arrears, if
any, on the shares of the Series B Preferred Stock and such other shares of
preferred stock bear to each other. Except as provided in the preceding
sentence, unless full cumulative dividends on the shares of the Series B
Preferred Stock have been paid or declared in full and sums set aside
exclusively for the payment thereof, (i) no dividends (other than dividends in
shares of the Common Stock (as hereinafter defined) or in shares of any other
capital stock of the Corporation ranking junior to the Series B Preferred
Stock as to dividends) shall be paid or declared or set aside for payment or
other distribution made upon the Corporation's Common Stock, no par value per
share (the "Common Stock"), or any other capital stock of the Corporation
ranking junior to or on a parity with the Series B Preferred Stock as to
dividends, (ii) nor shall
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any shares of the Common Stock or shares of any other capital stock of the
Corporation ranking junior to or on a parity with the Series B Preferred Stock
as to dividends, or any warrants, rights, calls or options exercisable for or
convertible into Common Stock or any such capital stock, be redeemed,
purchased or otherwise acquired for any consideration (or any payment made to
or available for a sinking fund or any similar fund for the redemption of any
such shares) by the Corporation or any, direct or indirect, subsidiary of the
Corporation (except in the case of clause (ii) by conversion into or exchange
for shares of capital stock of the Corporation ranking junior to the Series B
Preferred Stock as to dividends, or any warrants, rights, calls or options
exercisable for or convertible into Common Stock or any such capital stock).
Holders of shares of the Series B Preferred Stock shall not be entitled to any
dividends, whether payable in cash, property or shares of capital stock, in
excess of full accrued and cumulative dividends as herein provided. No
interest or sum of money in lieu of interest shall be payable in respect of
any dividend payment or payments on the shares of the Series B Preferred Stock
that may be in arrears.
The terms "accrued dividends", "dividends accrued" and "dividends in
arrears", whenever used herein with reference to shares of preferred stock
shall be deemed to mean an amount that shall be equal to dividends thereon at
the annual dividend rates per share for the respective series from the date or
dates on which such dividends commence to accrue to the end of the then
current quarterly dividend period for such preferred stock (or, in the case of
redemption, to the date of redemption), less the amount of all dividends paid,
or declared in full and sums set aside for the payment thereof, upon such
shares of preferred stock.
(c) Dividends payable on the shares of the Series B Preferred Stock
for any period less than a full quarterly dividend period shall be computed on
the basis of a 360-day year of twelve 30-day months and the actual number of
days elapsed in the period for which payable.
Section 3. REDEMPTION; LIMITATIONS ON TRANSFER.
(a) MANDATORY REDEMPTION. On September 2, 2004, to the extent (i)
the Corporation shall have funds legally available therefor and (ii) the
Corporation shall not have been rendered
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insolvent pursuant to the U.S. Bankruptcy Code, the Corporation shall redeem
all remaining outstanding shares of Series B Preferred Stock, at a redemption
price of $1,000.00 per share, together with accrued and unpaid dividends
thereon to the redemption date, in cash without interest. If, for any reason,
the Corporation shall fail to discharge its mandatory redemption obligations
pursuant to this section 3(a), such mandatory redemption obligations shall be
discharged as soon as the Corporation is able to discharge such obligations.
If and so long as any mandatory redemption obligations with respect to the
shares of Series B Preferred Stock shall not be fully discharged, (i) no
dividends (other than dividends in shares of the Common Stock) shall be paid
or declared or set aside for payment or other distribution made upon the
Common Stock or any other capital stock of the Corporation ranking junior to
or on a parity with the Series B Preferred Stock as to dividends, or any
warrants, rights, calls or options exercisable for or convertible into Common
Stock or any such capital stock, (ii) nor shall any shares of the Common Stock
or shares of any other capital stock of the Corporation ranking junior to or
on a parity with the Series B Preferred Stock as to dividends, or any
warrants, rights, calls or options exercisable for or convertible into Common
Stock or any such capital stock, be redeemed, purchased or otherwise acquired
for any consideration (or any payment made to or available for a sinking or
other similar fund for the redemption of any such shares) by the Corporation
or any direct or indirect subsidiary of the Corporation (except, in the case
of clause (ii), by conversion into or exchange for shares of capital stock of
the Corporation ranking junior to the Series B Preferred Stock as to
dividends).
(b) LIMITATIONS ON TRANSFER AND RELATED OPTIONAL REDEMPTION. The
shares of Series B Preferred Stock may not be sold, assigned, pledged,
hypothecated or otherwise transferred by Fund American Enterprise Holdings,
Inc. ("FFC"); provided, however, that FFC may transfer shares of the Series B
Preferred Stock to any majority-owned subsidiary of FFC which subsidiary
shall be subject to the same restrictions on transfer as FFC; provided,
further, that such subsidiary may hold shares of Preferred Stock only so long
as such subsidiary remains a majority-owned subsidiary of FFC. Any such
transfer in contravention of this provision (including the shares of Series B
Preferred Stock held by a person which is no longer a majority- owned
subsidiary of FFC) shall be void ab initio. If the holder
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attempts to transfer any shares of Series B Preferred Stock in contravention
of this provision, the Corporation may, at its option, call for redemption, in
accordance with Section 3(d) hereof, if applicable, and Section 3(e) hereof
all shares of Series B Preferred Stock which were proposed to be transferred,
sold, hypothecated or assigned by the holder thereof at a redemption price of
$1,000 per share plus all dividends accrued and unpaid on the shares up to the
date fixed for redemption.
(c) OPTIONAL REDEMPTION BEGINNING SEPTEMBER 2, 1999. (i) Subject to
Section 3(c)(ii) below, the shares of the Series B Preferred Stock shall be
redeemable at the option of the Corporation, in whole or from time to time in
part, at any time on or after September 2, 1999, subject to the limitations
set forth below, at the following redemption prices per share plus, in each
case, all dividends accrued and unpaid on the shares of the Series B Preferred
Stock up to the date fixed for redemption, upon giving notice as provided in
Section 3(e) below:
If redeemed during the
twelve-month period
beginning September 2, Price
---------------------------- ------
1999.......................................... $1,035.00
2000.......................................... $1,028.00
2001.......................................... $1,021.00
2002.......................................... $1,014.00
2003.......................................... $1,007.00
The excess amount of the price per share over $1,000 (other
than accrued but unpaid dividends) is referred to herein as the "Redemption
Premium".
(ii) From and after the time of any exercise of any Ten-Year
Options (as hereinafter defined), upon giving notice as provided in Section
3(e) below, the Corporation shall have the right to redeem, without the
payment of the Redemption Premium thereon, a number of shares of Series B
Preferred Stock equal to 50,000 multiplied by a fraction the numerator of
which shall be the number of Ten-Year Options so exercised at such time and
the denominator of which shall be the aggregate number of Ten-Year Options
initially issued. The number of shares of Series B Preferred Stock which may
be redeemed without the applicable Redemption Premium shall be cumulative with
each such exercise of
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the Ten-Year Options but shall be reduced upon any redemption of Series B
Preferred Stock without the payment of the Redemption Premium by the number of
shares so redeemed. The adjustment to the Redemption Premium in this Section
3(c)(ii) shall take into account any Ten-Year Options exercised prior to the
time the shares of Series B Preferred Stock are redeemed on the Redemption
Date regardless of whether notice of the redemption of such shares was given
prior to the exercise of such Ten-Year Options. "Ten-Year Options" means the
1,893,940 Options initially issued by U S WEST Capital Corporation ("USWCC")
to FFC pursuant to the Securities Purchase Agreement dated April 10, 1994,
among FFC, the Corporation, USWCC and Financial Security Assurance Holdings
Ltd. and referred to in such agreement as the "Ten-Year Options".
(d) SPECIAL PROCEDURE FOR PARTIAL REDEMPTION. If less than all of
the outstanding shares of the Series B Preferred Stock are to be redeemed, the
shares to be redeemed shall be determined pro rata.
(e) GENERAL PROCEDURES FOR REDEMPTION. At least 30 days but not more
than 60 days prior to the date fixed for the redemption of shares of the
Series B Preferred Stock, a written notice shall be given to each holder of
record of shares of the Series B Preferred Stock to be redeemed by certified
or registered mail in a postage prepaid envelope or by a nationally
recognized overnight courier (appropriately marked for overnight delivery)
addressed to such holder at its post office address as shown on the records of
the Corporation (and shall be deemed given only upon the earlier of (i) the
date when received by the holder of (ii) three days after the Corporation has
sent such notice), notifying such holder of the election of the Corporation
to redeem such shares, stating the date fixed for redemption thereof (the
"Redemption Date"), that the shares shall be deemed to be redeemed at 5:00
p.m., New York time, on such date and the redemption price (including a
calculation of all accrued dividends up to and including the Redemption Date,
but subject to reduction as a result of any exercises of the Ten-Year
Options), and calling upon such holder to surrender to the Corporation on the
Redemption Date at the place designated in such notice its certificate or
certificates representing the number of shares specified in such notice of
redemption. Each notice of redemption shall be irrevocable. On or after the
Redemption Date, upon surrender by each holder of its certificate or
certificates for shares of the Series B Preferred Stock to be
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redeemed at the place designated in such notice, the redemption price of such
shares (together with all accrued and unpaid dividends thereon up to and
including the Redemption Date) shall be paid in immediately available funds to
or on the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled. In case less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares, without cost to the holder thereof. From and after the
Redemption Date (unless notice of redemption is not received by each holder of
shares as aforesaid, or default shall be made by the Corporation in payment of
the redemption price or accrued and unpaid dividends up to and including the
Redemption Date), all dividends on the shares of the Series B Preferred Stock
designated for redemption in such notice shall cease to accrue, and all rights
of the holders thereof as shareholders of the Corporation, except the right to
receive the redemption price of such shares (including all accrued and unpaid
dividends up to the Redemption Date) upon the surrender of certificates
representing the same, shall cease and terminate, and such shares shall not be
deemed to be outstanding for any purpose whatsoever. At its election, if
notice of redemption is received by each holder of shares as aforesaid, the
Corporation prior to the Redemption Date may deposit the redemption price
(including all accrued and unpaid dividends up to the Redemption Date) of
shares of the Series B Preferred Stock so called for redemption in trust for
the account of holders thereof with a bank or trust company (having a capital
surplus and undivided profits aggregating not less than $100,000,000) in the
Borough of Manhattan, City and State of New York, or the City of Denver, State
of Colorado, in which case the aforesaid notice to holders of shares of the
Series B Preferred Stock to be redeemed shall state the date of such deposit,
shall specify the office of such bank or trust company as the place of payment
of the redemption price, and shall call upon such holders to surrender the
certificates representing such shares at such place on or after the date fixed
in such redemption notice (which shall not be later than the Redemption Date)
against payment of the redemption price (including all accrued and unpaid
dividends up to the Redemption Date). Any interest accrued on such funds
shall be paid to the Corporation from time to time. Any moneys so deposited
that shall remain unclaimed by the holders of such shares of the Series B
Preferred Stock at the end of two years after the Redemption Date shall be
returned by such bank or trust
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company to the Corporation, and thereafter the holder of any such shares shall
look to the Corporation for the payment of the redemption price (and any
accrued and unpaid dividends).
(f) SHARES REDEEMED OR REPURCHASED. Shares of the Series B Preferred
Stock redeemed, repurchased or retired by the Corporation pursuant to the
provisions of this Section 3, shall thereupon be retired and may not be
reissued as shares of the Series B Preferred Stock but shall thereafter have
the status of authorized but unissued shares of the Preferred Stock, without
designation as to series until such shares are once more designated as part of
a particular series of the Preferred Stock.
Section 4. VOTING RIGHTS.
Except as otherwise provided in Section 6 or as required by law, the
holders of shares of the Series B Preferred Stock shall not be entitled to
vote on any matter on which the holders of any voting securities of the
Corporation shall be entitled to vote.
Section 5. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or otherwise, the holders of
shares of the Series B Preferred Stock shall be entitled to receive, in cash,
out of the assets of the Corporation available for distribution to
stockholders, the amount of One Thousand Dollars ($1,000.00) for each share of
the Series B Preferred Stock, plus an amount equal to all dividends accrued
and unpaid on each such share up to and including the date fixed for
distribution, before any distribution shall be made to the holders of shares
of the Common Stock or any other capital stock of the Corporation ranking (as
to any such distribution) junior to the Series B Preferred Stock. If upon
any liquidation, dissolution or winding up of the Corporation, the assets
distributable among the holders of shares of the Series B Preferred Stock and
all other classes and series of preferred stock ranking (as to any such
distribution) on a parity with the Series B Preferred Stock are insufficient
to permit the payment in full to the holders of all such shares of all
preferential mounts payable to all such holders, then the entire assets of the
Corporation thus distributable shall be distributed ratably among the holders
of the shares of the Series B Preferred Stock and such other classes and
series of preferred stock
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ranking (as to any such distribution) on a parity with the Series B Preferred
Stock in proportion to the respective amounts that would be payable per share
if such assets were sufficient to permit payment in full.
(b) For purposes of this Section 5, a distribution of assets in any
dissolution, winding up or liquidation shall not include (i) any consolidation
or merger of the Corporation with or into any other corporation, (ii) any
dissolution, liquidation, winding up or reorganization of the Corporation
immediately followed by reincorporation of another corporation or (iii) a
sale or other disposition of all or substantially all of the Corporation's
assets to another corporation; provided, however, that, in each case,
effective provision is made in the certificate of incorporation of the
resulting and surviving corporation or otherwise for the protection of the
rights of the holders of shares of the Series B Preferred Stock.
(c) After the payment of the full preferential amounts provided for
herein to the holders of shares of the Series B Preferred Stock or funds
necessary for such payment have been set aside in trust for the holders
thereof in the manner provided in Section 3(e), such holders shall be entitled
to no other or further participation in the distribution of the assets of the
Corporation.
Section 6. LIMITATIONS. In addition to any other rights provided by
applicable law, so long as any shares of the Series B Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote, or the
written consent as provided by law, of the holders of at least two-thirds
(2/3) of the outstanding shares of the Series B Preferred Stock, voting
separately, modify, amend or rescind the preferences, rights or powers with
respect to the Series B Preferred Stock so as to affect the Series B Preferred
Stock adversely; but (except as otherwise required by applicable law) nothing
herein contained shall require such a vote or consent (i) in connection with
any increase in the total number of authorized shares of the Common Stock, or
(ii) in connection with the authorization or increase of any class or series
of shares of preferred stock. The provisions of this Section 6 shall not in
any way limit the right and power of the Corporation to issue its currently
authorized but unissued shares or bonds, notes, mortgages, debentures, and
other obligations, and to incur indebtedness to banks and to
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PAGE 12
other lenders.
Section 7. NO PREEMPTIVE RIGHTS. No holder of shares of the Series B
Preferred Stock shall possess any preemptive rights to subscribe for or
acquire any unissued shares of capital stock of the Corporation (whether now
or hereafter authorized) or securities of the Corporation convertible into or
carrying a right to subscribe to or acquire shares of capital stock of the
Corporation.
Section 8. RANK. Unless otherwise provided in the Articles of
Incorporation of the Corporation or a Certificate of Designations relating to
a subsequent series of preferred stock of the Corporation, the Series B
Preferred Stock shall rank on a parity with the Series A Preferred Stock of
the Corporation and junior to all other series of the Corporation's preferred
stock as to the payment of dividends and the distribution of assets on
liquidation, dissolution, or winding up, whether voluntary or involuntary, of
the Corporation and senior to the Common Stock of the Corporation as to the
foregoing.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under penalties of perjury the 1st day of
September, 1994.
/s/ James T. Anderson
---------------------
James T. Anderson
Vice President and Treasurer
Attest:
/s/ Stephen E. Brilz
- ---------------------
Stephen E. Brilz
Assistant Secretary
<PAGE> 1
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EXHIBIT 10q
U S WEST, INC.
1994 STOCK PLAN
I. Purpose.
This 1994 Stock Plan (the "Plan"), is intended to promote the long term
success of U S WEST, Inc. (the "Company") by affording certain eligible
employees, executive officers, non-employee directors of the Company and its
Subsidiaries (as defined below) and certain outside consultants or advisors to
the Company and its affiliates with an opportunity to acquire a proprietary
interest in the Company, in order to incentivize such persons and to align the
financial interests of such persons with the shareholders of the Company.
II. Successor Plan.
The Plan is a successor plan to the U S WEST, Inc. Stock Incentive Plan
and the U S WEST 1991 Stock Incentive Plan (the "Predecessor Plans"). No
further grants of options or restricted stock may be made under the Predecessor
Plans. Options outstanding under the Predecessor Plans and restricted stock
granted under the Predecessor Plans shall be administered pursuant to the
provisions of the Plan, to the extent not inconsistent with the grant of such
options and restricted stock under the Predecessor Plans.
III. Definitions.
The following defined terms are used in the Plan:
A. "Agreement" shall mean the agreement or grant letter accepted
by the Participant as described in Section IX. of the Plan between the Company
and a Participant under which the Participant receives an Award pursuant to
this Plan.
B. "Award" shall mean individually, collectively or in tandem, an
incentive award granted under the Plan, whether in the form of Options, SARs,
Stock Awards or Phantom Units.
C. "Board" or "Board of Directors" shall mean the Board of
Directors of the Company.
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D. "Change of Control" shall mean any of the following:
1. any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) who is or becomes a beneficial owner of (or
otherwise has the authority to vote), directly or indirectly, securities
representing twenty percent (20%) or more of the total voting power of all of
the Company's then outstanding voting securities, unless through a transaction
arranged by, or consummated with the prior approval of the Board of Directors;
2. any period of two (2) consecutive calendar years during which
there shall cease to be a majority of the Board of Directors comprised as
follows: individuals who at the beginning of such period constitute the Board
of Directors and any new director(s) whose election by the Board of Directors
or nomination for election by the Company's stockholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or nomination
for election was previously so approved; or
3. the Company becomes a party to a merger, consolidation or share
exchange in which either (i) the Company will not be the surviving corporation
or (ii) the Company will be the surviving corporation and any outstanding
shares of Common Stock of the Company will be converted into shares of any
other company (other than a reincorporation or the establishment of a holding
company involving no change of ownership of the Company) or other securities or
cash or other property (excluding payments made solely for fractional shares);
or
4. any other event that a majority of the Board of Directors, in
its sole discretion, shall determine constitutes a Change of Control.
E. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
F. "Committee" shall mean the Human Resources Committee or the
Employee Benefits Committee or their delegates, as applicable, pursuant to
provisions of Section IV. of the Plan.
G. "Common Stock" shall mean common stock, no par value, issued by
the Company.
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H. "Company" shall mean U S WEST, Inc., a Colorado corporation,
and any successor thereof.
I. "Director Compensation" shall mean all cash or stock
remuneration payable to an Outside Director for service to the Company as a
director, other than reimbursement for expenses, and shall include retainer
fees for service on, and fees for attendance at meetings of, the Board and any
committees thereof.
J. "Disabled" or "Disability" shall mean long-term disability as
determined under the provisions of any U S WEST disability plan maintained for
the benefit of eligible employees of the Company or any Related Entity,
provided, however, that in the case of an Incentive Option, "disability" shall
have the meaning specified in Section 22(e)(3) of the Code.
K. "Disinterested Person" shall have the meaning set forth in Rule
16b-3(c)(2)(i) and its successor promulgated under the Exchange Act.
L. "Dividend Equivalent Rights" shall mean the right to receive
the amount of any dividends that are paid on an equivalent number of shares of
Common Stock underlying an Option or Phantom Unit, which shall be payable
either in cash or in the form of additional Phantom Units or Stock.
M. "Effective Date" shall mean the date on which the Plan is
approved by the shareholders of the Company.
N. "Eligible Employee" shall mean any employee of the Company or
any Related Entity who the Committee selects to receive an Award and who is so
employed on the date of the grant of an Award.
O. "Eligible Non-Employee" shall mean any consultant or advisor to
the Company or any Related Entity, including any member of the State Executive
Board(s) of the Company or any Related Entity that the Committee selects to
receive an Award.
P. "Employee Benefits Committee" shall mean a committee of the
Company consisting of employees of the Company or any Related Entity appointed
by the Human Resources Committee and which shall administer the Plan as
provided in Section IV. hereof.
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Q. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
R. "Executive Officers" shall mean any Officer of the Company or
any Related Entity who, at the time of an Award, is subject to the reporting
requirements of Section 16(a) of the Exchange Act.
S. "Fair Market Value" shall mean the closing price of a share of
Common Stock as reported on the New York Stock Exchange for the applicable
date, or if there were no sales on such date, on the last day on which there
were sales.
T. "Human Resources Committee" shall mean the human resources
committee of the Board or any other committee of the Board appointed by the
Board to administer the Plan in lieu of the Human Resources Committee, which
committee shall consist of no fewer than three (3) persons, each of whom shall
be a Disinterested Person.
U. "Incentive Option" shall mean an incentive stock option under
the provisions of Section 422 of the Code.
V. "Indexed" shall mean the periodic adjustment of an Option Price
based upon adjustment criteria determined by the Committee, but in no event
shall the Option Price be adjusted to an amount less than the original Option
Price.
W. "Nonqualified Option" shall mean an Option which does not
qualify under Section 422 of the Code.
X. "Officer" shall mean any executive of the Company or any
Related Entity who participates in the Company's executive compensation
programs.
Y. "Option" shall mean an option granted by the Company to
purchase Common Stock pursuant to the provisions of this Plan, including
Incentive Options, Nonqualified Options and Reload Options.
Z. "Optionee" shall mean a Participant to whom one or more Options
have been granted.
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AA. "Option Price" shall mean the price per share payable to the
Company for shares of Common Stock upon the exercise of an Option.
AB. "Outside Director" shall mean an individual not employed by the
Company or any Related Entity and who serves on the Board.
AC. "Parent Corporation" shall mean any corporation within the
meaning of Section 424(e) of the Code.
AD. "Participant" shall mean an Eligible Employee, Eligible
Non-Employee, Executive Officer or Outside Director who is granted an Award.
AE. "Phantom Unit" shall mean a notional account representing a
value equivalent to one share of Common Stock on the Award date.
AF. "Plan" shall mean the U S WEST, Inc. 1994 Stock Plan.
AG. "Predecessor Plan" shall mean the U S WEST, Inc. Stock
Incentive Plan and the U S WEST 1991 Stock Incentive Plan, as applicable.
AH. "Related Entity" shall mean any Parent Corporation or
Subsidiary of the Company.
AI. "Reload Option" shall mean the right to receive a further
Option for a number of shares equal to the number of shares of Common Stock
surrendered by the Optionee upon exercise of the original Option as provided in
Section X.E. of the Plan.
AJ. "Restricted Period" shall mean the period of time from the date
of grant of Restricted Stock until the lapse of restrictions attached thereto
under the terms of the Agreement granting such Restricted Stock, pursuant to
the provisions of the Plan or by action of the Committee.
AK. "Restricted Stock" shall mean an Award made by the Committee
entitling the Participant to acquire, at no cost or for a purchase price
determined by the Committee at the time of grant, shares of Common Stock which
are subject to restrictions in accordance with the provisions of Section XIII.
hereof.
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AL. "Retirement" shall mean (i) with respect to any Eligible
Employee, that such person has retired from the Company or any Related Entity
and such person is currently eligible to receive a service pension benefit
under the U S WEST Pension Plan or a pension benefit under any written
agreement or arrangement that the Company or any Related Entity may have
entered into with the Eligible Employee and (ii) with respect to any Eligible
Non-Employee, that such person no longer provides consulting or advisory
services to the Company or any Related Entity.
AM. "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
AN. "Stock Appreciation Right" or "SAR" shall mean a grant
entitling the Participant to receive an amount in cash or shares of Common
Stock or a combination thereof having a value equal to (or if the Committee
shall so determine at the time of a grant, less than) the excess of the Fair
Market Value of a share of Common Stock on the date of exercise over the Fair
Market Value of a share of Common Stock on the date of grant (or over the
Option Price, if the Stock Appreciation Right was granted in tandem with an
Option) multiplied by the number of shares with respect to which the Stock
Appreciation Right shall have been exercised, with the Committee having sole
discretion to determine the form or forms of payment at the time of grant of
the SAR.
AO. "Stock Awards" shall mean any Award which is in the form of
Restricted Stock and any outright grants of Common Stock approved by the
Committee pursuant to the Plan.
AP. "Subsidiary" shall mean with respect to any Award other than an
Incentive Option, any corporation, joint venture or partnership in which the
Company owns, directly or indirectly, (i) with respect to a corporation, stock
possessing twenty percent (20%) or more of the total combined voting power of
all classes of stock in the corporation or (ii) in the case of a joint venture
or partnership, the Company possesses a twenty percent (20%) interest in the
capital or profits of such joint venture or partnership. In the case of any
Incentive Option, Subsidiary shall mean any corporation within the meaning of
Section 424(f) of the Code.
AQ. "Vested" shall mean the status that results with respect to an
Option or other Award which may be immediately exercised under the terms of the
Agreement granting such Option or
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other Award, pursuant to the provisions of the Plan or by action of the
Committee.
IV. Administration.
A. The Plan shall be administered by the Human Resources Committee
with respect to Officers, Executive Officers and Outside Directors and by the
Employee Benefits Committee with respect to all other Eligible Employees and
Eligible Non-Employees. The Human Resources Committee may adopt such rules,
regulations and guidelines as it determines necessary for the administration of
the Plan. Subject to any such rules, regulations and guidelines adopted by the
Human Resources Committee, the Employee Benefits Committee shall have the power
to adopt rules, regulations and guidelines to permit such Committee to
administer the Plan with respect to Eligible Employees (other than Officers and
Executive Officers) and with respect to Eligible Non-Employees.
B. The Committee may delegate to one or more of its members, or to
one or more agents, such administrative duties as it may deem advisable, and
the Committee or any person to whom it has delegated duties as aforesaid may
employ one or more persons to render advice with respect to any responsibility
the Committee or such person may have under the Plan. The Committee may employ
such legal or other counsel, consultants and agents as it may deem desirable
for the administration of the Plan and may rely upon any opinion or computation
received from any such counsel, consultant or agent. Expenses incurred by the
Committee in the engagement of such counsel, consultant or agent shall be paid
by the Company or such Related Entity whose employees have benefitted from the
Plan, as determined by the Committee. The Company shall indemnify members of
the Committee and any agent of the Committee who is an employee of the Company
or a Related Entity against any and all liabilities or expenses to which they
may be subjected by reason of any act or failure to act with respect to their
duties on behalf of the Plan, except in circumstances involving such person's
gross negligence or willful misconduct.
C. In furtherance of and not in limitation of the Committee's
discretionary authority, subject to the provisions of the Plan, the Committee
shall have the authority to:
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1. determine the Participants to whom Awards shall be granted and
the number of and terms and conditions upon which Awards shall be granted
(which need not be the same for all Awards or types of Awards);
2. establish, in its sole discretion, annual or long-term
financial goals of the Company, Related Entity, or division, department, or
group of the Company or Related Entity, or individual goals which the Committee
shall consider in granting Awards, if any;
3. determine the satisfaction of performance goals established by
the Committee based upon periods of time or any combinations thereof;
4. determine the time when Awards shall be granted, the Option
Price of each Option, the period(s) during which Options shall be exercisable
(whether in whole or in part), the restrictions to be applicable to Awards, and
the other terms and provisions of Awards;
5. modify grants of Awards pursuant to Paragraph D. of this
Section IV. or rescind grants of Awards pursuant to Section X.H(v),
respectively;
6. provide the establishment of a procedure whereby a number of
shares of Common Stock or other securities may be withheld from the total
number of shares of Common Stock or other securities to be issued upon exercise
of an Option, the lapse of restrictions on Restricted Stock and the vesting of
Phantom Units (other than an Incentive Option) to meet the obligation of
withholding for income, social security and other taxes incurred by a
Participant upon such exercise or required to be withheld by the Company in
connection with such exercise;
7. adopt, modify and rescind rules and regulations and guidelines
relating to the Plan;
8. adopt modifications to the Plan and procedures, as may be
necessary to comply with provisions of the laws and applicable regulatory
rulings of countries in which the Company or a Related Entity operates in order
to assure the legality of Awards granted under the Plan to Participants who
reside in such countries; and
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9. obtain the approval of the shareholders of the Company with
respect to Awards consisting of Phantom Units or Restricted Stock; provided,
however, no action shall be proposed to shareholders without the approval of
the Board of Directors;
10. make all determinations, perform all other acts, exercise all
other powers and establish any other procedures determined by the Committee to
be necessary, appropriate or advisable in administering the Plan and to
maintain compliance with any applicable law.
D. The Committee may at any time, in its sole discretion,
accelerate the exercisability of any Awards and waive or amend any and all
restrictions and conditions of any Awards.
E. Subject to and not inconsistent with the express provisions of
the Plan, the Code and Rule 16b-3 of the Exchange Act, the Committee shall have
the authority to require, as a condition to the granting of any Option, SAR or
other Award (to the extent applicable) to any Executive Officer of the Company
or any Related Entity that the Executive Officer receiving such Option, SAR or
other Award agree not to sell or otherwise dispose of such Option, SAR or other
Award or Common Stock acquired pursuant to such Option, SAR or other Award (to
the extent applicable) or any other "derivative security" (as defined by Rule
16a-1(c) under the Exchange Act) for a period of six (6) months following the
later of (i) the date of the grant of such Option, SAR or other Award (to the
extent applicable) or (ii) the date when the other Option Price of such Option,
SAR or other Award is fixed, if such Option Price is not fixed at the date of
grant of such Option, SAR or other Award.
V. Decisions Final.
Any decision, interpretation or other action made or taken in good
faith by the Committee arising out of or in connection with the Plan shall be
final, binding and conclusive on the Company and all Participants and their
respective heirs, executors, administrators, successors and assigns.
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VI. Arbitration.
Any dispute that may arise in connection with the Plan or any Award
under the Plan shall be determined solely by arbitration in Denver, Colorado
under the rules of the American Arbitration Association. Any claim with respect
to an Award must be established by a preponderance of the evidence submitted to
the impartial arbitrator. The arbitrator shall have the authority to award the
prevailing party damages incurred as a result of any breach, costs, reasonable
attorneys' fees incurred in connection with the arbitration, and direct that
the non-prevailing party pay the expenses of arbitration. The decision of the
arbitrator (i) shall be final and binding; (ii) shall be rendered within ninety
(90) days after the impanelment of the arbitrator; and (iii) shall be kept
confidential by the parties to such arbitration. The arbitration award may be
enforced in any court of competent jurisdiction. The Federal Arbitration Act, 9
U.S.C. 1-15, not state law, shall govern the arbitrability of all claims.
VII. Duration of the Plan.
The Plan shall remain in effect for a period of ten (10) years from the
Effective Date, unless terminated by the Board pursuant to Section XXI.
VIII. Shares Available - Limitations.
A. The maximum aggregate number of shares of Common Stock of the
Company which may be granted in any calendar year for all purposes under the
Plan shall be three-quarters of one percent (0.75%) of the shares of Common
Stock outstanding (excluding shares of such Common Stock held in the Company's
treasury) on the first day of such calendar year, provided, however, that in
the event that fewer than the full aggregate number of shares of Common Stock
available for issuance in any calendar year are issued in such year, the shares
not issued shall be added to the shares available for issuance in any
subsequent year or years. If, for any reason, any shares of Common Stock as to
which Options, SARs, Restricted Stock, or Phantom Units have been granted cease
to be subject to exercise or purchase hereunder (other than the exercise of
SARs for cash), the underlying shares of Common Stock
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shall thereafter be available for grants to Participants under the Plan during
any calendar year. Awards granted under the Plan may be fulfilled in accordance
with the terms of the Plan with (i) authorized and unissued shares of the
Common Stock or (ii) issued shares of Common Stock reacquired by the Company,
in each situation, as the Board of Directors or the Committee may determine
from time to time at its sole discretion.
B. The maximum number of shares of Common Stock that shall be
subject to the grant of an Award in any calendar year for Awards other than
Options or SARs shall not exceed one-third (1/3) of the total number of shares
of Common Stock subject to Awards granted under the Plan for such calendar
year.
C. The maximum number of shares of Common Stock with respect to
which Awards may be granted to any individual Participant in any calendar year
may not exceed the lesser of 250,000 or five percent (5%) of the total number
of shares of Common Stock with respect to which Awards may be granted under the
Plan for the calendar year.
IX. Grant of Awards.
A. The Committee shall determine the type or types of Award(s) to
be made to each Participant. Awards may be granted singly, in combination or in
tandem subject to restrictions set forth in Section X.C. for Incentive Options.
The types of Awards that may be granted under the Plan are Options, with or
without Reload Options, SARs, Stock Awards and Phantom Units, and with respect
to Phantom Units and Restricted Stock, with or without Dividend Equivalent
Rights.
B. Each grant of an Award under this Plan shall be evidenced by an
Agreement dated as of the date of the grant of the Award, other than Stock
Awards consisting of an outright grant of shares of Common Stock. This
Agreement shall set forth the terms and conditions of the Award, as may be
determined by the Committee, and if the Agreement relates to the grant of an
Option, shall indicate whether the Option that it evidences, is intended to be
an Incentive Option or a Nonqualified Option. Each grant of an Award is
conditioned upon the acceptance by the Participant of the terms of the
Agreement. Unless otherwise extended by the
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Committee, a Participant shall have ninety (90) days from the date of the
Agreement to accept its terms.
X. Options.
The Committee, in its sole discretion, may grant Incentive Options or
Nonqualified Options to Eligible Employees, Officers and Executive Officers and
Nonqualified Options to Eligible Non-Employees. Any Options granted to a
Participant under the Predecessor Plan which remain outstanding as of the
Effective Date shall be governed by the terms and conditions of the Plan,
except to the extent the provisions of the Plan are inconsistent with the terms
of the Options granted under the Predecessor Plans, in which event the
applicable provisions of the Predecessor Plans shall govern; provided, however,
that in no event shall there be a modification of the terms of any Incentive
Option granted under the Predecessor Plan. The terms and conditions of the
Options granted under this Section X. shall be determined from time to time by
the Committee, as set forth in the Agreement granting the Option, and subject
to the following conditions:
A. Nonqualified Options. The Option Price for each share of Common
Stock issuable pursuant to a Nonqualified Option may be an amount at or above
the Fair Market Value on the date such Option is granted, may be Indexed from
the original Option Price and may be granted with or without Dividend
Equivalent Rights; provided, however, that with respect to Nonqualified Options
granted to any Executive Officer, no Dividend Equivalent Rights may be granted.
B. Incentive Options. The Option Price for each share of Common Stock
issuable pursuant to an Incentive Option shall not be less than one hundred
percent (100%) of the Fair Market Value on the date such Option is granted and
may be Indexed from the original Option Price.
C. Incentive Options - Special Rules. Options granted in the form of
Incentive Options shall be subject to the following provisions:
1. Grant. No Incentive Option shall be granted pursuant to this Plan
more than ten (10) years after the Effective Date.
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2. Annual Limit. The aggregate Fair Market Value (determined at the
time the Option is granted) of the shares of Common Stock with respect to which
one or more Incentive Options are exercisable for the first time by any
Optionee during any calendar year under the Plan or under any other stock plan
of the Company or any Related Entity shall not exceed $100,000 or such other
maximum amount permitted under Section 422 of the Code. Any Option purporting
to constitute an Incentive Option in excess of such limitation shall constitute
a Nonqualified Option.
3. 10% Stockholder. If any Optionee to whom an Incentive Option is to
be granted pursuant to the provisions of the Plan is, on the date of grant, an
individual described in Section 422(b)(6) of the Code, then the following
special provisions shall be applicable to the Option granted to such
individual:
(a) the Option Price of shares subject to such Incentive Option
shall not be less than 110% of the Fair Market Value of Common Stock on the
date of grant; and
(b) the Option shall not have a term in excess of (5) years from
the date of grant.
D. Other Options. The Committee may establish rules with respect to,
and may grant to Eligible Employees, Options to comply with any amendment to
the Code made after the Effective Date providing for special tax benefits for
stock options.
E. Reload Options. Without in any way limiting the authority of the
Committee to make Awards hereunder, the Committee shall have the authority to
grant Reload Options. Any such Reload Option shall be subject to such other
terms and conditions as the Committee may determine. Notwithstanding the above,
(i) the Committee shall have the right, in its sole discretion, to withdraw a
Reload Option to the extent that the grant thereof will result in any adverse
accounting consequences to the Company and (ii) no additional Reload Options
shall be granted upon the exercise of a Reload Option.
F. Term of Option. No Option shall be exercisable after the
expiration of ten (10) years from the date of grant of the Option.
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G. Exercise of Stock Option. Each Option shall be exercisable in
one or more installments as the Committee in its sole discretion may determine
at the time of the Award and as provided in the Agreement. The right to
purchase shares shall be cumulative so that when the right to purchase any
shares has accrued such shares or any part thereof may be purchased at any time
thereafter until the expiration or termination of the Option, subject to rules
on sequential exercise for Incentive Options pursuant to Paragraph C.2. of this
Section X. The Option Price shall be payable (i) in cash or by an equivalent
means acceptable to the Committee, (ii) by delivery (constructive or otherwise)
to the Company of shares of Common Stock owned by the Optionee or (iii) by any
combination of the above as provided in the Agreement. Shares delivered to the
Company in payment of the Option Price shall be valued at the Fair Market Value
on the date of the exercise of the Option.
H. Vesting. The Agreement shall specify the date or dates on which
the Optionee may begin to exercise all or a portion of his Option. Subsequent
to such date or dates, the Option shall be deemed vested and fully exercisable.
(i) Death. In the event of the death of any Optionee, all Options
held by such Optionee on the date of his death shall become Vested Options and
the estate of such Optionee, shall have the right, at any time and from time to
time within one year after the date of death, or such other period, if any, as
the Committee in its sole discretion may determine, to exercise the Options of
the Optionee (but not after the earlier of the expiration date of the Option
or, in the case of an Incentive Option, one (1) year from the date of death).
(ii) Disability. If the employment of any Optionee is terminated
because of Disability, all Options held by such Optionee on the date of his
Disability shall become Vested Options and such Optionee shall have the right,
at any time and from time to time within one year after the date of
termination, or such other period, if any, as the Committee in its sole
discretion may determine, to exercise the Options of the Optionee (but not
after the earlier of the expiration date of the Option or one (1) year from the
date of Disability in the case of an Incentive Option).
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(iii) Retirement. Upon an Optionee's Retirement (i) all Options held
by such Optionee that are not Vested Options shall terminate unless the
Committee, in its sole discretion, determines otherwise, and (ii) such Optionee
shall have the right, at any time and from time to time within five (5) years
after the date of his Retirement (but in no event after the expiration date of
the Option), to exercise the Vested Options held by such Optionee immediately
prior to the time of Retirement.
(iv) Other Termination. If the employment with the Company or a
Related Entity of an Optionee is terminated for any reason other than for death
or Disability and other than "for cause" as defined in subparagraph (v) below,
such Optionee shall have the right, in the case of a Vested Option, for a
period of three (3) months after the date of such termination or such longer
period as determined by the Committee, to exercise any such Vested Option, but
in any event not after the expiration date of any such Option.
(v) Termination For Cause. Notwithstanding any other provision of the
Plan to the contrary, if the Optionee's employment is terminated by the Company
or any Related Entity "for cause" (as defined below), such Optionee shall
immediately forfeit all rights under his Options except as to the shares of
Common Stock already purchased prior to such termination. Termination "for
cause" shall mean (unless another definition is agreed to in writing by the
Company and the Optionee) termination by the Company because of: (a) the
Optionee's willful and continued failure to substantially perform his duties
(other than any such failure resulting from the Optionee's incapacity due to
physical or mental impairment) after a written demand for substantial
performance is delivered to the Optionee by the Company, which demand
specifically identifies the manner in which the Company believes the Optionee
has not substantially performed his duties, (b) the willful conduct of the
Optionee which is demonstrably and materially injurious to the Company or
Related Entity, monetarily or otherwise, or (c) the conviction of the Optionee
for a felony by a court of competent jurisdiction.
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XI. Foreign Options and Rights.
The Committee may make Awards of Options to Eligible Employees,
Officers, Executive Officers and Eligible Non-Employees who are subject to the
tax laws of nations other than the United States, which Awards may have terms
and conditions as determined by the Committee as necessary to comply with
applicable foreign laws. The Committee may take any action which it deems
advisable to obtain approval of such Option by the appropriate foreign
governmental entity; provided, however, that no such Award may be granted
pursuant to this Section XI. and no action may be taken which would result in a
violation of the Exchange Act, the Code or any other applicable law.
XII. Stock Appreciation Rights.
The Committee shall have the authority to grant SARs to Eligible
Employees, Officers, Executive Officers and Eligible Non-Employees either alone
or in connection with an Option. SARs granted in connection with an Option
shall be granted either at the time of grant of the Option or by amendment to
the Option. SARs granted in connection with an Option shall be subject to the
same terms and conditions as the related Option and shall be exercisable only
at such times and to such extent as the related Option is exercisable. A SAR
granted in connection with an Option may be exercised only when the Fair Market
Value of the Common Stock of the Company exceeds the Option Price of the
related Option. A SAR granted in connection with an Option shall entitle the
Participant to surrender to the Company unexercised the related Option, or any
portion thereof and to receive from the Company cash and/or shares of Common
Stock equal to that number of shares of Common Stock having an aggregate value
equal to the excess of (i) the Fair Market Value of one share of Common Stock
on the day of the surrender of such Option over (ii) the Option Price per share
of Common Stock multiplied by (iii) the number of shares of Common Stock that
may be exercised under the Option, or surrendered; provided, however, that no
fractional shares shall be issued. A SAR granted singly shall entitle the
Participant to receive the excess of (i) the Fair Market Value of a share of
Common Stock on the date of exercise over (ii) the Fair Market Value of a share
of Common Stock on the date of the grant of the SAR multiplied by (iii) the
number of SARs exercised. Payment of any fractional shares of Common Stock
shall be made in cash. A SAR
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shall become a Vested Award upon (i) a Participant becoming Disabled, or (ii)
the death of a Participant.
XIII. Restricted Stock.
The Committee may, in its sole discretion, grant Restricted Stock to
Eligible Employees, Eligible Non-Employees, Officers or Executive Officers
subject to the provisions below.
A. Restrictions. A stock certificate representing the number of
shares of Restricted Stock granted shall be held in custody by the Company for
the Participant's account. The Participant shall have all rights and privileges
of a stockholder as to such Restricted Stock, including the right to receive
dividends and the right to vote such shares, except that, subject to the
provisions of Paragraph B. below, the following restrictions shall apply: (i)
the Participant shall not be entitled to delivery of the certificate until the
expiration of the Restricted Period; (ii) none of the shares of Restricted
Stock may be sold, transferred, assigned, pledged, or otherwise encumbered or
disposed of during the Restricted Period; (iii) the Participant shall, if
requested by the Company, execute and deliver to the Company, a stock power
endorsed in blank. The Restricted Period shall lapse upon a Participant
becoming Disabled or the death of a Participant. If a Participant ceases to be
an employee of the Company or a Related Entity prior to the expiration of the
Restricted Period applicable to such shares, except as a result of the death or
Disability of the Participant, shares of Restricted Stock still subject to
restrictions shall be forfeited unless otherwise determined by the Committee,
and all rights of the Participant to such shares shall terminate without
further obligation on the part of the Company. Upon the forfeiture (in whole or
in part) of shares of Restricted Stock, such forfeited shares shall become
shares of Common Stock held in the Company's treasury without further action by
the Participant.
B. Terms and Conditions. The Committee shall establish the terms and
conditions for Restricted Stock pursuant to Section IV. of the Plan, including
whether any shares of Restricted Stock shall have voting rights or a right to
any dividends that are declared. Terms and conditions established by the
Committee need not be the same for all grants of Restricted Stock. The
Committee may provide for the restrictions to lapse with respect to a portion
or portions of the Restricted Stock at different times or
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upon the occurrence of different events, and the Committee may waive, in whole
or in part, any or all restrictions applicable to a grant of Restricted Stock.
Restricted Stock Awards may be issued for no cash consideration or for such
minimum consideration as may be required by applicable law or such other
consideration as may be determined by the Committee.
C. Delivery of Restricted Shares. At the end of the Restricted Period
as herein provided, a stock certificate for the number of shares of Restricted
Stock with respect to which the restrictions have lapsed shall be delivered
(less any shares delivered pursuant to Section XX.C. in satisfaction of any
withholding tax obligation), free of all such restrictions, except applicable
securities law restrictions, to the Participant or the Participant's estate, as
the case may be. The Company shall not be required to deliver any fractional
share of Common Stock but shall pay, in lieu thereof, the Fair Market Value
(measured as of the date the restrictions lapse) of such fractional share to
the Participant or the Participant's estate, as the case may be.
Notwithstanding the foregoing, the Committee may authorize the delivery of the
Restricted Stock to a Participant during the Restricted Period, in which event
any stock certificates in respect of shares of Restricted Stock thus delivered
to a Participant during the Restricted Period applicable to such shares shall
bear an appropriate legend referring to the terms and conditions, including the
restrictions, applicable thereto.
XIV. Phantom Units.
A. General. The Committee may, in its sole discretion, grant the
right to earn Phantom Units to Eligible Employees, Officers, Executive Officers
and Eligible Non-Employees. The Committee shall determine the criteria for the
earning of Phantom Units, pursuant to Section IV. of the Plan. Upon
satisfaction of such criteria, a Phantom Unit shall be deemed a Vested Award. A
Phantom Unit granted by the Committee shall provide for payment in shares of
Common Stock. A Phantom Unit shall become a Vested Award upon (i) a Participant
becoming Disabled, or (ii) the death of a Participant. Shares of Common Stock
issued pursuant to this Section XIV. may be issued for no cash consideration or
for such minimum consideration as may be required by applicable law or such
other consideration as may be determined by the Committee. The Committee shall
determine whether a Participant granted a Phantom
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Unit shall be entitled to a Dividend Equivalent Right.
B. Unfunded Claim. The establishment of Phantom Units under the Plan
are unfunded obligations of the Company. The interest of a Participant in any
such units shall be considered a general unsecured claim against the Company to
the extent that the conditions for the earning of the Phantom Units have been
satisfied. Nothing contained herein shall be construed as creating a trust or
fiduciary relationship between the Participant, the Company or the Committee.
C. Issuance of Common Stock. Upon a Phantom Unit becoming a Vested
Award, unless a Participant has elected to defer under Paragraph D. below,
shares of Common Stock representing the Phantom Units shall be distributed to
the Participant, unless the Committee, with the consent of the Participant,
provides for the payment of the Phantom Units in cash or partly in cash and
partly in shares of Common Stock equal to the value of the shares of Common
Stock which would otherwise be distributed to the Participant.
D. Deferral of Phantom Units. Prior to the year with respect to which
a Phantom Unit may become a Vested Award, the Participant may elect not to
receive Common Stock upon the vesting of such Phantom Unit and for the Company
to continue to maintain the Phantom Unit on its books of account. In such
event, the value of a Phantom Unit shall be payable in shares of Common Stock
pursuant to the agreement of deferral.
E. Financial Hardship. Notwithstanding any other provision hereof, at
the written request of a Participant who has elected to defer pursuant to
Paragraph D. above, the Committee, in its sole direction, upon a finding that
continued deferral will result in financial hardship to the Participant, may
authorize the payment of all or a part of Participant's Vested Phantom Units in
a single installment or the acceleration of payment of any multiple
installments thereof; provided, however, that distributions will not be made
under this paragraph if such distribution would result in liability of an
Executive Officer under Section 16 of the Exchange Act.
F. Distribution upon Death. The Committee shall pay the Fair Market
Value of the Phantom Units of a deceased Participant to the
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estate of the Participant, as soon as practicable following the death of the
Participant. The value of the Phantom Units for the purpose of such
distribution shall be based upon the Fair Market Value of shares of Common
Stock underlying the Phantom Units on the date of the Participant's death.
XV. Stock Awards to Outside Directors.
Each Outside Director shall be granted a Stock Award consisting of 400
shares of Common Stock, without restrictions, on the date of the Annual Meeting
of the Company's stockholders following the first anniversary date of such
Outside Director's initial election to the Board, and a like amount on each of
the next four Annual Meeting dates for a total maximum Stock Award of 2,000
shares of Common Stock.
XVI. Outside Director's Compensation.
A. Payment in Common Stock. Each Outside Director may elect to
receive payment of all or any portion of Director Compensation comprised of
retainer fees for service on the Board and any committees thereof in Common
Stock. The amount of Common Stock then issuable shall be based on the Fair
Market Value of the Common Stock on the dates such retainer fees are otherwise
due and payable to the Outside Director. Certificates evidencing such Common
Stock shall be delivered promptly following such date. If an Outside Director
elects to receive payment of retainer fees in Common Stock as described in this
Section XVI.A, the election shall be (i) in writing, (ii) delivered to the
Secretary of the Company at least six months in advance of the payment date,
and (iii) irrevocable.
B. Deferral of Payment. Each Outside Director may elect to defer the
receipt of Common Stock payable pursuant to Section XVI.A, in which event such
Outside Director shall receive an equivalent number of Phantom Units with
Dividend Equivalent Rights. Any such Phantom Units shall become Vested Awards
at such time as the Outside Director no longer serves as a member of the Board.
If an Outside Director elects to defer receipt of Common Stock and receive
Phantom Units pursuant to this Section XVI.B, the election shall be (i) in
writing, (ii) delivered to the Secretary of the Company in the year preceding
the year in which the Director Compensation would otherwise be paid and at
least six
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months in advance of the date when Common Stock would otherwise be issued, and
(iii) irrevocable.
XVII. Federal Securities Law.
With respect to grants of Awards to Executive Officers, the Company
intends that the provisions of this Plan and all transactions effected in
accordance with Plan shall comply with Rule 16b-3 under the Exchange Act.
Accordingly, the Committee shall administer and interpret the Plan to the
extent practicable, to maintain compliance with such rule.
XVIII. Change of Control - Acceleration.
Upon the occurrence of a Change of Control:
A. in the case of all outstanding Options and SARs, each such
Option and SAR shall automatically become immediately fully exercisable by the
Participant;
B. restrictions applicable to Restricted Stock shall automatically
be deemed lapsed and conditions applicable to Phantom Units shall automatically
be deemed waived, and the Participants who receive such grants shall become
immediately entitled to receipt of the Common Stock subject to such grants; and
C. the Human Resources Committee, in its discretion, shall have
the right to accelerate payment of any deferrals of Vested Phantom Units.
XIX. Adjustment of Shares.
A. In the event there is any change in the Common Stock by reason
of any consolidation, combination, liquidation, reorganization,
recapitalization, stock dividend, stock split, split-up, split-off, spin-off,
combination of shares, exchange of shares or other like change in capital
structure of the Company, the number or kind of shares or interests subject to
an Award and the per share price or value thereof shall be appropriately
adjusted by the Committee at the time of such event, provided that each
Participant's economic position with respect to the Award shall not, as a
result of such adjustment, be worse than it had
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been immediately prior to such event. Any fractional shares or interests
resulting from such adjustment shall be rounded up to the next whole share of
Common Stock. Notwithstanding the foregoing, (i) each such adjustment with
respect to an Incentive Option shall comply with the rules of Section 424(a) of
the Code, and (ii) in no event shall any adjustment be made which would render
any Incentive Option granted hereunder other than an "incentive stock option"
for purposes of Section 422 of the Code.
B. In the event of an acquisition by the Company of another
corporation where the Company assumes outstanding stock options or similar
obligations of such corporation, the number of Awards available under the Plan
shall be appropriately increased to reflect the number of such options or other
obligations assumed.
XX. Miscellaneous Provisions.
A. Assignment or Transfer. No grant of any "derivative security" (as
defined by Rule 16a-1(c) under the Exchange Act) made under the Plan or any
rights or interests therein shall be assignable or transferable by a
Participant except by will or the laws of descent and distribution and except
to the extent it is otherwise permissible under the Exchange Act, it being
understood that no grant of any "derivative security" shall be assignable or
transferable pursuant to a domestic relations order. During the lifetime of a
Participant, Awards granted hereunder shall be exercisable only by the
Participant, the Participant's guardian or his legal representative.
B. Investment Representation; Legends. The Committee may
require each Participant acquiring shares of Common Stock pursuant to an Award
to represent to and agree with the Company in writing that such Participant is
acquiring the shares without a view to distribution thereof.
No shares of Common Stock shall be issued pursuant to an Award until
all applicable securities law and other legal and stock exchange requirements
have been satisfied. The Committee may require the placing of stop-orders and
restrictive legends on certificates for Common Stock as it deems appropriate.
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C. Withholding Taxes. In the case of distributions of Common Stock or
other securities hereunder, the Company, as a condition of such distribution,
may require the payment (through withholding from the Participant's salary,
payment of cash by the Participant, reduction of the number of shares of Common
Stock or other securities to be issued (except in the case of an Incentive
Option), or otherwise) of any federal, state, local or foreign taxes required
by law to be withheld with respect to such distribution.
D. Costs and Expenses. The costs and expenses of administering the
Plan shall be borne by the Company and shall not be charged against any Award
nor to any Participant receiving an Award.
E. Other Incentive Plans. The adoption of the Plan does not preclude
the adoption by appropriate means of any other incentive plan for employees.
F. Effect on Employment. Nothing contained in the Plan or any
agreement related hereto or referred to herein shall affect, or be construed as
affecting, the terms of employment of any Participant except to the extent
specifically provided herein or therein. Nothing contained in the Plan or any
agreement related hereto or referred to herein shall impose, or be construed as
imposing, an obligation on (i) the Company or any Related Entity to continue
the employment of any Participant and (ii) any Participant to remain in the
employ of the Company or any Related Entity.
G. Noncompetition. Any Agreement may contain, among other things,
provisions prohibiting Participants from competing with the Company or any
Related Entity in a form or forms acceptable to the Committee, in its sole
discretion.
H. Governing Law. This Plan and actions taken in connection herewith
shall be governed and construed in accordance with the laws of the State of
Colorado.
XXI. Amendment or Termination of Plan.
The Board shall have the right to amend, modify, suspend or terminate
the Plan at any time, provided that no amendment shall be made which shall (i)
increase the total number of Awards with respect to Common Stock which may be
granted in total or to any single Participant, (ii) to decrease the minimum
Option Price in
<PAGE> 24
PAGE 24
the case of an Incentive Option, or (iii) modify the provisions of the Plan
with respect to Incentive Options, unless such amendment is made by or with the
approval of the stockholders or unless the Board receives an opinion of counsel
to the Company that shareholder approval is not necessary with respect to any
modifications relating to Incentive Options. With respect to Awards made to
Executive Officers or Outside Directors, no amendment shall be made which
either (i) materially increases the benefits accruing to such Executive
Officers or Outside Directors, (ii) materially increases the number of such
Awards which may be issued under the Plan to Executive Officers or Outside
Directors, or (iii) materially modifies the requirements as to eligibility for
participation of Executive Officers or Outside Directors in the Plan unless
such amendment is made with the approval of stockholders. No amendment,
modification, suspension or termination of the Plan shall alter or impair any
Awards previously granted under the Plan, without the consent of the holder
thereof.
XXII. Adoption of the Plan.
The Plan shall become effective on the date on which the shareholders
approve the Plan by a majority of the votes cast at the 1994 Annual Meeting.
<PAGE> 1
PAGE 1
Exhibit 10u
U S WEST, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT (Grant #)
THIS AGREEMENT is entered into as of [Grant Date], between U S WEST, Inc. (the
"Company") and [Optionee Name] (the "Optionee").
RECITAL
Pursuant to the U S WEST, Inc. 1994 Stock Plan (the "Plan"), the Human
Resources Committee of the Board of Directors (the "Committee") has granted to
the Optionee on [Grant Date], as a matter of separate inducement in connection
with his/her engagement with the Company or a Related Entity, and not in lieu
of salary or other compensation for his/her services, an option (the "Option")
to purchase shares of Common Stock issued by the Company on the terms and
conditions set forth herein.
AGREEMENT
In consideration of the foregoing and of the mutual covenants set
forth herein and other good and valuable consideration, the parties hereto
agree as follows:
1. Shares Optioned; Option Price. The Optionee may purchase all or
any part of an aggregate of [No. of Shares] shares of Common Stock, at a
purchase price per share of [Price] (which is not less than the Fair Market
Value on the date hereof), on the terms and conditions set forth herein. The
Option is granted pursuant to the Plan, the terms of which are incorporated by
reference and apply to this Agreement as if they were set forth herein. Terms
used in this Agreement and not otherwise defined shall have the meanings
ascribed to them in the Plan.
2. Option Term; Times of Exercise. The Option shall become a Vested
Option upon three years of continuous employment following the date of this
Agreement, but shall not be exercisable after [Date] (the "Expiration Date").
Except as set forth below, the Option shall not become a Vested Option if the
<PAGE> 2
PAGE 2
three-year continuous employment requirement is not satisfied, regardless of
the circumstances under which the Optionee's employment is terminated.
(i) Death. In the event of the death of the Optionee, the
Option shall become a Vested Option and the estate of the Optionee shall have
the right, at any time and from time to time within one year after the date of
death or such longer period, if any, as the Committee in its sole discretion
shall determine (but not after the Expiration Date), to exercise all or any
portion of the Option.
(ii) Disability. If the Optionee's employment with the Company
or a Related Entity is terminated because of Disability, the Option shall
become a Vested Option and the Optionee shall have the right, at any time and
from time to time within one year of termination or such longer period, if any,
as the Committee in its sole discretion shall determine (but not after the
Expiration Date), to exercise all or any portion of the Option.
(iii) Retirement. Upon the Optionee's Retirement, the Option
shall terminate unless it is then a Vested Option or unless the Committee, in
its sole discretion, determines that the Option is a Vested Option, and the
Optionee shall have the right, at any time and from time to time within five
years of the date of Retirement (but not after the Expiration Date), to
exercise all or any portion of the Option that was a Vested Option immediately
prior to the time of retirement.
(iv) Other Termination. If the Optionee's employment with the
Company or a Related Entity is terminated for any reason other than for death
or Disability and other than "for cause," as such term is defined in the Plan,
the Optionee shall have the right, if the Option is a Vested Option, at any
time and from time to time within three months of termination or such longer
period, if any, as the Committee in its sole discretion shall determine (but
not after the Expiration Date), to exercise all or any portion of the Option.
(v) Change of Control. Upon the occurrence of a Change of
Control, as such term is defined in the Plan, the Option shall immediately
become a Vested Option.
<PAGE> 3
PAGE 3
(vi) Termination for Cause. Notwithstanding any other
provision in this Agreement, if the Optionee's employment is terminated by the
Company or any Related Entity "for cause," as such term is defined in the Plan,
the Optionee shall immediately forfeit all rights under the Option except as to
the shares of Common Stock already purchased prior to such termination.
3. Exercise: Payment for and Delivery of Stock. The Option may be
exercised only by the Optionee or his or her transferee(s) by will or the laws
of descent and distribution. The Option may be exercised by giving written
notice of exercise to the Company specifying the number of shares (minimum of
100, unless the unexercised balance of the Option is less than 100) to be
purchased and the total purchase price, accompanied by a personal check to the
order of the Company or shares of Common Stock in payment of the purchase
price. Any shares of Common Stock so tendered shall be valued at their Fair
Market Value on the date of exercise.
4. Non-Transferability of Option. The Option is not transferable
otherwise than by will or the laws of descent and distribution. The Option
shall not be otherwise transferred or assigned, pledged, hypothecated or
otherwise disposed of in any way, whether by operation of law or otherwise, and
shall not be subject to execution, attachment or similar process, it being
understood that the Option shall not be assignable or transferable pursuant to
a domestic relations order. During the lifetime of the Optionee, the Option
shall be exercisable only by the Optionee, the Optionee's guardian or his legal
representative. Upon any attempt to transfer the Option otherwise than by will
or the laws of descent and distribution, or to assign, pledge, hypothecate or
otherwise dispose of the Option, or upon the levy of any execution, attachment
or similar process upon the Option, the Option shall immediately terminate and
become null and void.
5. Decisions of Committee. Any decision, interpretation or other
action made or taken in good faith by the Committee arising out of or in
connection with the Plan or the Option shall be final, binding and conclusive
on the Company and the Optionee and any respective heir, executor,
administrator, successor or assign.
<PAGE> 4
PAGE 4
6. Arbitration. In consideration of the grant of the Option, the
Optionee agrees that any dispute that may arise directly or indirectly in
connection with the Plan, the Option, the Optionee's employment or the
termination of the Optionee's employment, whether arising in contract, statute,
tort, fraud, misrepresentation, or other legal theory, shall be determined
solely by arbitration in Denver, Colorado under the rules of the American
Arbitration Association. The only legal claims between the Optionee, on the
one hand, and the Company or any Related Entity, on the other, that are not
included in this agreement to arbitration are claims by the Optionee for
workers' compensation or unemployment compensation benefits, and claims for
benefits under a Company or Related Entity benefit plan if the plan does not
provide for arbitration of such disputes. Any claim with respect to the Plan,
the Option, the Optionee's employment or the termination of the Optionee's
employment must be established by a preponderance of the evidence submitted to
the impartial arbitrator. A single arbitrator engaged in the practice of law
shall conduct the arbitration under the then current procedures of the American
Arbitration Association (the "AAA") and under the AAA's then current Model
Employment Arbitration Rules. The arbitrator shall have the authority to order
a pre-hearing exchange of information by the parties including, without
limitation, production of requested documents, and examination by deposition of
parties and their authorized agents. Each party shall bear its own costs and
attorneys' fees, and the parties shall share equally the fees and expenses of
the arbitrator, provided, however, that notwithstanding the foregoing, the
arbitrator shall have the authority to award the prevailing party damages
incurred as a result of any breach, costs, reasonable attorneys' fees incurred
in connection with the arbitration, and direct that the non-prevailing party
pay the expenses of arbitration. The decision of the arbitrator (i) shall be
final and binding, (ii) shall be rendered within ninety (90) days after the
impanelment of the arbitrator, and (iii) shall be kept confidential by the
parties to such arbitration. The arbitration award may be enforced in any
court of competent jurisdiction. The Federal Arbitration Act, 9 U.S.C. 1-15,
not state law, shall govern the arbitrability of all claims.
If any party hereto files a judicial or administrative action asserting
claims subject to this arbitration provision, and another party successfully
stays such action and/or compels arbitration of such claims, the party filing
said action shall
<PAGE> 5
PAGE 5
pay the other party's costs and expenses incurred in seeking such stay and/or
compelling arbitration, including reasonable attorneys' fees.
7. Performance for Competitors. Unless otherwise determined by the
Committee, in its sole discretion, or unless in compliance with the Company's
Outside Director Policy, as interpreted solely by the Company's Compliance
Committee, if at any time following the date hereof and before the Option is
fully exercised the Optionee directly or indirectly receives payment for
services from, or is otherwise employed by, any person, firm or corporation in
competition with the Company or engaged in providing any services whatever that
are substantially the same as services provided by the Company, the Optionee
shall immediately forfeit all rights under the Option except as to the shares
of Common Stock already purchased.
8. Miscellaneous.
(i) Notices. Any notice to be given to the Company shall be
personally delivered to or addressed to its Vice President, Human Resources,
and any notice to be given to the Optionee shall be addressed to him/her at the
address given beneath his/her signature below or such other address as the
Company reasonably believes to be his/her most current address. Any notice to
the Company is deemed given when received on behalf of the Company by the Vice
President, Human Resources, of the Company at 188 Inverness Drive West, Suite
800, Englewood, Colorado 80112. Any notice to the Optionee is deemed given
when personally delivered or enclosed in a properly sealed envelope addressed
as aforesaid and deposited, postage prepaid, in a post office or branch post
office regularly maintained by the United States Government.
(ii) Employment. The Company may terminate an employee's
employment at any time, with or without cause, unless the employment is covered
by separate conditions contained in a collective bargaining agreement or other
authorized written agreement, and nothing contained in this Agreement creates
or implies an employment contract or term of employment or any promise of
specific treatment upon which the Optionee may rely.
<PAGE> 6
PAGE 6
(iii) Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Colorado.
(iv) Amendments. The Company may at any time propose to amend
this Agreement, but any such alteration or amendment shall be effective only if
in writing, signed by a duly authorized officer of the Company and by the
Optionee.
IN WITNESS WHEREOF, the undersigned have hereunto executed this
Agreement as of the date first above written.
U S WEST, Inc. OPTIONEE
By:--------------------------- ------------------------------
[Name]
------------------------------
Address
------------------------------
City, State, Zip
Social Security Number:
<PAGE> 1
PAGE 1
Exhibit 10v
U S WEST, INC.
RESTRICTED STOCK AGREEMENT
Grant #
THIS AGREEMENT is entered into as of [date] between U S WEST, Inc. (the
"Company") and [Grantee Name] (the "Grantee").
RECITAL
Pursuant to the U S WEST, Inc. 1994 Stock Plan (the "Plan"), the Human
Resources Committee of the Board of Directors (the "Committee") has granted to
the Grantee on [Date], as a matter of separate inducement in connection with
his/her engagement with the Company or a Related Entity, and not in lieu of
salary or other compensation for his/her services, restricted shares of Common
Stock ("Restricted Stock") issued by the Company on the terms and conditions
set forth herein.
AGREEMENT
In consideration of the foregoing and of the mutual covenants set
forth herein and other good and valuable consideration, the parties hereto
agree as follows:
1. Grant of Restricted Stock. On the terms and conditions set forth
herein, the Company hereby grants to the Grantee an aggregate of [No. Shares]
shares of Restricted Stock. The Restricted Stock is granted pursuant to the
Plan, the terms of which are incorporated by reference and apply to this
Agreement as if they were set forth herein. Terms used in this Agreement and
not otherwise defined shall have the meanings ascribed to them in the Plan.
2. Restricted Period. The Restricted Stock shall become Vested in
accordance with the following schedule and is herein called the "Restricted
Period." Except as set forth below, the Restricted Stock shall not become
Vested before the expiration of the Restricted Period, regardless of the
circumstances under which the Grantee's employment is terminated, and the
Restricted Stock shall consequently remain subject to forfeiture during the
Restricted Period.
<PAGE> 2
PAGE 2
Restricted Period
[Term of Restriction]
(i) Death. In the event of the death of the Grantee, the
Restricted Stock shall no longer be subject to any restriction and shall be
immediately Vested.
(ii) Disability. If the Grantee's employment with the Company
or a Related Entity is terminated because of Disability, the Restricted Stock
shall no longer be subject to any restriction and shall be immediately Vested.
(iii) Other Termination. If the Grantee's employment with the
Company or a Related Entity is terminated for any reason other than for death
or Disability, the Restricted Stock shall be forfeited unless the Committee, in
its sole discretion, determines that such Restricted Stock is then Vested or
sets alternative terms on which such Restricted Stock may become Vested.
(iv) Change of Control. Upon the occurrence of a Change of
Control, the Restricted Stock shall no longer be subject to any restriction and
shall be immediately Vested.
3. Custody; Voting and Dividends. The Company shall hold the
Restricted Stock in an account on behalf of the Grantee. The Grantee shall
execute and return the attached stock power in favor of the Company, to be
exercised by the Company only in the case of the forfeiture or other return of
the Restricted Stock to the Company as provided herein. The Grantee shall
receive such dividends as may be declared on such Restricted Stock, and shall
be entitled to voting privileges associated with such Restricted Stock.
4. Non-Transferability of Restricted Stock. The Restricted Stock is
not transferable other than by will or the laws of descent and distribution.
The Restricted Stock shall not be otherwise transferred or assigned, pledged,
hypothecated or otherwise disposed of in any way, whether by operation of law
or otherwise, and shall not be subject to execution, attachment or similar
process, it being understood that the Restricted Stock shall not be assignable
or transferable pursuant to a domestic relations order. Upon any attempt to
transfer the Restricted
<PAGE> 3
PAGE 3
Stock other than by will or the laws of descent and distribution, or to assign,
pledge, hypothecate or otherwise dispose of the Restricted Stock, or upon the
levy of any execution, attachment or similar process upon the Restricted Stock,
the Restricted Stock shall immediately be canceled.
5. Decisions of Committee. Any decision, interpretation or other
action made or taken in good faith by the Committee arising out of or in
connection with the Plan or the Restricted Stock shall be final, binding and
conclusive on the Company and the Grantee and any respective heir, executor,
administrator, successor or assign.
6. Arbitration. In consideration of the grant of the Restricted
Stock, the Grantee agrees that any dispute that may arise directly or
indirectly in connection with the Plan, the Restricted Stock, the Grantee's
employment or the termination of the Grantee's employment, whether arising in
contract, statute, tort, fraud, misrepresentation, or other legal theory, shall
be determined solely by arbitration in Denver, Colorado under the rules of the
American Arbitration Association. The only legal claims between the Grantee,
on the one hand, and the Company or any Related Entity, on the other, that are
not included in this agreement to arbitration are claims by the Grantee for
workers' compensation or unemployment compensation benefits, and claims for
benefits under a Company or Related Entity benefit plan if the plan does not
provide for arbitration of such disputes. Any claim with respect to the Plan,
the Restricted Stock, the Grantee's employment, or the termination of the
Grantee's employment, must be established by a preponderance of the evidence
submitted to the impartial arbitrator. A single arbitrator engaged in the
practice of law shall conduct the arbitration under the then current procedures
of the American Arbitration Association (the "AAA") and under the AAA's then
current Model Employment Arbitration Rules. The arbitrator shall have the
authority to order a pre-hearing exchange of information by the parties
including, without limitation, production of requested documents, and
examination by deposition of parties and their authorized agents. Each party
shall bear its own costs and attorneys' fees, and the parties shall share
equally the fees and expenses of the arbitrator, provided, however, that
notwithstanding the foregoing, the arbitrator shall have the authority to award
the prevailing party damages incurred as a result of any breach, costs,
reasonable attorneys' fees incurred
<PAGE> 4
PAGE 4
in connection with the arbitration, and direct that the non- prevailing party
pay the expenses of arbitration. The decision of the arbitrator (i) shall be
final and binding, (ii) shall be rendered within ninety (90) days after the
impanelment of the arbitrator, and (iii) shall be kept confidential by the
parties to such arbitration. The arbitration award may be enforced in any
court of competent jurisdiction. The Federal Arbitration Act, 9 U.S.C. 1-15,
not state law, shall govern the arbitrability of all claims.
If any party hereto files a judicial or administrative action
asserting claims subject to this arbitration provision, and another party
successfully stays such action and/or compels arbitration of such claims, the
party filing said action shall pay the other party's costs and expenses
incurred in seeking such stay and/or compelling arbitration, including
reasonable attorneys' fees.
7. Performance for Competitors. Unless otherwise determined by the
Committee, in its sole discretion, or unless in compliance with the Company's
Outside Director Policy, as interpreted solely by the Company's Compliance
Committee, if at any time following the date hereof and before the Restricted
Stock is Vested the Grantee directly or indirectly receives payment for
services from, or is otherwise employed by, any person, firm or corporation in
competition with the Company or engaged in providing any services whatever that
are substantially the same as services provided by the Company, the Grantee
shall immediately forfeit all rights under the Restricted Stock to the extent
that such Restricted Stock is not Vested.
8. Miscellaneous.
(i) Notices. Any notice to be given to the Company shall be
personally delivered to or addressed to its Vice President, Human Resources,
and any notice to be given to the Grantee shall be addressed to him/her at the
address given beneath his/her signature below or such other address as the
Company reasonably believes to be his/her most current address. Any notice to
the Company is deemed given when received on behalf of the Company by the Vice
President, Human Resources, of the Company at 188 Inverness Drive West, Suite
800, Englewood, Colorado 80112. Any notice to the Grantee is deemed given when
personally
<PAGE> 5
PAGE 5
delivered or enclosed in a properly sealed envelope addressed as aforesaid and
deposited, postage prepaid, in a post office or branch post office regularly
maintained by the United States Government.
(ii) Employment. The Company may terminate an employee's
employment at any time, with or without cause, unless the employment is covered
by separate conditions contained in a collective bargaining agreement or other
authorized written agreement, and nothing contained in this Agreement creates
or implies an employment contract or term of employment or any promise of
specific treatment upon which the Grantee may rely.
(iii) Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Colorado.
(iv) Amendments. The Company may at any time propose to amend
this Agreement, but any such alteration or amendment shall be effective only if
in writing, signed by a duly authorized officer of the Company and by the
Grantee.
IN WITNESS WHEREOF, the undersigned have hereunto executed this
Agreement as of the date first above written.
U S WEST, Inc. GRANTEE
By:---------------------------- ---------------------------------
[Grantee Name]
---------------------------------
Street Address
---------------------------------
City, State and Zip Code
---------------------------------
Social Security Number
<PAGE> 6
PAGE 6
IRREVOCABLE STOCK POWER
FOR VALUE RECEIVED, the undersigned does (do) hereby sell, assign and
transfer to:
U S WEST, Inc.
84-0926774
(Tax Identification Number)
[No. shares] shares of the common stock of U S WEST, Inc. (the "Company")
represented by Grant Number [Grant No.], standing in the name of the
undersigned on the books of the Company.
The undersigned does (do) hereby irrevocably constitute and appoint the Senior
Vice President and Chief Human Resources Officer for the Company attorney to
transfer the said stock on the books of the Company, with full power of
substitution in the premises.
______________________________ Dated:_____________________
[Grantee Name]
______________________________ Dated:_____________________
IMPORTANT -- READ CAREFULLY: The signature(s) of this Stock Power must
correspond with the name(s) as written upon the face of the certificate(s) or
account(s) in every particular without alternation or enlargement or any change
whatever.
<PAGE> 1
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Exhibit 10w
U S WEST, Inc.
7800 East Orchard Road
Englewood, Colorado 80111
303 793-6482
Richard D. McCormick
President and Chief Executive Officer
May 11, 1992
Mr. Charles P. Russ
745 Oakwood Ave.
Dayton, OH 45419
Dear Charlie:
I am pleased to formally offer you employment at U S WEST, Inc. in the
capacity of Executive Vice President, General Counsel and Secretary based in
our Corporate Headquarters in Englewood, Colorado. The purpose of this letter
is to cover the essential elements of our relationship. The U S WEST Board of
Directors has authorized me to select and appoint you as Executive Vice
President, General Counsel and Secretary. Your formal election will occur at
the next meeting of the Board to be held in August. Assuming your acceptance,
we look forward to you joining us no later than July 1.
As compensation for the services you will be performing, you will
receive an annual salary of $350,000 paid on a bi-monthly basis. You will be
eligible for salary review in twelve to eighteen months from your employment
date.
In addition, you will participate in the U S WEST Inc. Short-Term
Incentive Plan and be eligible for a target annual bonus of 40% of your base
salary. That plan has a range of 0% to 100%. For 1992, we will guarantee a
payment to you of $140,000 under that plan.
<PAGE> 2
PAGE 2
In consideration of the forfeiture of your contract as a result of
leaving your present employer and as an incentive to be employed by U S WEST,
we will pay you upon employment a lump sum of $1,449,000. In the event you
voluntarily resign from U S WEST before December 31, 1996, you agree to repay U
S WEST on a pro rata basis the portion of this amount in relationship to the
remaining period of time from your resignation until December 31, 1996. The
foregoing repayment obligation shall not apply in the event you voluntarily
resign following a Change of Control as defined in the Change of Control Plan
referred to later in this letter or, absent a Change of Control, and during the
period ending December 31, 1996, you voluntarily resign as a result of a change
in your "position and duties" or "compensation" or "for good reason" as such
terms are defined and described in the Change of Control Plan except under
circumstances in which all the members of U S WEST's senior management group
are similarly and proportionately affected (e.g., salary freeze or reduction
affecting all such group members). In addition, the foregoing repayment
obligation shall not apply in the event of your death or disability (such term
as used in this letter being always defined as it is in Section 5(a)(i) only of
the Change of Control Plan).
We will grant you 20,000 shares of U S WEST stock options upon your
employment and a minimum of 15,000 per year for four years thereafter
(typically in November or December) commencing in and including 1992. Such
options are non-qualified ten year grants with cliff vesting after three years.
You will, however, be immediately vested for each grant in the event of
termination, retirement, death or disability with three years to exercise those
vested shares.
Upon employment you will be granted 45,000 performance shares as a
participant in the U S WEST Long-Term Incentive Plan. That plan will operate
through 1996 and earn out on an annual basis as a result of total shareowner
return results and is paid annually in restricted stock of U S WEST, Inc. You
will commence participation upon your employment and be eligible for an earn
out for 1992 on a pro rata basis from your date of employment.
Also upon employment U S WEST will pay you a lump sum of $110,000 as
replacement value for any difference between the total cash compensation (base,
bonus and long-term incentive) that you would have otherwise earned had you
stayed at NCR for
<PAGE> 3
PAGE 3
1992 and your actual total cash compensation for base and short-term bonus
payments at U S WEST in 1992 as well as any vested and exercisable stock
options at NCR that you are forfeiting.
You will be eligible to participate in the U S WEST Deferred
Compensation Plan whereby you can defer up to 50% of your base salary (to
retirement) starting January 1, 1993. Any deferred portion earns interest at a
rate of Treasury bills plus 2% (currently 9.3%). Any difference between the
maximum qualified 401K company match ($8,728 in 1992) and 6% of your base
salary will also be matched at .833 if you participate in this plan.
You will be a participant in the U S WEST, Inc. Change of Control
Plan and will have an individual agreement to that effect.
Should U S WEST terminate your employment from your date of hire
through December 31, 1996, you will be paid an amount equal to two times your
base salary ("Severance"). In the event the Change of Control takes effect,
you will receive the greater of (1) the severance payment under the Change of
Control Plan or (2) Severance.
You will be eligible to participate in the U S WEST Management Pension
Plan (requires five-year vesting) and in the U S WEST Executive Non-Qualified
Pension Plan after one year of service with the company. In addition, you will
receive a supplemental retirement benefit as follows:
- - For each year of service that you complete with U S WEST, you
will receive, on a non-qualified basis, a $14,000 benefit accrual - up
to a maximum of seven years of service. This benefit is to equal the
difference in value between the NCR SERP that commences payment at age
50 and the value of what the NCR SERP would have been (had you stayed
employed with NCR) for each additional year of service that you work
for U S WEST after age 50, up to age 55.
- - This benefit becomes payable on the earlier of your separation of
service from U S WEST or your retirement.
- - You will have the option of receiving this benefit in either a
lump sum or in equal annual installments until age 65, whereupon
payments to you from the qualified and non-
<PAGE> 4
PAGE 4
qualified plans equaling that amount will commence. The lump sum
option represents the present value of this supplemental benefit. You
will be required to elect one of these two options within ninety days
of acceptance of employment with U S WEST.
- - In the event of your death prior to receipt of this benefit,
the value of the benefit at the time of death will be paid to your
estate.
The benefits that you accrue in the U S WEST Management Pension Plan
and in the U S WEST Executive Non-Qualified Pension Plan after age 55 will be
vested. The accruals under these two plans after age 55 will be in addition to
the $14,000 annual benefit accrual up to age 55 discussed above.
You will be provided annual financial counseling reimbursement in an
amount up to $10,000 for 1993 and 1994 (grossed up). Thereafter you will be
eligible for $2,000 per year.
U S WEST, Inc. will also reimburse (on a tax grossed-up basis),
membership initiation fees for a gold club. Monthly country club dues,
luncheon club dues, and associated business expenses will also be reimbursed by
the Company.
As we have discussed, you will be entitled to five weeks of annual
vacation.
You will be eligible to participate in our relocation plan which will
reimburse you for certain reasonable costs incurred by you in relocating to
Denver. The relocation benefits include: guaranteed purchase of the home you
sell if you so desire, interim living expenses, house hunting trips, in transit
moving expenses for you and your family, the moving of your household goods,
certain home purchase costs, financing options and certain miscellaneous
allowances. During this period, U S WEST, Inc. will also reimburse your
expenses for trips home at your election. Spouse and child trips to Denver
will be reimbursed on the same basis. Because of the complexity of relocation,
we have asked Pat Vigil at (303) 292-0638, who leads our relocation group, to
work directly with you and your family. Of course, Tom Bouchard will be
available to assist. Other reasonable business
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expenses will be reimbursed in accordance with the Company's established
expense reimbursement policies.
Finally, you will be eligible to participate in all of the established
benefit programs regularly maintained by the Company. At the present time,
these include:
- - Medical, dental and vision coverage which provides four options
of coverage at your choice paid for by the Company (no employee
contribution at this time other than plan deductibles and co-pays).
- - Life insurance in an amount equivalent to your base salary and
bonus at Company expense, with an opportunity to purchase additional
split dollar coverage of up to four times your base salary at a
shared expense.
- - 401(k) savings plan with matching Company contributions of .833 up to
6% pre-tax of base salary.
In all cases, you will be entitled to receive all benefits of
employment applicable generally to all employees of the Company at the same
level of responsibility which you have. These benefits will be pursuant to the
specific provisions of such plans and programs.
You will report directly to me in my capacity as Chairman and Chief
Executive Officer. We expect that you will devote substantially all of your
time to your job duties on behalf and comply with all corporate policies and
decisions relating to business matters. Some of these policies are set out in
the Company's "Code of Business Ethics" which you will be expected to sign.
Among other things, this Code precludes you from directly or indirectly
engaging in any competitive business. In addition, Company policy requires
that you may not disclose to any third person any information concerning the
business or affairs of the Company which you may acquire in the course of your
employment. This applies both during and after your employment. This letter
does not bind either party to any specific period of employment. Our
relationship will be at-will. While we assume that the business will continue
to grow and prosper, and our relationship will be good, nothing is guaranteed
for all time. Thus, just as you may terminate your relationship with us at any
time and without cause, we reserve the same right.
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We understand that under your severance letter agreement with NCR (the
"Severance Agreement") and the NCR Senior Executive Retirement, Death and
Disability Plan (the "Retirement Plan"), for a period of one year following the
voluntary termination of your employment with NCR you are prohibited from
becoming an employee of a company which is in competition with NCR. You have
advised us that from your knowledge of NCR's activities you do not believe that
U S WEST is engaged in direct or substantial competition with NCR. We have
reviewed our current and future planned activities, products and services and
determined that a minor activity in which we are engaged, while economically
insubstantial in relation to our primary activities, might be construed as
overlapping in a competitive manner with activities of NCR. We have discussed
the nature of such activity with two outside legal counsel, both of whom
independently concluded, as did we, that the degree of possible competition was
so insignificant and indirect and the nature of your duties and
responsibilities so far removed from the conduct of such activities as not co
constitute direct or substantial competition with NCR and, accordingly, not to
justify on any reasonable basis a denial of your benefits by NCR under the
Severance Agreement or the Retirement Plan. Nevertheless, in consideration of
your agreement to become a U S WEST employee, we agree to indemnify and hold
you harmless against any losses, costs and/or liabilities you may incur or
suffer (including loss of payments otherwise due to you under the Severance
Agreement and the Retirement Plan) which might arise out of or result from the
non- competition requirement of the Severance Agreement and the Retirement Plan
due to your becoming an employee of U S WEST.
In the event that NCR seeks to deny payment of any amount to you under
the Severance Agreement or the Retirement Plan or to obtain reimbursement from
us or from you of any amount paid by NCR to you under the Severance Agreement
or Retirement Plan based on an allegation that we are engaged in competition
with NCR, then you agree to cooperate fully and assist us, consistent with your
ethical obligations, in any and all actions in which we may choose to engage
with respect to such actions by NCR, including, without limitation, the
commencement of litigation against NCR, by us in our name or at our direction
but in your name, to collect any amounts NCR causes not to be paid to you, to
contest any effort by NCR to obtain reimbursement of any amounts previously
paid to you, or to obtain reimbursement from NCR of any amounts paid by us to
you pursuant to this indemnification.
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As you are aware, U S WEST is subject to a consent decree (the
"Modified Final Judgment" or "MFJ") which divested the Bell System and
continues to restrict the types of businesses in which U S WEST may engage.
With respect to U S WEST, the MFJ has been modified from time to time, notably
by a Civil Enforcement Consent Order ("CECO") in 1989, and an Enforcement Order
("EO") in 1991. You will receive, and are required to review, additional
information on MFJ/CECO/EO. Signed certificates of review will be required
from you within ten (10) days of hire date to comply with the laws. We have
included that material for your review and signature to be returned to us
within ten days of your employment (on the payroll).
Any offer or employment at U S WEST, Inc. is conditioned upon the
applicant undergoing and passing pre-employment drug testing, subject to
applicable Federal, state, and local law. A consent form is attached for you
to sign and return with this letter. Upon receipt, you will be contacted to
set up an appointment for the test.
If you agree with the above terms of employment, please indicate by
signing below and returning one original to me in the enclosed envelope.
Sincerely,
/s/ Richard D. McCormick
Richard D. McCormick
Accepted:
Signed: /s/ Charles P. Russ III Date: /s/ 5-11-92
-------------------------- -------------------------
Charles P. Russ
Attachments
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Exhibit 10ab
December 30, 1994
Mr. James H. Stever
Executive Vice President
U S WEST, Inc.
7800 East Orchard Road
Englewood, Colorado 80111
Dear Mr. Stever:
U S WEST, Inc. (the "Company"), on behalf of itself, its subsidiaries
and its shareholders, wishes to encourage your continued service and dedication
in the performance of your duties, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined in Subsection I(h)) of the
Company. The Board of Directors of the Company (the "Board") believes that the
prospect of a pending or threatened Change of Control inevitably creates
distractions and personal risks and uncertainties for its executives, and that
it is in the best interests of the Company to minimize such distractions to
certain executives and the Company. The Board further believes that it is in
the best interests of the Company to encourage its executives' full attention
and dedication to their duties, both currently and in the event of any
threatened or pending Change of Control.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued retention of certain members of
the Company's management, including yourself, and the attention and dedication
of management to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a Change
of Control of the Company.
In order to induce you (the "Executive") to remain in the employ of the
Company and in consideration of your continued service to the Company, the
Company agrees that you shall receive the benefits set forth in this letter
agreement (the "Agreement") in the event that your employment with the Company
is terminated subsequent to a Change of Control of the Company in the
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circumstances hereinafter described. For purposes of this Agreement,
references to employment with the Company shall include employment with a
Subsidiary of the Company (as defined in Subsection I(w)).
I. Definitions
The meaning of each defined term that is used in this Agreement is set
forth below.
(a) AAA. The American Arbitration Association.
(b) Additional Pay. The meaning of this term is set forth in
Subsection IV(b).
(c) Agreement. The meaning of this term is set forth in the third
paragraph of this Agreement.
(d) Agreement Payments. The meaning of this term is set forth in
Subsection IV(e)(i).
(e) Beneficiaries. The meaning of this term is set forth in Subsection
VI(b).
(f) Board. The meaning of this term is set forth in the first
paragraph of this Agreement.
(g) Cause. For purposes of this Agreement, "Cause" shall mean the
Executive's willfully breaching or failing to perform his employment duties.
For purposes of this Subsection I(g), no act, or failure to act, on the part of
the Executive shall be deemed "willful" unless done, or omitted to be done, by
the Executive not in good faith and without reasonable belief that such action
or omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Executive a certificate
of a resolution duly adopted by the affirmative vote of not less than
seventy-five percent (75%) of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, the Executive has engaged in the conduct set forth in this
Subsection
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I(g) and specifying the particulars thereof in detail.
(h) Change of Control. For purposes of this Agreement, a "Change of
Control" shall be deemed to have occurred if there is a change of control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company is then
subject to such reporting requirement; provided that, without limitation, such
a Change of Control shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes a
"beneficial owner" (as determined for purposes of Regulation 13D-G
under the Exchange Act as currently in effect), directly or indirectly, of
securities representing twenty percent (20%) or more of the total voting power
of all of the Company's then outstanding voting securities, unless through a
transaction consummated with the prior approval of the Board; or
(ii) during any period of two consecutive calendar years,
individuals who at the beginning of such period constitute the Board and any
new director(s) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board; or
(iii) the Company becomes a party to a merger, plan of
reorganization, consolidation or share exchange in which either (x) the Company
will not be the surviving corporation or (y) the Company will be the surviving
corporation and any outstanding shares of the Company's common stock will be
converted into shares of any other company (other than a reincorporation or the
establishment of a holding company involving no change of ownership of the
Company) or other securities or cash or other property (excluding payments made
solely for fractional shares); or
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(iv) the shareholders of the Company approve a merger, plan of
reorganization, consolidation or share exchange with any other corporation, and
immediately following such merger, plan of reorganization, consolidation or
share exchange the holders of the voting securities of the Company outstanding
immediately prior thereto hold securities representing fifty percent (50%) or
less of the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger, plan of
reorganization, consolidation or share exchange; provided, however, that
notwithstanding the foregoing, no Change of Control for purposes of this
Agreement shall be deemed to have occurred if one-half (1/2) or more of the
members of the Board of the Company or such surviving entity immediately after
such merger, plan of reorganization, consolidation or share exchange is
comprised of persons who served as directors of the Company immediately prior
to such merger, plan of reorganization, consolidation or share exchange or who
are otherwise designees of the Company; or
(v) any other event that a majority of the Board, in its sole
discretion, shall determine constitutes a Change of Control.
(i) Code. The meaning of this term is set forth in Subsection
IV(e)(i).
(j) Company. The meaning of this term is set forth in the first
paragraph of this Agreement and Subsection VI(a).
(k) Controlled Group. For purposes of this Agreement, "Controlled
Group" shall mean the Company and all of the Company's Subsidiaries.
(l) Disability. For purposes of this Agreement, "Disability" shall
mean an illness, injury or similar incapacity which 52 weeks after its
commencement continues to render the Executive unable to perform the material
and substantial duties of the Executive's position or any occupation or
employment for which the Executive is qualified or may reasonably become
qualified by training, education or experience. Any question as to the
existence of a Disability upon which the Executive and the Company cannot agree
shall be determined by a qualified independent physician selected by the
Executive (or, if the Executive is unable to make such
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selection, by any adult member of the Executive's immediate family or the
Executive's legal representative), and approved by the Company, such approval
not to be unreasonably withheld. The determination of such physician made in
writing to the Company, and to the Executive, shall be final and conclusive for
all purposes of this Agreement.
(m) Employer. For purposes of this Agreement, "Employer" shall mean
the Company or the Subsidiary, as the case may be, with which the Executive
has an employment relationship.
(n) Exchange Act. This term shall have the meaning set forth in
Subsection I(h).
(o) Executive. This term shall have the meaning set forth in the third
paragraph of this Agreement.
(p) Excise Tax. This term shall have the meaning set forth in
Subsection IV(e)(i).
(q) Good Reason. For purposes of this Agreement, "Good Reason" shall
mean the occurrence, without the Executive's express written consent, of any of
the following circumstances:
(i) The assignment to the Executive of any duties inconsistent
with, or any substantial diminution in, such Executive's status or
responsibilities as in effect immediately prior to a Change of Control of the
Company, including imposition of travel obligations which differ materially
from required business travel immediately prior to the Change of Control;
(ii) Any diminution in the status or responsibilities of the
Executive's position from that which existed immediately prior to the Change of
Control, whether by reason of the Company ceasing to be a public company under
the Exchange Act, becoming a subsidiary of a successor public company, or
otherwise;
(iii) (A) A reduction in the Executive's annual base salary as
in effect immediately before the Change of Control; or (B) the failure to pay a
bonus award to which the Executive is otherwise entitled under any of the
short-term incentive plan in which the Executive participates, the U S WEST
Executive Long-Term Incentive Plan, or any successor
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incentive compensation plans at the time such awards are usually paid;
(iv) A change in the principal place of the Executive's
employment, as in effect immediately prior to the Change of Control of the
Company, to a location more than thirty-five (35) miles distant from the
location of such principal place at such time;
(v) The failure by the Company to continue in effect any
incentive compensation plan or stock option plan in which the Executive
participates immediately prior to the Change of Control, unless an equivalent
alternative compensation arrangement (embodied in an ongoing substitute or
alternative plan) has been provided to the Executive, or the failure by the
Company to continue the Executive's participation in any such incentive or
stock option plan on substantially the same basis, both in terms of the amount
of benefits provided and the level of the Executive's participation relative to
other participants, as existed immediately prior to the time of the Change of
Control;
(vi) (A) Except as required by law, the failure by the Company
to continue to provide to the Executive benefits substantially equivalent, in
the aggregate, to those enjoyed by the Executive under the qualified and
non-qualified employee benefit and welfare plans of the Company, including,
without limitation, any pension, life insurance, medical, dental, health and
accident, disability, retirement or savings plans in which the Executive was
eligible to participate immediately prior to the Change of Control; (B) the
taking of any action by the Company which would directly or indirectly
materially reduce or deprive the Executive of any other perquisite enjoyed by
the Executive immediately prior to the Change of Control (including
Company-paid and/or reimbursed club memberships, financial counseling fees and
the like); or (C) the failure by the Company or its successor to treat the
Executive under the Company's vacation policy, past practice or special
agreement in the same manner and to the same extent as was in effect
immediately prior to the Change of Control;
(vii) The failure of the Company or any successor to obtain a
satisfactory written agreement from any successor to
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assume and agree to perform this Agreement, as contemplated in Subsection
VI(a); or
(viii) Any purported termination of the Executive's employment
that is not effected pursuant to a Notice of Termination satisfying the
requirements of Subsection III(b) or, if applicable, Subsection I(g). For
purposes of this Agreement, no such purported termination shall be effective
except as constituting Good Reason.
The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting Good Reason
hereunder.
(r) Gross-Up Payment. The meaning of this term is set forth in
Subsection IV(e)(i).
(s) Notice of Termination. The meaning of this term is set forth in
Subsection III(b).
(t) Other Payments. The meaning of this term is set forth in
Subsection IV(e)(i).
(u) Payments. The meaning of this term is set forth in Subsection
IV(e)(i).
(v) Retirement. For purposes of this Agreement, "Retirement" shall
mean the Executive's voluntary termination of employment with the Company,
other than for Good Reason, and in accordance with the Company's retirement
policy generally applicable to its employees or in accordance with any prior or
contemporaneous retirement arrangement established with the Executive's consent
with respect to the Executive.
(w) Subsidiary. For purposes of this Agreement, "Subsidiary" shall
mean any corporation of which more than fifty percent (50%) of the voting stock
is owned directly or indirectly by the Company.
(x) Tax Counsel. The meaning of this term is set forth in Subsection
IV(e)(ii).
(y) Termination. The meaning of this term is set forth in Subsection
III(a).
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(z) Termination Date. For purposes of this Agreement, "Termination
Date" shall mean:
(i) If the Executive's employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that the
Executive shall not have returned to the full-time performance of his duties
during such thirty-day period); and
(ii) If the Executive's employment is terminated for Cause or
Good Reason or for any reason other than death or Disability, the date
specified in the Notice of Termination (which in the case of a termination for
Cause shall not be less than thirty (30) days and in the case of a termination
for Good Reason shall not be less than thirty (30) days nor more than sixty
(60) days, respectively, from the date such Notice of Termination is given).
II. Term of Agreement
(a) General. Upon execution by the Executive, this Agreement shall
commence as of January 1, 1995. This Agreement shall continue in effect
through December 31, 1997; provided, however, that commencing on January 1,
1998, and every third January 1 thereafter, the term of this Agreement shall
automatically be extended for three additional years unless, not later than
ninety days prior to the January 1 on which this Agreement would otherwise
automatically be extended, the Company shall have given notice that it does not
wish to extend this Agreement; provided further, however, that if a Change of
Control of the Company shall have occurred during the original or any extended
term of this Agreement, this Agreement shall continue in effect for a period of
thirty-six months beyond the month in which the Change of Control occurred.
(b) Disposition of Employer. In the event the Executive is employed
by a Subsidiary, the terms of this Agreement shall expire if such Subsidiary is
sold or otherwise disposed of prior to a Change of Control unless the Executive
continues in employment with the Controlled Group after such sale or other
disposition. If the Executive's Employer is sold or disposed of following a
Change of Control, this Agreement shall continue through its original term or
any extended term then in effect.
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(c) Deemed Change of Control. If the Executive's employment with the
Employer is terminated prior to the date on which a Change of Control occurs,
and such termination was at the request of a third party who has taken steps to
effect a Change of Control or was otherwise caused by the Change of Control,
then for all purposes of this Agreement, a Change of Control shall be deemed to
have occurred prior to such termination.
(d) Expiration of Agreement. No termination or expiration of this
Agreement shall affect any rights, obligations or liabilities of either party
that shall have accrued on or prior to the date of such termination or
expiration.
III. Termination Following Change of Control
(a) Entitlement to Benefits. If a Change of Control of the Company
shall have occurred, the Executive shall be entitled to the benefits provided
in Section IV hereof upon the subsequent termination of his employment with the
Company within three years after the date of the Change of Control unless such
termination is (i) a result of the Executive's death or Retirement, (ii) for
Cause, (iii) a result of the Executive's Disability, or (iv) by the Executive
other than for Good Reason. A termination of the Executive's employment which
is not as a result of the Executive's death, Retirement or Disability and (x)
if by the Company, is not for Cause, or (y) if by the Executive, is for Good
Reason, shall be referred to hereinafter as a "Termination."
(b) Notice of Termination. Any purported termination of the
Executive's employment by the Company or by the Executive shall be communicated
by written Notice of Termination to the other party hereto in accordance with
Section VIII. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific provision of this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. If the Executive's employment
shall be terminated for Cause or by the Executive for other than Good Reason,
the Company shall pay the Executive his full base salary through the
Termination Date at the rate in effect at the time Notice of Termination is
given and shall pay any amounts to be paid to the Executive pursuant to any
other compensation plans, programs or employment agreements then in effect, and
the Company shall have no further obligations to
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the Executive under this Agreement.
If within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice notifies the other party that a dispute exists
concerning the grounds for termination, then, notwithstanding the meaning of
"Termination Date" set forth in Subsection I(z), the Termination Date shall be
the date on which the dispute is finally resolved, whether by mutual written
agreement of the parties or by a decision rendered pursuant to Section XI;
provided that the Termination Date shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay the Executive his full compensation in effect when the notice giving rise
to the dispute was given, and continue the Executive as a participant in all
benefits plans or perquisites in which the Executive was participating or which
he was enjoying when the Notice of Termination giving rise to the dispute was
given, until the dispute is finally resolved. Amounts paid under this
Subsection III(b) are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
IV. Compensation Upon a Termination
Following a Change of Control of the Company, upon a Termination of the
Executive's employment, the Executive shall be entitled to the following
benefits, provided that the Termination occurs during the three-year period
immediately following the date of the Change of Control:
(a) Standard Benefits. The Company shall pay the Executive his full
base salary through the Termination Date at the rate in effect at the time the
Notice of Termination is given, no later than the second day following the
Termination Date, plus all other amounts to which the Executive is entitled
under any compensation plan of the Company applicable to the Executive at the
time such payments are due. Without limitation, amounts payable pursuant to
this Subsection IV(a) shall include, pursuant to the express terms of the
short-term incentive plan in which the Executive participates or otherwise, the
Executive's annual bonus under such short-term incentive plan, pro-rated to the
Termination Date.
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(b) Additional Benefits. The Company shall pay to the Executive as
additional pay ("Additional Pay"), the product of (i) the lesser of (x) three
(3) or (y) the difference between sixty-five (65) and the Executive's age as
of the date of the Notice of Termination (calculated to the nearest twelfth of
a year), multiplied by (ii) the sum of (x) the Executive's annual base salary
rate in effect immediately prior to the Termination Date and (y) the
Executive's annual bonus amount under the short-term incentive plan in which
the Executive participates, such bonus amount to be calculated on the basis of
the extent to which the performance factors targeted by the Human Resources
Committee of the Board have been achieved (for this purpose, the Company's
performance through the Termination Date shall be annualized based upon the
actual number of days elapsed from the beginning of the fiscal year in which
the Termination occurs through the Termination Date over a year of 360 days),
which shall be deemed to be 100% unless the performance actually achieved is
greater than 100%, in which case the actual performance levels shall be
utilized. The Company shall pay to the Executive the Additional Pay in a lump
sum, in cash, not later than the fifteenth day following the Termination Date.
(c) Retirement Plan Benefits. If not already vested, the Executive
shall be deemed fully vested in all Company retirement plans and/or other
written agreements relating to pay upon retirement in which the Executive was a
participant, party or beneficiary immediately preceding a Change of Control,
and any additional plans and/or agreements in which such Executive became a
participant, party or beneficiary thereafter. In addition to the foregoing,
for purposes of determining the amounts to be paid to the Executive under such
plans and/or agreements, the years of service with the Company and the age of
the Executive under all such plans and agreements shall be deemed increased by
the lesser of thirty-six (36) months or such shorter period of time as would
render the Executive sixty-five (65) years of age. For purposes of this
Subsection IV(c), "plans" include, without limitation, the Company's qualified
pension plan, non-qualified and mid-career retirement plans, and "agreements"
encompass the terms of any offer letters leading to the Executive's employment
with the Company where the Executive was a signatory thereto and any written
amendments to the foregoing. In the event that the terms of the plans
referenced in this Subsection IV(c) do not for any reason (e.g., if plan
amendments would cause disqualification of qualified plans) coincide with the
provisions of this Subsection
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IV(c), the Executive shall be entitled to receive from the Company under the
terms of this Agreement an amount equivalent to all amounts he would have
received had all such plans continued in existence as in effect on the date of
this Agreement after being amended to coincide with the terms of this
Subsection IV(c).
(d) Health Benefits. Following the Termination Date, the Company shall
continue to provide health, vision and dental benefits to the Executive and the
Executive's eligible dependents on terms substantially equivalent to those on
which the Company provides such benefits to retired employees who were service
pension-eligible at the time of the Change of Control and whose retirement date
most closely approximates the date of the Change of Control. The eligibility
of the Executive's dependents shall be determined by the terms of the health,
vision and dental benefit plans in effect prior to the Change of Control.
(e) Gross-Up Payments.
(i) In the event that any payment or the value of any benefit
received or to be received by the Executive in connection with the Executive's
Termination or contingent upon a Change of Control of the Company (whether
received or to be received pursuant to the terms of this Agreement (the
"Agreement Payments") or of any other plan, arrangement or agreement of the
Company, its successors, any person whose actions result in a Change of Control
of the Company or any person affiliated with any of them (or which, as a result
of the completion of the transactions causing a Change of Control, will become
affiliated with any of them) ("Other Payments" and, together with the Agreement
Payments, the "Payments")) would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any comparable federal, state or local excise tax (such excise tax, together
with any interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), as determined as provided below, the Company shall pay to
the Executive an additional amount (the "Gross-Up Payment") such that the net
amount retained by the Executive, after deduction of the Excise Tax on
Agreement Payments and Other Payments and any federal, state and local income
tax and Excise Tax upon the payment provided for by this Subsection IV(e)(i),
and any interest, penalties or additions to tax payable by the Executive with
respect
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thereto shall be equal to the total present value of the Agreement Payments and
Other Payments at the time such Payments are to be made. The intent of the
parties is that the Company shall be solely responsible for and shall pay, any
Excise Tax on any Payments and Gross-Up Payment and any income and employment
taxes (including, without limitation, penalties and interest) imposed on any
Gross-Up Payments as well as any loss of deduction caused by the Gross-Up
Payment.
(ii) All determinations required to be made under this
Subsection IV(e), including, without limitation, whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determinations, shall be made by tax counsel
selected by the Company and reasonably acceptable to the Executive ("Tax
Counsel"). The Company shall cause the Tax Counsel to provide detailed
supporting calculations to the Company and the Executive within fifteen (15)
business days after notice is given by the Executive to the Company that any or
all of the Payments have occurred, or such earlier time as is requested by the
Company. Within two (2) business days after such notice is given to the
Company, the Company shall instruct the Tax Counsel to timely provide the data
required by this Subsection IV(e) to the Executive. All fees and expenses of
the Tax Counsel shall be paid solely by the Company. Any Excise Tax as
determined pursuant to this Subsection IV(e) shall be paid by the Company to
the Internal Revenue Service and/or other appropriate taxing authority on the
Executive's behalf within five (5) days after receipt of the Tax Counsel's
determination. If the Tax Counsel determines that there is substantial
authority (within the meaning of Section 6662 of the Code) that no Excise Tax
is payable by the Executive, the Tax Counsel shall furnish the Executive with a
written opinion that failure to disclose or report the Excise Tax on the
Executive's federal income tax return will not constitute a substantial
understatement of tax or be reasonably likely to result in the imposition of a
negligence or similar penalty. Any determination by the Tax Counsel shall be
binding upon the Company and the Executive in the absence of material
mathematical or legal error. As a result of the uncertainty in the application
of Section 4999 of the Code at the time the initial determination by the Tax
Counsel hereunder, it is possible that Gross-Up Payments will not have been
made by the Corporation that should have been
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PAGE 14
made or that Gross-Up Payments have been made that should not have been made,
in each case, consistent with the calculations required to be made hereunder.
In the event the Company exhausts its remedies pursuant to Subsection
IV(e)(iii) below and the Executive is thereafter required to make a payment of
any Excise Tax, the Tax Counsel shall determine the amount of underpayment of
Excise Taxes that has occurred and any such underpayment shall be promptly paid
by the Company to the Internal Revenue Service or other appropriate taxing
authority on the Executive's behalf or, if such underpayment has been
previously paid by the Executive, to the Executive. In the event that the Tax
Counsel determines that an overpayment of Gross-Up Payments has occurred, any
such overpayment shall be treated for all purposes as a loan to the Executive
with interest at the applicable federal rate provided for in Section 7872(f)(2)
of the Code, due and payable within ninety (90) days after written demand to
the Executive by the Company; provided, however, that the Executive shall have
no duty or obligation whatsoever to repay such loan unless the Executive's
receipt of the overpayment, or any portion thereof, is includible in the
Executive's income and the Executive's repayment of the same is not deductible
by the Executive for federal and state income tax purposes.
(iii) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or state or local taxing authority, that,
if successful, would result in any Excise Tax or an underpayment of Gross-Up
Payments. Such notice shall be given as soon as practicable but no later than
fifteen (15) business days after the Executive is informed in writing of the
claim and shall inform the Company of the nature of the claim, the
administrative or judicial appeal period, and the date on which any payment of
the claim must be paid. The Executive shall not pay any portion of the claim
prior to the expiration of the thirty (30) day period following the date on
which the Executive gives such notice to the Company (or such shorter period
ending on the date that any amount under the claim is due). If the Company
notifies the Executive in writing prior to the expiration of such thirty (30)
day period that it desires to contest the claim, the Executive shall:
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PAGE 15
(A) give the Company any information reasonably
requested by the Company relating to the claim;
(B) take such action in connection with contesting
the claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation concerning the
claim by an attorney selected by the Company who is reasonably acceptable to
the Executive; and
(C) cooperate with the Company in good faith in
order to effectively contest the claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including, without limitation, additional interest and
penalties and attorneys' fees) incurred in such contests and shall indemnify
and hold the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including, without limitation, interest and penalties thereon)
imposed as a result of such representation. Without limitation upon the
foregoing provisions of this Subsection IV(e) (iii), except as provided below,
the Company shall control all proceedings concerning such contest and, in its
sole opinion, may pursue or forego any and all administrative appeal,
proceedings, hearings and conferences with the taxing authority pertaining to
the claim. At the written request of the Company and upon payment to the
Executive of an amount at least equal to the claim plus any additional amount
necessary to obtain the jurisdiction of the appropriate tribunal and/or court,
the Executive shall pay the same and sue for a refund. The Executive agrees to
prosecute any contest of a claim to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
requests the Executive to pay the claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis,
and shall indemnify and hold the Executive harmless on an after-tax basis,
from any Excise Tax or income tax (including, without limitation, interest and
penalties thereon) imposed on such advance or for any imputed income on such
advance. Any extension of the statute of limitations relating to assessment of
any Excise Tax for the taxable year of the Executive which is the subject of
the claim is to be limited
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solely to the claim. Furthermore, the Company's control of the contest shall
be limited to issues for which a Gross-Up Payment would be payable hereunder.
The Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(iv) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Subsection IV(e)(iii) above, the Executive
receives any refund of a claim and/or any additional amount that was necessary
to obtain jurisdiction, the Executive shall promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Subsection IV(e)(iii) above, a
determination is made that the Executive shall not be entitled to any refund of
the claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund of a claim prior to the expiration of
thirty (30) days after such determination, then the portion of such advance
attributable to a claim shall be forgiven and shall not be required to be
repaid. The amount of such advance attributable to a claim shall offset, to
the extent thereof, the amount of the underpayment required to be paid by the
Company to the Executive.
(v) If, after the advance by the Company of an additional
amount necessary to obtain jurisdiction, there is a final determination made by
the taxing authority that the Executive is not entitled to any refund of such
amount, or any portion thereof, then such nonrefundable amount shall be repaid
to the Company by the Executive within thirty (30) days after the Executive
receives notice of such final determination. A final determination shall occur
when the period to contest or otherwise appeal any decision by an
administrative tribunal or court of initial jurisdiction has been waived or the
time for contesting or appealing the same has expired.
(f) Legal Fees and Expenses. The Company shall pay to the Executive
all legal fees and expenses as and when incurred by the Executive in connection
with this Agreement, including all such fees and expenses, if any, incurred in
contesting or disputing any
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Termination or in seeking to obtain or enforce any right or benefit provided by
this Agreement, regardless of the outcome, unless, in the case of a legal
action brought by or in the name of the Executive, a decision is rendered
pursuant to Section X that such action was not brought by the Executive in good
faith.
(g) No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Section IV by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Section IV be reduced by any compensation earned by the
Executive as the result of employment by another employer or by retirement or
other benefits received after the Termination Date or otherwise, except as
specifically provided in this Section IV. The Company's obligation to make
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company or
Employer may have against the Executive or other parties.
V. Death and Disability Benefits
In the event of the death or Disability of the Executive after a Change
of Control of the Company, the Executive, or in the case of death, the
Executive's beneficiaries, shall receive the benefits to which they are
entitled under the retirement plans, disability policies and other applicable
plans of the Company.
VI. Successors; Binding Agreement
(a) Obligations of Successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company is required to perform it. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same
terms as the Executive would be entitled hereunder if the Executive had
terminated employment for Good Reason following a Change of Control of the
Company, except that for purposes of implementing the foregoing,
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PAGE 18
the date on which any such succession becomes effective shall be deemed the
Termination Date. As used in this Agreement, the "Company" shall mean the
Company as hereinabove defined and any successor to its business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(b) Enforceable by Beneficiaries. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees (the "Beneficiaries"). In the event of the death of the
Executive while any amount would still be payable hereunder if such death had
not occurred, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to the Executive's
Beneficiaries.
(c) Employment. Except in the event of a Change of Control and,
thereafter, only as specifically set forth in this Agreement, nothing in this
Agreement shall be construed to (i) limit in any way the right of the Company
or a Subsidiary to terminate the Executive's employment at any time for any
reason or for no reason; or (ii) be evidence of any agreement or understanding,
expressed or implied, that the Company or a Subsidiary will employ the
Executive in any particular position, on any particular terms or at any
particular rate of remuneration.
VII. Confidential Information.
The Executive shall hold in fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge or data relating to
the Company, the Subsidiaries and their respective businesses, which shall have
been obtained during the Executive's employment by the Employer and which shall
not be public knowledge (other than by acts by the Executive or his
representatives in violation of this Agreement). After termination of the
Executive's employment with the Company or any Employer within the Controlled
Group, the Executive shall not, without prior written consent of the Company or
the Employer, communicate or divulge any such information, knowledge or data to
anyone other than the Company, the Employer or those designated by them. In no
event shall an asserted violation of this Section VII constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
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VIII. Notice
All notices and communications hereunder shall be in writing and shall
be given by hand delivery to the other party, by registered or certified mail,
return receipt requested, postage prepaid, or by overnight mail, addressed as
follows:
If to the Executive:
Mr. James H. Stever
U S WEST, Inc.
7800 East Orchard Road
Englewood, Colorado 80111
If to the Company:
U S WEST, Inc.
7800 East Orchard Road
Englewood, Colorado 80111
Attn.: Executive Vice President, General Counsel
and Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
IX. Miscellaneous
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and
signed by the Executive and the Company's Chief Executive Officer. No waiver
by either party hereto at any time of any breach by the other party hereto of,
or compliance with, any conditions or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Colorado. All references to sections of the Code or the
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Exchange Act shall be deemed also to refer to any successor provisions of such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under Sections IV and V shall survive the expiration
of the term of this Agreement.
X. Validity
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
XI. Arbitration
The Executive may agree in writing with the Company (in which case this
Article XI shall have effect but not otherwise) that any dispute that may arise
directly or indirectly in connection with this Agreement, the Executive's
employment or the termination of the Executive's employment, whether arising in
contract, statute, tort, fraud, misrepresentation, or other legal theory, shall
be determined solely by arbitration in Denver, Colorado under the rules of the
AAA. The only legal claims between the Executive, on the one hand, and the
Company or any Subsidiary, on the other, that would not be included in this
agreement to arbitration are claims by the Executive for workers' compensation
or unemployment compensation benefits, claims for benefits under a Company or
Subsidiary benefit plan if the plan does not provide for arbitration of such
disputes, and claims by the Executive that seek judicial relief in the form of
specific performance of the right to be paid until the Termination Date during
the pendency of any dispute or controversy arising under or Subsection III(b).
If this Article XI is in effect, any claim with respect to this Agreement, the
Executive's employment or the termination of the Executive's employment must be
established by a preponderance of the evidence submitted to the impartial
arbitrator. A single arbitrator engaged in the practice of law shall conduct
any arbitration under the then current procedures of the American Arbitration
Association (the "AAA") and under the AAA's then current Model Employment
Arbitration Rules. The arbitrator shall have the authority to order a
pre-hearing exchange of information by the parties including, without
limitation, production of requested documents, and examination by deposition of
parties and
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PAGE 21
their authorized agents. If this Article XI is in effect, the decision of the
arbitrator (i) shall be final and binding, (ii) shall be rendered within ninety
(90) days after the impanelment of the arbitrator, and (iii) shall be kept
confidential by the parties to such arbitration. The arbitration award may be
enforced in any court of competent jurisdiction. The Federal Arbitration Act,
9 U.S.C. 1-15, not state law, shall govern the arbitrability of all claims.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign both originals of this letter and return to the Executive Vice
President, General Counsel and Secretary of the Company one of the fully
executed originals of this letter which will then constitute our agreement on
this subject.
Sincerely,
U S WEST, Inc.
By: /s/ Richard D. McCormick
Richard D. McCormick
Chairman, President and
Chief Executive Officer
/s/ James H. Stever
James H. Stever
<PAGE> 1
PAGE 1
Exhibit 10ac
December 30, 1994
Mr. Richard D. McCormick
Chairman, President and
Chief Executive Officer
U S WEST, Inc.
7800 East Orchard Road
Englewood, Colorado 80111
Dear Mr. McCormick:
U S WEST, Inc. (the "Company"), on behalf of itself, its subsidiaries
and its shareholders, wishes to encourage your continued service and dedication
in the performance of your duties, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined in Subsection I(g)) of the
Company. The Board of Directors of the Company (the "Board") believes that the
prospect of a pending or threatened Change of Control inevitably creates
distractions and personal risks and uncertainties for its executives, and that
it is in the best interests of the Company to minimize such distractions to
certain executives and the Company. The Board further believes that it is in
the best interests of the Company to encourage its executives' full attention
and dedication to their duties, both currently and in the event of any
threatened or pending Change of Control.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued retention of certain members of
the Company's management, including yourself, and the attention and dedication
of management to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a Change
of Control of the Company.
In order to induce you (the "Executive") to remain in the employ of the
Company and in consideration of your continued service to the Company, the
Company agrees that you shall receive the benefits set forth in this letter
agreement (the "Agreement") in the event that your employment with the Company
is terminated
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PAGE 2
for any reason subsequent to a Change of Control of the Company. For purposes
of this Agreement, references to employment with the Company shall include
employment with a Subsidiary of the Company (as defined in Subsection I(s)).
I. Definitions
The meaning of each defined term that is used in this Agreement is set
forth below.
(a) AAA. The American Arbitration Association.
(b) Additional Pay. The meaning of this term is set forth in
Subsection IV(b).
(c) Agreement. The meaning of this term is set forth in the third
paragraph of this Agreement.
(d) Agreement Payments. The meaning of this term is set forth in
Subsection IV(e)(i).
(e) Beneficiaries. The meaning of this term is set forth in Subsection
VI(b).
(f) Board. The meaning of this term is set forth in the first
paragraph of this Agreement.
(g) Change of Control. For purposes of this Agreement, a "Change of
Control" shall be deemed to have occurred if there is a change of control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company is then
subject to such reporting requirement; provided that, without limitation, such
a Change of Control shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as determined
for purposes of Regulation 13D-G under the Exchange Act as currently in
effect), directly or indirectly, of securities representing twenty percent
(20%) or more of the total voting power of all of the Company's then
outstanding voting securities, unless through
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PAGE 3
a transaction consummated with the prior approval of the Board; or
(ii) during any period of two consecutive calendar years,
individuals who at the beginning of such period constitute the Board and any
new director(s) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board; or
(iii) the Company becomes a party to a merger, plan of
reorganization, consolidation or share exchange in which either (x) the Company
will not be the surviving corporation or (y) the Company will be the surviving
corporation and any outstanding shares of the Company's common stock will be
converted into shares of any other company (other than a reincorporation or the
establishment of a holding company involving no change of ownership of the
Company) or other securities or cash or other property (excluding payments made
solely for fractional shares); or
(iv) the shareholders of the Company approve a merger, plan of
reorganization, consolidation or share exchange with any other corporation, and
immediately following such merger, plan of reorganization, consolidation or
share exchange the holders of the voting securities of the Company outstanding
immediately prior thereto hold securities representing fifty percent (50%) or
less of the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger, plan of
reorganization, consolidation or share exchange; provided,
however, that notwithstanding the foregoing, no Change of Control for
purposes of this Agreement shall be deemed to have occurred if one-half (1/2)
or more of the members of the Board of the Company or such surviving entity
immediately after such merger, plan of reorganization, consolidation or share
exchange is comprised of persons who served as directors of the Company
immediately prior to such merger, plan of reorganization, consolidation or
share exchange or who are otherwise designees of the Company; or
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PAGE 4
(v) any other event that a majority of the Board, in its sole
discretion, shall determine constitutes a Change of Control.
(h) Code. The meaning of this term is set forth in Subsection
IV(e)(i).
(i) Company. The meaning of this term is set forth in the first
paragraph of this Agreement and Subsection VI(a).
(j) Controlled Group. For purposes of this Agreement, "Controlled
Group" shall mean the Company and all of the Company's Subsidiaries.
(k) Employer. For purposes of this Agreement, "Employer" shall mean
the Company or the Subsidiary, as the case may be, with which the Executive has
an employment relationship.
(l) Exchange Act. This term shall have the meaning set forth in
Subsection I(g).
(m) Executive. This term shall have the meaning set forth in the third
paragraph of this Agreement.
(n) Excise Tax. This term shall have the meaning set forth in
Subsection IV(e)(i).
(o) Gross-Up Payment. The meaning of this term is set forth in
Subsection IV(e)(i).
(p) Notice of Termination. The meaning of this term is set forth in
Subsection III(b).
(q) Other Payments. The meaning of this term is set forth in
Subsection IV(e)(i).
(r) Payments. The meaning of this term is set forth in Subsection
IV(e)(i).
(s) Subsidiary. For purposes of this Agreement, "Subsidiary" shall
mean any corporation of which more than fifty percent (50%) of the voting stock
is owned directly or indirectly by the Company.
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PAGE 5
(t) Tax Counsel. The meaning of this term is set forth in Subsection
IV(e)(ii).
(u) Termination. The meaning of this term is set forth in Subsection
III(a).
(v) Termination Date. For purposes of this Agreement, "Termination
Date" shall mean the date that is thirty (30) days following the date that a
Notice of Termination is given by either party to this Agreement.
II. Term of Agreement
(a) General. Upon execution by the Executive, this Agreement shall
commence as of January 1, 1995. This Agreement shall continue in effect
through December 31, 1997; provided, however, that commencing on January 1,
1998, and every third January 1 thereafter, the term of this Agreement shall
automatically be extended for three additional years unless, not later than
ninety days prior to the January 1 on which this Agreement would otherwise
automatically be extended, the Company shall have given notice that it does not
wish to extend this Agreement; provided further, however, that if a Change of
Control of the Company shall have occurred during the original or any extended
term of this Agreement, this Agreement shall continue in effect for a period of
thirty-six months beyond the month in which the Change of Control occurred.
(b) Disposition of Employer. In the event the Executive is employed by
a Subsidiary, the terms of this Agreement shall expire if such Subsidiary is
sold or otherwise disposed of prior to a Change of Control unless the Executive
continues in employment with the Controlled Group after such sale or other
disposition. If the Executive's Employer is sold or disposed of following a
Change of Control, this Agreement shall continue through its original term or
any extended term then in effect.
(c) Deemed Change of Control. If the Executive's employment with the
Employer is terminated prior to the date on which a Change of Control occurs,
and such termination was at the request of a third party who has taken steps to
effect a Change of Control or was otherwise caused by the Change of Control,
then for all purposes of this Agreement, a Change of Control shall be deemed to
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have occurred prior to such termination.
(d) Expiration of Agreement. No termination or expiration of this
Agreement shall affect any rights, obligations or liabilities of either party
that shall have accrued on or prior to the date of such termination or
expiration.
III. Termination Following Change of Control
(a) Entitlement to Benefits. If a Change of Control of the Company
shall have occurred, the Executive shall be entitled to the benefits provided
in Section IV hereof upon the subsequent termination of his employment with the
Company for any reason within three years after the date of the Change of
Control. A termination of the Executive's employment shall be referred to
hereinafter as a "Termination."
(b) Notice of Termination. Any purported termination of the
Executive's employment by the Company or by the Executive shall be communicated
by written Notice of Termination to the other party hereto in accordance with
Section VIII. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice form a party to this Agreement that purports to terminate the
Executive's employment. Once a Notice of Termination is given, the Company
shall pay the Executive his full base salary through the Termination Date at
the rate in effect at the time Notice of Termination is given and shall pay any
amounts to be paid to the Executive pursuant to any other compensation plans,
programs or employment agreements then in effect.
If within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice notifies the other party that a dispute exists
concerning the grounds for termination, then, notwithstanding the meaning of
"Termination Date" set forth in Subsection I(v), the Termination Date shall be
the date on which the dispute is finally resolved, whether by mutual written
agreement of the parties or by a decision rendered pursuant to Section XI;
provided that the Termination Date shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay the Executive his full compensation in effect when the notice giving
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PAGE 7
rise to the dispute was given, and continue the Executive as a participant in
all benefits plans or perquisites in which the Executive was participating or
which he was enjoying when the Notice of Termination giving rise to the dispute
was given, until the dispute is finally resolved. Amounts paid under this
Subsection III(b) are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
IV. Compensation Upon a Termination
Following a Change of Control of the Company, upon a Termination of the
Executive's employment, the Executive shall be entitled to the following
benefits, provided that the Termination occurs during the three-year period
immediately following the date of the Change of Control:
(a) Standard Benefits. The Company shall pay the Executive his full
base salary through the Termination Date at the rate in effect at the time the
Notice of Termination is given, no later than the second day following the
Termination Date, plus all other amounts to which the Executive is entitled
under any compensation plan of the Company applicable to the Executive at the
time such payments are due. Without limitation, amounts payable pursuant to
this Subsection IV(a) shall include, pursuant to the express terms of the
short-term incentive plan in which the Executive participates or otherwise, the
Executive's annual bonus under such short-term incentive plan, pro-rated to the
Termination Date.
(b) Additional Benefits. The Company shall pay to the Executive as
additional pay ("Additional Pay"), the product of (i) the lesser of (x) three
(3) or (y) the difference between sixty-five (65) and the Executive's age as
of the date of the Notice of Termination (calculated to the nearest twelfth of
a year), multiplied by (ii) the sum of (x) the Executive's annual base salary
rate in effect immediately prior to the Termination Date and (y) the
Executive's annual bonus amount under the short-term incentive plan in which
the Executive participates, such bonus amount to be calculated on the basis of
the extent to which the performance factors targeted by the Human Resources
Committee of the Board have been achieved (for this purpose, the Company's
performance through the Termination Date shall be annualized based upon the
actual number of days elapsed from the beginning of the fiscal year in which
the Termination occurs through the
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PAGE 8
Termination Date over a year of 360 days), which shall be deemed to be 100%
unless the performance actually achieved is greater than 100%, in which case
the actual performance levels shall be utilized. The Company shall pay to the
Executive the Additional Pay in a lump sum, in cash, not later than the
fifteenth day following the Termination Date.
(c) Retirement Plan Benefits. If not already vested, the Executive
shall be deemed fully vested in all Company retirement plans and/or other
written agreements relating to pay upon retirement in which the Executive was a
participant, party or beneficiary immediately preceding a Change of Control,
and any additional plans and/or agreements in which such Executive became a
participant, party or beneficiary thereafter. In addition to the foregoing,
for purposes of determining the amounts to be paid to the Executive under such
plans and/or agreements, the years of service with the Company and the age of
the Executive under all such plans and agreements shall be deemed increased by
the lesser of thirty-six (36) months or such shorter period of time as would
render the Executive sixty-five (65) years of age. For purposes of this
Subsection IV(c), "plans" include, without limitation, the Company's qualified
pension plan, non-qualified and mid-career retirement plans, and "agreements"
encompass the terms of any offer letters leading to the Executive's employment
with the Company where the Executive was a signatory thereto and any written
amendments to the foregoing. In the event that the terms of the plans
referenced in this Subsection IV(c) do not for any reason (e.g., if plan
amendments would cause disqualification of qualified plans) coincide with the
provisions of this Subsection IV(c), the Executive shall be entitled to receive
from the Company under the terms of this Agreement an amount equivalent to all
amounts he would have received had all such plans continued in existence as in
effect on the date of this Agreement after being amended to coincide with the
terms of this Subsection IV(c).
(d) Health Benefits. Following the Termination Date, the Company shall
continue to provide health, vision and dental benefits to the Executive and the
Executive's eligible dependents on terms substantially equivalent to those on
which the Company provides such benefits to retired employees who were service
pension-eligible at the time of the Change of Control and whose retirement date
most closely approximates the date of the Change of Control. The eligibility
of the Executive's dependents shall be determined by the terms of the health,
vision and dental
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benefit plans in effect immediately prior to the Change of Control.
(e) Gross-Up Payments.
(i) In the event that any payment or the value of any benefit
received or to be received by the Executive in connection with the Executive's
Termination or contingent upon a Change of Control of the Company (whether
received or to be received pursuant to the terms of this Agreement (the
"Agreement Payments") or of any other plan, arrangement or agreement of the
Company, its successors, any person whose actions result in a Change of Control
of the Company or any person affiliated with any of them (or which, as a result
of the completion of the transactions causing a Change of Control, will become
affiliated with any of them) ("Other Payments" and, together with the Agreement
Payments, the "Payments")) would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any comparable federal, state or local excise tax (such excise tax, together
with any interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), as determined as provided below, the Company shall pay to
the Executive an additional amount (the "Gross-Up Payment") such that the net
amount retained by the Executive, after deduction of the Excise Tax on
Agreement Payments and Other Payments and any federal, state and local income
tax and Excise Tax upon the payment provided for by this Subsection IV(e)(i),
and any interest, penalties or additions to tax payable by the Executive with
respect thereto shall be equal to the total present value of the Agreement
Payments and Other Payments at the time such Payments are to be made. The
intent of the parties is that the Company shall be solely responsible for and
shall pay, any Excise Tax on any Payments and Gross-Up Payment and any income
and employment taxes (including, without limitation, penalties and interest)
imposed on any Gross-Up Payments as well as any loss of deduction caused by the
Gross-Up Payment.
(ii) All determinations required to be made under this
Subsection IV(e), including, without limitation, whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determinations, shall be made by tax counsel
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selected by the Company and reasonably acceptable to the Executive ("Tax
Counsel"). The Company shall cause the Tax Counsel to provide detailed
supporting calculations to the Company and the Executive within fifteen (15)
business days after notice is given by the Executive to the Company that any or
all of the Payments have occurred, or such earlier time as is requested by the
Company. Within two (2) business days after such notice is given to the
Company, the Company shall instruct the Tax Counsel to timely provide the data
required by this Subsection IV(e) to the Executive. All fees and expenses of
the Tax Counsel shall be paid solely by the Company. Any Excise Tax as
determined pursuant to this Subsection IV(e) shall be paid by the Company to
the Internal Revenue Service and/or other appropriate taxing authority on the
Executive's behalf within five (5) days after receipt of the Tax Counsel's
determination. If the Tax Counsel determines that there is substantial
authority (within the meaning of Section 6662 of the Code) that no Excise Tax
is payable by the Executive, the Tax Counsel shall furnish the Executive with a
written opinion that failure to disclose or report the Excise Tax on the
Executive's federal income tax return will not constitute a substantial
understatement of tax or be reasonably likely to result in the imposition of a
negligence or similar penalty. Any determination by the Tax Counsel shall be
binding upon the Company and the Executive in the absence of material
mathematical or legal error. As a result of the uncertainty in the application
of Section 4999 of the Code at the time the initial determination by the Tax
Counsel hereunder, it is possible that Gross-Up Payments will not have been
made by the Corporation that should have been made or that Gross-Up Payments
have been made that should not have been made, in each case, consistent with
the calculations required to be made hereunder. In the event the Company
exhausts its remedies pursuant to Subsection IV(e)(iii) below and the Executive
is thereafter required to make a payment of any Excise Tax, the Tax Counsel
shall determine the amount of underpayment of Excise Taxes that has occurred
and any such underpayment shall be promptly paid by the Company to the Internal
Revenue Service or other appropriate taxing authority on the Executive's behalf
or, if such underpayment has been previously paid by the Executive, to the
Executive. In the event that the Tax Counsel determines that an overpayment of
Gross-Up Payments has occurred, any such overpayment shall be treated for all
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PAGE 11
purposes as a loan to the Executive with interest at the applicable federal
rate provided for in Section 7872(f)(2) of the Code, due and payable within
ninety (90) days after written demand to the Executive by the Company;
provided, however, that the Executive shall have no duty or obligation
whatsoever to repay such loan unless the Executive's receipt of the
overpayment, or any portion thereof, is includible in the Executive's income
and the Executive's repayment of the same is not deductible by the Executive
for federal and state income tax purposes.
(iii) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or state or local taxing authority, that,
if successful, would result in any Excise Tax or an underpayment of Gross-Up
Payments. Such notice shall be given as soon as practicable but no later than
fifteen (15) business days after the Executive is informed in writing of the
claim and shall inform the Company of the nature of the claim, the
administrative or judicial appeal period, and the date on which any payment of
the claim must be paid. The Executive shall not pay any portion of the claim
prior to the expiration of the thirty (30) day period following the date on
which the Executive gives such notice to the Company (or such shorter period
ending on the date that any amount under the claim is due). If the Company
notifies the Executive in writing prior to the expiration of such thirty (30)
day period that it desires to contest the claim, the Executive shall:
(A) give the Company any information reasonably
requested by the Company relating to the claim;
(B) take such action in connection with contesting
the claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation concerning the
claim by an attorney selected by the Company who is reasonably acceptable to
the Executive; and
(C) cooperate with the Company in good faith in
order to effectively contest the claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including, without
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PAGE 12
limitation, additional interest and penalties and attorneys' fees) incurred in
such contests and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including, without
limitation, interest and penalties thereon) imposed as a result of such
representation. Without limitation upon the foregoing provisions of this
Subsection IV(e) (iii), except as provided below, the Company shall control all
proceedings concerning such contest and, in its sole opinion, may pursue or
forego any and all administrative appeal, proceedings, hearings and conferences
with the taxing authority pertaining to the claim. At the written request of
the Company and upon payment to the Executive of an amount at least equal to
the claim plus any additional amount necessary to obtain the jurisdiction of
the appropriate tribunal and/or court, the Executive shall pay the same and sue
for a refund. The Executive agrees to prosecute any contest of a claim to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company requests the Executive to pay
the claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis, and shall indemnify and
hold the Executive harmless on an after-tax basis, from any Excise Tax or
income tax (including, without limitation, interest and penalties thereon)
imposed on such advance or for any imputed income on such advance. Any
extension of the statute of limitations relating to assessment of any Excise
Tax for the taxable year of the Executive which is the subject of the claim is
to be limited solely to the claim. Furthermore, the Company's control of the
contest shall be limited to issues for which a Gross-Up Payment would be
payable hereunder. The Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
(iv) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Subsection IV(e)(iii) above, the Executive
receives any refund of a claim and/or any additional amount that was necessary
to obtain jurisdiction, the Executive shall promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto).
<PAGE> 13
PAGE 13
If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Subsection IV(e)(iii) above, a determination is made that
the Executive shall not be entitled to any refund of the claim and the Company
does not notify the Executive in writing of its intent to contest such denial
of refund of a claim prior to the expiration of thirty (30) days after such
determination, then the portion of such advance attributable to a claim shall
be forgiven and shall not be required to be repaid. The amount of such advance
attributable to a claim shall offset, to the extent thereof, the amount of the
underpayment required to be paid by the Company to the Executive.
(v) If, after the advance by the Company of an additional
amount necessary to obtain jurisdiction, there is a final determination made by
the taxing authority that the Executive is not entitled to any refund of such
amount, or any portion thereof, then such nonrefundable amount shall be repaid
to the Company by the Executive within thirty (30) days after the Executive
receives notice of such final determination. A final determination shall occur
when the period to contest or otherwise appeal any decision by an
administrative tribunal or court of initial jurisdiction has been waived or the
time for contesting or appealing the same has expired.
(f) Legal Fees and Expenses. The Company shall pay to the Executive
all legal fees and expenses as and when incurred by the Executive in connection
with this Agreement, including all such fees and expenses, if any, incurred in
contesting or disputing any Termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement, regardless of the outcome, unless,
in the case of a legal action brought by or in the name of the Executive, a
decision is rendered pursuant to Section X that such action was not brought by
the Executive in good faith.
(g) No Mitigation. The Executive shall not be required to mitigate
the amount of any payment provided for in this Section IV by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Section IV be reduced by any compensation earned by the
Executive as the result of employment by another employer or by retirement or
other benefits received after the Termination Date or otherwise, except as
specifically provided in this Section IV. The Company's
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PAGE 14
obligation to make payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company or Employer may have against the Executive or other parties.
V. Death and Disability Benefits
In the event of the death or Disability of the Executive after a Change
of Control of the Company, the Executive, or in the case of death, the
Executive's beneficiaries, shall receive the benefits to which they are
entitled under the retirement plans, disability policies and other applicable
plans of the Company.
VI. Successors; Binding Agreement
(a) Obligations of Successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company is required to perform it. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same
terms as the Executive would be entitled hereunder if the Executive had
terminated his employment following a Change of Control of the Company, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Termination Date. As used in
this Agreement, the "Company" shall mean the Company as hereinabove defined and
any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
(b) Enforceable by Beneficiaries. This Agreement shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees (the "Beneficiaries"). In the event of the death of the
Executive while any amount would still be payable hereunder if such death had
not occurred, all such amounts, unless otherwise provided herein, shall be paid
in
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PAGE 15
accordance with the terms of this Agreement to the Executive's Beneficiaries.
(c) Employment. Except in the event of a Change of Control and,
thereafter, only as specifically set forth in this Agreement, nothing in this
Agreement shall be construed to (i) limit in any way the right of the Company
or a Subsidiary to terminate the Executive's employment at any time for any
reason or for no reason; or (ii) be evidence of any agreement or understanding,
expressed or implied, that the Company or a Subsidiary will employ the
Executive in any particular position, on any particular terms or at any
particular rate of remuneration.
VII. Confidential Information.
The Executive shall hold in fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge or data relating to
the Company, the Subsidiaries and their respective businesses, which shall have
been obtained during the Executive's employment by the Employer and which shall
not be public knowledge (other than by acts by the Executive or his
representatives in violation of this Agreement). After termination of the
Executive's employment with the Company or any Employer within the Controlled
Group, the Executive shall not, without prior written consent of the Company or
the Employer, communicate or divulge any such information, knowledge or data to
anyone other than the Company, the Employer or those designated by them. In no
event shall an asserted violation of this Section VII constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
VIII. Notice
All notices and communications hereunder shall be in writing and shall
be given by hand delivery to the other party, by registered or certified mail,
return receipt requested, postage prepaid, or by overnight mail, addressed as
follows:
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PAGE 16
If to the Executive:
Mr. Richard D. McCormick
U S WEST, Inc.
7800 East Orchard Road
Englewood, Colorado 80111
If to the Company:
U S WEST, Inc.
7800 East Orchard Road
Englewood, Colorado 80111
Attn.: Executive Vice President, General Counsel
and Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
IX. Miscellaneous
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and
signed by the Executive and the Company's Chief Executive Officer. No waiver
by either party hereto at any time of any breach by the other party hereto of,
or compliance with, any conditions or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Colorado. All references to sections of the Code or the Exchange
Act shall be deemed also to refer to any successor provisions of such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The obligations of the
Company under Sections IV and V shall survive the expiration of the term of
this Agreement.
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PAGE 17
X. Validity
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
XI. Arbitration
The Executive may agree in writing with the Company (in which case this
Article XI shall have effect but not otherwise) that any dispute that may arise
directly or indirectly in connection with this Agreement, the Executive's
employment or the termination of the Executive's employment, whether arising in
contract, statute, tort, fraud, misrepresentation, or other legal theory, shall
be determined solely by arbitration in Denver, Colorado under the rules of the
AAA. The only legal claims between the Executive, on the one hand, and the
Company or any Subsidiary, on the other, that would not be included in this
agreement to arbitration are claims by the Executive for workers' compensation
or unemployment compensation benefits, claims for benefits under a Company or
Subsidiary benefit plan if the plan does not provide for arbitration of such
disputes, and claims by the Executive that seek judicial relief in the form of
specific performance of the right to be paid until the Termination Date during
the pendency of any dispute or controversy arising under or Subsection III(b).
If this Article XI is in effect, any claim with respect to this Agreement, the
Executive's employment or the termination of the Executive's employment must be
established by a preponderance of the evidence submitted to the impartial
arbitrator. A single arbitrator engaged in the practice of law shall conduct
any arbitration under the then current procedures of the American Arbitration
Association (the "AAA") and under the AAA's then current Model Employment
Arbitration Rules. The arbitrator shall have the authority to order a
pre-hearing exchange of information by the parties including, without
limitation, production of requested documents, and examination by deposition of
parties and their authorized agents. If this Article XI is in effect, the
decision of the arbitrator (i) shall be final and binding, (ii) shall be
rendered within ninety (90) days after the impanelment of the arbitrator, and
(iii) shall be kept confidential by the parties to such arbitration. The
arbitration award may be enforced in any court of competent jurisdiction. The
Federal
<PAGE> 18
PAGE 18
Arbitration Act, 9 U.S.C. 1-15, not state law, shall govern the arbitrability
of all claims.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign both originals of this letter and return to the Executive Vice
President, General Counsel and Secretary of the Company one of the fully
executed originals of this letter which will then constitute our agreement on
this subject.
Sincerely,
U S WEST, Inc.
By: /s/ Chairman
---------------------------------
Chairman, Human Resources Committee
of the Board of Directors
/s/ Richard D. McCormick
- -----------------------------
Richard D. McCormick
<PAGE> 1
PAGE 1
EXHIBIT 10ad
U S WEST, INC.
EXECUTIVE LONG-TERM INCENTIVE PLAN
Section I
PURPOSE
The purpose of the U S WEST, Inc. Executive Long-Term Incentive Plan
(the "Plan") is to provide key executives of U S WEST, Inc. and its
subsidiaries (the "Company") with incentive compensation based upon the
achievement of long-term corporate objectives. The achievement of these
objectives is measured by the return on investment derived from ownership of U
S WEST common stock. This Plan succeeds the performance-based program that U S
WEST implemented in 1990 (the "Performance Program") in connection with the
restricted stock feature of the U S WEST, Inc. Stock Incentive Plan.
Section II
ELIGIBILITY
Individuals eligible to participate in the Company's executive
compensation plan shall be eligible to participate in the Plan. At its sole
discretion, the Human Resources Committee of the U S WEST, Inc. Board of
Directors (the "Committee") may expand participation in the Plan to additional
individuals. Individuals eligible to participate in the Plan are herein called
"participants."
Section III
PERFORMANCE UNITS
At the beginning of each performance period (as described in Section IV
below), upon the attainment of eligibility for participation in the Plan, and
upon such other occasions as the Committee shall determine, the Committee shall
assign to a participant "performance units," each of which shall represent an
opportunity to receive one share of common stock of U S WEST, Inc. The payment
of shares of common stock of U S WEST in connection with performance units
shall occur, if at all, only in connection with the performance formula set
forth in Section V.
Section IV
PERFORMANCE PERIODS
Each performance period shall have a duration of six calendar years.
The initial performance period commenced on January 1, 1991 in connection
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PAGE 2
with the Performance Program and will terminate on December 31, 1996.
Section V
PERFORMANCE FORMULA
5.1 Payment of Shares. Each year, the total number of performance
units granted to a participant will be multiplied by "Total Shareholder Return"
to determine the number of shares of U S WEST common stock to be paid to such
participant. If any shares are to be paid to a participant, they shall be paid
in the first quarter of the year following the year for which Total Shareholder
Return has most recently been measured. At the discretion of the Committee,
such shares may be unrestricted or subject to a vesting period. If such shares
are subject to a vesting period, the participant, subject to Section VI, will
not be entitled to certificates representing such shares unless (i) the
participant remains an employee of the Company for the full duration of the
vesting period or (ii) the Committee waives the vesting period.
5.2 Total Shareholder Return. Total Shareholder Return is the return
that shareholders derive over the course of a year ("TSR Measurement Period")
from dividends and any increase in the market value of U S WEST common stock.
Share price appreciation is derived using the average beginning and end-of-year
closing prices of U S WEST common stock for a 20-business day period
commencing ten business days prior to the end of the year. If Total Shareholder
Return is negative in any year, no payment would occur for that year, and the
negative Total Shareholder Return would have to be offset in the following
year(s) before further payouts could occur. The calculation of Total
Shareholder Return is illustrated by the following formula:
(A-B) + C
Total Shareholder Return = --------------- minus E
D
where:
A = Average closing share price of U S WEST stock at the conclusion of a
TSR Measurement Period. Average closing share price of U S WEST stock
is determined over a 20-business day period beginning 10 business
days prior to the end of each year
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PAGE 3
B = Average closing share price of U S WEST stock at the beginning
of a TSR Measurement Period. Average closing share price of
U S WEST stock is determined over a 20-business day period
beginning 10 business days prior to the end of each year
C = Dividends
D = Average closing price of U S WEST stock for a 20-day business
period beginning 10 business days prior to the end of the year
that precedes the first year of the six-year performance
period
E = Negative Total Shareholder Return, if any, from any prior year
that is yet to be offset on a cumulative basis by positive
Total Shareholder Return
5.3 Taxation. Any shares paid pursuant to this Plan are taxable at
the time they are paid unless they are subject to a vesting period. Shares
subject to a vesting period are taxable when the vesting period lapses.
5.4 Shares Available; Maximum Payout. The maximum aggregate number of
shares of U S WEST common stock that may be granted over the life of this Plan
is four million. No participant will be entitled to receive more than 400,000
shares of U S WEST common stock over the life of this Plan.
Section VI
SPECIAL DISTRIBUTION RULES
6.1 Death or Long-Term Disability. If termination of a participant's
employment occurs during any year by reason of death or long-term disability
(as determined under the provisions of the U S WEST Disability Plan maintained
for participants), (i) any vesting period applicable to stock theretofore
issued under the Plan shall immediately lapse, and (ii) the performance units
of such participant used in connection with the formula described in Section V
shall be reduced pro rata based on the number of months remaining in the year
following the month of termination and any shares of U S WEST common stock
payable to the participant or his or her estate shall then be calculated and
paid pursuant to the provisions of Section V. Any shares payable pursuant to
this Subsection 6.1 shall not be subject to a vesting period.
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PAGE 4
6.2 Change of Control. Notwithstanding any other provision of this
Plan, in the event of a Change of Control, as defined below, the following
shall occur:
(a) Total Shareholder Return shall be calculated as if the end of
the TSR Measurement Period were the date of the Change of Control;
(b) Each participant's performance units shall be multiplied by
such Total Shareholder Return;
(c) Each participant shall be immediately paid the number of U S
WEST shares that results in his or her case from the foregoing calculation.
Such shares shall not be subject to a vesting period; and
(d) Any vesting period applicable to stock theretofore issued under
the Plan shall immediately lapse.
For purposes of this Plan, a "Change of Control" shall mean any of the
following:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) is or becomes a beneficial owner of (or otherwise has the authority to
vote), directly or indirectly, securities representing twenty percent (20%) or
more of the total voting power of all of the Company's then outstanding voting
securities, unless through a transaction arranged by, or consummated with the
prior approval of the U S WEST Board of Directors;
(ii) any period of two (2) consecutive calendar years during which
there shall cease to be a majority of the U S WEST Board of Directors comprised
as follows: individuals who at the beginning of such period constitute the
Board of Directors and any new director(s) whose election by the Board of
Directors or nominations for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved; or
(iii) the Company becomes a party to a merger, consolidation or share
exchange in which either (i) the Company will not be the surviving corporation
or (ii) the Company will be the surviving corporation and any outstanding
shares of Common Stock of the Company will be converted into shares of any
other company (other than a reincorporation or the establishment of a holding
company involving no change of ownership of the
<PAGE> 5
PAGE 5
Company) or other securities or cash or other property (excluding payments
made solely for fractional shares); or
(iv) any other event that a majority of the U S WEST Board of
Directors, in its sole discretion, shall determine constitutes a Change of
Control.
6.3 Other Termination. In the event of any other termination of
employment of a participant, the performance units of such participant shall
immediately terminate and no payments of U S WEST common stock shall thereafter
be made, unless the Committee, in its sole discretion, determines otherwise.
Section VII
ADJUSTMENT OF SHARES
In the event there is any change in the common stock of U S WEST by
reason of any consolidation, combination, liquidation, reorganization,
recapitalization, stock dividend, stock split, split-up, split-off, spin-off,
combination of shares, exchange of shares or other like change in capital
structure of the Company, the number of performance units or the number or kind
of shares or interests subject to performance units and the price per share or
value thereof shall be appropriately adjusted by the Committee at or about the
time of such event, provided that each participant's position with respect to
performance units or shares or other interests payable under this Plan shall
not, as a result of such adjustment, be worse than it had been immediately
prior to such event. Any fractional performance units, shares or other
interests resulting from such adjustment shall be rounded up to the next whole
performance unit, share or other interest, as the case may be.
Section VIII
MISCELLANEOUS PROVISIONS
8.1 Assignment or Transfer. No performance units shall be assignable
or transferable by a participant.
8.2 Securities Law Compliance. No shares of U S WEST common stock
shall be issued under this Plan until all applicable securities law and other
legal and stock exchange requirements have been satisfied. The Committee may
require the placing of stop-orders and restrictive legends on certificates for
common stock as it deems appropriate.
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PAGE 6
8.3 Costs and Expenses. The costs and expenses of administering the
Plan shall be borne by the Company and shall not be charged against any
participant.
8.4 Other Incentive Plans. The adoption of this Plan does not
preclude the adoption by appropriate means of any other incentive plan for
employees.
8.5 Effect on Employment. Nothing contained in this Plan or any
agreement related hereto or referred to herein shall affect, or be construed as
affecting, the terms of employment of any participant except to the extent
specifically provided herein or therein. Nothing contained in this Plan or any
agreement related hereto or referred to herein shall impose, or be construed as
imposing, any obligation on (i) the Company to continue the employment of any
participant and (ii) any participant to remain in the employ of the Company.
8.6 Amendment of Plan. The U S WEST Board of Directors shall have the
right to amend, modify, suspend or terminate this Plan at any time, provided
that, in the case of participants who are subject to Section 16(a) of the
Exchange Act, no amendment shall be made which (i) materially increases the
benefits accruing to such participants, (ii) materially increases the number of
shares of common stock that may be issued under this Plan, or (iii) materially
modifies the requirements as to eligibility for such participants, unless such
amendment is made by or with the approval of shareholders.
8.7 Federal Securities Law. With respect to grants of U S WEST common
stock to individuals subject to Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Company intends that the provisions
of this Plan and all transactions effected in accordance with the Plan shall
comply with Rule 16b-3 under the Exchange Act. Accordingly, the Committee shall
administer and interpret the Plan to the extent practicable to maintain
compliance with such rule.
8.8 Arbitration. Any dispute that may arise in connection with this
Plan or any issuance of stock under this Plan shall be determined solely by
arbitration in Denver, Colorado under the rules of the American Arbitration
Association. Any claim with respect to any benefit under this Plan must be
established by a preponderance of the evidence submitted to the impartial
arbitrator. The arbitrator shall have the authority to award the prevailing
party damages incurred as a result of any breach, costs, reasonable attorneys'
fees incurred in connection with the arbitration, and direct that the non-
prevailing party pay the expenses of arbitration. The decision of the
arbitrator (i) shall be final and binding; (ii) shall be rendered within
<PAGE> 7
PAGE 7
ninety (90) days after the impanelment of the arbitrator; and (iii) shall be
kept confidential by the parties to such arbitration. The arbitration award may
be enforced in any court of competent jurisdiction. The Federal Arbitration
Act, 9 U.S.C. 1-15, not state law, shall govern the arbitrability of all
claims.
8.9 Administration. The Plan shall be administered by the Committee,
which may adopt such rules, regulations and guidelines as it determines
necessary for the administration of the Plan. The Committee may delegate to one
or more of its members, or to one or more agents, such administrative duties as
it may deem advisable, and the Committee or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render advice with
respect to any responsibility the Committee or such person may have under the
Plan. The Committee may employ such legal or other counsel, consultants and
agents as it may deem desirable for the administration of the Plan and may rely
upon any opinion or computation received from any such counsel, consultant or
agent. Expenses incurred by the Committee in the engagement of such counsel,
consultant or agent shall be paid by the Company. The Company shall indemnify
members of the Committee and any agent of the Committee who is an employee of
the Company against any and all liabilities or expenses to which they may be
subject by reason of any act or failure to act with respect to their duties on
behalf of the Plan, except in circumstances involving such person's gross
negligence or willful misconduct.
8.10 Governing Law. This Plan and actions taken in connection
herewith shall be governed and construed in accordance with the laws of the
State of Colorado.
Section IX
ADOPTION OF THE PLAN
This Plan shall become effective on the date on which it is approved by
shareholders of U S WEST, Inc.
<PAGE> 1
PAGE 1
EXHIBIT 10ae
U S WEST, INC.
EXECUTIVE SHORT-TERM INCENTIVE PLAN
Section 1
PURPOSE
The purpose of the U S WEST, Inc. Executive Short-Term Incentive Plan
(the "Plan") is to provide key executives of U S WEST, Inc. and its
subsidiaries (the "Company") with incentive compensation based upon the
achievement of established performance goals.
Section 2
ELIGIBILITY
Eligibility for the Plan is limited to the Chief Executive Officer of
U S WEST, Inc. and any individuals employed by the Company (at the end of any
calendar year) who appear in the Summary Compensation Table of the Company's
Proxy Statement to Shareholders for that year. The Human Resources Committee of
the U S WEST Board of Directors (the "Committee") shall certify eligibility
for participation. Individuals eligible to participate in the Plan are herein
called "Participants."
Section 3
AWARDS
Participants will be eligible to receive equal shares of a cash bonus
pool established annually, as described in Section 5, provided that the
Committee shall have the authority to reduce the share of any participant to
the extent it deems appropriate. Any such reduction of a participant's share
will not result in an increase of another participant's share.
<PAGE> 2
PAGE 2
Section 4
PERFORMANCE PERIODS
Each performance period ("Period") shall have a duration of one
calendar year, commencing on January 1, and terminating on December 31.
Section 5
PERFORMANCE FORMULA
5.1 At the end of each Period the Committee will certify the
amount of the cash bonus pool pursuant to Section 5.2.
5.2 The cash bonus pool for any Period will be 0.25% (one-quarter
of one percent) of Cash Provided by Operating Activities for U S WEST, Inc. and
its consolidated subsidiaries, determined in accordance with the standards of
the Financial Accounting Standards Board, less any amount that the Committee
deems appropriate. In the event that the Committee elects to reduce the cash
bonus pool to an amount that is less than 0.25% of Cash Provided by Operating
Activities, the amount by which the pool is reduced may, at the Committee's
sole discretion, be added to the cash bonus pool that is available for any
subsequent Period or Periods.
5.3 A Participant's share of the cash bonus pool shall be
calculated by dividing the amount of the cash bonus pool by the number of
participants in the Plan. The Committee shall have the authority to reduce any
participant's share of the cash bonus pool to the extent it deems appropriate.
In determining the amount to be paid to a participant for any Period, the
Committee will consider a number of performance factors, including, but not
limited to, the Company's net income and cash flow, quality indicators, and
other relative operating and strategic results.
5.4 Shares of the cash bonus pool will be paid in the year
following the completion of the performance period.
Section 6
SPECIAL DISTRIBUTION RULES
6.1 Change of Control. Notwithstanding any other provision of this
Plan, in the event of a Change of Control, as defined below, the following
shall occur:
<PAGE> 3
PAGE 3
(a) The cash bonus pool shall be calculated as if the
end of the Period were the date of the Change of Control;
(b) Each Participant's share of the cash bonus pool
shall be determined subject to Section 5.3; and
(c) Each Participant shall be immediately paid his or
her share of the cash bonus pool that results from the foregoing calculation.
For purposes of the Plan, a "Change of Control" shall mean any of the
following:
(i) Any "person" (as such term is used in Sections 13 (d)
and 14 (d) (2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") is or becomes a beneficial owner of (or otherwise has the
authority to vote), directly or indirectly, securities representing twenty
percent (20%) or more of the total voting power of all the Company's then
outstanding voting securities, unless through a transaction arranged by, or
consummated with the prior approval of the U S WEST Board of Directors;
(ii) Any period of two (2) consecutive calendar years during
which there shall cease to be a majority of the U S WEST Board of Directors
comprised as follows: individuals who at the beginning of such period
constitute the Board of Directors any new director(s) whose election by the
Board of Directors or nominations for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved;
(iii) the Company becomes a party to a merger, consolidation
or share exchange in which either (i) the Company will not be the surviving
corporation or (ii) the Company will be the surviving corporation and any
outstanding shares of Common Stock of the Company will be converted into shares
of any other company (other than a reincorporation or the establishment of a
holding company involving no change of ownership of the Company) or other
securities or cash or other property (excluding payments made solely for
fractional shares); or
<PAGE> 4
PAGE 4
(iv) Any other event that a majority of the U S WEST Board
of Directors, in its sole discretion, shall determine constitutes a Change of
Control.
6.2 Special Circumstances. If, prior to a distribution from the
cash bonus pool, a participant (i) is discharged by the Company, (ii) is
demoted, or (iii) becomes associated with, employed by or renders services to,
or owns a material interest in any business that is competitive with the
Company, the Committee shall have the authority to (a) reduce or cancel
payments that would otherwise be paid from the cash bonus pool, (b) permit
continued participation in the Plan or an early distribution therefrom, or (c)
any combination of the foregoing.
Section 7
MISCELLANEOUS PROVISIONS
7.1 Assignment or Transfer. No opportunity shall be assignable or
transferable by a participant.
7.2 Costs and Expenses. The costs and expenses of administering the
Plan shall be borne by the Company and shall not be charged against any
participant.
7.3 Other Incentive Plans. The adoption of the Plan does not preclude
the adoption by appropriate means of any other incentive plan for employees.
7.4 Effect on Employment. Nothing contained in this Plan or any
agreement related hereto or referred to herein shall affect, or be construed as
affecting, the terms of employment of any participant except to the extent
specifically provided herein or therein. Nothing contained in this Plan or any
agreement related hereto or referred to herein shall impose, or be construed as
imposing, any obligation on (i) the Company to continue the employment of any
participant and (ii) any participant to remain in the employ of the Company.
<PAGE> 5
PAGE 5
7.5 Pension Formula. Unless otherwise prohibited by the Committee,
awards under the Plan shall be used to compute a pension amount in the U S WEST
Executive Non-Qualified Pension Plan and will be used to calculate coverage in
the U S WEST Executive Life Insurance Program (if such coverage is elected).
Awards shall not be considered compensation for purposes of the U S WEST
Savings Plan/ESOP.
7.6 Taxation. The Company shall have the right to deduct from any
award to be paid under the Plan any federal, state or local taxes required by
law to be withheld with respect to such payment.
7.7 Amendment of Plan. The U S WEST Board of Directors shall have the
right to suspend or terminate this Plan at any time and may amend or modify the
Plan prior to the beginning of any Period.
Section 8
PLAN ADMINISTRATION
8.1 Committee Authority Delegation. The Committee shall have full
power to administer and interpret the Plan and to establish rules for its
administration. The Committee may designate Company employees to act in its
behalf to engage in daily administration of the Plan. The Committee or its
designee may administer the Plan in all respects including the proration or
adjustment of awards in the case of retirements, terminations, entrance to or
exit from a level of management, changes in base salary, dismissal or death and
other conditions as appropriate.
8.2 Governing Law. The Plan shall be governed by the laws of the
state of Colorado and applicable federal law.
8.3 Committee Reliance. The Committee, in making any determination
under or referred to in the Plan shall be entitled to rely on opinions, reports
or statements of officers or employees of the Company and other entities and of
counsel, public accountants and other professional expert persons.
<PAGE> 6
PAGE 6
Section 9
CLAIMS AND APPEALS
9.1 Committee Procedure. Claims and appeals will be processed in
accordance with the following procedures:
(a) Any claim under the Plan by a participant or anyone
claiming through a participant shall be presented to the Committee.
(b) Any person whose claim under the Plan has been denied
may, within sixty (60) days after receipt of notice of denial, submit to the
Committee a written request for review of the decision denying the claim.
(c) The Committee shall determine conclusively for all
parties all questions arising in the administration of the Plan.
9.2 Arbitration. Any dispute that may arise in connection with this
Plan shall be determined solely by arbitration in Denver, Colorado under the
rules of the American Arbitration Association. Any claim with respect to any
benefit under this Plan must be established by a preponderance of the evidence
submitted to the impartial arbitrator. The arbitrator shall have the authority
to award the prevailing party damages incurred as a result of any breach,
costs, reasonable attorneys' fees incurred in connection with the arbitration,
and direct that the non-prevailing party pay the expenses of arbitration. The
decision of the arbitrator (i) shall be final and binding; (ii) shall be
rendered within ninety (90) days after the impanelment of the arbitrator; and
(iii) shall be kept confidential by the parties to such arbitration. The
arbitration award may be enforced in any court of competent jurisdiction. The
Federal Arbitration Act, 9 U.S.C. Sections 1-15, not state law, shall govern
the arbitrability of all claims.
Section 10
ADOPTION OF THE PLAN
This Plan shall become effective on the date on which it is approved by
shareholders of U S WEST, Inc.
<PAGE> 1
EXHIBIT 11
U S WEST, Inc.
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1994 1993
4th Quarter YTD 4th Quarter YTD
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Income from continuing operations $409,523 $1,426,505 $264,025 $475,858
Discontinued operations:
Income to June 1, 1993, net of tax - - - 38,526
Estimated loss from June 1, 1993
through disposal, net of tax - - - (100,000)
Income tax rate change - - - (20,000)
----------- ---------- ----------- -----------
Income before extraordinary items 409,523 1,426,505 264,025 394,384
Extraordinary items (net of tax):
Discontinuance of SFAS No. 71 - - - (3,123,000)
Early extinguishment of debt - - - (77,220)
----------- ---------- ----------- -----------
Net income (loss) 409,523 1,426,505 264,025 (2,805,836)
Less preferred dividends 875 1,167 - -
----------- ---------- ----------- -----------
Net income (loss) available for
common share calculation $408,648 $1,425,338 $264,025 ($2,805,836)
=========== ========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
Weighted average common shares 460,079 453,316 429,196 419,365
outstanding =========== ========== =========== ===========
Income from continuing operations $0.89 $3.14 $0.62 $1.13
Discontinued operations:
Income to June 1, 1993, net of tax - - - 0.09
Estimated loss from June 1, 1993
through disposal, net of tax - - - (0.24)
Income tax rate change - - - (0.04)
----------- ---------- ----------- -----------
Income before extraordinary items 0.89 3.14 0.62 0.94
Extraordinary items (net of tax):
Discontinuance of SFAS No. 71 - - - (7.45)
Early extinguishment of debt - - - (0.18)
----------- ---------- ----------- -----------
Earnings (loss) per common share $0.89 $3.14 $0.62 ($6.69)
=========== ========== =========== ===========
</TABLE>
1
<PAGE> 2
EXHIBIT 11
U S WEST, Inc.
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
1994 1993
4th Quarter YTD 4th Quarter YTD
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Weighted average common shares 460,079 453,316 429,196 419,365
outstanding
Incremental shares from assumed
exercise of stock options 344 469 482 424
----------- ---------- ----------- --------
Total common shares 460,423 453,785 429,678 419,789
=========== ========== =========== ========
Income from continuing operations $0.89 $3.14 $0.61 $1.13
Discontinued operations:
Income to June 1, 1993, net of tax - - - 0.09
Estimated loss from June 1, 1993
through disposal, net of tax - - - (0.24)
Income tax rate change - - - (0.04)
----------- ---------- ----------- --------
Income before extraordinary items 0.89 3.14 0.61 0.94
Extraordinary items (net of tax):
Discontinuance of SFAS No. 71 - - - (7.45)
Early extinguishment of debt - - - (0.18)
----------- ---------- ----------- --------
Earnings (loss) per common and $0.89 $3.14 $0.61 ($6.69)
common equivalent share =========== ========== =========== ========
</TABLE>
2
<PAGE> 3
EXHIBIT 11
U S WEST, Inc.
Computation of Earnings Per Common Share
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
EARNINGS (LOSS) PER COMMON SHARE-ASSUMING
FULL DILUTION:
1994 1993
4th Quarter YTD 4th Quarter YTD
----------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Income from continuing operations $409,523 $1,426,505 $264,025 $475,858
Interest on Convertible Liquid Yield
Option Notes (LYONS) 5,635 21,872 5,417 *
----------- ---------- ----------- --------
Adjusted income from continuing operations 415,158 1,448,377 269,442 475,858
Less preferred dividends 875 1,167 - -
----------- ---------- ----------- --------
Adjusted income from continuing
operations available for common $414,283 $1,447,210 $269,442 $475,858
share calculation =========== ========== =========== ========
Weighted average common shares
outstanding 460,079 453,316 429,196 419,365
Incremental shares from assumed
exercise of stock options 344 469 482 464
Shares issued upon conversion of LYONS 9,894 10,057 10,233 *
----------- ---------- ----------- --------
Total common shares 470,317 463,842 439,911 419,829
=========== ========== =========== ========
Adjusted income from continuing operations $0.88 $3.12 $0.61 $1.13
Discontinued operations:
Income to June 1, 1993, net of tax - - - 0.09
Estimated loss from June 1, 1993
through disposal, net of tax - - - (0.24)
Income tax rate change - - - (0.04)
----------- ---------- ----------- --------
Income before extraordinary items 0.88 3.12 0.61 0.94
Extraordinary items (net of tax):
Discontinuance of SFAS No. 71 - - - (7.45)
Early extinguishment of debt - - - (0.18)
Earnings (loss) per common share $0.88 $3.12 $0.61 ($6.69)
assuming full dilution =========== ========== =========== ========
</TABLE>
* Amounts are excluded from fully diluted earnings (loss) per common share
calculation due to their anti-dilutive effect.
3
<PAGE> 1
EXHIBIT 12
U S WEST, Inc.
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
Quarter Ended
12/31/94 12/31/93
- --------------------------------------------------- --------- ---------
<S> <C> <C>
Income from continuing operations before
income taxes $638 $394
Interest expense (net of amounts capitalized) 119 125
Interest factor on rentals (1/3) 26 28
--------- ---------
Earnings $783 $547
Interest expense 138 125
Interest factor on rentals (1/3) 26 28
--------- ---------
Fixed charges $164 $153
Ratio of earnings to fixed charges 4.77 3.58
- --------------------------------------------------- --------- ---------
<CAPTION>
Year to Date
12/31/94 12/31/93
- --------------------------------------------------- --------- ---------
Income from continuing operations before
income taxes and extraordinary items (1) $2,283 $745
Interest expense (net of amounts capitalized) 442 439
Interest factor on rentals (1/3) 96 102
--------- ---------
Earnings $2,821 $1,286
Interest expense 486 439
Interest factor on rentals (1/3) 96 102
--------- ---------
Fixed charges $582 $541
Ratio of earnings to fixed charges 4.85 2.38
- --------------------------------------------------- --------- ---------
</TABLE>
(1) The year end 1993 ratio includes a one-time restructuring charge of
$1,000. Excluding the restructuring charge the ratio of earnings to fixed
charges would have been 4.22.
<PAGE> 2
EXHIBIT 12
U S WEST, Inc.
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
Year Ended
1994 1993 1992 1991 1990
- -------------------------------------------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income from continuing operations $2,283 $745 $1,569 $1,209 $1,681
before income taxes
Interest expense 442 439 453 482 459
Interest factor on rentals (1/3) 96 102 98 90 89
--------- -------- --------- --------- ---------
Earnings $2,821 $1,286 $2,120 $1,781 $2,229
Interest expense 486 439 453 482 459
Interest factor on rentals (1/3) 96 102 98 90 89
--------- -------- --------- --------- ---------
Fixed charges $582 $541 $551 $572 $548
Ratio of earnings to fixed charges 4.85 2.38 3.85 3.11 4.07
- -------------------------------------------- --------- -------- --------- --------- ---------
</TABLE>
The 1993 ratio is based on earnings from continuing operations before
extraordinary charges associated with the decision to discontinue accounting
for the operations of the Company in accordance with SFAS No. 71 of $3,123 and
the early extinguishment of debt of $77. The 1993 and 1991 ratios include
restructuring charges of $1,000 and $364, respectively. Excluding the
restructuring charges the 1993 and 1991 ratios of earnings to fixed charges
would have been 4.22 and 3.75, respectively.
The 1992 ratio is based on earnings before the cummulative effect of change in
accounting principles which reduced net income by $1,793.
<PAGE> 3
EXHIBIT 12
U S WEST Financial Services, Inc.
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Quarter Ended
12/31/94 12/31/93
- ---------------------------------------------------- --------- ----------
<S> <C> <C>
Income before income taxes $7,578 $65,453
Interest expense 8,388 50,809
Interest factor on rentals (1/3) 25 183
--------- ----------
Earnings $15,991 $116,445
Interest expense 8,388 50,809
Interest factor on rentals (1/3) 25 183
--------- ----------
Fixed charges $8,413 $50,992
Ratio of earnings to fixed charges 1.90 2.28
- ---------------------------------------------------- --------- ----------
<CAPTION>
Year-to-Date
12/31/94 12/31/93
- ---------------------------------------------------- --------- ----------
Income before income taxes $12,217 $123,596
Interest expense 40,816 144,980
Interest factor on rentals (1/3) 123 789
--------- ----------
Earnings $53,156 $269,365
Interest expense 40,816 144,980
Interest factor on rentals (1/3) 123 789
--------- ----------
Fixed charges $40,939 $145,769
Ratio of earnings to fixed charges 1.30 1.85
- ---------------------------------------------------- --------- ----------
</TABLE>
Note: A Termination Agreement and Guarantee was entered into on
June 24, 1994 between U S WEST, Inc., U S WEST Capital Corporation and
U S WEST Financial Services, Inc. (USWFS). The Agreement terminates the
Support Agreement dated January 5, 1990 whereby U S WEST, Inc. agreed to
provide financial support to USWFS. The Agreement provides replacement
financial support in the form of a direct guarantee by U S WEST of all
outstanding indebtedness of USWFS.
<PAGE> 1
U S WEST
--------------------
Making
the
RIGHT
Connections
--------------------
Annual Report
1994
<PAGE> 2
1
Financial Highlights
2
Letter to Shareowners
6
Financial Index
7
Management's Discussion and Analysis of
Financial Condition and Results of Operations
32
Reports of Management and Independent Accountants
33
Consolidated Financial Statements
55
Board of Directors
56
Executive and Subsidiary Officers
57
Shareowner Information
- --------------------------------------------------------------------------------
CORPORATE PROFILE: U S WEST Inc. is in the connections business, helping
customers share communications, entertainment and information services in local
markets worldwide. U S WEST is headquartered in Englewood, Colo., a suburb of
Denver.
The company's major subsidiary, U S WEST Communications, provides
services to more than 25 million residential and business customers in 14
western and midwestern states. U S WEST Communications was created from three
former Bell telephone companies: Mountain Bell, Northwestern Bell and Pacific
Northwest Bell.
CORPORATE MISSION: U S WEST's mission is to be a leading provider of integrated
communications, entertainment and information services over wired broadband and
wireless networks in selected local markets worldwide.
CORPORATE VISION: By the year 2000, U S WEST will be the finest company in the
world at connecting people with their world.
<PAGE> 3
1994
FINANCIAL HIGHLIGHTS
Dollars in millions (except per share amounts)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Data
Sales and other revenues $10,953 $10,294 $ 9,823 $ 9,528 $ 9,369
Income from continuing operations (Note 1) 1,426 476 1,076 840 1,145
Net income (loss) 1,426 (2,806) (614) 553 1,199
----------------------------------------------------------------
Total assets $23,204 $20,680 $23,461 $ 23,375 $22,160
Total debt (Note 2) 7,938 7,199 5,430 5,969 5,147
Shareowners' equity 7,382 5,861 8,268 9,587 9,240
----------------------------------------------------------------
Earnings per common share (continuing
operations) (Note 1) $ 3.14 $ 1.13 $ 2.61 $ 2.09 $ 2.97
Earnings (loss) per common share 3.14 (6.69) (1.49) 1.38 3.11
Dividends per common share 2.14 2.14 2.12 2.08 2.00
Book value per common share 15.73 13.29 19.95 23.39 23.48
Return on common shareowners' equity (Note 3) 21.6% -- 14.4% 5.7% 13.7%
Debt-to-capital ratio (Note 2) 51.8% 55.1% 39.6% 38.4% 35.8%
----------------------------------------------------------------
Capital expenditures (Note 2) $ 2,820 $ 2,441 $ 2,554 $ 2,425 $ 2,217
OTHER SELECTED DATA
(WHOLLY OWNED DOMESTIC OPERATIONS )
Telephone network access lines in
service (thousands) 14,336 13,843 13,345 12,935 12,562
Billed access minutes of use (millions) 52,275 48,123 44,369 41,701 38,832
Cellular subscribers 968,000 601,000 415,000 300,000 219,000
Cable television basic subscribers served 486,000 -- -- -- --
----------------------------------------------------------------
Employees 61,505 60,778 63,707 65,829 65,469
Number of common shareowners 816,099 836,328 867,773 899,082 935,530
Weighted average common shares
outstanding (thousands) 453,316 419,365 412,518 401,332 386,012
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1 - 1994 income from continuing operations includes a gain of $105 ($.23
per share) on the sale of 24.4 percent of U S WEST's joint venture interest in
cable television/telephone operations in the United Kingdom (TeleWest
Communications plc), a gain of $41 ($.09 per share) on the sale of the
company's paging unit and a gain of $51 ($.11 per share) on the sale of certain
rural telephone exchanges. 1993 income from continuing operations was reduced
by a restructuring charge of $610 ($1.46 per share) and $54 ($.13 per share)
for the cumulative effect on deferred taxes of the 1993 federally mandated
increase in income tax rates. 1991 income from continuing operations was
reduced by a restructuring charge of $230 ($.57 per share).
Note 2 - Capital expenditures, debt and the debt-to-capital ratio exclude
discontinued operations.
Note 3 - 1993 return on shareowners' equity is not presented. Return on
shareowners' equity for fourth quarter 1993 was 19.9 percent based on income
from continuing operations. 1992 return on shareowners' equity is based on
income before the cumulative effect of change in accounting principles.
NORMALIZED INCOME FROM
REVENUES CONTINUING OPERATIONS
(Dollars in Millions) (Dollars in Millions)
===================== ======================
[GRAPH] [GRAPH]
Excludes one-time items
described in Note 1 above.
1
<PAGE> 4
L E T T E R T O S H A R E O W N E R S
--------------------
An exciting year of
MAKING THE
RIGHT
CONNECTIONS
Chairman and Chief Executive Officer
Richard D. McCormick looks back on the
highlights and challenges of 1994,
and ahead to a larger, more exciting role for
the company in "connecting people
with their world."
[PICTURE]
When you think of peoples' need to talk to each other...to exchange
business information...to shop...to choose entertainment...and to
learn...you're thinking about the exciting new world of telecommunications
we're creating at U S WEST.
It's a world as familiar as a telephone call; as novel as a video store
inside your remote control. And USWEST is "making the right connections" to
bring that world to our customers.
1994 was a year of solid growth and earnings in our basic businesses:
local telephone service and telephone directories. We also made great strides
in revitalizing those businesses - and building new businesses - for the
future.
I'm especially excited about those new opportunities - such as
customer-controlled video services and "personal" wireless phone service - that
we'll bring to millions more customers than we serve today.
U S WEST
2
<PAGE> 5
U S W E S T I N C.
--------------------
U S WEST INC.
COMMUNICATIONS
ACCESS LINES
(In millions)
[GRAPH]
Annual Growth
* Excludes the effects of 1994 rural exchange sales
My only disappointments last year were in two areas.
First: Our stock performance. Rising interest rates and other concerns
caused investors to focus more on short-term earnings than long-term
opportunities. As a result, the price of U S WEST shares declined.
Second: Temporary delays in installing new phone lines. In a period of
extraordinary growth, these delays caused customer dissatisfaction in some
areas. To address the problems, we temporarily slowed the streamlining of our
customer-service operations. (We've fixed most service problems and are back
on track with our service-improvement program.)
Strong '94 results.
Despite those concerns, I feel very good about 1994. We set out to
increase sales, sustain healthy profits in our basic businesses and boost the
earning-power of our new businesses. And we did:
o At U S WEST Communications, which provides local telephone services in
14 western and midwestern states, we were second among the regional Bell
companies in growth-increasing lines by 4.0 percent over 1993. Minutes of
use, reflecting the volume of traffic we carry for long-distance companies,
were up 8.6 percent. Earnings grew 9.9 percent (excluding one-time items).
Earnings before interest, taxes, depreciation and amortization (EBITDA) were up
7.4 percent (excluding one-time items).
o U S WEST Direct, which publishes 300 telephone directories, increased
sales 6.5 percent, almost double the industry average. Earnings climbed 4.0
percent.
o U S WEST Cellular, which provides wireless telephone services in 50
markets, added an unprecedented 367,000 customers, a 61-percent increase.
o Our TeleWest partnership, the largest provider of combined
cable-television and telephone service in the United Kingdom, reported growth
rates of 42 percent and 94 percent in those businesses, respectively.
Underscoring this company's value: In a recent stock offering, U S WEST's $300
million net investment in TeleWest was valued by the market at $1.1 billion.
o Our wireless communications businesses in Europe served more than
367,000 customers-nearly three times more than in the previous year. The
leader was our Mercury One-2-One partnership in the U.K., which provided the
new "personal communications service" to 205,000 customers. We reached this
number in slightly more than a year by emphasizing convenience and low price
per call, proving that wireless communication is indeed a mass-market service.
U S WEST CELLULAR
SUBSCRIBERS
(In thousands)
[GRAPH]
Annual Growth
U S WEST
3
<PAGE> 6
L E T T E R T O S H A R E O W N E R S
--------------------
EBITDA*
(Dollars in millions)
[GRAPH]
Annual Growth
* Earnings before interest, taxes, depreciation and amortization.
Excludes equity losses, other income and one-time items.
Revenues, earnings up
o Companywide, total revenues for the year were $10.95 billion, up 6.4
percent.
o We achieved a 7.8-percent increase in total-company EBITDA.
o 1994 net income was $1.229 billion, a 7.8-percent increase from 1993
(after both years were adjusted for one-time items). But earnings per share
remained about the same as in 1993, because net income was spread over 34
million additional shares of stock we issued largely to fund major long-term
investments.
o We continued to pay a healthy dividend: $2.14 per share.
So, we have the strength to carry us into the future. We also have a
strategy we believe will assure our success in this dramatically changing world
of telecommunications.
In previous reports, I've told you that our business is being
transformed by two technologies: digital communications (the language of
computers and CD players), and high-capacity networks. They will change not
only the ways we carry information, but-more important-the services we can
deliver to our customers.
The world at your fingertips
Today, customers press a few digits to reach another person. Tomorrow,
they'll still do that-but they may be pressing a remote control and seeing
the other person on a TV screen. Or selecting the movie or TV show they want,
whenever they want it. Or connecting with the store of their choice to see the
item they want-and ordering it. Or calling the bank to look at their balance.
The possibilities are tremendous-both in the variety of services and
their potential to save people time, money and hassle. The key to success is
making these new services as easy to use as our Voice Messaging and Caller ID.
To deliver these services, we'll need networks that are capable of
two-way, or interactive, video, as well as voice and data communications. So
will our competitors.
Cable-TV companies have networks that excel in carrying the same one-way
video signals to everyone. Telephone companies are best at connecting specific
locations for two-way messages.
Both industries face a dilemma: either they upgrade their networks and
seize these opportunities, or sit back and become victims of change.
U S WEST has chosen to benefit from change-on two fronts. We're
upgrading our network in our 14-state service territory. And we've invested in
cable-TV networks outside our region.
The point: to increase volume-and value-by carrying more messages,
more kinds of messages, to more customers, in more markets. And that's what
we're doing.
U S WEST
4
<PAGE> 7
U S W E S T I N C.
--------------------
"The Point:
to increase volume-
and value - by
carrying more
messages, more kinds of
messages, to
more customers, in
more markets.
And that's what
we're doing."
Building tomorrow's networks today
U S WEST Communications was the first telephone company to announce
plans to build and operate multimedia networks in its region. Begun in 1994,
this mammoth project will continue past the year 2000.
The first of these networks, in Omaha, is almost finished, and we've
begun technical trials. This year, we'll learn, firsthand, how customers prefer
to use the services these networks make possible.
Looking ahead, we've announced plans for similar networks in Denver and
Colorado Springs; Minneapolis-St. Paul; Salt Lake City; Boise, Idaho; Portland,
Ore.; Albuquerque, N.M.; Des Moines and Cedar Rapids, Iowa.
And we're not stopping at the borders of our home territory. We're
investing to reach new customers outside our region. In Atlanta - one of the
top U. S. markets-we acquired two major cable-TV systems that serve nearly a
half-million customers.
Meanwhile, our partner Time Warner has added to its cable holdings.
Including those recently announced acquisitions, U S WEST and Time Warner will
serve customers in 37 of the nation's top 50 markets.
Combined, the in-and out-of-region networks will make U S WEST a leading
provider of exciting new multimedia services. In an early demonstration to
reporters in Orlando, Fla., the consensus reaction was most positive.
Doing it right
But will customers use these services? If they're easy to use, the
answer is "yes." So we're working with partners and developing our own
user-friendly menus and new on-screen services, such as our "GOtv"
entertainment guide and our "U S Avenue" shopping service.
Beyond these "wired" network opportunities, U S WEST established two
strategic alliances to capture a larger share of the nation's "wireless"
markets. First, we reached an agreement to combine our domestic cellular
telephone business with that of AirTouch Communications. Second, the two
companies agreed to join with Bell Atlantic and NYNEX to seek licenses for, and
operate, personal communications networks in several major U.S. markets.
Connecting the world
1994 was the foundation for our future. We're building on that
foundation to make the most of the tremendous opportunities in meeting peoples'
needs for communications, entertainment and information.
Our goal is simple: making the right connections for our customers, our
employees and our shareowners. And that's what we're doing.
Sincerely,
/s/RICHARD D. MCCORMICK
Richard D. McCormick
Chairman and Chief Executive Officer
U S WEST
5
<PAGE> 8
FINANCIAL INDEX
7
Management's Discussion and Analysis
Results of Operations - 1994 Compared with 1993
8
Income from Continuing Operations
11
Sales and Other Revenues
13
Costs and Expenses
17
Competitive Environment
23
Liquidity and Capital Resources
26
Results of Operations - 1993 Compared with 1992
32
Reports of Management and Independent Accountants
33
Consolidated Financial Statements
37
Notes to Consolidated Financial Statements
<PAGE> 9
U S W E S T I N C.
--------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in millions, except per share amounts)
RESULTS OF OPERATIONS - 1994 COMPARED WITH 1993
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1994 (1) 1993 (2) Increase
----------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $1,426 $ 476 $ 950
Loss from discontinued operations - (82) 82
Extraordinary items:
Discontinuance of SFAS No. 71, net of tax - (3,123) 3,123
Early extinguishment of debt, net of tax - (77) 77
----------------------------------------------
Net income (loss) $1,426 $(2,806) $4,232
- ----------------------------------------------------------------------------------------------------
Earnings per common share from continuing
operations $ 3.14 $ 1.13 $2.01
Loss per common share from discontinued
operations - (.19) .19
Extraordinary items:
Discontinuance of SFAS No. 71 - (7.45) 7.45
Early extinguishment of debt - (.18) .18
----------------------------------------------
Income (loss) per common share $ 3.14 $ (6.69) $9.83
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) 1994 income from continuing operations includes a gain of $105, or $.23 per
share, from the sale of 24.4 percent of U S WEST's joint venture interest in
cable television/telephone operations in the United Kingdom (TeleWest
Communications plc), a gain of $41, or $.09 per share, on the sale of the
company's paging operations and a gain of $51, or $.11 per share, on the sale
of certain rural telephone exchanges.
(2) 1993 income from continuing operations was reduced by $610, or $1.46 per
share, for a restructuring charge and $54, or $.13 per share, for the
cumulative effect on deferred taxes of the 1993 federally mandated increase in
income tax rates.
In 1994, U S WEST Inc. ("U S WEST" or "company") income from continuing
operations and related earnings per common share ("earnings per share") were
$1,426 and $3.14, respectively. Included in 1994 results are one-time,
after-tax gains described in note (1) to the table above. Excluding these
gains, income from continuing operations and related earnings per share were
$1,229 and $2.71, respectively. In 1993, income from continuing operations was
$476, or $1.13 per share, including the effects of one-time charges described
in note (2) to the table above. Excluding the one-time effects, 1993 income
from continuing operations and related earnings per share were $1,140 and
$2.72, respectively. As normalized for one-time effects, 1994 income from
continuing operations increased $89, or 7.8 percent, and related earnings per
share decreased $.01 on an 8.1 percent increase in average shares outstanding.
The increase in normalized income from continuing operations is primarily
attributable to increased demand for telecommunications and domestic wireless
services, partially offset by increased start-up losses associated with
developing businesses.
In 1993, U S WEST discontinued the operations of its Capital Assets
segment. Also in 1993, the company incurred extraordinary charges for the
discontinuance of Statement of Financial Accounting Standards ("SFAS") No. 71,
"Accounting for the Effects of Certain Types of Regulation," and the early
extinguishment of debt. See further discussion in "Results of Operations - 1993
Compared with 1992," starting on page 26.
Revenue growth, partially offset by higher operating expenses,
provided a 7.8 percent increase in the company's earnings before interest,
taxes, depreciation and amortization ("EBITDA"). EBITDA also excludes equity
losses in unconsolidated ventures, gains on sales of assets, restructuring
charges and other income. The company considers EBITDA an important indicator
of the operational strength of its businesses.
U S WEST
7
<PAGE> 10
U S W E S T I N C.
--------------------
INCOME FROM CONTINUING OPERATIONS - BASE AND DEVELOPING BUSINESSES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Percent Increase
Ownership 1994 (1) 1993 (2) (Decrease)
---------------------------------------------------
<S> <C> <C> <C> <C>
BASE BUSINESSES:
U S WEST Communications Inc. 100 $1,175 $435 $ 740
Publishing and other 100 232 180 52
--------------------------------------
Total base 1,407 615 792
--------------------------------------
DEVELOPING BUSINESSES:
Consolidated:
Domestic wireless 100 67 (46) 113
Domestic cable 100 (2) - (2)
Unconsolidated equity investments:
Time Warner Entertainment L.P.(3) 25.5 (30) (19) (11)
TeleWest Communications plc 37.8 76 (21) 97
Mercury One-2-One 50.0 (58) (22) (36)
Other(4) (34) (31) (3)
--------------------------------------
Total developing 19 (139) 158
--------------------------------------
Income from continuing operations $1,426 $476 $ 950
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) 1994 income from continuing operations includes a gain of $105 from the
sale of 24.4 percent of U S WEST's joint venture interest in TeleWest
Communications plc, a gain of $41 for the sale of the company's paging
operations and a gain of $51 for the sale of certain rural telephone exchanges.
(2) 1993 income from continuing operations was reduced by $610 for a
restructuring charge and $54 for the cumulative effect on deferred taxes of the
1993 federally mandated increase in income tax rates.
(3) Percent ownership represents pro-rata priority capital and residual equity
interests.
(4) Includes divisional expenses associated with developing businesses.
U S WEST's operations consist of "base" businesses that have moderate, though
consistent, growth and generate substantial income and cash flows, and
"developing" businesses. Most of the company's developing businesses are in a
stage of rapid customer and network expansion, which will result in near-term
earnings dilution.
U S WEST
8
<PAGE> 11
1 9 9 4
--------------------
BASE BUSINESSES The major component of U S WEST's base businesses is U S WEST
Communications Inc. ("USWC"), which provides telecommunications services in 14
western and mid-western states, serving approximately 80 percent of the
region's population and approximately 40 percent of its geographic area. USWC
offers local, exchange access and long-distance network services. About 28
percent of the company's access lines are devoted to providing services to
business customers. The access line growth rate for business customers, who
tend to be heavier users of the telephone network, has consistently exceeded
the growth rate for residential customers. During 1994, business access lines
grew by 4.6 percent compared with 3.1 percent for consumer lines. Total access
line growth in 1994 was 3.6 percent. Excluding the effects of the sale of
certain rural telephone exchanges, total access lines grew by 4.0 percent in
1994.
USWC Serves Seven of the
Ten Fastest-growing States
1994 Percentage Population Growth
==================================
[GRAPH]
in USWC Region
Source: U. S. Census Bureau (12/31/94)
The majority of USWC's revenues are derived from traditional telephone
services. USWC will incur future capital and operating expenditures for
deployment of a broadband or "multimedia" network. The company expects this
network to generate new revenues through a variety of new product and service
offerings. However, the amount and timing of future revenues related to
multimedia service offerings are difficult to predict. The company believes the
multimedia network also will improve the quality of customer service and result
in greater network efficiency and lower maintenance costs.
Summary of USWC 1994 Revenues
(Dollars in millions)
==================================
[GRAPH]
USWC 1994 Revenues: $8,998
Base businesses also include the publishing of approximately 300 White
and Yellow Pages directories in the western United States and the provision of
database marketing and interactive multimedia information services.
During 1994, income from the company's base operations increased to
$1,356, excluding the gain on the sale of certain rural telephone exchanges.
This represents a 1994 increase of $119, or 9.6 percent, also excluding the
effects of the 1993 restructuring charge and the cumulative effect in 1993 of
higher income tax rates. As normalized, the increase is attributable to higher
demand for telephone services, including the effects of strong growth in access
lines, and increased publishing revenue, partially offset by lower telephone
rates and higher costs for developing new products in the publishing
operations.
Funding of new products and other growth initiatives in publishing and
other marketing services operations offset growth in core Yellow Pages
operations. Income related to Yellow Pages operations continues to grow due to
increased business volume and higher prices. The company anticipates that
accelerated investments in new products and services in 1995 will more than
offset expected income growth related to the Yellow Pages business.
U S WEST
9
<PAGE> 12
U S W E S T I N C.
--------------------
DEVELOPING BUSINESSES Developing businesses include both domestic and
international wholly owned subsidiaries and equity investments. Domestic
businesses include cable television and wireless operations. International
businesses include cable television/telephone, wireless communications
(including personal communications services), international networks and
directory publishing. Significant recent investments include the December 1994
purchase of Wometco Cable Corp. and subsidiaries and the assets of Georgia
Cable Holdings (the "Atlanta Cable Properties") for $1.2 billion, and the
September 1993 $2.5 billion investment in Time Warner Entertainment Company
L.P. ("TWE"). While the company's Central European wireless ventures generate
positive net income and cash flow, most of the company's international equity
investments are in start-up phases and will not show positive net income or
cash flow until they mature.
DEVELOPING BUSINESSES - CONSOLIDATED Domestic wireless income increased by
$30 over 1993, excluding the gain on the sale of the company's paging
operations and a $42 restructuring charge in 1993. The increase is due to the
addition of 367,000 subscribers in 1994, a 61 percent increase over 1993.
Additionally, cellular service operating cash flow increased by $57, or 46.1
percent, over 1993. U S WEST anticipates continued growth in income and cash
flows from domestic wireless operations as the customer base expands.
The December 1994 acquisition of the Atlanta Cable Properties did not
have a material impact on 1994 income. The company anticipates that the
acquisition will dilute 1995 earnings per share by approximately 5 to 6
percent.
DEVELOPING BUSINESSES - UNCONSOLIDATED EQUITY INVESTMENTS The majority of U S
WEST's international equity investments relate to ventures in the United
Kingdom ("U.K."). These include TeleWest Communications plc ("TeleWest"), a
cable television/telephone business, and Mercury One-2-One, a personal
communications service ("PCS") joint venture. These businesses are experiencing
rapid growth, and will continue to incur near-term start-up losses related to
expansion of the customer base at Mercury One-2-One and build out of the
network at TeleWest.
Cable television subscribers of TeleWest and its affiliates increased
42 percent to 320,000 at year-end 1994, and telephone access lines increased 94
percent to 271,000. Subscribers to U S WEST's inter-national wireless joint
venture operations in the U.K., Hungary, the Czech Republic, Slovakia and
Russia grew to 367,000 in 1994, nearly three times the customer base of the
prior year. Subscribers to other European cable television ventures totaled
586,000 at December 31, 1994.
International
Customers*
(In thousands)
====================
[GRAPH]
* Includes wireless customers, directory contracts sold and customer
equivalents for gateway switches and cable TV/telephone services.
TWE partnership losses increased over the previous year primarily due
to the full-year impact (including financing costs) of the company's
investment, as compared with three months in 1993. The effects of lower prices
for cable services also contributed to the higher loss in 1994.
In early 1995, Time Warner Inc. announced its intention to simplify
its corporate structure by establishing a separate, self-financing enterprise
to house its cable and telecommunications properties. Any change in the
structure of TWE would require the approval of U S WEST and its TWE partners.
U S WEST
10
<PAGE> 13
1 9 9 4
--------------------
SALES AND OTHER REVENUES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Increase (Decrease)
------------------------
1994 1993 $ %
------------------------------------------------------
<S> <C> <C> <C> <C>
BASE BUSINESSES:
USWC operations:
Local service $ 4,067 $ 3,829 $ 238 6.2
Access charges - interstate 2,269 2,147 122 5.7
Access charges - intrastate 729 682 47 6.9
Long-distance network
service 1,329 1,442 (113) (7.8)
Other services 604 556 48 8.6
------------------------------------------------------
Total USWC 8,998 8,656 342 4.0
Publishing and other 1,077 1,070 7 0.7
------------------------------------------------------
Total base 10,075 9,726 349 3.6
------------------------------------------------------
DEVELOPING BUSINESSES: (1)
Domestic wireless 781 561 220 39.2
International directories 79 7 72 -
Domestic cable 18 - 18 -
------------------------------------------------------
Total developing 878 568 310 54.6
------------------------------------------------------
Total revenues $10,953 $10,294 $ 659 6.4
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes consolidated subsidiaries. All other developing businesses are
accounted for using the equity method.
BASE BUSINESSES USWC comprises approximately 89 percent of base businesses
revenues and 82 percent of the total revenues of U S WEST. Approximately 58
percent of USWC's revenues are derived in the states of Arizona, Colorado,
Minnesota and Washington. The primary factors that influence changes in
revenues at USWC are customer demand for products and services (through access
line growth and new service offerings), and regulatory proceedings, including
price changes and customer refunds. An analysis of the change in USWC's
revenues follows:
LOCAL SERVICE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Increase
Price Refund -----------------
Changes Activity Demand Other $ %
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
($12) $30 $216 $4 $238 6.2
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Local service revenues include local telephone exchange, local private
line and public telephone services. The increase in local service revenues was
primarily attributable to access line growth, which exceeded 5 percent in the
states of Arizona, Colorado, Idaho and Utah.
ACCESS CHARGES Access charges are collected primarily from the interexchange
carriers for their use of the local exchange network. For interstate access
services, there is also a fee collected directly from telephone customers.
Approximately 35 percent of USWC's access revenues and 13 percent of its total
revenues are derived from providing access service to AT&T.
INTERSTATE ACCESS CHARGES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Increase
Price Refund ---------------
Changes Activity Demand Other $ %
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
($39) $18 $148 ($5) $122 5.7
- ---------------------------------------------------------------------------------------------------------
</TABLE>
An increase of 7.8 percent in interstate billed access minutes of use
more than offset the effects of price decreases. Interstate price reductions
have been phased in by the Federal Communications Commission ("FCC") over a
number of years. In response to competitive pressure and FCC orders, USWC
reduced its annual interstate access prices by approximately $40 during 1994,
in addition to $60, effective July 1, 1993. The company believes access prices
will continue to decline, whether mandated by the FCC or as a result of an
increasingly competitive market for access services.
INTRASTATE ACCESS CHARGES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Increase
Price Refund -----------------
Changes Activity Demand Other $ %
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
($10) ($4) $51 $10 $47 6.9
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Intrastate access charges increased primarily as a result of higher
demand. Intrastate minutes of use grew by 13 percent in 1994. Demand for
private line services, for which revenues are generally not usage-sensitive,
also increased.
U S WEST
11
<PAGE> 14
U S W E S T I N C.
--------------------
LONG-DISTANCE NETWORK SERVICE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Decrease
Price Refund ---------------
Changes Activity Demand Other $ %
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
($8) $1 ($43) ($63) ($113) (7.8)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Long-distance network service ("long-distance") revenues are derived
from calls made within the service area boundaries of USWC, commonly referred
to as "LATAs." Long-distance revenues decreased principally due to the effects
of multiple toll carrier plans implemented in Oregon and Washington in May and
July 1994, respectively. These regulatory arrangements allow independent
telephone companies to act as toll carriers. The impact on USWC in 1994 was a
loss of $68 in long-distance revenue, partially offset by a decrease of $48 in
other operating expenses (i.e. access expense otherwise paid to
independent companies) and an increase of $10 in intrastate access revenue.
These regulatory arrangements decreased net income by approximately $6 in 1994
and will decrease 1995 income by $10 to $12.
Competition from interexchange carriers continues to erode USWC's
market share of intraLATA long-distance services such as WATS and "800." These
revenues have declined over the last several years as customers have migrated
to interexchange carriers that have the ability to offer these services on both
an intraLATA and interLATA basis. U S WEST and its affiliates are prohibited
from providing interLATA long-distance services.
OTHER SERVICES Other services revenues are derived from billing and
collection services provided to interexchange carriers, and new services such
as voice messaging. Other services revenues increased 8.6 percent in 1994 due
to higher revenue from these billing and collection services and continued
market penetration of new service offerings. Voice messaging, for example, is
now four years old with an installed customer base of approximately 885,000,
compared with 690,000 in 1993.
PUBLISHING AND OTHER
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Increase (Decrease)
----------------------
1994 1993 $ %
-----------------------------------------------
<S> <C> <C> <C> <C>
Domestic publishing $ 997 $ 949 $ 48 5.1
Other - net 80 121 (41) (33.9)
-----------------------------------------------
Total $1,077 $1,070 $ 7 0.7
- ----------------------------------------------------------------------------------------------------
</TABLE>
Revenue from domestic publishing operations increased 7.4 percent in
1994, excluding the sales of certain publishing, and software development and
marketing operations. The increase is attributable to both price and volume
increases. Other revenues decreased principally due to the 1993 sale of
telephone equipment distribution operations and completion of large telephone
network installation contracts.
DEVELOPING BUSINESSES - CONSOLIDATED
DOMESTIC WIRELESS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Increase
-----------------------
1994 1993 $ %
------------------------------------------------
<S> <C> <C> <C> <C>
Domestic wireless $781 $561 $220 39.2
- ----------------------------------------------------------------------------------------------------
</TABLE>
Domestic wireless revenues increased as a result of the 61 percent
growth in the cellular customer base, partially offset by the effects of the
1994 sale of the paging operations that reduced revenues by $26. The customer
growth reflects increased penetration and a strengthening of the retail
distribution network. The cellular customer base is expected to continue its
rapid growth, though rates of growth will be affected by consumer demand,
market positioning by the company and increased competition in coming years.
Average cellular revenues declined by approximately 8 percent during 1994 to
approximately $70 per subscriber, per month.
OTHER DEVELOPING BUSINESSES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Increase
-------------------------
1994 1993 $ %
-----------------------------------------------------
<S> <C> <C> <C> <C>
International directories $79 $7 $72 -
Domestic cable 18 - 18 -
- -------------------------------------------------------------------------------------------------------
</TABLE>
The increase in international directories revenue is attributable to
the company's May 1994 purchase of Thomson Directories in the U.K. Thomson
Directories revenues are expected to approximate $100 in 1995. Domestic cable
revenues reflect the December 1994 acquisition of the Atlanta Cable Properties.
These revenues are expected to exceed $200 in 1995.
U S WEST
12
<PAGE> 15
1 9 9 4
--------------------
COSTS AND EXPENSES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Increase (Decrease)
-------------------------
1994 1993 $ %
------------------------------------------------------
<S> <C> <C> <C> <C>
Employee-related expenses $3,779 $3,584 $ 195 5.4
Other operating expenses 2,203 2,065 138 6.7
Taxes other than income taxes 412 417 (5) (1.2)
Depreciation and amortization 2,052 1,955 97 5.0
Restructuring charge - 1,000 (1,000) -
Interest expense 442 439 3 0.7
Equity losses in
unconsolidated ventures 121 74 47 63.5
Other income (expense) - net 25 (15) 40 -
- ----------------------------------------------------------------------------------------------------
</TABLE>
Employee-related expenses include basic salaries and wages, overtime,
contract labor, benefits (including pension and health care) and payroll taxes.
A reduction in the pension credit of approximately $80 contributed to the
increase in employee-related expenses. Actuarial assumptions, which include
decreases in the discount rate and the expected long-term rate of return on
plan assets, contributed to the pension credit reduction. Approximately $150
for overtime payments, contract labor and basic salaries and wages, all related
to the implementation of major customer service and streamlining initiatives at
USWC, also contributed to the increase. Additionally, employee-related expenses
at the company's publishing operations increased in connection with new product
initiatives. Partially offsetting these increases were the effects of employees
leaving the company under the restructuring program, lower health-care benefit
costs, including a reduction in the accrual for postretirement benefits, and
lower incentive compensation payments to employees.
During the summer of 1994, increased customer demand at USWC put
additional stress on current processes and systems, and affected the quality of
customer service in certain markets. The pace of USWC's restructuring program
also contributed to quality of service issues. However, the issues pertaining
to quality of service underscore the need to re-engineer the business. The
company achieved target levels of service at year end by implementing customer
service initiatives and slowing the pace of its restructuring program. To
continue improving upon the level of service quality achieved by year-end
1994, the company will incur additional near-term costs for temporary
employees, overtime and contract labor. The company also will stretch out its
1993 restructuring plan an additional year, to 1997. As a result of these
actions, the annual benefits related to restructuring will not be fully
realized until 1998. (See "Restructuring Charges.")
Other operating expenses include access charges (incurred by USWC for
the routing of its long-distance traffic through the facilities of independent
companies), network software expenses, wireless marketing and operating costs,
and marketing and related costs associated with publishing activities. Selling
and other operating costs related to growth in the cellular subscriber base
increased approximately $166 in 1994. Partially offsetting this increase was
the $48 decrease in access expense related to the effects of the new multiple
toll carrier plan arrangements. (See "Long-Distance Network Service.")
The increase in depreciation and amortization expense was primarily a
result of a higher depreciable asset base and increased rates of depreciation
at USWC. The company's discontinuance of SFAS No. 71 in September 1993 has
resulted in the use of shorter asset lives (for financial reporting purposes)
to more closely reflect the economic lives of telephone plant. USWC continues
to pursue improved capital recovery within the regulated environment.
Interest expense in 1994 was essentially unchanged from 1993.
Incremental financing costs associated with the September 1993 TWE investment
were offset by the effects of refinancing debt at lower rates in 1993 at USWC,
and a reclassification of capitalized interest in 1994. Since the
discontinuance of SFAS No. 71, interest capitalized as a component of telephone
plant construction is recorded as an offset to interest expense, rather than to
other income (expense). U S WEST's average borrowing cost decreased to 6.6
percent, from 6.7 percent in 1993.
Equity losses related to developing businesses increased over 1993,
primarily due to the build out of the network and the expansion of the customer
base at Mercury One-2-One.
Other income increased over 1993 primarily due to an increase in the
management fee associated with the company's TWE investment and a gain on the
sale of certain publishing operations, partially offset by the reclassification
of capitalized interest to interest expense.
U S WEST
13
<PAGE> 16
U S W E S T I N C.
--------------------
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Increase
----------------------
1994 1993 $ %
----------------------------------------------------
<S> <C> <C> <C> <C>
Provision for income taxes $ 857 $ 269 $ 588 -
Effective tax rate 37.5% 36.1% - -
- ----------------------------------------------------------------------------------------------------
</TABLE>
The increase in the effective tax rate resulted primarily from the
effects of discontinuing SFAS No. 71, an increase in 1994 income before income
taxes and the 1993 restructuring charge, partially offset by the cumulative
effect on deferred income taxes of the 1993 federally mandated increase in
income tax rates.
RESTRUCTURING CHARGES The company's 1993 results reflect a $1 billion
restructuring charge (pretax). The related restructuring plan (the "Plan") is
designed to provide faster, more responsive customer services while reducing
the costs of providing these services. As part of the 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 existing 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).
Implementation of the Plan is expected to extend into 1997, rather
than being completed in 1996 as originally scheduled. Implementation schedules
are driven by customer demand and related service issues, concerns with system
stability as major customer impacting systems are integrated, and staffing
agreements negotiated with the company's unions. These changes do not alter the
company's plan to fundamentally re-engineer the way it conducts business in the
emerging competitive environment. The total cash expenditures of $935 under the
Plan remain unchanged.
Following is a schedule of the costs included in the Plan:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Actual Estimate
------------ -----------------------------
1993 1994 1995 1996 1997 Total
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash expenditures:
Employee separation $ - $ 19 $ 62 $ 75 $ 74 $ 230
Systems development - 127 144 129 - 400
Real estate - 50 80 - - 130
Relocation - 21 54 4 31 110
Retraining and other - 16 19 10 20 65
-------------------------------------------------------------
Total cash expenditures - 233 359 218 125 935
Asset write-down 65 - - - - 65
-------------------------------------------------------------
Total Plan 65 233 359 218 125 1,000
-------------------------------------------------------------
Remaining 1991 plan employee costs - 56 - - - 56
-------------------------------------------------------------
Total (1) $65 $289 $359 $218 $125 $1,056
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Plan also provides for capital expenditures of $490 over the life of
the restructuring plan. In 1994, capital expenditures related to restructuring
were $265.
U S WEST
14
<PAGE> 17
1 9 9 4
--------------------
Employee separation costs include severance payments, healthcare
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 methods
and systems required in the new, restructured mode of operation.
The company estimates that full implementation of the Plan will reduce
employee-related expenses by approximately $400 per year. These savings are
expected to be offset by the effects of inflation.
EMPLOYEE SEPARATION The following estimates of employee separations and
related amounts reflect the extension of employee reductions into 1997.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Estimate Actual Estimate
--------- -------- -------------------------------
1994 1994(2) 1995 1996 1997 Total
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employee separations (1)
Managerial 1,061 497 814 580 559 2,450
Occupational 1,887 1,683 1,136 1,845 1,886 6,550
-----------------------------------------------------------------
Total 2,948 2,180 1,950 2,425 2,445 9,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Estimate Actual Estimate
-------- ------ ------------------------------
1994 1994(2) 1995 1996 1997 Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employee separation amounts (1)
Managerial $25 $ 5 $30 $24 $21 $ 80
Occupational 15 14 32 51 53 150
------------------------------------------------------------------
Total 40 19 62 75 74 230
Remaining 1991 reserve 56 56 - - - 56
------------------------------------------------------------------
Total $96 $75 $62 $75 $74 $286
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The "network" and "all other" categories previously displayed are no longer
used in this schedule due to the changes in organizational boundaries occurring
as a result of re-engineering. The new consolidated service centers consist of
employees grouped by processes rather than by organization.
(2) Includes the remaining employees and the separation amounts associated with
the balance of the 1991 restructuring reserve at December 31, 1993.
As a result of extending the Plan into 1997, employee separations and
separation amounts shown above have been reduced by 1,519 and $41 in 1995, and
175 and $12 in 1996, respectively, and increased by 2,445 and $74,
respectively, in 1997.
U S WEST
15
<PAGE> 18
U S W E S T I N C.
--------------------
SYSTEMS DEVELOPMENT USWC's existing information management systems
were largely developed to support analog technology in a monopoly environment.
These systems are increasingly inadequate due to the effects of increased
competition, new forms of regulation and changing technology that have driven
consumer demand for new services that can be delivered quickly, reliably and
economically. The sequential systems currently in place are slow,
labor-intensive and costly to maintain, and often cannot be adapted to support
new product and service offerings, including future multimedia services
envisioned by U S WEST.
The systems re-engineering program in place involves development of
new systems for the following core processes:
Service delivery - to support service on demand for all products and
services, including repair. These systems will permit one customer service
representative to handle all facets of a customer's requirements as contrasted
to the numerous points of customer interface required today.
Service assurance - for performance monitoring from one location and
remote testing in the new environment, including identification and resolution
of faults prior to customer impact, and one-system dispatch environment.
Capacity provisioning - for integrated planning of future network
capacity, including the installation of software controllable service
components.
The direct, incremental and non-recurring systems development costs
contained in the Plan follow:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Estimate Actual Estimate
-------- ------ ------------------
1994 1994 1995 1996 Total
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service delivery $35 $21 $15 $37 $73
Service assurance 45 12 17 35 64
Capacity provisioning 17 57 92 30 179
All other 28 37 20 27 84
-------------------------------------------------------
Total $125 $127 $144 $129 $400
- ------------------------------------------------------------------------------------------------
</TABLE>
Original estimates of system expenditures in 1995 and 1996 were $150
and $125, respectively. Though current estimates in total are not materially
different, the timing and amount of expenditures by category has changed.
The majority of systems development labor will be supplied through the
use of temporary employees, contractors and new employees with special skills.
While it is likely that a small number of the new employees will be retained
after completion of the Plan due to their specialized skills, it is planned
that any related increase in headcount will be offset through other employee
reductions.
Systems expenses charged to current operations at USWC consist of all
costs associated with the information management function, including planning,
developing, testing and maintaining databases for general purpose computers, in
addition to systems costs related to maintenance of telephone network
applications. The key related administrative (i.e. general purpose) systems
include customer service, order entry, billing and collection, accounts
payable, payroll, human resources and property records. Ongoing systems costs
comprised approximately six percent of total operating expenses at USWC in
1994, 1993 and 1992. USWC expects systems costs charged to current operations
as a percent of total operating expenses to approximate the current level
throughout the life of the Plan. However, systems costs could increase relative
to other operating costs as the business becomes more technology dependent.
U S WEST
16
<PAGE> 19
1 9 9 4
--------------------
Progress under the Plan Following is a schedule of progress achieved under the
Plan in 1994:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Expenditures
--------------------
Estimate Actual
--------------------
<S> <C> <C>
Employee separation $ 96 $ 75
Systems development 125 127
Real estate 119 50
Relocation 70 21
Retraining and other 36 16
--------------------
Total $446 $289
- ------------------------------------------------------------
</TABLE>
The company anticipated Plan expenditures of approximately $446 in
1994. However, the company slowed the pace of its restructuring implementation
to address issues pertaining to the quality of service.
The company's 1991 restructuring plan included a pretax charge of $364
due to planned work-force reductions and the write-off of certain intangible
and other assets. The portion of the 1991 restructuring charge related to
work-force reductions was $240, and covered approximately 6,000 employees. All
expenditures and work-force reductions associated with the 1991 plan were
completed by the end of 1994.
COMPETITIVE ENVIRONMENT Rapid technological and regulatory changes continue to
bring about actual and projected competition in the company's markets including
local, access and long-distance. Current and potential competitors include
local telephone companies, interexchange companies, competitive access
providers ("CAPs"), cable television companies and future providers of PCS, the
next generation of wireless communications.
USWC's principal current competitors are CAPs. Competition from CAPs
is largely limited to providing large business customers (with high traffic
volume) private line access to the facilities of interexchange carriers. In
coming years, CAPs also could become significant competitors for other local
exchange services. Teleport Communications Group Inc., for example, has
announced its intention to offer competitive local services. AT&T's entrance
into the cellular communications market through its acquisition of McCaw
Cellular Communications Inc. also has the potential to create increased
competition in local exchange as well as wireless services. The company
believes that competitors will target business customers in densely populated,
urban areas in offering local exchange services. The loss of local exchange
customers to competitors will affect multiple revenue streams of the company
and could have a material, adverse effect on the company's operations.
The actions of public policymakers play an important role in
determining how increased competition affects U S WEST. The company is working
with regulators and legislators to help ensure that public policies keep pace
with the rapidly changing industry -- and allow the company to bring new
services to the marketplace.
U S WEST
17
<PAGE> 20
U S W E S T I N C.
--------------------
U S WEST COMPETITIVE STRATEGY U S WEST's corporate mission is to be
a leading provider of interactive communications, entertainment and information
services over wired multimedia and wireless networks in selected local markets
worldwide. U S WEST will deploy its own and others' wired and wireless
communications, entertainment and information services in packages tailored to
customer needs. The company will implement its competitive strategy both
domestically and internationally by focusing on three key objectives, or "value
drivers": 1) growth through the development of multimedia networks and a
broadened wireless presence; 2) customer loyalty through continuous improvement
in customer service; and 3) improved productivity through systems re-
engineering and other cost controls.
NEW CUSTOMER COST CASH FLOW
REVENUE RETENTION REDUCTION IMPROVEMENT
U S WEST "VALUE DRIVERS"
BASE BUSINESSES In 1993, the company announced its intention to build a high
speed, interactive multimedia network in major metropolitan markets in the U S
WEST region. This network will position USWC to compete with other providers of
communications, entertainment and information services. USWC began limited
testing of its multimedia network in Omaha, Neb., in December 1994. A market
trial will begin in 1995 in an area that will cover up to 50,000 homes. The
market trial will offer consumers a variety of integrated services in addition
to traditional cable television and telephone services. These include
video-on-demand, video games, interactive shopping and other services. The
results of the technical and market trials will be incorporated in the network
configuration and future service offerings.
The 1993 re-engineering program supports U S WEST's objective to
improve customer service, increase productivity and continue to narrow its cost
of service disadvantage with current and potential competitors.
Employee-related costs comprise approximately 45 percent of the total operating
costs of U S WEST. The company will continue its efforts to control these
costs, primarily through systems improvements and reductions in staffing. At
USWC, the number of employees per 10,000 access lines decreased by 7.7 percent
in 1994, to 33.1, and has dropped 24 percent since 1990.
USWC Employees
Per 10,000 Access Lines
========================
[GRAPH]
U S WEST
18
<PAGE> 21
1 9 9 4
--------------------
DEVELOPING BUSINESSES U S WEST continues to expand its customer base and
strengthen its national out-of-region presence by acquiring or forming
alliances with other communications, entertainment and information services
companies.
DOMESTIC CABLE On December 6, 1994, U S WEST purchased the Atlanta Cable
Properties that serve approximately 486,000 subscribers, including 275,000
premium service subscribers. The Atlanta Cable Properties serve about 65
percent of the cable customers in the metropolitan Atlanta area. U S WEST plans
to eventually offer local exchange telecommunications in addition to multimedia
services in Atlanta.
U S WEST and TWE have begun a five-year project to upgrade a
substantial portion of TWE's cable systems to "Full Service Network" ("FSN")
capacity. U S WEST and TWE are designating the systems to be upgraded and
sharing management control over those systems. The partnership encountered
initial delays on the market trial of the FSN in Orlando in order to make
additional refinements to the underlying systems software and set-top
terminals. In December 1994, TWE introduced the FSN trial in Orlando, Fla. TWE
expects to link 4,000 homes by the end of 1995. U S WEST believes that each
FSN, when completed, will provide consumers a wide variety of services,
including video-on-demand, interactive games, distance learning, full-motion
video, interactive shopping, alternative access and local telephone service.
The FSN trial will allow TWE to refine the technology, and determine the level
and nature of customer demand for services. This knowledge will assist in
lowering the cost of the technology and the roll-out of interactive services
across the country.
DOMESTIC WIRELESS On July 25, 1994, AirTouch Communications ("AirTouch") and U
S WEST announced an agreement to combine their domestic cellular operations.
The joint venture will have a presence in nine of the top 20 cellular markets
in the country. The initial equity ownership of the wireless joint venture will
be approximately 70 percent AirTouch and 30 percent U S WEST. However, the
companies will share governance responsibilities. This joint venture will
provide U S WEST with an expanded wireless presence and economies of scale. The
transaction is expected to close in second quarter 1995 after obtaining federal
and state regulatory approvals. Each company's cellular operations initially
will continue operating as separate entities owned by the individual partners,
but will receive support services on a contract basis from a joint wireless
management company.
The merger of the two companies' domestic cellular operations will
take place upon the earlier of four years from July 25, 1994, the lifting of
certain MFJ restrictions, or at AirTouch's option. The agreement gives U S WEST
strategic flexibility, including the right to exchange its interest in the
joint venture for up to 19.9 percent of AirTouch common stock, with any excess
amounts to be received in the form of AirTouch non-voting preferred stock. A
partnership committee, led by the president and chief operating officer of
AirTouch and three other AirTouch representatives, three U S WEST
representatives and one mutually agreed upon independent representative will
oversee the companies' combined domestic cellular operations.
U S WEST
19
<PAGE> 22
U S W E S T I N C.
--------------------
On December 5, 1994, a partnership formed by the AirTouch/U S WEST
joint venture and the Bell Atlantic/NYNEX partnership began bidding on PCS
licenses being auctioned by the FCC. The combined companies own cellular
licenses in 15 of the 20 largest U.S. cities and serve over five million
customers. The partnership, known as PCS PrimeCo, is eligible to bid for PCS
licenses in 26 markets, representing more than 100 million potential customers.
This entity will be governed by a board made up of three members from the Bell
Atlantic/NYNEX partnership and three members from the AirTouch/U S WEST joint
venture. A second partnership will develop a national branding and marketing
strategy and a common "look and feel" - for both cellular and PCS customers.
This entity will be governed by a board made up of three members from the Bell
Atlantic/NYNEX partnership, three from the AirTouch/U S WEST joint venture and
one independent board member. The cellular properties of Bell Atlantic/NYNEX
will not be merged with those of AirTouch/U S WEST.
PCS will triple the spectrum available for wireless services,
including new services such as two-way messaging from pocket pagers and
wireless transfers of large computer files from laptop computers. The new
spectrum also will help cellular operators create seamless networks.
INTERNATIONAL In the international arena, U S WEST is focusing on certain
strategic businesses, primarily in wireless communications, and combined cable
television and telephone networks. The company's net investment in
international ventures is approximately $988 (inclusive of consolidated
entities), 68 percent of which is invested in the U.K. The U.K. market is
attractive because of high population density, the opportunity to provide
multiple services over one network and a low rate of cable television
penetration.
TeleWest, a venture with Tele-Communications Inc. in the U.K., is the
largest provider of combined cable television and telephone service in the
world. TeleWest owns all or part of 23 franchises, encompassing 3.6 million
homes. The combined services are provided over a multimedia network that has
been designed to provide a wide range of interactive and integrated
communications, entertainment and information services as they become
available. Through TeleWest, U S WEST has gained experience in packaging video
and telephone services that it utilizes in other parts of the world. In
November 1994, TeleWest sold a 24.4 percent interest to the public, which
resulted in U S WEST's 37.8 percent ownership interest. Based on the offering
price, U S WEST's share of TeleWest was valued at $1.1 billion, compared with U
S WEST's net investment prior to the offering of approximately $300.
In the U.K., Mercury One-2-One, a 50-50 joint venture between U S WEST
and Cable & Wireless plc, launched the world's first PCS in 1993. Mercury
One-2-One's PCS is a digital cellular communications service designed to offer
consumers higher quality service, increased privacy and more features at lower
prices than existing, analog cellular communications systems. To meet growing
customer demand, Mercury One-2-One has expanded its coverage to reach 30
percent of the U.K. population.
During 1994, the company expanded its international investments. The
company purchased 100 percent of Thomson Directories for $94. Thomson
Directories publishes 155 telephone directories that reach 80 percent of the
households in Great Britain. The company acquired 49 percent of Listel, a
Brazilian company that publishes telephone directories, and acquired a 20
percent interest in Binariang Sdn Bhd, a Malaysian telecommunications company
that holds four licenses that enable it to become a second-network operator in
Malaysia. The company also became a 25-percent partner in Mobiltel, a
consortium awarded the 900 GSM license in Bulgaria. In early 1995, U S WEST,
Time Warner Inc., TWE Japan, Itochu Corporation and Toshiba Corporation formed
a venture to build cable systems in Japan. U S WEST will own 17 percent of the
new venture.
The company's 1995 commitment to existing international ventures is
approximately $400. The company will continue to pursue opportunities in
attractive local markets around the world that fit its strategic objectives. U
S WEST is concentrating on opportunities where it can attain at least a
number-one or -two market share in each market the company targets.
U S WEST
20
<PAGE> 23
1 9 9 4
--------------------
FEDERAL REGULATORY ISSUES U S WEST supports regulatory reform at all levels.
While certain federal courts have recently ruled as unconstitutional some laws
governing local exchange carrier activities, the legal and regulatory framework
under which the company operates limits both competition and consumer choice.
The limitations include restrictions on equipment manufacturing, the
provisioning of cable television programming content, and restrictions on the
transport of communications, entertainment and information across LATA
boundaries. U S WEST believes that national telecommunications regulatory
reform may be the only effective way to resolve the related issues and satisfy
competing interests.
Congress failed to pass telecommunications reform legislation in 1994.
It is expected that new telecommunications legislation will be introduced in
1995. However, there is uncertainty concerning the scope and direction of that
legislation. U S WEST believes it is in the public interest to lift all
competitive restrictions, placing all competitors under the same rules. Such
action would lead to wider consumer choices, and ensure the industry's
technological development and long-term financial health.
During 1994 and early 1995, a number of federal regulatory issues were
ruled on in the courts:
- - 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. The company 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 January 1995, the U.S. Circuit Court of Appeals for the District of
Columbia overruled the FCC's "range-of-rates" decision. This FCC decision
permitted non-dominant carriers to file ranges for rates, rather than specific
price points. The Court of Appeals held that the Communications Act requires
all carriers to specify prices on their tariffs. The effect of this decision
will be to require non-dominant carriers (like MCI, or Time Warner's Full
Service Network) to file tariffs with considerably more price detail.
- - In October 1994, the 9th U.S. Circuit Court of Appeals overruled the
FCC's Computer III non-structural separation decision for the provision of
enhanced services on an integrated basis. The effect of the decision is to
return to the provision of such service through a separate subsidiary, which
could make it more difficult for local exchange carriers to offer enhanced
services. In January 1995, the FCC granted a waiver allowing for the continued
provision of enhanced services, pending further proceedings by the FCC.
- - In August 1994, the U.S. Circuit Court of Appeals for the District of
Columbia upheld an FCC ruling that neither telephone companies nor customer
programmers need to obtain a franchise from local governments to provide Video
Dial Tone ("VDT") service. The decision means that local telephone companies
will avoid additional franchise fees related to the provisioning of VDT
services.
- - In June 1994, the U.S. Circuit Court of Appeals for the District of
Columbia overturned the FCC's requirement that local telephone companies allow
physical collocation by third parties (competitive access providers), within
their central offices, for the installation and operation of equipment that
connects to the local telephone network. The decision essentially affirms the
private-property rights of corporations. The court also ordered the FCC to
reconsider its requirement that allows competitors to interconnect equipment to
the local network from a point outside a central office. In light of the
rulings the company is evaluating how it can provide future interconnection
services.
U S WEST
21
<PAGE> 24
U S W E S T I N C.
--------------------
In September 1994, the Department of Justice ("DOJ") granted U S
WEST's request for two MFJ waivers relating to TWE and the Atlanta Cable
Properties. The waivers will allow U S WEST to provide video and information
services across LATA boundaries in the Atlanta Cable Properties and TWE service
areas. The waivers also will allow U S WEST to participate in limited
manufacturing and to provide equipment through its partnership in TWE.
On June 20, 1994, the seven regional Bell operating companies
("RBOCs") asked the divestiture court for a waiver of the Court's restriction
on the RBOCs' provision of wireless long-distance services. The consent decree
restricts the RBOCs from providing long-distance services as well as
manufacturing. The request for a waiver closely follows a recommendation by the
DOJ that the RBOCs be allowed to provide wireless long-distance services.
The FCC has adopted a regulatory structure known as "Open Network
Architecture" ("ONA"), under which USWC is required to unbundle its telephone
network services in a manner that will accommodate the service needs of the
growing number of information service providers. Under ONA, the number of local
exchange service competitors could increase significantly.
U S WEST's interstate services have been subject to price cap
regulation since January 1991. Price caps are a form of incentive regulation
designed to limit prices rather than profits. The price cap plan is currently
under review by the FCC.
STATE REGULATORY ISSUES USWC has sought alternative forms of regulation
("AFOR") plans that provide for competitive parity, enhanced pricing
flexibility and improved capability in bringing to market new products and
services. In a number of states where AFOR plans have been adopted, such
actions have been accompanied by agreements to refund revenues, reduce existing
rates or upgrade service, any of which could have adverse short-term effects on
earnings. Similar results may have occurred under traditional rate- of-return
regulation. In addition to the FCC price cap plan, USWC has AFOR plans in the
states of Minnesota, Colorado, Oregon, Idaho, Nebraska, North Dakota and South
Dakota.
At USWC, 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 case 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.
USWEST Communications'
14-State Region
[MAP]
U S WEST
22
<PAGE> 25
1 9 9 4
--------------------
DISCONTINUED OPERATIONS In 1994, U S WEST continued to make progress in
disposing of its Capital Assets segment in accordance with its plan of
disposition announced in June 1993. (Further details on the discontinued
operations are provided in "Results Of Operations - 1993 Compared with 1992"
and in Note 17 to the Consolidated Financial Statements.)
During 1994, U S WEST reduced its ownership interest in Financial
Security Assurance ("FSA"), a member of the Capital Assets segment, to 60.9
percent, and its voting interest to 49.8 percent through a series of
transactions. In May and June 1994, U S WEST sold 8.1 million shares of FSA,
including 2.0 million shares sold to Fund American Enterprises ("FFC"), in an
initial public offering of FSA common stock at $20 per share. U S WEST received
$154 in net proceeds from the offering. On September 2, 1994, U S WEST issued
to FFC 50,000 shares of cumulative redeemable preferred stock for a total of
$50. FFC's voting interest in FSA is 21.0 percent, achieved through a
combination of direct share ownership of common and preferred FSA shares, and a
voting trust agreement with U S WEST.
FFC has a right of first offer and a call right to purchase from U S
WEST up to 9.0 million shares, or approximately 57 percent, of outstanding FSA
stock held by U S WEST. U S WEST anticipates its ownership will be further
reduced by 1996.
During 1994, U S WEST Real Estate sold 12 buildings, six parcels of
land and other assets for approximately $327. In January 1995, U S WEST Real
Estate sold one property for approximately $37. The sales were in line with
company estimates. U S WEST has completed all construction of existing
buildings in the commercial real estate portfolio and expects to substantially
complete the liquidation of its portfolio by 1998. The remaining balance of
assets subject to sale is approximately $607, net of reserves.
The company believes its reserves related to discontinued operations
are adequate.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES Cash provided by operating activities of approximately
$3.2 billion was essentially unchanged as compared with 1993. Improvement in
operations in 1994 was largely offset by cash payments for restructuring
activities of $289, compared with $120 in 1993. Growth in cash from operations
will be limited in the near term as the company continues to implement its
restructuring plan. Cash from operations is the primary source by which U S
WEST funds its capital expenditures and shareholder dividends. Further details
of cash provided by operating activities are provided in the Consolidated
Statements of Cash Flows.
The company expects that cash from operations will fund a significant
share of expected future requirements for existing businesses. U S WEST will
continue to employ strategic alliances and also will make direct investments in
assets or businesses that are consistent with the company's business
strategies. Financing for new investments will primarily come from a
combination of new debt and equity. In the event of a new investment of
substantial magnitude, the company also may reevaluate its use of internally
generated cash, the feasibility of further acquisitions, the possibility of
sales of assets and the capital structure.
USWEST consists of many different parts having different financial
characteristics. For this and other reasons, U S WEST believes that its stock
price has been undervalued. Consequently, the company is evaluating a range of
actions it might take with regard to its capital structure to make the value of
its assets more apparent.
U S WEST
23
<PAGE> 26
U S W E S T I N C.
--------------------
INVESTING ACTIVITIES Total capital expenditures were $2,820 in 1994 and $2,441
in 1993. Capital expenditures at USWC were $2,454 in 1994 and $2,182 in 1993.
the 1994 capital expenditures of USWC were devoted substantially to the
continued modernization of telephone plant, including investments in fiber
optic cable, in order to improve customer service and network productivity. In
1995, capital expenditures are expected to approximate $2.6 billion, including
$2.1 billion at USWC.
Capital Expenditures
Actual and Projected
(Dollars in millions)
=====================
[GRAPH]
U S WEST's cash investment related to the December 1994 acquisition of
the Atlanta Cable Properties was $745, obtained through short-term borrowing.
U S WEST also invested approximately $444 in developing international
businesses in 1994, including the acquisition of Thomson Directories. The
company anticipates investments in international ventures to approximate $400
in 1995.
In 1994, U S WEST received cash proceeds of $143 from the sale of its
paging operations and $93 from the sale of certain rural telephone exchanges.
U S WEST did not receive cash from the partial sale of its joint venture
interest in TeleWest. All proceeds from the sale will be used by TeleWest for
general business purposes, including financing construction and operations
costs, and repaying debt.
FINANCING ACTIVITIES Debt increased by $739 compared to the prior year,
primarily due to the acquisition of the Atlanta Cable Properties. U S WEST's
year-end 1994 debt-to-capital ratio was 51.8 compared with 55.1 at December 31,
1993. Including debt related to discontinued operations, the debt-to-capital
ratio was 55.5 and 59.7 at December 31, 1994 and 1993, respectively. The
decrease in the debt-to-capital ratio is primarily attributable to higher net
income and the effects of an increase in common shares outstanding.
In conjunction with the acquisition of the Atlanta Cable Properties,
on December 6, 1994, 12,779,206 shares of U S WEST common stock valued at $459
were issued to, or in the name of, the holders of Wometco Cable Corp.
Subsequent to the acquisition, the company announced its intention to purchase
U S WEST common shares in the open market up to an amount equal to those issued
in conjunction with the acquisition, subject to market conditions. In December
1994, the company purchased 550,400 shares of U S WEST common stock for
approximately $20.
In March 1994, the company issued approximately 5.5 million shares of
U S WEST common stock for proceeds of $210 in conjunction with the settlement of
shareowner litigation. The company also contributed 4.6 million shares of
U S WEST common stock to the company's postretirement benefit fund in 1994.
The company maintains short-term lines of credit aggregating
approximately $1.9 billion, all of which were available at December 31, 1994.
Under registration statements filed with the Securities and Exchange
Commission, as of December 31, 1994, U S WEST companies are permitted to issue
up to approximately $1.8 billion of new debt securities. U S WEST also
maintains a commercial paper program to finance short-term cash flow
requirements, as well as to maintain a presence in the short-term debt market.
U S WEST
24
<PAGE> 27
1 9 9 4
--------------------
DISCONTINUED OPERATIONS Cash to discontinued operations primarily reflects the
payment of debt, net of $154 in proceeds from the sale of 8.1 million shares of
FSA stock. Debt related to discontinued operations decreased by approximately
$200 in 1994. (See Note 17 to the Consolidated Financial Statements.) For
financial reporting purposes this debt is netted against the related assets of
discontinued operations.
RISK MANAGEMENT The company is exposed to market risks arising from changes in
interest rates and foreign exchange rates. Derivative financial instruments
are used by the company to manage these risks.
INTEREST RATE RISK MANAGEMENT The objective of the company's interest rate
risk management program is to minimize the total cost of debt. To meet this
objective the company uses risk-reducing and risk-adjusting strategies.
Interest rate forward contracts were used in 1993 to reduce the debt issuance
risks associated with interest rate fluctuations. Interest rate swaps are used
to adjust the risks of the debt portfolio on a consolidated basis by varying
the ratio of fixed- to floating-rate debt. The market value of the debt
portfolio and its risk-adjusting derivative instruments are monitored and
compared to predetermined benchmarks to evaluate the effectiveness of the risk
management program.
In 1993, the company refinanced $2.7 billion of callable debt with
new, lower-cost fixed-rate debt. The company achieved an annual interest
expense reduction of approximately $35 as a result of this refinancing. In
conjunction with the refinancing, the company executed forward contracts to
sell U.S. Treasury securities to reduce debt issuance risks and to lock in the
cost of $1.5 billion of the future debt issue. At December 31, 1994, deferred
credits of $8 and deferred charges of $51 on closed interest rate forward
contracts are included as part of the carrying value of the underlying debt.
The deferred credits and charges are being recognized as a yield adjustment
over the life of the debt, which matures at various dates through 2043. The net
deferred charge is directly offset by the lower coupon rate achieved on the new
debt.
Notional amounts on interest rate swaps outstanding at December 31,
1994, were $1.6 billion with various maturities that extend to 2004. The
estimated effect of the company's interest rate derivative transactions was to
adjust the level of fixed-rate debt from 73.1 percent to 81.5 percent of the
total debt portfolio (including continuing and discontinued operations).
FOREIGN EXCHANGE RISK MANAGEMENT The company has entered into forward and
combination option contracts to manage the market risks associated with
fluctuations in foreign exchange rates after considering offsetting foreign
exposures among international operations. The use of forward and option
contracts allows the company to fix or cap the cost of firm foreign investment
commitments in countries with freely convertible currencies. The market values
of the foreign exchange positions, including the hedging instruments, are
continuously monitored and compared to predetermined levels of acceptable risk.
Notional amounts of forward and combination option contracts in
British pounds outstanding at December 31, 1994, were $170, with maturities
within one year. Cumulative deferred credits and charges associated with
forward and option contracts of $7 and $25, respectively, are recorded in
common shareowners' equity at December 31, 1994.
At December 31, 1994, the company also had a British pound-denominated
receivable from a wholly owned subsidiary in the translated principal amount of
$48 that is subject to foreign exchange risk. This position is hedged in 1995.
U S WEST
25
<PAGE> 28
U S W E S T I N C.
--------------------
RESULTS OF OPERATIONS - 1993 COMPARED WITH 1992
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Increase
1993(1) 1992 (Decrease)
--------------------------------------
<S> <C> <C> <C>
Income from continuing operations $ 476 $ 1,076 $ (600)
Income (loss) from discontinued operations (82) 103 (185)
Extraordinary items:
Discontinuance of SFAS No. 71, net
of tax (3,123) - (3,123)
Early extinguishment of debt, net of tax (77) - (77)
Cumulative effect of change in accounting principles - (1,793) 1,793
--------------------------------------
Net loss $ (2,806) $ (614) $ (2,192)
- ----------------------------------------------------------------------------------------------------
Earnings per common share from continuing
operations $1.13 $ 2.61 $ (1.48)
Earnings (loss) per common share from
discontinued operations (.19) .25 (.44)
Extraordinary items:
Discontinuance of SFAS No. 71 (7.45) - (7.45)
Early extinguishment of debt (.18) - (.18)
Cumulative effect of change in accounting principles - (4.35) 4.35
--------------------------------------
Loss per common share $ (6.69) $ (1.49) $ (5.20)
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) 1993 income from continuing operations was reduced by $610, or $1.46 per
share, for a restructuring charge, and $54, or $.13 per share, for the
cumulative effect on deferred taxes of the 1993 federally mandated increase in
income tax rates.
In 1993, income from continuing operations was $476, including the
items in note (1) to the table above. Excluding these one-time effects, 1993
income from continuing operations and related earnings per share were $1,140
and $2.72, respectively. As normalized, 1993 income from continuing operations
increased $64, or 6.0 percent, over 1992 and related earnings per share
increased $.11, or 4.2 percent. The increase was primarily attributable to
improvements in telephone, domestic cellular and publishing operations, and
lower financing costs, partially offset by increased losses associated with
developing businesses.
During 1993, the U S WEST board of directors approved a plan to
dispose of the Capital Assets segment, which includes activities related to
financial services, financial guarantee insurance operations and real estate.
The Capital Assets segment has been accounted for as discontinued operations in
accordance with Accounting Principles Board Opinion No. 30, which provides for
the reporting of the operating results of discontinued operations separately
from continuing operations. The company recorded a provision of $100 (after
tax), or $.24 per share, for the estimated loss on disposal of the discontinued
operations and an additional provision of $20 to reflect the cumulative effect
on deferred taxes of the 1993 federally mandated increase in income tax rates.
Income from discontinued operations to June 1, 1993, was $38, net of $15 in
income taxes. Income from discontinued operations subsequent to June 1, 1993,
is being deferred and was included within the provision for loss on disposal of
the Capital Assets segment.
U S WEST
26
<PAGE> 29
1 9 9 4
--------------------
An extraordinary, non-cash charge of $3.1 billion (after tax) was
incurred in conjunction with U S WEST's decision to discontinue accounting for
the operations of USWC in accordance with SFAS No. 71. SFAS No. 71 generally
applies to regulated companies that meet certain requirements, including a
requirement that a company be able to recover its costs, competition
notwithstanding, by charging its customers at prices established by its
regulators. U S WEST's decision to discontinue the application of SFAS No. 71
was based on the belief that competition, market conditions and technological
advances, more than prices established by regulators, will determine the future
cost recovery by USWC. As a result of this change, the remaining asset lives of
USWC's telephone plant were shortened to more closely reflect the useful
(economic) lives of such plant. USWC's accounting and reporting for regulatory
purposes were not affected by the change.
During 1993, USWC refinanced long-term debt issues aggregating $2.7
billion in principal amount. These refinancings allowed the company to take
advantage of favorable interest rates. Extraordinary costs associated with the
redemptions reduced 1993 income by $77 (after tax).
The accounting change in 1992 relates to two accounting standards
issued by the Financial Accounting Standards Board. The first is SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions," which
mandates that employers reflect in their current expenses an accrual for the
cost of providing retirement medical and life insurance benefits to current and
future retirees. Prior to 1992, U S WEST, like most corporations, recognized
these costs as they were paid. U S WEST also adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." SFAS No. 112 requires that employers
accrue for the estimated costs of benefits, such as workers' compensation and
disability, provided to former or inactive employees who are not eligible for
retirement. Adoption of SFAS Nos. 106 and 112 resulted in a one-time, non-cash
charge against 1992 earnings of $1,793, net of tax, including $53 related to
SFAS No. 112.
Revenue growth and continued cost controls in 1993 resulted in a 6.7
percent increase in EBITDA, excluding the effects of the 1993 restructuring
charge.
U S WEST
27
<PAGE> 30
U S W E S T I N C.
--------------------
Income from Continuing Operations - Base and Developing Businesses
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Percent Increase
Ownership 1993 (1) 1992 (2) (Decrease)
------------------------------------------------------
<S> <C> <C> <C> <C>
BASE BUSINESSES:
U S WEST Communications Inc. 100 $ 435 $950 $ (515)
Publishing and other 100 180 207 (27)
---------------------------------------
Total base 615 1,157 (542)
---------------------------------------
DEVELOPING BUSINESSES:
Consolidated:
Domestic wireless 100 (46) (17) (29)
Unconsolidated equity investments:
Time Warner Entertainment L.P. (2) 25.5 (19) - (19)
TeleWest Communications plc 50.0 (21) (13) (8)
Mercury One-2-One 50.0 (22) (9) (13)
Other (3) (31) (42) 11
---------------------------------------
Total developing (139) (81) (58)
---------------------------------------
Income from continuing operations $ 476 $1,076 $ (600)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 1993 income from continuing operations was reduced by $610 for a
restructuring charge, and $54 for the cumulative effect on deferred taxes of
the 1993 federally mandated increase in income tax rates.
(2) Percent ownership represents pro-rata priority capital and residual equity
interests.
(3) Includes divisional expenses associated with developing businesses.
During 1993, income from the company's base operations increased to
$1,237, excluding the effects of the 1993 restructuring charge and the
cumulative effect in 1993 of the increase in income tax rates. This represents
an increase of $80, or 6.9 percent, over 1992. The increase is attributable to
higher demand for telephone services, including the effects of growth in access
lines, and continued cost controls, partially offset by lower prices.
The loss from developing businesses increased as a result of the
company's 1993 TWE investment and higher losses associated with international
ventures.
U S WEST
28
<PAGE> 31
1 9 9 4
--------------------
SALES AND OTHER REVENUES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Increase (Decrease)
------------------------
1993 1992 $ %
---------------------------------------------------------------
<S> <C> <C> <C> <C>
BASE BUSINESSES:
USWC operations:
Local service $3,829 $3,674 $155 4.2
Access charges - interstate 2,147 2,047 100 4.9
Access charges - intrastate 682 673 9 1.3
Long-distance network
service 1,442 1,420 22 1.5
Other services 556 510 46 9.0
---------------------------------------------------------------
Total USWC 8,656 8,324 332 4.0
Publishing and other 1,070 1,092 (22) (2.0)
---------------------------------------------------------------
Total base 9,726 9,416 310 3.3
---------------------------------------------------------------
DEVELOPING BUSINESSES: (1)
Domestic wireless 561 407 154 37.8
International directories 7 - 7 -
---------------------------------------------------------------
Total developing 568 407 161 39.6
---------------------------------------------------------------
Total revenues $10,294 $9,823 $471 4.8
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes consolidated subsidiaries. All other developing businesses are
accounted for using the equity method.
An analysis of the change in USWC's revenues follows:
LOCAL SERVICE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Increase
Price Refund --------------
Changes Activity Demand Other $ %
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$(6) $(11) $176 $(4) $155 4.2
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in local service revenues was primarily attributable to
access line growth of 3.7 percent in 1993.
INTERSTATE ACCESS CHARGES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Increase
Price Refund ---------------
Changes Activity Demand Other $ %
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$(71) $6 $175 $(10) $100 4.9
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Increased demand for interstate services, as evidenced by an increase
of 8.5 percent in interstate billed access minutes of use, more than offset the
effects of price decreases. USWC reduced its annual interstate access prices by
approximately $60, effective July 1, 1993, in addition to $90, effective July
1, 1992, primarily due to FCC-mandated changes that resulted in a cost shift to
intrastate jurisdictions.
INTRASTATE ACCESS CHARGES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Increase
Price Refund -------------
Changes Activity Demand Other $ %
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$(18) $8 $19 - $9 1.3
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Intrastate access charges increased primarily as a result of increased
demand and lower refunds, largely offset by the effects of price decreases.
U S WEST
29
<PAGE> 32
U S W E S T I N C.
--------------------
LONG-DISTANCE NETWORK SERVICE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Increase
Price Refund --------------
Changes Activity Demand Other $ %
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$(7) $(1) $31 $(1) $22 1.5
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in long-distance network service revenues reflects
business growth, partially offset by the impacts of competition, particularly
in Wide Area Telephone Service and "800" services, and price decreases.
OTHER SERVICES Other services revenues increased 9.0 percent in 1993 due to
increased revenue from billing and collection services and continued market
penetration in voice messaging services.
PUBLISHING AND OTHER
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Decrease
--------------------
1993 1992 $ %
---------------------------------------------------
<S> <C> <C> <C> <C>
Publishing $949 $949 - -
Other - net 121 143 $(22) (15.4)
---------------------------------------------------
Total $1,070 $1,092 $(22) (2.0)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Revenue for the entire publishing and other group was reduced by
approximately $86 in 1993 due to the sale of certain publishing and telephone
equipment distribution operations. Revenues from ongoing operations increased
$64, or 5.9 percent, primarily as a result of price increases related to
publishing activities. Volume of Yellow Pages directory advertising was
essentially flat in 1993.
DEVELOPING BUSINESSES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Increase
---------------------
1993 1992 $ %
---------------------------------------------------
<S> <C> <C> <C> <C>
Domestic wireless $561 $407 $154 37.8
International directories 7 - 7 -
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Domestic wireless revenues increased as a result of an expanded
cellular customer base, which grew by 45 percent during 1993. This growth
reflects increased penetration and a migration to the retail distribution
channel. Average cellular revenue declined by 5.6 percent to approximately $76
per customer, per month. Revenue from international directories reflects the
1993 start up of U S WEST Polska, a publisher of directories in Poland.
COSTS AND EXPENSES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Increase (Decrease)
-------------------------
1993 1992 $ %
--------------------------------------------------------
<S> <C> <C> <C> <C>
Employee-related expenses $3,584 $3,487 $97 2.8
Other operating expenses 2,065 1,995 70 3.5
Taxes other than income taxes 417 378 39 10.3
Depreciation and amortization 1,955 1,881 74 3.9
Restructuring charge 1,000 - 1,000 -
Interest expense 439 453 (14) (3.1)
Equity losses in
unconsolidated ventures 74 43 31 72.1
Other income (expense) - net (15) (17) (2) (11.8)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Employee-related expenses at USWC increased by $41, or 1.4 percent, over 1992.
This increase was attributable to basic wage increases, increased overtime
costs (affected by flood damage in the midwestern states) and costs incurred
for temporary employees in conjunction with customer service initiatives. These
factors were partially offset by the effects of work-force reductions,
primarily in conjunction with the company's 1991 restructuring plan. During
1993, USWC reduced its employee level by 2,755 employees. The work-force
reductions and the company's emphasis on health-care cost containment through
managed care and other programs, and earnings on the amounts funded for
postretirement benefit costs, resulted in a decline in health-care costs of
approximately $25 in 1993. Growth in the company's domestic wireless business
also contributed to the increase in employee-related expenses.
Other operating expenses increased by $56, or 3.5 percent, at USWC as
a result of higher network software costs and increased advertising expenses.
Higher marketing costs related to an expanding domestic cellular subscriber
base also contributed to the increase in other operating expenses, partially
offset by lower expenses due to the sale of certain publishing and telephone
equipment distribution operations.
U S WEST
30
<PAGE> 33
1 9 9 4
--------------------
Taxes other than income taxes increased due in part to adjustments
made in 1992 for resolution of certain longstanding appeals.
Depreciation and amortization expense increased $71, or 4.1 percent,
at USWC as a result of a higher depreciable asset base and increased rates of
depreciation. These effects were partially offset by the completion of
depreciation reserve deficiency amortization programs in several jurisdictions.
Interest expense decreased principally due to the effects of lower
interest rates, partially offset by increased debt of approximately $1.8
billion used to fund new initiatives, including the investment in TWE. U S
WEST's average borrowing cost decreased to 6.7 percent in 1993, from 7.7
percent in 1992.
Equity losses associated with developing businesses increased to $74,
compared with $43 in 1992. The increase in these losses is primarily due to new
investments in 1993, including the company's investment in Mercury One-2-One.
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Decrease
--------------------------
1993 1992 $ %
--------------------------------------------------------
<S> <C> <C> <C> <C>
Provision for income taxes $269 $493 $(224) (45.4)
Effective tax rate 36.1% 31.4% - -
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in the effective tax rate resulted primarily from the $54
cumulative effect on deferred taxes of the 1993 federally mandated increase in
income tax rates and the effects of discontinuing SFAS No. 71, partially offset
by the tax effects of the restructuring charge.
Please refer to "Results of Operations - 1994 Compared with 1993" for
a discussion of the 1993 restructuring charge.
DISCONTINUED OPERATIONS During 1993, U S WEST sold $2.0 billion of finance
receivables and the business of US WEST Financial Services to NationsBank
Corporation. The sales price was in line with the company's estimate. Proceeds
from the sale of $2.1 billion were used to repay related debt.
During 1993, U S WEST Real Estate Inc. sold five properties for
proceeds of approximately $66.
LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities
decreased by $35 over 1992, primarily due to a $200 increase in postretirement
benefit funding, partially offset by an income tax refund in 1992 of
approximately $125, and growth in base businesses.
Debt increased by approximately $1.8 billion compared with 1992
(including $1.2 billion of short-term debt), principally as a result of the
company's investment in TWE. During 1993, U S WEST refinanced debt issues
aggregating $2.7 billion in principal amount. This refinancing has reduced
interest expense by approximately $35 annually. During 1992, U S WEST called
for early redemption of six debt issues aggregating $747 in principal amount.
Debt related to discontinued operations decreased by approximately
$1.9 billion in 1993. The decrease was related to the 1993 sale of the assets
and the business of U S WEST Financial Services to NationsBank.
Total capital expenditures associated with continuing operations were
$2,441 in 1993 and $2,554 in 1992. Capital expenditures at USWC were $2,182 in
1993 and $2,357 in 1992. The 1993 capital expenditures of USWC were
substantially devoted to the continued modernization of telephone plant.
During fourth quarter 1993, proceeds of $1,020 resulting from the sale
of 22 million shares of common stock were used to reduce short-term
indebtedness, including indebtedness incurred in conjunction with the TWE
investment, and for general corporate purposes.
U S WEST
31
<PAGE> 34
U S W E S T I N C.
--------------------
REPORT OF
MANAGEMENT
The Consolidated Financial Statements of U S WEST have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis. The integrity and objectivity of information in these
financial statements, including estimates and judgments, are the responsibility
of management, as is all other financial information included in this report.
U S WEST maintains a system of internal accounting controls designed
to provide a reasonable assurance as to the integrity and reliability of
financial statements, the safeguarding of assets and the prevention and
detection of material errors or fraudulent financial reporting. Monitoring of
such systems includes an internal audit program designed to assess objectively
the effectiveness of internal controls and recommend improvements therein.
Limitations exist in any system of internal accounting controls based
on the recognition that the cost of the system should not exceed the benefits
derived. U S WEST believes that the company's system provides reasonable
assurance that transactions are executed in accordance with management's
general or specific authorizations and is adequate to accomplish the stated
objectives.
The independent certified public accountants, whose report is included
herein, are engaged to express an opinion on our Consolidated Financial
Statements. Their opinion is based on procedures performed in accordance with
generally accepted auditing standards, including examining, on a test basis,
evidence supporting the amounts and disclosures in the Consolidated Financial
Statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation.
In an attempt to assure objectivity, the financial information
contained in this report is subject to review by the Audit Committee of the
board of directors. The Audit Committee is composed of outside directors who
meet regularly with management, internal auditors and independent auditors to
review financial reporting matters, the scope of audit activities and the
resolution of audit findings.
Richard D. McCormick
Chairman and Chief Executive Officer
James M. Osterhoff
Executive Vice President and Chief Financial Officer
January 18, 1995
REPORT OF
INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF U S WEST INC.:
We have audited the accompanying consolidated balance sheets of U S WEST Inc.
as of December 31, 1994 and 1993 and the related consolidated statements of
operations, cash flows and shareowners' equity for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of U S
WEST Inc. as of December 31, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 5 to the Consolidated Financial Statements, the
company discontinued accounting for the operations of U S WEST Communications
Inc. in accordance with Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation," in 1993. As
discussed in Note 14 to the Consolidated Financial Statements, the company
changed its method of accounting for postretirement benefits other than
pensions and other postemployment benefits in 1992.
Coopers & Lybrand L.L.P.
Denver, Colorado
January 18, 1995
U S WEST
32
<PAGE> 35
1 9 9 4
--------------------
U S WEST INC.
1994
CONSOLIDATED STATEMENTS OF OPERATIONS
DOLLARS IN MILLIONS (EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1994 1993 1992
---------------------------------------------
<S> <C> <C> <C>
Sales and other revenues $ 10,953 $ 10,294 $ 9,823
Employee-related expenses 3,779 3,584 3,487
Other operating expenses 2,203 2,065 1,995
Taxes other than income taxes 412 417 378
Depreciation and amortization 2,052 1,955 1,881
Restructuring charge -- 1,000 --
Interest expense 442 439 453
Equity losses in unconsolidated ventures 121 74 43
Gains on sales of assets:
Partial sale of joint venture interest 164 -- --
Rural telephone exchanges 82 -- --
Paging assets 68 -- --
Other income (expense) - net 25 (15) (17)
---------------------------------------------
Income from continuing operations before income taxes 2,283 745 1,569
Provision for income taxes 857 269 493
---------------------------------------------
Income from continuing operations 1,426 476 1,076
Discontinued operations:
Estimated loss from June 1, 1993 through disposal, net of tax -- (100) --
Income tax rate change -- (20) --
Income, net of tax (to June 1, 1993) -- 38 103
---------------------------------------------
Income before extraordinary items and cumulative
effect of change in accounting principles 1,426 394 1,179
Extraordinary items:
Discontinuance of SFAS No. 71, net of tax -- (3,123) --
Early extinguishment of debt, net of tax -- (77) --
Cumulative effect of change in accounting principles:
Transition effect of change in accounting for
postretirement benefits other than pensions
and other postemployment benefits, net of tax -- -- (1,793)
---------------------------------------------
Net income (loss) $ 1,426 $ (2,806) $ (614)
---------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:
Continuing operations $ 3.14 $ 1.13 $ 2.61
Discontinued operations:
Estimated loss from June 1, 1993 through disposal -- (0.24) --
Income tax rate change -- (0.04) --
Income (to June 1, 1993) -- 0.09 0.25
Extraordinary items:
Discontinuance of SFAS No. 71 -- (7.45) --
Early extinguishment of debt -- (0.18) --
Cumulative effect of change in accounting principles -- -- (4.35)
---------------------------------------------
Earnings (loss) per common share $ 3.14 $ (6.69) $ (1.49)
---------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Average common shares outstanding (thousands) 453,316 419,365 412,518
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
U S WEST
33
<PAGE> 36
U S W E S T I N C.
--------------------
CONSOLIDATED BALANCE SHEETS
Dollars in millions
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 1993
----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 209 $ 128
Accounts and notes receivable, less allowance for
credit losses of $62 and $54, respectively 1,693 1,570
Inventories and supplies 189 193
Deferred tax asset 352 336
Prepaid and other 323 273
----------------------------
Total current assets 2,766 2,500
Property, plant and equipment - net 13,997 13,232
Investment in Time Warner Entertainment 2,522 2,552
Intangible assets - net 1,858 514
Investment in international ventures 881 477
Net assets of discontinued operations 302 554
Other assets 878 851
----------------------------
Total assets $ 23,204 $20,680
----------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term debt $ 2,837 $ 1,776
Accounts payable 944 977
Employee compensation 367 386
Dividends payable 251 236
Current portion of restructuring charges 337 456
Other 1,278 1,150
----------------------------
Total current liabilities 6,014 4,981
Long-term debt 5,101 5,423
Postretirement and postemployment benefit obligations 2,502 2,699
Deferred income taxes 890 201
Unamortized investment tax credits 231 280
Deferred credits and other 1,033 1,235
Preferred stock subject to mandatory redemption 51 --
Common shareowners' equity:
Common shares - no par, 2,000,000,000 authorized; 476,880,420
and 448,126,801 issued; 469,343,048 and 441,139,829
outstanding, respectively 8,056 6,996
Cumulative deficit (458) (857)
LESOP guarantee (187) (243)
Foreign currency translation adjustments (29) (35)
----------------------------
Total common shareowners' equity 7,382 5,861
----------------------------
Total liabilities and shareowners' equity $ 23,204 $20,680
----------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Contingencies (see Note 16 to the Consolidated Financial Statements)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
U S WEST
34
<PAGE> 37
1 9 9 4
--------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1994 1993 1992
---------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,426 $ (2,806) $ (614)
Adjustments to net income (loss):
Discontinuance of SFAS No. 71 -- 3,123 --
Cumulative effect of change in accounting principles -- -- 1,793
Restructuring charge -- 1,000 --
Depreciation and amortization 2,052 1,955 1,881
Gains on sales of assets:
Partial sale of joint venture interest (164) -- --
Rural telephone exchanges (82) -- --
Paging assets (68) -- --
Equity losses in unconsolidated ventures 121 74 43
Discontinued operations -- 82 (103)
Deferred income taxes and amortization of investment tax credits 373 (225) 4
Changes in operating assets and liabilities:
Restructuring payments (289) (120) (98)
Accounts and notes receivable (104) (90) 44
Inventories, supplies and other (81) (56) (24)
Accounts payable and accrued liabilities (10) 238 133
Other - net 67 47 198
---------------------------------------------
Cash provided by operating activities 3,241 3,222 3,257
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (2,597) (2,449) (2,250)
Investment in Time Warner Entertainment -- (1,557) --
Investment in Atlanta Cable Properties (745) -- --
Investment in international ventures (350) (230) (173)
Proceeds from disposals of property, plant and equipment 96 45 75
Proceeds from sale of paging assets 143 -- --
Other - net (119) (10) 91
---------------------------------------------
Cash (used for) investing activities (3,572) (4,201) (2,257)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net proceeds from short-term debt 1,280 687 25
Proceeds from issuance of long-term debt 251 2,282 344
Repayments of long-term debt (526) (2,969) (770)
Dividends paid on common stock (886) (812) (796)
Proceeds from issuance of common stock 364 1,150 92
Proceeds from issuance of preferred stock 50 -- --
Purchase of treasury stock (20) -- --
---------------------------------------------
Cash provided by (used for) financing activities 513 338 (1,105)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) continuing operations 182 (641) (105)
Cash (to) from discontinued operations (101) 610 (237)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Increase (decrease) 81 (31) (342)
Beginning balance 128 159 501
---------------------------------------------
Ending balance $ 209 $ 128 $ 159
---------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
U S WEST
35
<PAGE> 38
U S W E S T I N C.
--------------------
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
Dollars in millions
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1994 1993 1992
--------------------------------------------
<S> <C> <C> <C>
COMMON SHARES
Beginning balance $ 6,996 $ 5,770 $ 5,607
Issuance of common stock 694 1,224 144
Settlement of litigation 210 -- --
Benefit trust contribution (OPEB) 185 -- -
(Purchase) issuance of treasury stock (20) 6 20
Other (9) (4) (1)
--------------------------------------------
Ending balance 8,056 6,996 5,770
- ------------------------------------------------------------------------------------------------------------------------------------
(CUMULATIVE DEFICIT) RETAINED EARNINGS
Beginning balance (857) 2,826 4,316
Net income (loss) 1,426 (2,806) (614)
Dividends declared ($2.14, $2.14 and $2.12 per share, respectively) (980) (905) (876)
Market value adjustment for securities (64) 35 --
Other 17 (7) --
--------------------------------------------
Ending balance (458) (857) 2,826
- ------------------------------------------------------------------------------------------------------------------------------------
LESOP GUARANTEE
Beginning balance (243) (294) (342)
Activity 56 51 48
Ending balance (187) (243) (294)
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Beginning balance (35) (34) 7
Activity 6 (1) (41)
--------------------------------------------
Ending balance (29) (35) (34)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON SHAREOWNERS' EQUITY $ 7,382 $ 5,861 $ 8,268
============================================
COMMON SHARES AUTHORIZED AT DECEMBER 31 (THOUSANDS) 2,000,000 2,000,000 2,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON SHARES OUTSTANDING (THOUSANDS)
Beginning balance 441,140 414,462 409,936
Issuance of common stock 18,647 26,516 3,948
Settlement of litigation 5,506 -- --
Benefit trust contribution (OPEB) 4,600 -- --
(Purchase) issuance of treasury stock (550) 162 578
--------------------------------------------
Ending balance 469,343 441,140 414,462
--------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
U S WEST
36
<PAGE> 39
1 9 9 4
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
1
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION: The Consolidated Financial Statements include the
accounts of U S WEST Inc. ("U S WEST" or "company") and its majority-owned
subsidiaries, except for discontinued operations as discussed in Note 17 to the
Consolidated Financial Statements. All significant intercompany amounts and
transactions have been eliminated. Investments in less than majority-owned
ventures are accounted for using the equity method.
In the third quarter of 1993, U S WEST discontinued accounting for its
regulated telephone operations, hereafter referred to as U S WEST
Communications ("USWC"), under Statement of Financial Accounting Standards
("SFAS") No. 71, "Accounting for the Effects of Certain Types of Regulation."
(See Note 5 to the Consolidated Financial Statements.)
U S WEST operates in one industry segment (Communications and Related
Services) as defined in SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise." The company's Capital Assets segment has been
discontinued.
The largest volume of the company's services are provided to AT&T.
During 1994, 1993 and 1992, revenues related to those services provided to AT&T
were $1,130, $1,160 and $1,203, respectively. Related accounts receivable at
December 31, 1994 and 1993 totaled $98 and $97, respectively.
Certain reclassifications within the Consolidated Financial Statements
have been made to conform to the current year presentation.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include highly liquid
investments with original maturities of three months or less that are readily
convertible into cash and are not subject to significant risk from fluctuations
in interest rates.
INVENTORIES AND SUPPLIES: New and reusable materials of USWC are carried at
average cost, except for significant individual items that are valued based on
specific costs. Non-reusable material is carried at its estimated salvage
value. Inventories of U S WEST's non-telephone operations are carried at the
lower of cost or market on a first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT: The investment in property, plant and equipment
is carried at cost, less accumulated depreciation. Additions, replacements and
substantial betterments are capitalized. Costs for normal repair and
maintenance of property, plant and equipment are charged to expense as
incurred.
USWC's provision for depreciation of property, plant and equipment is
based on various straight-line group methods using remaining useful (economic)
lives based on industrywide studies. Prior to discontinuing SFAS No. 71,
depreciation was based on lives specified by regulators. (See Note 5 to the
Consolidated Financial Statements.) When the depreciable property, plant and
equipment of USWC is retired or sold, the original cost less the net salvage
value is generally charged to accumulated depreciation.
The non-telephone operations of U S WEST provide for depreciation
using the straight-line method. When such depreciable property, plant and
equipment is retired or sold, the resulting gain or loss is recognized
currently as an element of other income.
Depreciation expense was $2,029, $1,941 and $1,857 in 1994, 1993 and
1992, respectively.
Interest related to qualifying construction projects is capitalized
and is reflected as a reduction of interest expense. At USWC, prior to
discontinuing SFAS No. 71, capitalized interest was included as an element of
other income. Amounts capitalized by U S WEST were $44, $20 and $29 in 1994,
1993 and 1992, respectively.
INTANGIBLE ASSETS: The costs of identified intangible assets and goodwill are
amortized by the straight-line method over periods ranging from five to 40
years. These assets are evaluated, with other related assets, for impairment
using a discounted cash flow methodology. Amortization expense was $23, $14 and
$24 in 1994, 1993 and 1992, respectively.
FOREIGN CURRENCY TRANSLATION: For international investments, assets and
liabilities are translated at year-end exchange rates, and income statement
items are translated at average exchange rates for the year. Resulting
translation adjustments are recorded as a separate component of common
shareowners' equity.
U S WEST
37
<PAGE> 40
U S W E S T I N C.
--------------------
REVENUE RECOGNITION: Local telephone service, cellular access and cable
television revenues are generally billed monthly, in advance, and revenues are
recognized the following month when services are provided. Revenues derived
from other telephone services, including exchange access, long-distance and
cellular airtime usage, are billed and recorded monthly as services are
provided.
Directory advertising revenues and related directory costs are
generally deferred and recognized over the period during which directories are
utilized, normally 12 months. The balance of deferred directory costs included
in prepaid and other is $217 and $197 at December 31, 1994 and 1993,
respectively.
FINANCIAL INSTRUMENTS: Net interest income or expense on interest rate swaps
is recognized over the life of the swaps as an adjustment to interest expense.
Gains and losses on forward contracts, designated as hedges of interest rate
exposure on debt refinancings, are deferred and recognized as an adjustment to
interest expense over the life of the underlying debt. Gains and losses on
foreign exchange forward, option, and combination option contracts, designated
as hedges, are included in common shareowners' equity and recognized in income
on sale of the investment.
COMPUTER SOFTWARE: The cost of computer software, whether purchased or
developed internally, is charged to expense with two exceptions. Initial
operating systems software is capitalized and amortized over the life of the
related hardware, and initial network applications software is capitalized and
amortized over three years. Subsequent upgrades to capitalized software are
expensed. Capitalized computer software of $146 and $148 at December 31, 1994
and 1993, respectively, is recorded in property, plant and equipment. The
company amortized capitalized computer software costs of $86, $51 and $24, in
1994, 1993 and 1992, respectively.
INCOME TAXES: The provision for income taxes consists of an amount for taxes
currently payable and an amount for tax consequences deferred to future periods
in accordance with SFAS No. 109. U S WEST implemented SFAS No. 109, "Accounting
for Income Taxes," in 1993. Adoption of the new standard did not have a
material effect on the financial position or results of operations, primarily
because of the company's earlier adoption of SFAS No. 96.
For financial statement purposes, investment tax credits of USWC are
being amortized over the economic lives of the related property, plant and
equipment in accordance with the deferred method of accounting for such
credits.
EARNINGS (LOSS) PER COMMON SHARE: Earnings (loss) per common share are
computed on the basis of the weighted average number of shares of common stock
outstanding during each year.
2
NOTE 2: ACQUISITION OF ATLANTA CABLE PROPERTIES
- --------------------------------------------------------------------------------
On December 6, 1994, U S WEST acquired the stock of Wometco Cable Corp. and
subsidiaries, and the assets of Georgia Cable Holdings Limited Partnership
and subsidiary partnerships (the "Atlanta Cable Properties"), for cash of
$745 and 12,779,206 U S WEST common shares valued at $459, for a total
purchase price of approximately $1.2 billion. The Atlanta Cable Properties'
results of operations have been included in the consolidated results of
operations since the date of acquisition.
The acquisition was accounted for using the purchase method.
Accordingly, the purchase price was allocated to assets acquired (primarily
identified intangibles) based on their estimated fair values.
The identified intangibles and goodwill are being amortized on a
straight-line basis over 25 years.
Following are summarized, consolidated, unaudited, pro forma results
of operations for U S WEST for the years ended December 31, 1994 and 1993,
assuming the acquisition occurred as of the beginning of the respective
periods:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Year Ended December 31, 1994 1993
-----------------------
<S> <C> <C>
Revenue $11,148 $10,494
Net income (loss) 1,415 (2,817)
Earnings (loss) per common share 3.04 (6.52)
- --------------------------------------------------------------
</TABLE>
U S WEST
38
<PAGE> 41
1 9 9 4
--------------------
3
NOTE 3: INVESTMENT IN TIME WARNER ENTERTAINMENT
- --------------------------------------------------------------------------------
On September 15, 1993, U S WEST acquired 25.51 percent pro-rata priority
capital and residual equity interests ("equity interests") in Time Warner
Entertainment Company L.P. ("TWE") for an aggregate purchase price of $2.553
billion, consisting of $1.532 billion in cash and $1.021 billion in the form of
a four-year promissory note bearing interest at a rate of 4.391 percent per
annum. TWE owns and operates substantially all of the entertainment assets
previously owned by Time Warner Inc., consisting primarily of its filmed
entertainment, programming-HBO and cable businesses. As a result of U S WEST's
admission to the partnership, certain wholly owned subsidiaries of Time Warner
Inc. ("General Partners") and subsidiaries of Toshiba Corporation and ITOCHU
Corporation hold equity interests of 63.27, 5.61 and 5.61 percent,
respectively. In connection with the TWE investment, the company acquired 12.75
percent of the common stock of Time Warner Entertainment Japan Inc., a joint
venture company established to expand and develop the market for entertainment
services in Japan.
The company has an option to increase its equity interests in TWE from
25.51 up to 31.84 percent depending on cable operating performance, as defined
in the TWE Partnership Agreement. The option is exercisable, in whole or part,
between January 1, 1999, and May 31, 2005, for an aggregate cash exercise price
of $1.25 billion to $1.8 billion, depending on the year of exercise. Either TWE
or U S WEST may elect that the exercise price for the option be paid with
partnership interests rather than cash.
Pursuant to the TWE Partnership Agreement and U S WEST Admission
Agreement, there are six levels of capital. From the most to least senior, the
capital accounts are: senior preferred (held by the General Partners); A
preferred (held pro rata by all partners); B, C and D preferreds (all held by
the General Partners); and common (residual equity interests held pro rata by
all partners). Of the $2.553 billion contributed by U S WEST, $1.658 billion
represents A preferred capital and $895 represents common capital. The TWE
Partnership Agreement provides for special allocations of income and
distributions of partnership capital, which are based on the fair value of
assets contributed to the partnership. Partnership income, to the extent
earned, is allocated as follows: (1) to the partners so that the economic
burden of the income tax consequences of partnership operations is borne as
though the partnership was taxed as a corporation ("special tax income"); (2)
to the partners' preferred capital accounts in order of priority shown above,
at various rates of return ranging from 8 percent to 13.25 percent; and (3) to
the partners' common capital according to their residual partnership interests.
To the extent partnership income is insufficient to satisfy all special
allocations in a particular accounting period, the unearned portion is carried
over until satisfied out of future partnership income. Partnership losses
generally will be allocated in reverse order, first to eliminate prior
allocations of partnership income, except senior preferred and special tax
income, next to reduce initial capital amounts, other than senior preferred,
then to reduce the senior preferred account and finally, to eliminate special
tax income. Also, the senior preferred is scheduled to be distributed in three
annual installments beginning July 1, 1997. The value of the C and D preferreds
will be determined at future dates and is dependent on achieving certain
operating targets between 1992 and 2001.
Beginning July 1, 1994, the TWE Partnership Agreement generally
permits cash distributions to the partners to pay applicable taxes on their
allocable taxable income from TWE. In addition, beginning July 1, 1995, and
subject to restricted payment limitations and availability under the applicable
financial ratios contained in the TWE Credit Agreement, distributions other
than tax-related distributions also are permitted. For other than distributions
related to taxes or the senior preferred, the TWE Partnership Agreement
requires certain cash distribution thresholds be met to the limited partners
before the General Partners receive their full share of distributions. No cash
distributions were made to U S WEST in 1994.
The company accounts for its investment in TWE under the equity method
of accounting. The excess of fair market value over the book value of total
partnership net assets implied by the company's investment is $5.7 billion.
This excess is being amortized on a straight-line basis over 25 years. The
company's recorded share of TWE operating results represents allocated TWE net
income or loss adjusted for the amortization of the excess of fair market value
over the book value of the partnership net assets. As a result of this
amortization and the special income allocations described above, U S WEST's
recorded pretax share of TWE's 1994 and 1993 operating results was ($18) and
($20), respectively.
As consideration for its expertise and participation in the cable
operations of TWE, the company earns a management fee of $130 over five years,
which is payable over a four-year period beginning in 1995. Management fees of
$26 and $8 were recorded to other income in 1994 and 1993, respectively.
U S WEST
39
<PAGE> 42
U S W E S T I N C.
--------------------
Summarized financial information for TWE is presented below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Year Ended December 31,
Summarized Operating Results 1994 1993
-----------------------
<S> <C> <C>
Revenue $ 8,460 $ 7,946
Operating expenses (1) 7,612 7,063
Interest and other expense, net (2) 647 611
-----------------------
Income before income taxes
and extraordinary item 201 272
Income before extraordinary item 161 208
-----------------------
Net income $ 161 $ 198
-----------------------
- --------------------------------------------------------------
</TABLE>
(1) Includes depreciation and amortization of $943 and $902 in 1994 and 1993,
respectively.
(2) Includes corporate services of $60 in 1994 and 1993.
<TABLE>
<CAPTION>
- --------------------------------------------------------------
December 31,
Summarized Financial Position 1994 1993
-----------------------
<S> <C> <C>
Current assets $ 3,573 $ 3,745
Non-current assets 15,089 14,218
Current liabilities 2,857 2,265
Non-current liabilities 7,909 8,162
Senior preferred capital 1,663 1,536
Partners' capital 6,233 6,000
- --------------------------------------------------------------
</TABLE>
In early 1995, Time Warner Inc. announced its intention to simplify its
corporate structure by establishing a separate, self- financing enterprise to
house its cable and telecommunications properties. Any change in the structure
of TWE would require the approval of U S WEST and its TWE partners.
4
NOTE 4: RESTRUCTURING CHARGES
- --------------------------------------------------------------------------------
The company's 1993 results reflect a $1 billion restructuring charge
(pretax). The restructuring charge includes only the specific, incremental and
direct costs that can be estimated with reasonable accuracy and are clearly
identifiable with the related plan. The related restructuring plan (the "Plan")
is designed to provide faster, more responsive customer services, while
reducing the costs of providing these services. As part of the 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
customers can have their telecommunications needs met with one phone call. The
company is consolidating its existing 560 customer service centers 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). The Plan provides for the reduction
of 2,450 management and 6,550 occupational employees.
Following is a schedule of the costs included in the 1993
restructuring charge:
<TABLE>
<S> <C>
- --------------------------------------------------------------
Employee separation $ 230
Systems development 400
Real estate 130
Relocation 110
Retraining and other 65
Asset write-down 65
---------
Total $ 1,000
- --------------------------------------------------------------
</TABLE>
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 methods
and systems required in the new, restructured mode of operation.
During 1994, 497 management and 1,683 occupational employees left the
company under the Plan. The following table shows amounts charged to the
restructuring reserve:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Amount
---------
<S> <C>
Employee separation (1) $ 75
Systems development 127
Real estate 50
Relocation 21
Retraining and other 16
---------
1994 restructuring reserve activity $ 289
---------
- --------------------------------------------------------------
</TABLE>
(1) Includes $56 associated with work-force reductions under the 1991
restructuring plan.
The company's 1991 restructuring plan included a pretax charge of $364
due to planned work-force reductions and the write-off of certain intangible
and other assets. The portion of the 1991 restructuring charge related to
work-force reductions was $240, and covered approximately 6,000 employees. The
balance of the unused reserve associated with work-force reductions at December
31, 1993, was $56. All expenditures and work-force reductions under the 1991
plan were completed by the end of 1994.
U S WEST
40
<PAGE> 43
1 9 9 4
--------------------
5
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------------------------------------------------
The composition of property, plant and equipment follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
December 31, 1994 1993
------------------------
<S> <C> <C>
Land and buildings $ 2,604 $ 2,521
Telephone network equipment
and outside plant 23,519 22,479
General purpose computer and other 4,157 3,569
Construction in progress 734 592
------------------------
31,014 29,161
------------------------
Less accumulated depreciation:
Buildings 698 656
Telephone network equipment
and outside plant 14,175 13,389
General purpose computer and other 2,144 1,884
------------------------
17,017 15,929
------------------------
Property, plant and equipment - net $ 13,997 $ 13,232
------------------------
- --------------------------------------------------------------
</TABLE>
In 1994, USWC sold certain rural telephone exchanges with a cost basis
of $122. The company received consideration for the sales of $93 in cash and
$81 in replacement property. The company will receive an additional $30 of
replacement property in 1995.
DISCONTINUANCE OF SFAS NO. 71 U S WEST incurred a non-cash, extraordinary
charge of $3.1 billion, net of an income tax benefit of $2.3 billion, in
conjunction with its decision to discontinue accounting for the operations of
USWC in accordance with SFAS No. 71, "Accounting for the Effects of Certain
Types of Regulation," as of September 30, 1993. SFAS No. 71 generally applies
to regulated companies that meet certain requirements, including a requirement
that a company be able to recover its costs, notwithstanding competition, by
charging its customers at prices established by its regulators. U S WEST's
decision to discontinue application of SFAS No. 71 was based on the belief that
competition, market conditions and the development of multimedia technology,
more than prices established by regulators, will determine the future cost
recovery by USWC. As a result of this change, the remaining asset lives of
USWC's plant were shortened to more closely reflect the useful (economic) lives
of such plant.
Following is a list of the major categories of telephone property,
plant and equipment and the manner in which depreciable lives were affected by
the discontinuance of SFAS No. 71:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Average Life (years)
---------------------------------
Before After
Category Discontinuance Discontinuance
---------------------------------
<S> <C> <C>
Digital switch 17-18 10
Digital circuit 11-13 10
Aerial copper cable 18-28 15
Underground copper cable 25-30 15
Buried copper cable 25-28 20
Fiber cable 30 20
Buildings 27-49 27-49
General purpose computers 6 6
- --------------------------------------------------------------
</TABLE>
The company employed two methods to determine the amount of the
extraordinary charge. The "economic life" method assumed that a portion of the
plant-related effect is a regulatory asset that was created by the
under-depreciation of plant under regulation. This method yielded the
plant-related adjustment that was confirmed by the second method, a discounted
cash flows analysis.
Following is a schedule of the nature and amounts of the after-tax
charge recognized as a result of the company's discontinuance of SFAS No. 71:
<TABLE>
- --------------------------------------------------------------
<S> <C>
Plant related $ 3,124
Tax-related regulatory assets and liabilities (208)
Other regulatory assets and liabilities 207
-----------
Total $ 3,123
-----------
- --------------------------------------------------------------
</TABLE>
U S WEST
41
<PAGE> 44
U S W E S T I N C.
--------------------
6
NOTE 6: DEBT
- --------------------------------------------------------------------------------
Short-term Debt The components of short-term debt follow:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
December 31, 1994 1993
------------------------
<S> <C> <C>
Notes payable:
Commercial paper $ 2,305 $ 1,029
Current portion of long-term debt,
including $500 and $450 payable to
TWE, in 1994 and 1993, respectively 732 795
Allocated to discontinued operations - net (200) (48)
------------------------
Total $ 2,837 $ 1,776
------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average interest rate on commercial paper was 5.97
percent and 2.77 percent at December 31, 1994 and 1993, respectively.
U S WEST is permitted to borrow up to approximately $1.9 billion under
short-term formal lines of credit, all of which was available at December 31,
1994.
Long-term Debt Interest rates and maturities of long-term debt at December 31
follow:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Maturities
---------------------------------------------------------------- Total Total
Interest rates 1996 1997 1998 1999 Thereafter 1994 1993
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Up to 5% $ 271 $ -- $ 35 $ -- $ 240 $ 546 $ 844
Above 5% to 6% 13 25 300 -- 261 599 561
Above 6% to 7% -- -- -- 226 1,290 1,516 1,383
Above 7% to 8% 670 16 -- -- 2,507 3,193 2,061
Above 8% to 9% 28 -- -- 126 290 444 504
Above 9% to 10% -- 29 -- 15 355 399 399
--------------------------------------------------------------------------------------------
$ 982 $ 70 $ 335 $ 367 $ 4,943 6,697 5,752
================================================================
Capital lease obligations and other 153 139
Unamortized discount - net (1,239) (101)
Allocated to discontinued operations - net (510) (367)
----------------------------
Total $ 5,101 $ 5,423
----------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Long-term debt consists principally of debentures and medium-term notes, debt
associated with the company's Leveraged Employee Stock Ownership Plans (LESOP),
and zero coupon, subordinated notes convertible at any time into U S WEST
common shares. The zero coupon notes have a yield to maturity of approximately
7.3 percent and are recorded at a discounted value of $498. Long-term debt
also includes a note payable to TWE of $271 in 1994 and $555 in 1993.
During 1993, U S WEST refinanced debt issues aggregating $2.7 billion
in principal amount. Expenses associated with the refinancing resulted in an
extraordinary charge to income of $77, net of a tax benefit of $48. The
refinancing allowed the company to take advantage of favorable interest rates.
Interest payments, net of amounts capitalized, were $534, $680 and
$704 for 1994, 1993 and 1992, respectively, of which $103, $212 and $220,
respectively, relate to discontinued operations.
U S WEST
42
<PAGE> 45
1 9 9 4
--------------------
7
NOTE 7: LEASING ARRANGEMENTS
- --------------------------------------------------------------------------------
U S WEST has entered into operating leases for office facilities,
equipment and real estate. Rent expense under operating leases was $288, $275
and $274 in 1994, 1993 and 1992, respectively.
Minimum future lease payments as of December 31, 1994, under
non-cancellable operating leases, follow:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Year
- -------------------------------------------------------------
<S> <C>
1995 $ 153
1996 140
1997 128
1998 123
1999 109
Thereafter 853
--------
Total $ 1,506
--------
- -------------------------------------------------------------
</TABLE>
8
NOTE 8: DERIVATIVE FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The company is exposed to market risks arising from changes in
interest rates and foreign exchange rates. Derivative financial instruments are
used by the company to manage these risks.
INTEREST RATE RISK MANAGEMENT The company enters into interest rate swap
agreements to manage its market exposure to fluctuations in interest rates.
Swap agreements are primarily used to effectively convert existing commercial
paper to fixed-rate debt. This allows the company to achieve interest savings
over issuing fixed-rate debt directly. Additionally, the company has entered
into interest rate swaps to effectively terminate existing swaps.
Under an interest rate swap, the company agrees with another party to
exchange interest payments at specified intervals over a defined term. Interest
payments are calculated by reference to the notional amount based on the fixed-
and variable-rate terms of the swap agreements. The net interest received or
paid as part of the interest rate swap is accounted for as an adjustment to
interest expense.
The company also entered into a currency swap to convert Swiss
franc-denominated debt to dollar-denominated debt. This allowed the company to
achieve interest savings over issuing fixed-rate, dollar-denominated debt.
Under the currency swap, the company agreed with another party to exchange
dollars for francs within the terms of the loan, which include periodic
interest payments and principal upon origination and maturity. The currency
swap and foreign currency debt are combined and accounted for as if fixed-rate,
dollar-denominated debt were issued directly.
The following table summarizes terms of swaps pertaining to continuing
operations as of December 31, 1994. Variable rates are primarily indexed to the
30-day commercial paper rate.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Weighted Average Rate
--------------------------
Continuing operations Notional Amount Maturities Receive Pay
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Variable to fixed $ 785 1995 - 2004 6.14 6.47
Fixed to variable 5 1995 6.61 5.87
Currency 71 1999 -- 6.53
- -----------------------------------------------------------------------------------
</TABLE>
U S WEST
43
<PAGE> 46
U S W E S T I N C.
--------------------
The following table summarizes terms of swaps pertaining to
discontinued operations as of December 31, 1994. Variable rates are indexed to
three- and six-month LIBOR.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Weighted Average Rate
--------------------------
Discontinued operations Notional Amount Maturities Receive Pay
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Variable to fixed (1) $ 380 1996 - 1997 5.69 9.03
Fixed to variable (1) 380 1996 - 1997 7.29 5.80
Variable rate basis
adjustment (2) 10 1997 5.89 7.04
- -----------------------------------------------------------------------------------
</TABLE>
(1) The fixed to variable swap has the same terms as the variable to fixed swap
and was entered into to terminate the variable to fixed swap. The net
interest cost on the swaps is a cost of discontinued operations and is
included in the discontinued operations loss provision.
(2) Variable rate debt based on U. S. Treasury securities is swapped to a
LIBOR-based interest rate.
In 1993, the company executed forward contracts to sell U. S. Treasury
securities to reduce debt issuance risks by allowing the company to lock in the
Treasury rate component of the future debt issue. At December 31, 1994,
deferred credits of $8 and deferred charges of $51 on closed interest rate
forward contracts are included as part of the carrying value of the underlying
debt. The deferred credits and charges are being recognized as a yield
adjustment over the life of the debt, which matures at various dates through
2043. The net deferred charge is directly offset by the lower coupon rate
achieved on the debt issuance. At December 31, 1994, there were no open forward
contracts on interest rates.
The counterparties to these derivative contracts are major financial
institutions. The company is exposed to credit loss in the event of
non-performance by these counterparties. The company manages this exposure by
monitoring the credit standing of the counterparty and establishing dollar and
term limitations that correspond to the respective credit rating of each
counterparty. The company does not have significant exposure to an individual
counterparty and does not anticipate non-performance by any counterparty.
FOREIGN EXCHANGE RISK MANAGEMENT The company enters into forward and option
contracts to manage the market risks associated with fluctuations in foreign
exchange rates after considering offsetting foreign exposures among
international operations.
The company enters into forward contracts to exchange foreign
currencies at agreed rates on specified future dates. This allows the company
to fix the cost of firm foreign commitments. The commitments and the forward
contracts are for periods up to one year. The gain or loss on forward contracts
designated as hedges of firm foreign investment commitments are included in
common shareowners' equity and are recognized in income on sale of the
investment.
The company also enters into foreign exchange combination option
contracts to protect against adverse changes in foreign exchange rates. These
option contracts combine purchased options to cap the foreign exchange rate and
written options to finance the premium of the purchased options. The
commitments and combination option contracts are for periods up to one year.
Gains or losses on the contracts, designated as hedges of firm investment
commitments, are included in common shareowners' equity and are recognized in
income on sale of the investment.
The counterparties to these contracts are major financial
institutions. The company is exposed to credit loss in the event of
non-performance by these counterparties. The company does not have significant
exposure to an individual counterparty and does not anticipate non-performance
by any counterparty.
At December 31, 1994, the company has outstanding forward and
combination option contracts to purchase British pounds in the notional amounts
of $135 and $35, respectively. All contracts mature within one year.
Cumulative deferred credits on foreign exchange contracts of $7 and
deferred charges of $25, and deferred taxes (benefits) of $3 and ($10),
respectively, are included in common shareowners' equity at December 31, 1994.
U S WEST
44
<PAGE> 47
1 9 9 4
--------------------
9
NOTE 9: FAIR VALUES OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
Fair values of cash equivalents, other current amounts receivable and
payable, and short-term debt, including discontinued operations, approximate
carrying values due to their short-term nature.
The fair values of mandatorily redeemable preferred stock, foreign
exchange forward and combination option contracts approximate the carrying
values.
The fair values of interest rate swaps are based on estimated amounts
the company would receive or pay to terminate such agreements, taking into
account current interest rates and creditworthiness of the counterparties.
The fair value of long-term debt, including discontinued operations,
is based on quoted market prices where available or, if not available, is based
on discounting future cash flows using current interest rates.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
December 31, 1994 1993
---------------------------------------
Continuing and Carrying Fair Carrying Fair
discontinued operations Value Value Value Value
---------------------------------------
<S> <C> <C> <C> <C>
Debt (includes
short-term portion) $ 9,221 $ 8,700 $ 8,695 $ 8,940
Interest rate swap
agreements - assets -- (15) -- (29)
Interest rate swap
agreements - liabilities -- 20 -- 89
---------------------------------------
Debt-net $ 9,221 $ 8,705 $ 8,695 $ 9,000
---------------------------------------
- -------------------------------------------------------------------------
</TABLE>
10
NOTE 10: PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION
- --------------------------------------------------------------------------------
U S WEST has 50,000,000 authorized shares of preferred stock. On
September 2, 1994, U S WEST issued to Fund American Enterprises Holdings Inc.
("FFC") 50,000 shares of a class of newly created 7 percent Series B Cumulative
Redeemable Preferred Stock for a total of $50. (See Note 17 to the Consolidated
Financial Statements.) The preferred stock was recorded at fair market value of
$51.
U S WEST has the right, commencing five years from September 2, 1994, to redeem
the shares for one thousand dollars per share plus unpaid dividends and a
redemption premium. The shares are mandatorily redeemable in year 10 at face
value plus unpaid dividends. At the option of FFC, the preferred stock also can
be redeemed for common shares of Financial Security Assurance, a member of the
Capital Assets segment.
U S WEST
45
<PAGE> 48
U S W E S T I N C.
--------------------
11
NOTE 11: SHAREOWNERS' EQUITY
- --------------------------------------------------------------------------------
COMMON STOCK At December 31, 1994, the company held 7,537,372 treasury shares
with a cost basis of $163, or $21.63 per share.
On December 6, 1994, 12,779,206 shares of U S WEST common stock were
issued to, or in the name of, the holders of Wometco Cable Corp. in accordance
with a merger agreement. (See Note 2 to the Consolidated Financial Statements.)
In connection with the settlement of shareowner litigation ("Rosenbaum
v. U S WEST Inc. et al."), the company issued approximately 5.5 million shares
of U S WEST common stock in March 1994 to class members connected with this
litigation.
U S WEST issued, to certified class members, non-transferable rights
to purchase shares of common stock directly from U S WEST, on a commission-free
basis, at a 3 percent discount from the average of the high and low trading
prices of such stock on the New York Stock Exchange on February 23, 1994, the
pricing date designated in accordance with the settlement. U S WEST received
net proceeds of $210 from the offering.
During fourth quarter 1993, the company issued 22 million additional
shares of U S WEST common stock for net cash proceeds of $1,020. The company
used the net proceeds to reduce short-term indebtedness, including indebtedness
incurred from the TWE investment, and for general corporate purposes.
LEVERAGED EMPLOYEE STOCK OWNERSHIP PLANS (LESOP) U S WEST maintains employee
savings plans for management and occupational employees under which the company
matches a certain percentage of eligible contributions made by the employees
with shares of company stock. The company established two LESOPs in 1989 to
provide the company stock used for matching contributions to the savings plans.
The long-term debt of the LESOP trusts, which is unconditionally
guaranteed by the company, is included in the accompanying consolidated balance
sheets and corresponding amounts have been recorded as reductions to common
shareowners' equity. The trusts will repay the debt with company contributions
and certain dividends received on shares of the company's common stock held by
the LESOP. Total company contributions to the trusts (excluding dividends) were
$80, $75 and $78 in 1994, 1993 and 1992, respectively, of which $19, $24 and
$28, respectively, have been classified as interest expense. The company
recognizes expense based on the cash payments method. Dividends on unallocated
shares held by the LESOP were $11, $14 and $17 in 1994, 1993 and 1992,
respectively.
SHAREHOLDER RIGHTS PLAN The board of directors of the company has adopted a
shareholder rights plan which, in the event of a takeover attempt, would
entitle existing shareowners to certain preferential rights. The rights expire
on April 6, 1999, and are redeemable by the company at any time prior to the
date they would become effective.
SHARE REPURCHASE Subsequent to the acquisition of the Atlanta Cable Properties
(See Note 2 to the Consolidated Financial Statements), the company announced
its intention to purchase U S WEST common shares in the open market up to an
amount equal to those issued in conjunction with the acquisition, subject to
market conditions. In December 1994, the company purchased 550,400 shares of U
S WEST common stock at an average price per share of $36.30.
U S WEST
46
<PAGE> 49
1 9 9 4
--------------------
12
NOTE 12: PARTIAL SALE OF JOINT VENTURE INTEREST
- --------------------------------------------------------------------------------
TeleWest Communications plc ("TeleWest"), the cable television/ telephone joint
venture in the United Kingdom owned by U S WEST and Tele-Communications Inc.,
made an initial public offering of its ordinary shares in November 1994.
Following the offering, in which U S WEST sold 24.4 percent of its joint
venture interest, U S WEST owns approximately 37.8 percent of TeleWest. Net
proceeds of approximately $650 will be used by TeleWest to finance construction
and operations costs, invest in affiliated companies and repay debt. It is the
company's policy to recognize as income any gains or losses related to the sale
of investee stock. U S WEST recognized a gain of $105 in 1994, net of $59 in
deferred taxes, for the partial sale of its joint venture interest in TeleWest.
13
NOTE 13: STOCK INCENTIVE PLANS
- --------------------------------------------------------------------------------
U S WEST maintains stock incentive plans for executives and key employees, and
non-employees. The 1994 Stock Plan was approved by shareowners on May 6, 1994.
The 1994 Stock Plan is a successor plan to the USWEST Inc. Stock Incentive Plan
and the USWEST1991 Stock Incentive Plan (The "Predecessor Plans"). No further
grants of options or restricted stock may be made under the Predecessor Plans.
The plan is administered by the Human Resources Committee of the board of
directors with respect to officers, executive officers and outside directors
and by a special committee with respect to all other eligible employees and
eligible non-employees. The maximum aggregate number of shares of common stock
of the company that may be granted in any calendar year for all purposes under
the plan will be three-quarters of 1 percent of the shares of common stock
outstanding (excluding shares of such common stock held in the company's
treasury) on the first day of such calendar year. In the event that fewer than
the full aggregate number of shares of common stock available for issuance in
any calendar year are issued, the shares not issued will be added to the shares
available for issuance in any subsequent year or years. Options may be
exercised no later than 10 years after the date on which the option was
granted. A total of 8,300,853 shares of U S WEST common stock were reserved for
issuance under the 1994 Stock Plan and the Predecessor Plans at December 31,
1994.
Data for outstanding options under the plan is summarized as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Number of Average
Shares* Option Price
---------------------------
<S> <C> <C>
Outstanding January 1, 1992 3,420,406 $ 33.97
- ----------------------------------------------------------------
Granted 1,410,311 38.13
Exercised (327,221) 26.15
Canceled or expired (53,346) 36.17
---------------------------
Outstanding December 31, 1992 4,450,150 35.81
- ----------------------------------------------------------------
Granted 1,486,106 48.83
Exercised (412,444) 31.73
Canceled or expired (222,273) 36.87
---------------------------
Outstanding December 31, 1993 5,301,539 39.76
- ----------------------------------------------------------------
Granted 2,438,409 36.15
Exercised (139,762) 33.72
Canceled or expired (214,149) 40.71
---------------------------
Outstanding December 31, 1994 7,386,037 $ 38.66
---------------------------
- ----------------------------------------------------------------
</TABLE>
* Includes options granted in tandem with SARs.
Options to purchase 2,374,394 and 1,412,791 shares were exercisable at
December 31, 1994 and 1993, respectively. A total of 914,816 and 8,649,750
shares of U S WEST common stock were available for grant under the plans in
effect at December 31, 1994 and 1993, respectively.
U S WEST
47
<PAGE> 50
U S W E S T I N C.
--------------------
14
NOTE 14: EMPLOYEE BENEFITS
- --------------------------------------------------------------------------------
PENSION PLAN Effective January 1, 1993, U S WEST merged its two defined
benefit pension plans, covering substantially all management and occupational
employees, in a single plan. Management benefits are based on a final pay
formula, while occupational benefits are based on a flat benefit formula. U S
WEST uses the projected unit credit method for the determination of pension
cost for financial reporting purposes and the aggregate cost method for funding
purposes. No funding was required in 1994, 1993 or 1992.
The composition of the net pension credit and the actuarial
assumptions of the plan follow:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Year Ended December 31, 1994 1993 1992
---------------------------------
<S> <C> <C> <C>
Details of pension credit:
Service cost -- benefits
earned during the period $ 197 $ 148 $ 141
Interest cost on projected
benefit obligation 561 514 480
Actual return on plan assets 188 (1,320) (411)
Net amortization and deferral (946) 578 (318)
---------------------------------
Net pension credit $ 0 $ (80) $ (108)
---------------------------------
- ----------------------------------------------------------------
</TABLE>
The expected long-term rate of return on plan assets used in
determining net pension cost was 8.50 percent for 1994, 9.00 percent for 1993
and 9.25 percent for 1992.
The funded status of the plan follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
December 31, 1994 1993
-------------------------
<S> <C> <C>
Accumulated benefit obligation,
including vested benefits of
$5,044 and $5,286, respectively $ 5,616 $ 5,860
-------------------------
- ----------------------------------------------------------------
Plan assets at fair value,
primarily stocks and bonds $ 8,388 $ 8,987
Less: Projected benefit obligation 7,149 7,432
-------------------------
Plan assets in excess of projected
benefit obligation 1,239 1,555
Unrecognized net (gain) loss 161 (70)
Prior service cost not yet recognized in
net periodic pension cost (67) (72)
Balance of unrecognized net asset
at January 1, 1987 (785) (865)
-------------------------
Prepaid pension asset $ 548 $ 548
-------------------------
- ----------------------------------------------------------------
</TABLE>
The actuarial assumptions used to calculate the projected
benefit obligation follow:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
December 31, 1994 1993
-------------------------
<S> <C> <C>
Discount rate 8.00 7.25
Average rate of increase in future
compensation levels 5.50 5.50
- ----------------------------------------------------------------
</TABLE>
Anticipated future benefit changes have been reflected in the above
calculations.
U S WEST
48
<PAGE> 51
1 9 9 4
--------------------
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS U S WEST and most of its
subsidiaries provide certain health care and life insurance benefits to retired
employees. Effective January 1, 1992, U S WEST adopted SFAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which mandates
that employers reflect in their current expenses the cost of providing
retirement medical and life insurance benefits to current and future retirees.
Prior to 1992, U S WEST recognized these costs as they were paid. Adoption of
SFAS No. 106 resulted in a one-time, non-cash charge against 1992 earnings of
$1,741 net of a deferred income tax benefit of $1,038, for the prior service of
active and retired employees. The effect on 1992 income from continuing
operations of adopting SFAS No. 106 was approximately $47, or $.11 per share.
In conjunction with the adoption of SFAS No. 106, for financial
reporting purposes, the company elected to immediately recognize the
accumulated postretirement benefit obligation for current and future retirees,
net of the fair value of plan assets. However, the Federal Communications
Commission and certain state jurisdictions permit amortization of the
transition obligation over the average remaining service period of active
employees for regulatory accounting purposes.
U S WEST uses the projected unit credit method for the determination
of postretirement medical costs for financial reporting purposes. The
composition of net postretirement benefit costs and actuarial assumptions
underlying plan benefits follow:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1994 1993 1992
---------------------------------------------------------------------------------------
Medical Life Total Medical Life Total Medical Life Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service cost -- benefits earned during
the period $ 62 $ 13 $ 75 $ 60 $ 11 $ 71 $ 57 $ 10 $ 67
Interest on accumulated benefit obligation 221 39 260 235 36 271 223 33 256
Actual return on plan assets 3 1 4 (73) (52) (125) (19) (29) (48)
Net amortization and deferral (68) (31) (99) 27 22 49 -- -- --
---------------------------------------------------------------------------------------
Net postretirement benefit costs $ 218 $ 22 $ 240 $ 249 $ 17 $ 266 $261 $ 14 $ 275
---------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The expected long-term rate of return on plan assets used in
determining net postretirement benefit costs was 8.50 percent for 1994 and 9.00
percent in 1993 and 1992.
The funded status of the plan follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 1993
--------------------------------------------------------------
Medical Life Total Medical Life Total
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accumulated postretirement benefit obligation attributable to:
Retirees $ 1,733 $248 $ 1,981 $1,795 $ 311 $ 2,106
Fully eligible plan participants 264 38 302 274 48 322
Other active plan participants 940 135 1,075 983 170 1,153
--------------------------------------------------------------
Total accumulated postretirement benefit obligation 2,937 421 3,358 3,052 529 3,581
Unrecognized net gain (loss) 243 90 333 65 (25) 40
Fair value of plan assets, primarily stocks, bonds and
life insurance (1) (894) (374) (1,268) (613) (388) (1,001)
--------------------------------------------------------------
Accrued postretirement benefit obligation $ 2,286 $137 $ 2,423 $2,504 $ 116 $ 2,620
--------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Medical plan assets include U S WEST common stock of $164 in 1994.
The actuarial assumptions used to calculate the accumulated postretirement
benefit obligation follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
December 31, 1994 1993
--------------------
<S> <C> <C>
Discount rate 8.00 7.25
Medical trend* 9.70 10.30
- --------------------------------------------------------------
</TABLE>
* Medical cost trend rate gradually declines to an ultimate rate of 6 percent in
2006.
A 1-percent increase in the assumed health care cost trend rate for
each future year would have increased the aggregate of the service and interest
cost components of 1994 net postretirement benefit cost by approximately $50
and increased the 1994 accumulated postretirement benefit obligation by
approximately $450.
For USWC, the annual amount funded will generally follow the amount of
expense allowed in regulatory jurisdictions.
Anticipated future benefit changes have been reflected in these
postretirement benefit calculations.
OTHER POSTEMPLOYMENT BENEFITS U S WEST adopted, effective January 1, 1992,
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." SFAS No. 112
requires that employers accrue for the estimated costs of benefits, such as
workers' compensation and disability, provided to former or inactive employees
who are not eligible for retirement. Adoption of SFAS No. 112 resulted in a
one-time, non-cash charge against 1992 earnings of $53, net of a deferred
income tax benefit of $32.
U S WEST
49
<PAGE> 52
U S W E S T I N C.
--------------------
15
NOTE 15: INCOME TAXES
- --------------------------------------------------------------------------------
The components of the provision for income taxes follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Year Ended December 31, 1994 1993 1992
------------------------------
<S> <C> <C> <C>
Federal:
Current $ 418 $ 422 $ 427
Deferred 351 (145) 46
Investment tax credits - net (47) (56) (63)
------------------------------
722 221 410
------------------------------
State and local:
Current 52 71 62
Deferred 83 (23) 21
------------------------------
135 48 83
------------------------------
Provision for income taxes $ 857 $ 269 $ 493
------------------------------
- --------------------------------------------------------------
</TABLE>
Amounts paid for income taxes were $313, $391 and $459 in 1994, 1993
and 1992, respectively, inclusive of discontinued operations.
The effective tax rate differs from the statutory tax rate as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Year Ended December 31,
In percent 1994 1993 1992
------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35.0 35.0 34.0
Investment tax credit amortization (1.3) (3.0) (4.2)
State income taxes -
net of federal effect 3.9 4.0 3.5
Rate differential on reversing
temporary differences -- (2.2) (3.1)
Depreciation on capitalized
overheads - net -- 1.4 2.1
Tax law change - catch-up adjustment -- 3.1 --
Restructuring charge -- (1.5) --
Other (0.1) (0.7) (0.9)
------------------------------
Effective tax rate 37.5 36.1 31.4
------------------------------
- --------------------------------------------------------------
</TABLE>
The components of the net deferred tax liability follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
December 31, 1994 1993
-----------------------
<S> <C> <C>
Property, plant and equipment $ 1,504 $ 1,340
Leases 690 663
State deferred taxes - net of
federal effect 395 277
Intangible assets 164 --
Investment in partnerships 142 46
Other 84 94
-----------------------
Deferred tax liabilities 2,979 2,420
-----------------------
Postemployment benefits, including
pension 718 736
Restructuring, discontinued
operations and other 417 620
Unamortized investment tax credit 79 94
State deferred taxes - net of
federal effect 232 220
Other 317 260
-----------------------
Deferred tax assets 1,763 1,930
-----------------------
Net deferred tax liability $ 1,216 $ 490
-----------------------
- --------------------------------------------------------------
</TABLE>
The current portion of the deferred tax asset was $352 and $336 at
December 31, 1994 and 1993, respectively, resulting primarily from
restructuring charges and compensation-related items.
On August 10, 1993, federal legislation was enacted that increased the
corporate tax rate from 34 percent to 35 percent retroactive to January 1,
1993. The cumulative effect on deferred taxes of the 1993 increase in income
tax rates was $74, including $20 for discontinued operations.
The net deferred tax liability includes $678 in 1994 and $607 in 1993
related to discontinued operations.
U S WEST
50
<PAGE> 53
1 9 9 4
--------------------
16
NOTE 16: COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
At USWC, 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 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. This case 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 to USWC is $0 to $140.
U S WEST has issued letters of credit, which expire in July 1995, in
conjunction with its investment in Binariang Sdn Bhd, a Malaysian
telecommunications company, totaling $110.
17
NOTE 17: DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
During second quarter 1993, the U S WEST board of directors approved a plan to
dispose of the Capital Assets segment through the sale of segment assets and
businesses. Accordingly, the company recorded an after-tax charge of $100, or
$.24 per share, for the estimated loss on disposition. An additional provision
of $20, or $.04 per share, is related to the effect of the 1993 increase in
federal income tax rates. The Capital Assets segment includes activities
related to financial services and financial guarantee insurance operations.
Also included in the segment is U S WEST Real Estate Inc., for which
disposition was announced in 1991 and a $500 valuation allowance was
established to cover both carrying costs and losses on disposal of related
properties. The entire Capital Assets segment has been accounted for as
discontinued operations in accordance with Accounting Principles Board Opinion
No. 30.
During 1994, U S WEST reduced its ownership interest in Financial
Security Assurance ("FSA"), a member of the Capital Assets segment, to 60.9
percent, and its voting interest to 49.8 percent through a series of
transactions. In May and June 1994, U S WEST sold 8.1 million shares of FSA,
including 2.0 million shares to Fund American Enterprises Holdings Inc.
("FFC"), in an initial public offering of FSA common stock at $20 per share. U
S WEST received $154 in net proceeds from the offering. On September 2, 1994,
U S WEST issued to FFC 50,000 shares of cumulative redeemable preferred stock
for a total of $50. (See Note 10 to the Consolidated Financial Statements.)
FFC's voting interest in FSA is 21.0 percent, achieved through a combination of
direct share ownership of common and preferred FSA shares, and a voting trust
agreement with U S WEST. The company retained certain risks in asset-backed
obligations related to the commercial real estate portfolio.
FFC has a right of first offer and a call right to purchase from U S
WEST up to 9.0 million shares, or approximately 57 percent, of outstanding FSA
stock held by U S WEST. U S WEST anticipates its ownership will be further
reduced by 1996.
During 1994, U S WEST Real Estate sold 12 buildings, six parcels of
land and other assets for approximately $327. An additional property was sold
in January 1995 for approximately $37. During 1993, five properties were sold
for approximately $66. The sales were in line with company estimates. Proceeds
from building sales were primarily used to pay related debt. U S WEST has
completed all construction of existing buildings in the commercial real estate
portfolio and expects to substantially complete the liquidation of its
portfolio by 1998. The remaining balance of assets subject to sale is
approximately $607, net of reserves.
In December 1993, the company sold $2.0 billion of finance receivables
and the business of U S WEST Financial Services to NationsBank Corporation.
Sales proceeds of $ 2.1 billion were used primarily to repay related debt. The
pretax gain on the sale of approximately $100, net of selling expenses, was in
line with management's estimate and was included in the company's estimate of
provision for loss on disposal. The management team that previously operated
the entire Capital Assets segment transferred to NationsBank.
U S WEST
51
<PAGE> 54
U S W E S T I N C.
--------------------
Building sales and operating revenues of discontinued operations were
$553 in 1994, $710 in 1993 and $672 in 1992. Income from discontinued
operations for 1993 (to June 1) and 1992 totaled $38 and $103, respectively.
Income (loss) from discontinued operations subsequent to June 1, 1993 is being
deferred and was included within the provision for loss on disposal.
<TABLE>
<CAPTION>
NET ASSETS OF DISCONTINUED OPERATIONS
- --------------------------------------------------------------
December 31, 1994 1993
-----------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 7 $ 24
Finance receivables - net 1,073 1,131
Investment in real estate -
net of valuation allowance 465 711
Investments in securities at
market value 155 895
Investment in FSA 329 --
Other assets 362 600
-----------------------
Total assets $ 2,391 $ 3,361
-----------------------
Liabilities
Debt $ 1,283 $ 1,496
Deferred income taxes 693 681
Accounts payable, accrued liabilities
and other 103 244
Unearned premiums -- 346
Minority interests 10 40
-----------------------
Total liabilities 2,089 2,807
-----------------------
Net assets of discontinued operations $ 302 $ 554
-----------------------
- --------------------------------------------------------------
</TABLE>
The assets and liabilities of the Capital Assets segment have been
separately classified on the consolidated balance sheets as net assets of
discontinued operations.
Finance receivables primarily consist of contractual obligations under
long-term leases that the company intends to run off. These long-term leases
primarily consist of investments in leveraged leases related to aircraft and
power plants. For leveraged leases, the cost of the assets leased is financed
primarily through non-recourse debt that is netted against the related lease
receivable.
The components of finance receivables follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
December 31, 1994 1993
------------------------
<S> <C> <C>
Receivables $ 1,095 $ 1,208
Unguaranteed estimated residual values 467 477
------------------------
1,562 1,685
Less: Unearned income 459 490
Credit loss and other allowances 30 64
------------------------
Finance receivables - net $ 1,073 $ 1,131
------------------------
- --------------------------------------------------------------
</TABLE>
Investments in securities, which are designated as available for sale,
are carried at market value. Any resulting unrealized gains or losses, net of
applicable deferred income taxes, are reflected as a component of common
shareowners' equity. The 1994 net unrealized loss of $64 (net of a deferred tax
benefit of $34) and the 1993 net unrealized gain of $35 (net of deferred taxes
of $19), are included in common shareowners' equity.
The amortized cost and estimated market value of investments in
securities follow:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 December 31, 1993
------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Carrying Unrealized Unrealized Fair Carrying Unrealized Unrealized Fair
Marketable Securities Amount Gains Losses (1) Value Amount Gains Losses Value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal $113 -- $ 13 $ 100 $ 742 $ 51 $ 1 $ 792
Other 65 -- 10 55 99 4 -- 103
------------------------------------------------------------------------------------------------
Total $178 -- $ 23 $ 155 $ 841 $ 55 $ 1 $ 895
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Common shareowners' equity at December 31, 1994, also includes a net
unrealized loss on marketable securities of $49 (net of a deferred tax
benefit of $26), associated with the company's equity investment in FSA.
U S WEST
52
<PAGE> 55
1 9 9 4
--------------------
Debt Interest rates and maturities of debt associated with discontinued
operations at December 31 follow:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Maturities
-------------------------------------------------------- Total Total
Interest rates 1995 1996 1997 1998 1999 Thereafter 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Up to 5% $ 50 $ -- $ -- $ -- $ -- $ 5 $ 55 $ 496
Above 5% to 6% 5 -- 10 -- -- -- 15 5
Above 6% to 7% 100 -- 54 -- -- -- 154 54
Above 7% to 8% 7 5 5 -- -- -- 17 26
Above 8% to 9% -- 35 -- -- 150 4 189 264
Above 9% to 10% 61 -- 48 5 -- -- 114 177
Above 10% -- -- -- 29 -- -- 29 29
Commercial paper rates -- -- -- -- -- -- -- 30
========================================================
$ 223 $ 40 $ 117 $ 34 $ 150 $ 9 573 1,081
Allocated from continuing operations - net 710 415
------------------------
Total $ 1,283 $1,496
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Debt of $119 and $124 at December 31, 1994 and 1993, respectively, was
collateralized by first deeds of trust on associated real estate, assignment of
rents from leases, and operating and management agreements.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET CREDIT RISK - FINANCIAL GUARANTEES
The company retained certain risks in asset-backed obligations related to the
commercial real estate portfolio. The principal amounts insured on the
asset-backed and municipal obligations follow. The 1994 amounts do not include
the financial guarantees for FSA, which is now accounted for under the equity
method.
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Asset-Backed (1) Municipal (2)
December 31, December 31,
---------------------------------------
Term to Maturity 1994 1993 1994 1993
---------------------------------------
<S> <C> <C> <C> <C>
0 to 5 Years $ 540 $ 5,955 -- $ 1,888
5 to 10 Years 537 2,050 -- 2,771
10 to 15 Years 391 1,286 -- 2,176
15 to 20 Years -- 593 -- 2,346
20 and Above -- 2,501 -- 4,606
---------------------------------------
Total $ 1,468 $ 12,385 -- $ 13,787
---------------------------------------
- -------------------------------------------------------------
</TABLE>
(1) Excludes amounts ceded to other insurers of $6,210 in 1993 and includes $25
of assumed obligations in 1993.
(2) Excludes amounts ceded to other insurers of $5,576 in 1993 and includes
$1,218 of assumed obligations in 1993.
The principal amount of insured obligations in the municipal
portfolio, net of amounts ceded, include the following types of issues:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
December 31,
Type of Issue 1994 1993
-----------------------
<S> <C> <C>
General obligation $ -- $ 3,487
Tax-backed revenue -- 2,919
Housing revenue -- 1,879
Municipal utility revenue -- 1,783
Health care revenue -- 1,399
Transportation revenue -- 710
Other -- 1,610
-----------------------
Total $ -- $ 13,787
- -------------------------------------------------------------
</TABLE>
Concentrations of collateral associated with insured asset-backed
obligations, net of amounts ceded, follow:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
December 31,
Type of Collateral 1994 1993
-----------------------
<S> <C> <C>
Residential mortgages $ -- $ 3,874
Consumer receivable -- 1,443
Securities:
Government debt -- 2,039
Non-government securities -- 1,709
Commercial mortgages:
Commercial real estate 530 809
Corporate secured 888 1,018
Investor-owned utility first
mortgage bonds -- 772
Other asset-backed 50 721
-----------------------
Total $ 1,468 $ 12,385
-----------------------
- -------------------------------------------------------------
</TABLE>
U S WEST
53
<PAGE> 56
U S W E S T I N C.
--------------------
ADDITIONAL FINANCIAL INFORMATION Information for U S WEST Financial Services
Inc., a member of the discontinued segment, follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Year Ended December 31,
Summarized Operating Results 1994 1993 1992
-----------------------------
<S> <C> <C> <C>
Revenues $ 54 $ 410 $ 302
Income before parent support
and income taxes * * 83
Income before parent support * * 55
Net income * * 55
- -------------------------------------------------------------
</TABLE>
* Results of Financial Services are included in discontinued operations
<TABLE>
<CAPTION>
- -------------------------------------------------------------
December 31,
Summarized Financial Position 1994 1993
----------------------
<S> <C> <C>
Net finance receivables $ 981 $ 1,020
Total assets 1,331 1,797
Total debt 533 957
Total liabilities 1,282 1,748
Shareowners' equity 49 49
- -------------------------------------------------------------
</TABLE>
18
NOTE 18: QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
Quarterly financial data, and per share market and dividend data,
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarterly Financial Data Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Sales and other revenues $2,641 $2,708 $ 2,765 $2,839
Income from continuing operations before income taxes 522 609 514 638
Income from continuing operations and net income 324 375 318 409
Earnings per common share 0.73 0.83 0.70 0.89
- ------------------------------------------------------------------------------------------------------------------------------------
1993
Sales and other revenues $2,510 $2,541 $ 2,577 $2,666
Income (loss) from continuing operations before income taxes 449 436 (534) 394
Income (loss) from continuing operations 296 291 (375) 264
Net income (loss) 316 159 (3,545) 264
Earnings (loss) per common share from continuing operations 0.71 0.70 (0.90) 0.62
Earnings(loss) per common share 0.76 0.38 (8.50) 0.62
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1994 first-quarter income from continuing operations includes $15 ($.03 per
share) for a gain on the sale of certain rural telephone exchanges. 1994
second-quarter net income includes gains of $16 ($.04 per share) and $41 ($.09
per share) for the sales of certain rural telephone exchanges and paging
operations, respectively. 1994 fourth-quarter net income includes gains of $105
($.23 per share) for the partial sale of a joint venture interest and $20 ($.04
per share) for the sale of certain rural telephone exchanges.
1993 second-quarter net income was reduced by $100 ($.24 per share) for a
charge related to discontinued operations and $50 ($.12 per share) for the
early extinguishment of debt. 1993 third-quarter net loss includes a
restructuring charge of $610 ($1.46 per share) and $74 ($.18 per share),
including $20 ($.05 per share) related to discontinued operations, for the
cumulative effect on deferred taxes of the 1993 federally mandated increase in
income tax rates. 1993 third-quarter net loss also includes extraordinary
charges of $3,123 ($7.49 per share) for the discontinuance of SFAS No. 71, and
$27 ($.06 per share) for the early extinguishment of debt.
1993 net income (loss) related to discontinued operations was $20 ($.05 per
share) and ($82) ($.20 per share) for the first and second quarters,
respectively. Income (loss) subsequent to June 1, 1993, is being deferred and
was included within the provision for loss on disposal of the Capital Assets
segment.
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Per share Market and Market Price
Dividend Data --------------------------
(Whole dollars) High Low Close Dividends
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
First $46.250 $ 38.500 $40.750 $ 0.535
Second 43.750 38.250 41.875 0.535
Third 43.125 38.250 38.750 0.535
Fourth 38.875 34.625 35.625 0.535
- -------------------------------------------------------------
1993
First $43.875 $ 37.750 $43.625 $ 0.535
Second 46.000 40.625 45.875 0.535
Third 49.375 44.500 49.250 0.535
Fourth 50.750 45.750 45.875 0.535
- -------------------------------------------------------------
</TABLE>
U S WEST
54
<PAGE> 57
1 9 9 4
--------------------
U S WEST Board of Directors
[PICTURE]
Dick Cheney (54)
A former secretary of Defense in the Bush administration, he is a senior fellow
with the American Enterprise Institute in Washington, D.C. The former five-term
congressman from Wyoming also served as chief of staff for President Ford. Mr.
Cheney joined the U S WEST board in 1993.
[PICTURE]
Remedios Diaz-Oliver (56)
The chief executive officer and president of All American Container Inc., which
sells and distributes glass, plastic and metal containers for a variety of
products worldwide. Ms. Diaz-Oliver joined the U S WEST board in 1988.
[PICTURE]
Grant A. Dove (66)
The managing partner of Technology Strategies and Alliances, a strategic
planning and investment banking firm. Mr. Dove spent nearly 30 years in a
number of executive positions with Texas Instruments. He joined the U S WEST
board in 1988 and chairs the Human Resources Committee.
[PICTURE]
Allan D. Gilmour (60)
The former vice chairman of the Ford Motor Company, Mr. Gilmour held several
executive assignments since joining Ford in 1960. He served as the company's
chief financial officer before taking over leadership of its international
automotive operations and, later, the Ford Automotive Group. He joined the U S
WEST board in 1992.
[PICTURE]
Pierson M. Grieve (67)
The chairman and chief executive officer of Ecolab Inc., a leading worldwide
developer and marketer of premium cleaning, sanitizing and maintenance products
and services for the hospitality, institutional and res-idential markets. He
joined the U S WEST board in 1990, and chairs the Board Affairs Committee.
[PICTURE]
Shirley M. Hufstedler (69)
A partner in the law firm of Hufstedler, Kaus & Ettinger. She served as
secretary of Education during the Carter administration and, for 11 years, as a
judge for the 9th U.S. Circuit Court of Appeals. Ms. Hufstedler joined the U S
WEST board in 1983, and chairs the Public Policy Committee.
[PICTURE]
Allen F. Jacobson (68)
The former chairman and chief executive officer of 3M. Mr. Jacobson has been a
member of the U S WEST board since 1983, and chairs the Corporate Development
and Finance Committee.
[PICTURE]
Richard D. McCormick (54)
Named president and chief executive officer of U S WEST January 1, 1991, and
chairman of the board May 1, 1992. Mr. McCormick was president of Northwestern
Bell Telephone Company before joining U S WEST as executive vice president in
1985. He became a member of the company's board in 1986.
[PICTURE]
Marilyn Carlson Nelson (55)
The vice chair of Carlson Holdings Inc., a group of com-panies involved in
marketing services, travel and hospitality services. Ms. Nelson is also chair
of Citizens State Bank of Waterville, Minn., and Montgomery, Minn. She joined
the U S WEST board in 1993.
[PICTURE]
Frank Popoff (59)
The chairman and chief executive officer of The Dow Chemical Company. Since
joining Dow Chemical in 1959, he also served as the company's president and
chief operating officer and executive vice president for international
operations. Mr. Popoff joined the U S WEST board in 1993.
[PICTURE]
Glen L. Ryland (70)
The president of RYCO Inc. He is former chairman, president and chief executive
officer of Frontier Holdings Inc., and its principal subsidiary, Frontier
Airlines. He joined the U S WEST board in 1983, and chairs the Audit Committee.
[PICTURE]
Jerry O. Williams (56)
The president and chief executive officer of Grand Eagle Enterprises Inc., a
private investment group. Mr. Williams is former president and chief operating
officer of AM International Inc., a manufacturer and seller of design, display,
reproduction and finishing products and supplies in the graphics industry. He
joined the U S WEST board in 1988.
[PICTURE]
Daniel Yankelovich (70)
The founder and chairman of DYG Inc., a leading market research firm. He also
founded Yankelovich, Skelly and White, one of the nation's largest opinion
research organiza-tions. Mr. Yankelovich joined the U S WEST board in 1983, and
chairs the Trust Investment Committee.
In Memoriam
U S WEST lost two valued members
of its family - Mary M. Gates and Jack D. Sparks -
since the 1994 annual meeting.
Ms. Gates, a member of the
U S WEST board since 1992, passed away June 9, 1994.
She also served as a director of the
U S WEST NewVector Group from 1990 to 1991, and
of Pacific Northwest Bell from 1979 to 1988.
Mr. Sparks, who retired from the
U S WEST board in 1993, passed away Dec. 22, 1994.
The former chairman, chief executive officer and
president of the Whirlpool Corporation, he was elected to
the U S WEST board in 1985.
Their experience and insights were invaluable,
and they will be missed.
U S WEST
--------------------
55
<PAGE> 58
U S W E S T I N C.
--------------------
Executive and Subsidiary Officers
<TABLE>
<S> <C>
Richard D. McCormick* James H. Stever*
Chairman, President and Executive Vice President and
Chief Executive Officer Acting Chief Human Resources Officer
A. Gary Ames* James T. Anderson*
President and Chief Executive Officer Vice President and Treasurer
U S WEST Communications Group
Lorne G. Rubis*
Richard J. Callahan* Vice President
Executive Vice President, U S WEST; Quality
President, U S WEST International and
Business Development Group Judith A. Servoss*
Vice President
Charles M. Lillis* Public Relations
Executive Vice President, U S WEST;
President and Chief Executive Officer, H. Laird Walker
U S WEST Diversified Group Vice President
Federal Relations
James M. Osterhoff*
Executive Vice President and Thomas E. Pardun
Chief Financial Officer President and Chief Executive Officer
U S WEST Multimedia Group
Charles P. Russ III*
Executive Vice President, Jan Peters
General Counsel and Secretary Chief Operating Officer
U S WEST NewVector Group
C. Scott McClellan*
Acting Executive Vice President Solomon D. Trujillo
Public Policy President and Chief Executive Officer
U S WEST Marketing Resources Group
Pearre Williams
President
Corporate Development Division
* Executive officer
</TABLE>
The U S WEST Foundation
During 1994 the U S WEST Foundation invested more than $25 million in
education,
economic development, arts and community-betterment projects in the 14 states
served by U S WEST Communications.
The Foundation also moved in a new direction: encouraging innovative programs
to meet community needs through information technologies.
For more information on the foundation, please call (800) 843-3383
U S WEST
--------------------
56
<PAGE> 59
SHAREOWNER INFORMATION
<TABLE>
<S> <C>
U S WEST Shareowner Services Expected Dividend
If you have questions about your Record Dates
U S WEST account or need to April 19, 1995
make changes, please write: July 20, 1995
October 20, 1995
For general information, transfers, January 19, 1996
the U S WEST Investor's
Handbook or the company's Expected Dividend
current Form 10-K Report: Payment Dates
U S WEST May 1, 1995
P.O. Box 8935 August 1, 1995
Boston, MA 02266-8935 November 1, 1995
February 1, 1996
For dividend reinvestment:
U S WEST Annual Meeting
P.O. Box 8936
Boston, MA 02266-8936 The annual meeting of share-
owners will be held at 10 a.m.
Shareowner Toll-Free Numbers: Friday, May 5, 1995, at the
For information or inquiries, Boise Centre, 850 West Front Street,
call 1-800-537-0222. For recorded Boise, Idaho 83702.
messages about the company's A signer will be at the meeting to
activities, call 1-800-449-0000. assist the hearing impaired.
Shareowners calling from Alaska, Stock Exchange Listings
Hawaii or outside the United U S WESTcommon stock is listed
States, please call collect: on the New York, Pacific, London,
0-505-989-2004. Zurich, Basel, Geneva, Amsterdam
and Tokyo stock exchanges.
Shareowner Investment Plan USWEST's ticker symbol is
Shareowners can reinvest their "USW," and the company is listed
dividends and/or make optional in newspaper stock tables under
payments for a fee of $1.00 per USWEST.
account, per quarter. Contact
U S WEST Shareowner Services Corporate Headquarters
for enrollment information. U S WEST Inc.
7800 East Orchard Road
P.O. Box 6508
Englewood, CO 80155-6508
303-793-6500
(C) Printed on recycled paper. (C) 1995 U S WEST Inc.
</TABLE>
<PAGE> 60
USWEST
7800 EAST ORCHARD ROAD
P.O. BOX 6508
ENGLEWOOD, CO 80155-6508
<PAGE> 61
APPENDIX TO EXHIBIT 13
Furnished in Accordance With Rule 304 of Regulation S-T
NARRATIVE DESCRIPTION OF
GRAPHIC AND IMAGE INFORMATION IN
U S WEST'S 1994 ANNUAL REPORT TO STOCKHOLDERS
<TABLE>
<CAPTION>
Page of
Annual
Report Description
- --------- --------------
<S> <C>
Front Cover Centered on the page, in portrait style, within a border containing a background of numbers 1
through 9 and the words "results, growth, value, cash, yield and performance," is the following
text:
"U S WEST
--------
Making
the
RIGHT
Connections
--------
Annual Report
1994"
1 A bar graph illustrating U S WEST revenues for the years 1990 through 1994, as follows: 1990,
$9,369 million; 1991, $9,528 million; 1992, $9,823 million; 1993, $10,294 million; and 1994,
$10,953 million.
1 A bar graph illustrating normalized income from continuing operations for the years 1990
through 1994 (excluding one-time items described in Note 1), as follows: 1990, $1,145 million;
1991, $1,070 million; 1992, $1,076 million; 1993, $1,140 million; and 1994, $1,229 million.
2 Picture of Richard D. McCormick beneath a caption which reads:
"Chairman and Chief Executive Officer Richard D. McCormick looks back on the highlights and
challenges of 1994, and ahead to a larger, more exciting role for the company in "connecting
people with their world."
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
Page of
Annual
Report Description
- --------- --------------
<S> <C>
3 A bar graph illustrating annual percentage growth and year-end access lines (in millions), respectively,
of U S WEST Communications, Inc. for the years 1990 through 1994 (excluding the effects of 1994
rural exchange sales), as follows: 1990, 2.8%/12.6; 1991, 3.0%/12.9; 1992, 3.2%/13.3; 1993, 3.7%/13.8;
and 1994, 4.0%/14.3.
3 A bar graph illustrating annual percentage growth and year-end cellular subscribers (in thousands),
respectively, of U S WEST for 1990 through 1994, as follows: 1990, 55%/219; 1991, 37%/300; 1992,
38%/415; 1993, 45%/601; and 1994, 61%/968.
4 A bar graph illustrating annual percentage growth of earnings before interest, taxes,
depreciation and amortization ("EBITDA") and full year EBITDA (in millions), respectively, for the years
1990 through 1994 (excluding equity losses, other income and one-time items), as follows: 1990,
8.2%/$3,889; 1991, .8%/$3,920; 1992, 1.1%/$3,963, 1993, 6.7%/$4,228; and 1994, 7.8%/$4,559.
9 A bar graph illustrating 1994 percentage population growth for the states of Nevada, 5.4%;
Arizona, 3.3%; Idaho, 3.0%; Utah, 2.6%; Colorado, 2.6%; New Mexico, 2.3%; Georgia, 2.2%; Texas,
2.0%; Montana, 1.8%; and Oregon, 1.7%; and indicating Arizona, Idaho, Utah, Colorado, New
Mexico, Montana and Oregon are in the U S WEST Communications, Inc. 14-state region. Source:
U.S. Census Bureau (12/31/94).
9 A pie chart illustrating a summary of U S WEST Communications, Inc. 1994 revenues by percentage
and amount of total U S WEST Communications, Inc. revenues (in millions), respectively, as follows: local
service, 45%/$4,067; interstate access charges, 25%/$2,269; intrastate access charges, 8%/$729;
long-distance network services, 15%/$1,329; and other services, 7%/$604.
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
Page of
Annual
Report Description
- --------- --------------
<S> <C>
10 A bar graph illustrating U S WEST international customers for 1990 through 1994, including
wireless customers, directory contracts sold and customer equivalents for gateway switches and
cable TV/telephone services, as follows: 1990, 400,000; 1991, 600,000; 1992, 900,000; 1993,
1,100,000; and 1994, 1,800,000.
18 A graphic illustration of U S WEST's three key objectives, or "value drivers" for achieving
cash flow improvement: 1) growth through the development of multimedia networks and a
broadened wireless presence (new revenue); 2) customer loyalty through continuous improvement
in customer service (customer retention); and 3) improved productivity through systems re-
engineering and other cost controls (cost reduction), as described under "U S WEST Competitive
Strategy."
18 A bar graph illustrating the number of U S WEST Communications, Inc. employees per access lines
from 1990 through 1994, as follows: 1990, 43.7; 1991, 42.5; 1992, 39.3; 1993, 35.9; 1994,
33.1.
22 A map of the United States highlighting U S WEST Communications, Inc. 14-state region.
24 A bar graph illustrating U S WEST, Inc.'s and U S WEST Communications, Inc.'s actual and
projected capital expenditures (in millions), respectively, for 1991 through 1995, as follows: 1991,
$2,425/$2,168; 1992, $2,554/$2,357; 1993, $2,441/$2,182; 1994, $2,820/$2,454; 1995, $2,600/$2,100.
55 Photographs of U S WEST, Inc. Board of Directors.
</TABLE>
<PAGE> 1
Page 1
EXHIBIT 21
SUBSIDIARIES OF U S WEST, INC.
1. U S WEST Communications Group, Inc., a Colorado corporation
- U S WEST Communications, Inc., a Colorado corporation
- U S WEST Communications Federal Services, Inc., a
Colorado corporation
- U S WEST Communications Services, Inc., a Colorado
corporation
- U S WEST Enhanced Services, Inc., a Washington
corporation
2. U S WEST Business Resources, Inc., a Colorado corporation
3. U S WEST Capital Corporation, a Colorado corporation
- Financial Security Assurance Holdings, Ltd., a New York
corporation (Subsidiaries performing various
reinsurance services omitted: 4 U.S., 1 foreign)
- U S WEST Financial Services, Inc., a Colorado corporation
(Subsidiaries performing various financial services
omitted: 11 U.S., 7 foreign)
4. U S WEST Capital Funding, Inc., a Colorado corporation
5. U S WEST International Holdings, Inc., a Delaware
corporation
- U S WEST International, Inc., a Colorado corporation
(Subsidiaries providing cable, cellular, and wireless
telecommunications services in foreign countries
omitted: 15 U.S., 10 foreign)
6. U S WEST Investments, Inc., a Colorado corporation
- U S WEST Real Estate, Inc., a Colorado corporation
(Subsidiaries holding various real estate investments
omitted: 8 U.S.)
<PAGE> 2
Page 2
7. U S WEST Marketing Resources Group, inc., a Colorado
corporation
- Interactive Video Enterprises, Inc., a Colorado
corporation
- U S WEST Interactive Services, Inc., a Colorado
corporation
- LOCALTouch Holdings, Inc., a Colorado corporation
(Subsidiaries providing specialized directory services
omitted: 2 U.S.)
- Please Hold Promotions, Inc., an Arizona corporation
8. U S WEST MFT Co., a Delaware corporation
9. U S WEST Multimedia Communications, Inc., a Colorado
corporation
- Southern Multimedia Communications, Inc., a Delaware
corporation (Subsidiaries providing cable services
omitted: 12 U.S.)
10. U S WEST NewVector Group, Inc., a Colorado corporation
(Subsidiaries providing cellular and paging services
omitted: 16 U.S.)
11. U S WEST PCS Holdings, Inc., a Delaware corporation
12. U S WEST Personal Communications Development, Inc.,
a Colorado corporation
13. U S WEST SPF Co., a Colorado corporation
14. U S WEST SPF Co. II, a Delaware corporation
15. U S WEST Technologies, Inc., a Colorado corporation
16. Western Range Insurance Co., a Vermont Corporation
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement of U S WEST, Inc. on Forms S-3 (File Nos. 33-50047, 33-50047-01,
33-50049, 33-50049-01, 33-51427, 33-55289, and 33-56709 and on Forms S-8 (File
Nos. 33-43362, 33-56895, 33-55289, and 33-56709 of our report, which includes
an explanatory paragraph regarding the discontinuance of accounting for
operations of U S WEST Communications, Inc. in accordance with Statement of
Financial Accounting Stardard No. 71, "Accounting for the Effects of Certain
Types of Regulation," in 1993, and a change in the method of accounting for
postretirement benefits other than pensions and other postemployment benefits
in 1992, dated January 18, 1995, on our audits of the consolidated financial
statements of U S WEST, Inc. (the "Company"), as of December 31, 1994 and 1993,
and for the three years ended December 31, 1994, 1993 and 1992, which report is
incorporated by reference from U S WEST Inc.'s 1994 Annual Report to
Shareowners. We also consent to the incorporation by reference of our report
dated January 18, 1995 on the related consolidated financial statement
schedules, which report is included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND LLP
COOPERS & LYBRAND LLP
Denver, Colorado
March 7, 1995
<PAGE> 1
Page 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, U S WEST, Inc., a Colorado corporation (hereinafter referred
to as the "Company"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, an annual report on Form 10-K for the fiscal year ended December 31,
1994; and
WHEREAS, each of the undersigned is a Director of the Company;
NOW THEREFORE, each of the undersigned constitutes and appoints JAMES
M. OSTERHOFF, BARBARA M. JAPHA, and STEPHEN E. BRILZ, and each of them, as
attorneys for me and in my name, place, and stead, and in my capacity as a
Director of the Company, to execute and file such annual report, and thereafter
to execute and file any amendment or amendments thereto on Form 10-K/A, hereby
giving and granting to said attorneys full power and authority to do and
perform all and every act and thing whatsoever requisite and necessary to be
done in and about the premises as fully, to all intents and purposes, as I
might or could do if personally present at the doing thereof, hereby ratifying
and confirming all that said attorneys may or shall lawfully do, or cause to be
done, by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney this 3rd day of February, 1995.
/s/ Richard Cheney /s/ Allen F. Jacobson
Richard Cheney Allen F. Jacobson
/s/ Remedios Diaz-Oliver /s/ Marilyn C. Nelson
Remedios Diaz-Oliver Marilyn C. Nelson
<PAGE> 2
Page 2
/s/ Grant A. Dove /s/ Frank Popoff
Grant A. Dove Frank Popoff
/s/ Allan D. Gilmour /s/Glen L. Ryland
Allan D. Gilmour Glen L. Ryland
/s/ Pierson M. Grieve /s/ Jerry O. Williams
Pierson M. Grieve Jerry O. Williams
/s/ Shirley M. Hufstedler /s/ Daniel Yankelovich
Shirley M. Hufstedler Daniel Yankelovich
<PAGE> 3
Page 3
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, U S WEST, Inc., a Colorado corporation (hereinafter referred
to as the "Company"), proposes to file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, as
amended, an annual report on Form 10-K for the fiscal year ended December 31,
1994; and
WHEREAS, the undersigned is an officer or Director, or both, of the
Company and holds the office, or offices, in the Company as indicated below his
name;
NOW THEREFORE, each of the undersigned hereby constitutes and appoints
JAMES M. OSTERHOFF, BARBARA M. JAPHA, and STEPHEN E. BRILZ, and each of them,
as attorneys for him and in his name, place, and stead, and in each of his
offices and capacities in the Company, to execute and file such annual report,
and thereafter to execute and file any amendment or amendments thereto on Form
10-K/A, hereby giving and granting to said attorneys full power and authority
to do and perform all and every act and thing whatsoever requisite and
necessary to be done in and about the premises as fully, to all intents and
purposes, as he might or could do if personally present at the doing thereof,
hereby ratifying and confirming all that said attorneys may or shall lawfully
do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 3rd
day of February, 1995.
/s/ Richard D. McCormick /s/ James M. Osterhoff
Richard D. McCormick James M. Osterhoff
Chairman of the Board, Executive Vice President
Chief Executive Officer and Chief Financial
and President Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 209
<SECURITIES> 0
<RECEIVABLES> 1,755
<ALLOWANCES> 62
<INVENTORY> 189
<CURRENT-ASSETS> 2,766
<PP&E> 31,014
<DEPRECIATION> 17,017
<TOTAL-ASSETS> 23,204
<CURRENT-LIABILITIES> 6,014
<BONDS> 0
<COMMON> 8,056
51
0
<OTHER-SE> (674)
<TOTAL-LIABILITY-AND-EQUITY> 23,204
<SALES> 10,953
<TOTAL-REVENUES> 10,953
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,345
<LOSS-PROVISION> 101
<INTEREST-EXPENSE> 442
<INCOME-PRETAX> 2,283
<INCOME-TAX> 857
<INCOME-CONTINUING> 1,426
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,426
<EPS-PRIMARY> 3.14
<EPS-DILUTED> 0
</TABLE>
