<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration Nos. 333-14865,
333-14865-01,
33-50049 and 33-50049-01
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 9, 1996)
[LOGO]
$4,100,000,000
U S WEST CAPITAL FUNDING, INC.
$600,000,000 6.85% NOTES DUE JANUARY 15, 2002
$1,100,000,000 7.30% NOTES DUE JANUARY 15, 2007
$1,100,000,000 7.90% DEBENTURES DUE FEBRUARY 1, 2027
$200,000,000 8.15% DEBENTURES DUE FEBRUARY 1, 2032
$600,000,000 6.95% DEBENTURES DUE JANUARY 15, 2037
$500,000,000 7.95% DEBENTURES DUE FEBRUARY 1, 2097
UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND
INTEREST BY
U S WEST, INC.
------------------
Interest on the 6.85% Notes due January 15, 2002 (the "2002 Notes") and the
7.30% Notes due January 15, 2007 (the "2007 Notes" and, together with the 2002
Notes, the "Notes") is payable semiannually in arrears on January 15 and July 15
of each year, commencing July 15, 1997. The Notes are not redeemable by U S WEST
Capital Funding, Inc. ("Capital Funding") prior to maturity. The 2002 Notes will
mature on January 15, 2002. The 2007 Notes will mature on January 15, 2007. See
"Description of Notes and Debentures--Notes."
Interest on the 7.90% Debentures due February 1, 2027 (the "2027
Debentures"), the 8.15% Debentures due February 1, 2032 (the "2032 Debentures")
and the 7.95% Debentures due February 1, 2097 (the "2097 Debentures") is payable
semiannually in arrears on February 1 and August 1 of each year, commencing
August 1, 1997. Interest on the 6.95% Debentures due January 15, 2037 (the "2037
Debentures" and, together with the 2027 Debentures, the 2032 Debentures and the
2097 Debentures, the "Debentures") is payable semiannually in arrears on January
15 and July 15 of each year, commencing July 15, 1997. The 2027 Debentures, the
2037 Debentures and, except in certain circumstances upon the occurrence of a
Tax Event (as defined herein), the 2097 Debentures are not redeemable by Capital
Funding prior to maturity. The 2027 Debentures will mature on February 1, 2027.
The 2037 Debentures will mature on January 15, 2037. The 2097 Debentures will
mature on February 1, 2097. The 2032 Debentures will mature on February 1, 2032
and are not redeemable by Capital Funding prior to February 1, 2007. On or after
February 1, 2007, the 2032 Debentures will be redeemable at the option of
Capital Funding, as a whole or in part, on at least 30 days notice. See
"Description of Notes and Debentures--Debentures" and "--Redemption."
(CONTINUED ON PAGE S-3)
----------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING
PUBLIC(1) DISCOUNT(2)
<S> <C> <C>
Per 2002 Note................................................. 99.961% .6%
Total......................................................... $599,766,000 $3,600,000
Per 2007 Note................................................. 99.849% .65%
Total......................................................... $1,098,339,000 $7,150,000
Per 2027 Debenture............................................ 100% .875%
Total......................................................... $1,100,000,000 $9,625,000
Per 2032 Debenture............................................ 100% .875%
Total......................................................... $200,000,000 $1,750,000
Per 2037 Debenture............................................ 99.8% .625%
Total......................................................... $598,800,000 $3,750,000
Per 2097 Debenture............................................ 99% 1.125%
Total......................................................... $495,000,000 $5,625,000
<CAPTION>
PROCEEDS TO
CAPITAL FUNDING(3)
<S> <C>
Per 2002 Note................................................. 99.361%
Total......................................................... $596,166,000
Per 2007 Note................................................. 99.199%
Total......................................................... $1,091,189,000
Per 2027 Debenture............................................ 99.125%
Total......................................................... $1,090,375,000
Per 2032 Debenture............................................ 99.125%
Total......................................................... $198,250,000
Per 2037 Debenture............................................ 99.175%
Total......................................................... $595,050,000
Per 2097 Debenture............................................ 97.875%
Total......................................................... $489,375,000
</TABLE>
(1) Plus accrued interest, if any, from January 22, 1997.
(2) Capital Funding and U S WEST have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933. See "Underwriting."
(3) Before deduction of expenses payable by Capital Funding estimated at
$1,750,000.
----------------------------------
The Notes and the Debentures are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, and
subject to approval of certain legal matters by counsel for the Underwriters and
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that delivery of the Notes and the Debentures will be made through the
book-entry facilities of The Depository Trust Company against payment therefor
in immediately available funds on or about January 22, 1997.
----------------------------------
MERRILL LYNCH & CO. LEHMAN BROTHERS
---------------------
<TABLE>
<S> <C> <C>
GOLDMAN, SACHS & CO. MORGAN STANLEY & CO. SALOMON BROTHERS INC
INCORPORATED
</TABLE>
----------------------------------
The date of this Prospectus Supplement is January 16, 1997.
<PAGE>
DESCRIPTION OF CHART -- INSIDE FRONT COVER OF PROSPECTUS SUPPLEMENT
Organizational chart showing (i) the legal and economic ownership
structure of U S WEST and its operating divisions, (ii) the operating
divisions attributable to each of the U S WEST Media Group and the U S WEST
Communications Group, and (iii) the pro forma amounts of revenue, operating
income and EBITDA of each operating division for the twelve months ended
September 30, 1996 based upon pro forma financial results of operations of
U S WEST for the twelve months ended September 30, 1996 that include the
effects of the merger of Continental Cablevision, Inc. with and into a
subsidiary of U S WEST and exclude the effect of the deconsolidation of
U S WEST's cellular subsidiary, U S WEST NewVector Group, Inc., under "Phase
II" of U S WEST's joint venture with Airtouch Communications.
(Footnote to chart)
___________________
The financial information summarized above is based upon pro forma
financial results of operations of U S WEST, Inc. ("U S WEST") for the
twelve months ended September 30, 1996, that include the effect of the
merger of Continental Cablevision, Inc. with and into a subsidiary of
U S WEST and exclude the effect of the deconsolidation of U S WEST's
cellular subsidiary, U S WEST NewVector Group, Inc. ("NewVector"),
under "Phase II" of U S WEST's joint venture with Airtouch
Communications. While U S WEST will deconsolidate the operations of
NewVector under Phase II of the joint venture agreement, it will
receive a proportionate share of the joint venture's cash flows,
subject to periodic capital calls. This information should be read in
conjunction with the detailed financial information presented on
pages S-11 through S-25 in this Prospectus Supplement.
<PAGE>
(CONTINUED FROM COVER PAGE)
The 2037 Debentures are repayable, at the option of the registered holders
thereof, in whole or in part, on January 15, 2004 at a price equal to 100% of
their principal amount plus all accrued interest thereon to January 15, 2004. An
election to exercise such repayment option, which is irrevocable when made, must
be made within the period commencing on November 15, 2003 and ending at the
close of business on December 15, 2003. No similar right is available to the
holders of the 2002 Notes, the 2007 Notes, the 2027 Debentures, the 2032
Debentures or the 2097 Debentures. See "Description of Notes and
Debentures--Optional Repayment."
Upon the occurrence of a Tax Event, Capital Funding will have the right to
advance the maturity date of the 2097 Debentures to the minimum extent required,
in the opinion of nationally recognized independent tax counsel experienced in
such matters, in order to allow for the payments of interest in respect of the
2097 Debentures to be deductible for federal income tax purposes. If a Tax Event
occurs and, in the opinion of such counsel, there would in all cases, after
advancing the maturity date, be more than an insubstantial risk that interest
payable by Capital Funding on the 2097 Debentures is not, or will not be,
deductible, in whole or in part, by Capital Funding for federal income tax
purposes, Capital Funding will have the right, within 90 days following the
occurrence of such Tax Event, to redeem the 2097 Debentures in whole (but not in
part) at a redemption price equal to the greater of (i) 100% of the principal
amount of the 2097 Debentures or (ii) the sum, as determined by a Quotation
Agent (as defined herein), of the present values of the principal amount and the
remaining scheduled payments of interest from the redemption date to February 1,
2097, in each case discounted to the redemption date on a semi-annual basis
(assuming a 360-day year consisting of 30-day months) at the Adjusted Treasury
Rate (as defined herein), plus, in each case, accrued interest thereon to the
date of redemption. Prospective investors should be aware that Capital Funding's
exercise of its right to advance the maturity of the 2097 Debentures will be a
taxable event to holders if the 2097 Debentures are treated as equity for
federal income tax purposes before the maturity date is advanced. See
"Description of Notes and Debentures--Conditional Right to Advance Maturity and
Tax Event Redemption."
The Notes and the Debentures are unsecured obligations of Capital Funding
and rank equally with all other unsecured and unsubordinated indebtedness of
Capital Funding. The Notes and the Debentures are unconditionally guaranteed
(the "Guarantees") as to the payment of principal, premium, if any, and interest
by Capital Funding's corporate parent, U S WEST, Inc. ("U S WEST").
The 2002 Notes, the 2007 Notes, the 2027 Debentures, the 2032 Debentures,
the 2037 Debentures and the 2097 Debentures will be issued in the form of one or
more global securities (the "Global Securities") registered in the name of The
Depository Trust Company ("DTC") or its nominee. Beneficial interests in the
Global Securities will be shown on, and transfers thereof will be effected only
through, records maintained by DTC and its participants (which may include
Morgan Guaranty Trust Company of New York, Brussels office, as operator of the
Euroclear System, and Citibank, N.A., as operator of Cedel Bank, societe
anonyme). Except in the limited circumstances described herein, Notes and
Debentures in definitive form will not be issued. See "Description of Notes and
Debentures--Book-Entry System."
--------------------------
IN CONNECTION WITH THESE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES
AND THE DEBENTURES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
--------------------------
THE FOLLOWING INFORMATION CONCERNING U S WEST, CAPITAL FUNDING, THE NOTES,
THE DEBENTURES AND THE GUARANTEES SUPPLEMENTS, AND SHOULD BE READ IN CONJUNCTION
WITH, THE INFORMATION CONTAINED IN THE ACCOMPANYING PROSPECTUS. CAPITALIZED
TERMS USED IN THIS PROSPECTUS SUPPLEMENT HAVE THE SAME MEANINGS AS IN THE
ACCOMPANYING PROSPECTUS.
ON NOVEMBER 1, 1995, AS PART OF THE RECAPITALIZATION DESCRIBED HEREIN UNDER
"RECENT DEVELOPMENTS--RECAPITALIZATION," U S WEST CHANGED ITS STATE OF
INCORPORATION FROM COLORADO TO DELAWARE THROUGH THE MERGER OF U S WEST, INC., A
COLORADO CORPORATION AND U S WEST'S PREDECESSOR ("U S WEST COLORADO"), WITH AND
INTO U S WEST, A DELAWARE CORPORATION, WITH U S WEST CONTINUING AS THE SURVIVING
CORPORATION. AS USED HEREIN, UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES
TO "U S WEST" REFER TO U S WEST AND U S WEST COLORADO, ITS COLORADO PREDECESSOR.
SOME OF THE INFORMATION PRESENTED IN OR IN CONNECTION WITH THIS PROSPECTUS
SUPPLEMENT CONSTITUTES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. ALTHOUGH U S WEST BELIEVES
THAT ITS EXPECTATIONS ARE BASED ON REASONABLE ASSUMPTIONS WITHIN THE BOUNDS OF
ITS KNOWLEDGE OF ITS BUSINESS AND OPERATIONS, THERE CAN BE NO ASSURANCE THAT
ACTUAL RESULTS WILL NOT DIFFER MATERIALLY FROM ITS EXPECTATIONS. FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER FROM EXPECTATIONS INCLUDE: (I) DIFFERENT
THAN ANTICIPATED COMPETITIVE ACTIVITY, INCLUDING COMPETITION FROM NEW ENTRANTS
INTO THE LOCAL EXCHANGE AND INTER-LATA TOLL MARKETS, (II) CHANGES IN DEMAND FOR
U S WEST'S PRODUCTS AND SERVICES, INCLUDING CABLE, WIRELESS AND CUSTOM CALLING
FEATURES, (III) DIFFERENT THAN ANTICIPATED EMPLOYEE LEVELS, CAPITAL
EXPENDITURES, AND OPERATING EXPENSES AS A RESULT OF RAPID GROWTH WITHIN THE
COMMUNICATIONS GROUP REGION (AS DEFINED BELOW), (IV) THE GAIN OR LOSS OF
SIGNIFICANT CUSTOMERS, (V) REGULATORY CHANGES AFFECTING THE TELECOMMUNICATIONS
INDUSTRY, INCLUDING CHANGES THAT COULD HAVE AN IMPACT ON THE COMPETITIVE
ENVIRONMENT IN THE LOCAL EXCHANGE MARKET, (VI) PENDING REGULATORY ACTIONS IN
STATE JURISDICTIONS, (VII) HIGHER THAN ANTICIPATED START-UP COSTS ASSOCIATED
WITH NEW BUSINESS OPPORTUNITIES, (VIII) INCREASES IN FRAUDULENT ACTIVITY WITH
RESPECT TO WIRELESS SERVICES, OR (IX) DELAYS IN THE DEVELOPMENT OF ANTICIPATED
TECHNOLOGIES, OR THE FAILURE OF SUCH TECHNOLOGIES TO PERFORM ACCORDING TO
EXPECTATIONS.
S-3
<PAGE>
U S WEST, INC.
U S WEST is a diversified global communications company engaged in the
telecommunications, cable, wireless communications and directory and information
services businesses. U S WEST's mission is to be a leading provider of
interactive, integrated communications, entertainment and information services
over wired broadband and wireless networks in selected local markets worldwide.
Toward this end, U S WEST reorganized itself in 1995 so that it could conduct
its business through two groups: the U S WEST Communications Group (the
"Communications Group") and the U S WEST Media Group (the "Media Group"). U S
WEST issued two classes of common stock in connection with this reorganization:
U S WEST Communications Group Common Stock, par value $.01 per share (the
"Communications Stock"), and U S WEST Media Group Common Stock, par value $.01
per share (the "Media Stock"). See "Recent Developments--Recapitalization". The
Communications Stock is intended to reflect separately the performance of the
Communications Group and the Media Stock is intended to reflect separately the
performance of the Media Group.
COMMUNICATIONS GROUP COMPETITIVE STRATEGY
The Communications Group is comprised of U S WEST Communications, Inc., its
regulated telephone company ("U S WEST Communications"), and various unregulated
subsidiaries. Through U S WEST Communications, the Communications Group provides
telecommunications services 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 "Communications Group Region"). Through its
unregulated subsidiaries, the Communications Group also provides
telecommunications and high-speed data networking equipment and services to
business customers and government agencies nationwide.
The Communications Group's competitive strategy is calculated to address
both the advantages and challenges inherent in one of the fastest growing but
least populated regions of the country. In recent years, the Communications
Group Region has experienced rapid growth, having seven of the ten fastest-
growing states in the United States. At the same time, the Communications Group
Region is one of the most sparsely populated regions of the country. Though it
comprises over forty percent of the land mass of the lower 48 states, it has
just over ten percent of the population. This low population density, along with
the fact that most of the growth continues to occur outside of the top five
Metropolitan Statistical Areas, makes the Communications Group Region less
attractive to facilities-based competitors, such as competitive access
providers, than the regions of other regional bell operating companies (the
"RBOCs"). Competitors intending to "cherry pick" high value customers have more
incentive to focus their efforts on other regions, notwithstanding the
Communications Group Region's rapid growth. However, the sparse population also
creates challenges. The vast geography of the Communications Group Region adds
considerably to investment and maintenance costs, making ubiquitous service a
comparatively expensive endeavor. To capitalize on these advantages and manage
the challenges, the Communications Group has adopted the following specific and
mutually reinforcing strategies.
PROVIDE SUPERIOR SERVICE TO CUSTOMERS. Management believes the
Communications Group is entering the competitive arena from a position of
strength. It has one hundred years of experience managing increasingly complex
networks--delivering complex bundles of services to millions of customers.
Unlike many of its competitors, it has the ability to provide ubiquitous
services to mass markets as well as the advantage of long-term relationships
with its customers. To continue to capitalize on these strengths in a
competitive environment, it is important that the Communications Group provide
competitive, quality service. To that end, the Communications Group has
accelerated its investment in service quality even in the face of rapid and
sustained growth. Though service problems have not been fully avoided, the
results of this investment are becoming evident. At the end of September, 1996,
orders for primary service held more than 30 days were less than half of what
they were at the end of September, 1995, and were 63 percent lower than they
were at the end of the third quarter of 1994. This improvement has occurred in
spite of a
S-4
<PAGE>
30 percent increase in service order activity over the last two years. The
Communications Group intends to continue its service improvement efforts, and to
retain its customers by providing superior service.
ENHANCE NETWORK CAPACITY AND CAPABILITY. The Communications Group intends
to deliver the products and services its customers want. The Communications
Group is utilizing a flexible network architecture as it upgrades and expands
its infrastructure. A key example of this effort is the deployment of "U S WEST
Network 21" in major metropolitan areas. Targeted deployment of this
leading-edge bi-directional SONET ring architecture offers unprecedented
survivability, reliability and flexibility for high-capacity services.
Deployment is complete in Denver, Phoenix, and Seattle, and is under way in
other key cities. A benefit of Network 21 over those architectures deployed by
competitors is the size of the rings. The Communications Group's competitors
usually measure coverage in blocks, targeting core downtown locations. The
geographic coverage of Network 21 is measured in hundreds of square miles and
connects users across vast metropolitan areas. Taking advantage of capabilities
like Network 21 and other network improvements, the Communications Group seeks
to keep in place an infrastructure that will enable it to satisfy the needs of
customers into the future.
BUILD CUSTOMER LOYALTY, EXPAND PORTFOLIO OF PRODUCTS AND SERVICES. The
Communications Group is focused on positioning itself as the service provider
its customers think of first when they want a comprehensive, affordable solution
to their communications needs. Taking advantage of its local presence, the
Communications Group is taking steps to better know and segment customers,
understand their wants and needs, develop specialized packages of communications
products and services for specific customer segments, deliver exceptional value,
and provide full-service support.
Customer loyalty hinges on giving customers choice, quality, convenience and
value in the products and services they choose. The Communications Group is
responding to customer needs with numerous new products and services, including:
- "The Real Deal"--a value-priced package of products, including Call
Waiting, Caller ID, Three-Way Calling, and a number of other value-added
services. This special offer has bolstered the penetration level of these
value-added services and significantly increased the average buy-up rate
per customer.
- "Home Receptionist" and "Business Receptionist"--all-in-one communications
systems that use screen-based telephone units to combine key value-added
services, including Caller ID, Call Waiting Deluxe and Voice Messaging.
- "Message Send"--an innovative product feature traditionally available only
to business customers, has been incorporated as a standard feature that
enables any Voice Messaging customer-- residential or business--to send
voice messages to one another, individually or in groups.
- "Single Number Service"--a service that enables a business with multiple
locations to list a single telephone number for customers to call and
routes those calls to the business location closest to the caller.
- "Call Waiting ID"--a service that combines Caller ID and Call Waiting.
Call Waiting ID identifies the name and number of the callers that come in
while the user is on the phone with another caller.
The Communications Group is also building a long distance division that will
primarily focus on providing long distance services between local access and
transport areas ("LATAs"), with an emphasis on calls that originate within the
Communications Group Region. This division, U S WEST Long Distance, will focus
on the packaging of its offerings with U S WEST's existing products and
services. Based on Federal Communications Commission ("FCC") calling traffic
analysis, about 13 percent of the nation's long-distance traffic originates
within the Communications Group Region, and approximately 40 percent of this
traffic both originates and terminates within the Communications Group Region.
Recent market data indicates that the inter-LATA long-distance market within the
Communications Group Region
S-5
<PAGE>
currently amounts to approximately $10 billion, or approximately $6 billion net
of access charges currently received by U S WEST Communications. Subject to FCC
guidelines, management expects to begin offering inter-LATA long-distance
services in the Communications Group Region in 1998. The objective of this
division is to become the number two long-distance provider within the
Communications Group Region in its first four years of operations.
ENSURE A FAIR COMPETITIVE ENVIRONMENT. The Communications Group must
represent the interests of its investors, creditors and customers as the FCC and
state regulators implement the policies embodied in the Telecommunications Act
of 1996 (the "Telecommunications Act"). Of the more than 50 rule-makings the FCC
will be required to address during the implementation of the Telecommunications
Act, three will bring significant change to every aspect of the local exchange
business: interconnection, universal service, and access reform. Though the full
business impacts will not be known until all three of these major rulings are in
place, U S WEST has moved swiftly and aggressively to challenge selected
portions of the FCC's interconnection order in an effort to ensure a fair
competitive environment. See "Recent Developments-- Telecommunications Act of
1996."
MEDIA GROUP COMPETITIVE STRATEGY
The business environment of the Media Group is one in which customers
increasingly demand the benefits of a "networked world"--a world where people
turn to networks for entertainment, communication and commerce. The rapid growth
of the Internet is one example of this emerging demand, and the increased use of
long distance and the demand for additional telephone lines to handle computer
and facsimile transmissions are further examples. The competitive strategy of
the Media Group is centered on satisfying the demands of the networked world.
The Media Group intends to meet these demands through the operation of three
lines of business in local markets worldwide: (i) cable and telecommunications
network businesses outside of the Communications Group Region and
internationally, (ii) domestic and international wireless communications network
businesses, and (iii) domestic and international directory and information
services businesses.
CABLE AND TELEPHONY SERVICES. Cable and telephony services are at the core
of the Media Group's strategy. While other companies develop software, hardware
and global applications for the networked world, the Media Group will focus on
the supply of easy-to-use local connections to it. It will do so by providing
highly clustered customer access to hybrid fiber-coax ("HFC") broadband
networks. The Media Group believes that this type of access provides the best
and most economical platforms for delivery of video, data, telephony and
multimedia services. Management believes that, relative to other network
alternatives, HFC provides a more desirable combination of speed, interactivity,
signal quality and integration of services. It is also a better platform for
providing a combination of services on a largely variable cost basis. At a fixed
cost of approximately $200 per home passed, the Media Group plans to selectively
upgrade its cable systems. Once completed, this upgrade will enhance network
quality and reliability as well as provide capacity for added channels,
pay-per-view offerings and targeted advertising. The upgrade will also permit
the offering of new services to subscribers such as high-speed Internet access,
telephony and digital video offerings. These new services could be offered to
subscribers on a highly variable cost basis. By the end of 1998, the Media Group
expects that it will have more than 80 percent of its owned or managed cable
properties upgraded to offer multiple services to customers.
In 1996, the Media Group took a dramatic step in its cable-telephony
strategy when it acquired Continental Cablevision, Inc. ("Continental").
Continental gives the Media Group access to an additional 7.3 million homes
passed. As of September 30, 1996, the Media Group had access to or management
influence over cable subscribers and homes passed as follows (in millions):
S-6
<PAGE>
<TABLE>
<CAPTION>
HOMES CABLE
PASSED SUBSCRIBERS PENETRATION
----------- ------------- -------------
<S> <C> <C> <C>
MediaOne....................................................... 0.9 0.5 58%
Continental.................................................... 7.3 4.2 58%
Time Warner Entertainment Company, L.P.*....................... 18.8 11.7 62%
--- ---
---
Total*......................................................... 27.0 16.4
--- ---
--- ---
</TABLE>
- ------------------------
* Includes cable properties owned or managed by Time Warner Entertainment
Company, L.P. ("TWE").
In addition, the Media Group has interests in international cable and telephony
ventures that hold franchises that cover nearly 19 million homes.
With the acquisition of Continental, the Media Group believes it has
achieved the scale and scope necessary to execute its strategy and capitalize on
new market opportunities in enhanced cable, telephony and high-speed data.
However, U S WEST from time to time engages in preliminary discussions regarding
restructurings, dispositions and other similar transactions. Any such
transaction may include, among other things, the transfer of certain assets,
businesses or interests, or the incurrence or assumption of indebtedness. Some
such transactions could have a material impact upon the financial condition and
results of operations of U S WEST. There is no assurance that any such
discussions will result in the consummation of any such transaction.
Management expects that the implementation of the Media Group's cable and
telephony strategy, including the selective upgrading of its cable plant, will
be capital intensive. The Media Group recognizes that the successful
implementation of its strategy will require access to the capital markets at
reasonable costs. U S WEST believes that its current credit ratings are a
competitive advantage that provide the Media Group with the financial
flexibility it needs to execute its strategy.
WIRELESS. Wireless networks are also serving an important component of the
networked world, helping customers to communicate and do business with fewer
limitations on time and mobility. In 1995, the Media Group's operational focus
on its cellular subsidiary, U S WEST NewVector Group, Inc. ("NewVector"),
resulted in NewVector's outpacing its peers in the cellular industry in
subscriber and operating cash flow growth. To establish greater commercial
visibility, NewVector also adopted the brand name of AirTouch Communications
("AirTouch"). Pursuant to its July 25, 1994 agreement with AirTouch, the Media
Group expects to complete the merger of its cellular operations with those of
AirTouch by early 1997. To further enhance this position, the Media Group and
AirTouch have formed a marketing and technical alliance with Bell Atlantic
Corporation and NYNEX Corporation. This alliance positions the Media Group to
negotiate favorable equipment contracts, provide national roaming capabilities
and secure strong distribution channels. See "Recent Developments--U S
WEST/AirTouch Joint Venture."
DIRECTORY AND INFORMATION SERVICES. Directory and information services will
help buyers and sellers connect with each other in the networked world. U S WEST
Dex, Inc. ("Dex," formerly U S WEST Marketing Resources Group, Inc.) focuses on
its high-margin Yellow Pages directory business, while investing in new services
that enhance and extend the profitability of the core product. Dex has low
capital requirements, and has produced consistently strong results, with steady
growth in cash flow and earnings despite fluctuating economic cycles. It is
investing for growth, focusing on new products and services that extend the
timeliness and reach of its Yellow Pages business, and is evaluating
opportunities in new markets. Dex's Yellow Pages business, which has an 80
percent market share and a 90 percent local advertiser retention rate in its
operating territory, is taking substantial steps to remain competitive,
including the full-scale rollout of the Yellow Pages on the Internet and further
system automations to the production of directories.
S-7
<PAGE>
U S WEST CAPITAL FUNDING, INC.
Capital Funding is a wholly-owned subsidiary of U S WEST and was
incorporated under the laws of the State of Colorado in June 1986. Capital
Funding was incorporated for the sole purpose of providing financing to U S WEST
and its affiliates, other than U S WEST Communications, through the issuance of
indebtedness guaranteed by U S WEST and has no independent operations.
RECENT DEVELOPMENTS
CONTINENTAL ACQUISITION
On November 15, 1996, U S WEST acquired Continental Cablevision, Inc., the
third largest cable television system operator in the United States, pursuant to
an Agreement and Plan of Merger dated as of February 26, 1996, as amended and
restated as of June 27, 1996 and as further amended as of October 7, 1996, among
U S WEST, Continental and a wholly-owned subsidiary of U S WEST (the "Merger").
The aggregate consideration paid by U S WEST to shareholders of Continental
consisted of 150,614,848 shares of Media Stock, 20,000,000 shares of U S WEST
Series D Preferred Stock and $1.15 billion in cash. In connection with the
Merger, U S WEST also assumed all of Continental's outstanding indebtedness and
other liabilities, which approximated $6.8 billion at September 30, 1996. The
businesses of Continental and its subsidiaries have been attributed to the Media
Group.
The following reflects the effect of U S WEST's announcement of the Merger
on the ratings assigned to the senior unsecured indebtedness of U S WEST and
Capital Funding by the indicated rating agencies:
<TABLE>
<S> <C>
Moody's Investors Service, Inc. Baa1 Downgraded from A2
Standard & Poor's Rating Service BBB+ Downgraded from A+
Duff & Phelps Credit Rating Co. BBB+ Downgraded from A+
</TABLE>
RECAPITALIZATION
On November 1, 1995, U S WEST created the Communications Stock, which is
intended to reflect separately the performance of the Communications Group, and
the Media Stock, which is intended to reflect separately the performance of the
Media Group, and changed its state of incorporation from Colorado to Delaware
(the "Recapitalization"). The Recapitalization was effected in accordance with
the terms of an Agreement and Plan of Merger, dated as of August 17, 1995,
between U S WEST Colorado and U S WEST pursuant to which (i) U S WEST Colorado
was merged with and into U S WEST, with U S WEST continuing as the surviving
corporation and (ii) each outstanding share of Common Stock, without par value,
of U S WEST Colorado was converted into one share of Communications Stock and
one share of Media Stock.
The Recapitalization was approved by U S WEST Colorado's shareholders at a
special meeting held on October 31, 1995. Implementation of the Recapitalization
has not resulted in the transfer of any assets from U S WEST or any of its
subsidiaries or altered the legal nature of U S WEST's obligations to its
creditors. Creditors of U S WEST, including the holders of the Notes and the
Debentures under the Guarantees, will continue to benefit from the cash flow of
the subsidiaries of U S WEST comprising both the Communications Group and the
Media Group, subject to the satisfaction of obligations by such subsidiaries.
See "Description of Debt Securities and Guarantees--General" in the accompanying
Prospectus.
TELECOMMUNICATIONS ACT OF 1996
On February 8, 1996, President Clinton signed the Telecommunications Act,
which is intended to promote competition between local telephone companies,
long-distance carriers and cable television operators. The Telecommunications
Act replaces the Modification of Final Judgment, the antitrust consent
S-8
<PAGE>
decree entered into in 1984 in connection with the divestiture by AT&T Corp. of
its local telephone businesses and the formation of U S WEST and the other
RBOCs. The Telecommunications Act permits local telephone companies,
long-distance carriers and cable television companies to enter each other's
lines of business. The RBOCs will be permitted to provide inter-LATA long
distance services by opening their local networks to facilities-based
competition and satisfying a detailed list of requirements, including permitting
interconnection and number portability. The Telecommunications Act will also
eliminate most regulation of cable rates within three years and lift the ban on
cross-ownership between cable television and telephone companies, thereby
permitting the RBOCs to enter into the cable business within their respective
service regions so long as such entry is not effected through the purchase of
existing cable companies, except in rural communities. In addition, the
Telecommunications Act reaffirms the concept of universal service and directs
the FCC and state regulators to determine universal service funding policy. The
FCC and state regulators have been given the responsibility to interpret and
oversee implementation of large portions of the Telecommunications Act. On
August 8, 1996, the FCC established a framework of minimum national rules that
will enable the FCC and state regulators to begin implementation of local
competition. The FCC's framework of minimum national rules established rigid
costing and pricing rules which, from U S WEST's perspective, significantly
impede interconnection arbitrations, negotiations with new entrants to the local
exchange market, and U S WEST's position in interconnection decisions by
arbitrators or state public utility commissions ("PUCs"). U S WEST appealed the
FCC order and sought a stay of portions of the order, including certain pricing
provisions, pending appellate review. On October 15, 1996, the Eighth Circuit
Court of Appeals (the "Eighth Circuit") issued its order granting a stay of all
the pricing provisions of the FCC order. The stay does not postpone
implementation of the Telecommunications Act. Rather the effect of the stay is
to have interconnection and network unbundled element pricing be resolved
through negotiations or state PUC arbitrations without the PUCs being limited in
their consideration of relevant costs.
Subsequently, the FCC and certain interexchange carriers requested the
United States Supreme Court (the "Supreme Court") to review and vacate the
Eighth Circuit stay. On October 31, 1996, the Supreme Court denied these
requests. Thereafter, the FCC and certain interexchange carriers petitioned the
Supreme Court for further consideration of vacating the stay. On November 12,
1996, the Supreme Court rejected these further petitions. Thus, the Eighth
Circuit stay will remain in effect until modified by that court or until the
appeal is resolved. A decision on the appeal is expected by May 1997. The
order's impact on U S WEST's future results is unknown.
U S WEST/AIRTOUCH JOINT VENTURE
On July 25, 1994, U S WEST and AirTouch announced an agreement to combine
their domestic cellular operations through a joint venture. On November 1, 1995,
U S WEST and AirTouch entered into Phase I of the joint venture pursuant to
which U S WEST and AirTouch are operating their domestic cellular properties
separately but are receiving centralized services from a wireless management
company (the "WMC") on a contract basis. In Phase II of the joint venture, U S
WEST and AirTouch will contribute their domestic cellular businesses to the WMC
to form the third largest cellular company in the United States. The recent
passage of the Telecommunications Act has removed significant regulatory
barriers and U S WEST expects that Phase II will be consummated by early 1997,
subject to the receipt of certain regulatory and other approvals. Following the
consummation of Phase II, and the contribution by U S WEST and AirTouch of their
respective interests in PrimeCo Personal Communications, L.P. to the WMC, U S
WEST will have the right to exchange its interest in the WMC, valued on a
private market basis, into ownership of AirTouch common shares at an appraised
public value. In the event the value to be received by U S WEST exceeds 19.9
percent of AirTouch's outstanding common stock, U S WEST will receive the excess
in the form of AirTouch non-voting preferred stock. Following an exchange of its
interest in the WMC, U S WEST would no longer share in the cash flows of the
joint venture. However, U S WEST intends that any such exchange would be on
terms consistent with its strategy, including its need to access the capital
markets at reasonable costs.
S-9
<PAGE>
USE OF PROCEEDS
Capital Funding will apply the proceeds from the sale of the Notes and the
Debentures primarily to the repayment of a portion of its commercial paper
indebtedness, though some of such proceeds may also be used for loans to U S
WEST and affiliates of U S WEST for general corporate purposes. For the fiscal
year ended December 31, 1995, Capital Funding's commercial paper carried a
weighted average interest cost of 6.01%. For the nine months ended September 30,
1996, Capital Funding's commercial paper carried a weighted average interest
cost of 5.43%.
CAPITALIZATION OF U S WEST
The following table sets forth, at September 30, 1996, (i) the unaudited
consolidated historical capitalization of U S WEST, (ii) the unaudited combined
pro forma capitalization of U S WEST without adjustment for the sale of the
Notes and the Debentures and (iii) the unaudited combined pro forma
capitalization of U S WEST, as adjusted to reflect the sale of the Notes and the
Debentures and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds." The pro forma capitalization gives effect to
the Merger and related transactions, certain acquisitions, dispositions and
refinancings by Continental and the consummation of Phase II of the U S
WEST/AirTouch Joint Venture. The pro forma capitalization is presented for
informational purposes only and is not necessarily indicative of the future
capitalization of U S WEST. The table should be read in conjunction with the
historical and pro forma financial statements and notes thereto of U S WEST and
Continental included in the documents incorporated by reference herein,
including in U S WEST's Current Report on Form 8-K, dated November 15, 1996, as
amended by Form 8-K/A, filed December 12, 1996. See "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
---------------------------------------
PRO FORMA AS
HISTORICAL PRO FORMA ADJUSTED
----------- ----------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Short-term debt.................................................. $ 1,728 $ 6,349 $ 2,289
----------- ----------- -------------
----------- ----------- -------------
Long-term debt................................................... 7,402 10,291 14,391
Preferred securities of subsidiary trust holding Company-
guaranteed debentures (1)...................................... 600 600 1,080
Preferred stock subject to mandatory redemption.................. 51 51 51
Total shareowners' equity (2).................................... 8,282 11,792 11,792
----------- ----------- -------------
Total capitalization............................................. $ 16,335 $ 22,734 $ 27,314
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
- ------------------------
(1) Pro forma as adjusted reflects the October 29, 1996, issuance of $480
million of Trust Originated Preferred Securities by a subsidiary of U S
WEST.
(2) At September 30, 1996, (i) 2,000,000,000 shares of Communications Stock and
2,000,000,000 shares of Media Stock were authorized, (ii) 479,205,051 shares
of Communications Stock and 473,985,293 shares of Media Stock were
outstanding and (iii) 479,205,051 shares of Communications Stock and
624,600,141 shares of Media Stock would have been outstanding on a pro forma
basis (assuming the issuance of 150,614,848 shares of Media Stock in
connection with the Merger). The pro forma capitalization also gives effect
to the issuance of 20,000,000 shares of U S WEST Series D Preferred Stock at
fair value of $920 million in connection with the Merger.
S-10
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
U S WEST, INC. SUMMARY HISTORICAL FINANCIAL DATA
The summary historical data below should be read in conjunction with the
financial statements and notes thereto included in U S WEST's Annual Report on
Form 10-K for the year ended December 31, 1995. See "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus. The summary historical
financial data at December 31, 1995, 1994, 1993 and 1992 and for each of the
four years ended December 31, 1995 are derived from the consolidated financial
statements of U S WEST which have been audited by Coopers & Lybrand L.L.P.,
independent certified public accountants. See "Experts" in the accompanying
Prospectus. The summary historical financial data at September 30, 1996 and 1995
and for the nine months ended September 30, 1996 and 1995 are derived from the
unaudited consolidated financial statements of U S WEST, which have been
prepared on the same basis as U S WEST's audited consolidated financial
statements and, in the opinion of management, contain all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods.
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
TWELVE MONTHS NINE MONTHS
ENDED OR AS OF ENDED OR AS OF
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED OR AS OF DECEMBER 31,
--------------- -------------------- ------------------------------------------
1996 1996 1995 1995 1994 1993 1992
--------------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Sales and other revenues................. $ 12,413 $ 9,353 $ 8,686 $ 11,746 $ 10,953 $ 10,294 $ 9,823
Operating income......................... 2,796 2,169 2,018 2,645 2,507 1,273 2,082
Income from continuing operations before
extraordinary items and cumulative
effect of change in accounting
principles (1)......................... 1,270 914 973 1,329 1,426 476 1,076
Interest expense (2)..................... 534 411 404 527 442 439 453
Net income (loss) (3).................... 1,301 948 964 1,317 1,426 (2,806) (614)
Total assets............................. 25,583 25,583 24,761 25,071 23,204 20,680 23,461
Total debt (2)........................... 9,130 9,130 8,784 8,855 7,938 7,199 5,430
Preferred securities of subsidiary trust
holding Company-guaranteed
debentures............................. 600 600 600 600 -- -- --
Preferred stock subject to mandatory
redemption............................. 51 51 51 51 51 -- --
Shareowners' equity...................... 8,282 8,282 7,764 7,948 7,382 5,861 8,268
OPERATING DATA:
EBITDA (excludes 1993 restructuring
charge) (4)............................ $ 5,188 $ 3,965 $ 3,713 $ 4,936 $ 4,559 $ 4,228 $ 3,963
EBITDA margin............................ 41.8% 42.4% 42.7% 42.0% 41.6% 41.1% 40.3%
Ratio of debt to EBITDA (2).............. 1.8x -- -- 1.8x 1.7x 1.7x 1.4x
Ratio of EBITDA to interest expense
(2).................................... 9.7x 9.6x 9.2x 9.4x 10.3x 9.6x 8.7x
Percentage of debt to total capital
(2).................................... 50.6% 50.6% 51.1% 50.7% 51.6% 55.1% 39.6%
Ratio of earnings to fixed charges....... 3.75 3.67 3.98 4.03 4.85 2.38 3.85
Capital expenditures (2)................. $ 3,294 $ 2,337 $ 2,183 $ 3,140 $ 2,820 $ 2,441 $ 2,554
Employees................................ 60,837 60,837 61,123 61,047 61,505 60,778 63,707
WHOLLY OWNED DOMESTIC OPERATIONS:
Telephone network access lines in service
(thousands)............................ 15,253 15,253 14,620 14,795 14,299 13,843 13,345
Billed access minutes of use--interstate
(millions)............................. 50,974 38,674 35,501 47,801 43,768 40,594 37,413
Billed access minutes of use--intrastate
(millions)............................. 10,324 7,808 6,988 9,504 8,507 7,529 6,956
Cable television basic subscribers--FCC
equivalents (thousands) (5)............ 511 511 482 490 459 -- --
Cellular subscribers (thousands)......... 1,816 1,816 1,269 1,463 968 601 415
Directory advertisers (thousands)........ 482 482 473 479 468 459 450
</TABLE>
- ------------------------------
(FOOTNOTES ON FOLLOWING PAGE)
S-11
<PAGE>
(1) Income from continuing operations before cumulative effect of change in
accounting principles for the first nine months of 1996 includes gains of
$31 on the sales of certain rural telephone exchanges and the current
year-to-date impact of $13 from adopting Statement of Financial Accounting
Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." Income from continuing
operations before extraordinary item for the first nine months of 1995
includes gains of $70 on the sales of certain rural telephone exchanges and
$10 for expenses associated with the Recapitalization. 1995 income from
continuing operations before extraordinary item includes a gain of $95 from
the merger of U S WEST's joint venture interest in Telewest Communications
plc with SBC CableComms (UK), gains of $85 on the sales of certain rural
telephone exchanges and $17 for expenses associated with the
Recapitalization. 1994 income from continuing operations includes a gain of
$105 on the partial sale of U S WEST's joint venture interest in Telewest
Communications plc, a gain of $41 on the sale of U S WEST's paging
operations and gains of $51 on the sales of certain rural telephone
exchanges. 1993 income from continuing operations before extraordinary items
was reduced by a restructuring charge of $610 and a charge of $54 for the
cumulative effect on deferred taxes of the 1993 federally mandated increase
in income tax rates.
(2) Capital expenditures, interest expense, debt, the percentage of debt to
total capital, debt to EBITDA and EBITDA to interest expense excludes the
capital assets segment, which has been discontinued and is held for sale.
Percentage of debt to total capital includes preferred securities and other
preferred stock as a component of total capital.
(3) Net income for the first nine months of 1996 includes a gain of $34 for the
cumulative effect of the adoption of SFAS No. 121. Net income for the first
nine months of 1995 was reduced by extraordinary items of $9 for the early
extinguishment of debt. 1995 net income was reduced by an extraordinary item
of $12 for the early extinguishment of debt. 1993 net income was reduced by
extraordinary charges of $3,123 for the discontinuance of SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation," and $77 for the
early extinguishment of debt. 1993 net income also includes a charge of $120
for U S WEST's decision to discontinue the operations of its capital assets
segment. 1992 net income includes a charge of $1,793 for the cumulative
effect of the adoption of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." Discontinued operations provided
net income of $38 and $103, in 1993 and 1992, respectively.
(4) Earnings before interest, taxes, depreciation, amortization, and other
("EBITDA"). EBITDA also excludes gains on sales of rural telephone exchanges
and restructuring charges. U S WEST considers EBITDA an important indicator
of the operational strength and performance of its businesses. EBITDA,
however, should not be considered as an alternative to operating or net
income as an indicator of the performance of U S WEST's businesses or as an
alternative to cash flows from operating activities as a measure of
liquidity, in each case determined in accordance with generally accepted
accounting principles ("GAAP").
(5) U S WEST acquired the MediaOne properties on December 6, 1994.
S-12
<PAGE>
CONTINENTAL CABLEVISION, INC. SUMMARY HISTORICAL FINANCIAL DATA
The summary consolidated historical financial data provided below should be
read in conjunction with the Consolidated Financial Statements of Continental
and the notes thereto incorporated by reference in U S WEST's Current Reports on
Form 8-K, dated October 15, 1996 and November 15, 1996 (as amended by Form
8-K/A, filed December 12, 1996), incorporated herein by reference. See
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus. The summary historical financial data at December 31, 1995 and for
each of the four years ended December 31, 1995 are derived from the Consolidated
Financial Statements of Continental which have been audited by Deloitte & Touche
LLP, independent certified accountants. See "Experts" in the accompanying
Prospectus. The summary historical financial data at September 30, 1996 and for
the nine months ended September 30, 1996 and 1995 are derived from the unaudited
Consolidated Financial Statements of Continental, which have been prepared on
the same basis as Continental's audited Consolidated Financial Statements and,
in the opinion of management, contain all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for these periods.
<TABLE>
<CAPTION>
(UNAUDITED)
TWELVE MONTHS (UNAUDITED)
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------- -------------------- ------------------------------------------
1996 1996 1995 1995 1994 1993 1992
-------------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Revenues.......................... $1,863,876 $1,413,977 $ 992,493 $1,442,392 $1,197,977 $1,177,163 $1,113,475
Operating, selling, general and
administrative expenses......... 1,100,635 834,419 571,025 837,241 672,884 649,571 625,145
Depreciation and amortization..... 462,882 352,279 230,568 341,171 283,183 279,009 272,851
Restricted stock purchase
program(1)...................... 15,705 12,647 8,947 12,005 11,316 11,004 9,683
-------------- --------- --------- --------- --------- --------- ---------
Operating income.................. 284,654 214,632 181,953 251,975 230,594 237,579 205,796
Interest expense (net)............ 464,847 353,583 252,562 363,826 315,541 282,252 296,031
Loss before extraordinary item and
cumulative effect of accounting
change.......................... (213,288) (159,393) (58,132) (112,027) (68,576) (25,774) (102,960)
Extraordinary item................ -- -- -- -- (18,265) -- --
Cumulative effect of accounting
change.......................... -- -- -- -- -- (184,996) --
-------------- --------- --------- --------- --------- --------- ---------
Net loss.......................... (213,288) (159,393) (58,132) (112,027) (86,841) (210,770) (102,960)
Preferred stock preferences....... (42,331) (32,084) (29,555) (39,802) (36,800) (34,115) (16,861)
-------------- --------- --------- --------- --------- --------- ---------
Loss applicable to common
stockholders.................... $ (255,619) $(191,477) $ (87,687) $(151,829) $(123,641) $(244,885) $(119,821)
-------------- --------- --------- --------- --------- --------- ---------
-------------- --------- --------- --------- --------- --------- ---------
OPERATING DATA:
EBITDA(2)......................... $ 763,241 $ 579,558 $ 421,468 $ 605,151 $ 525,093 $ 527,592 $ 488,330
EBITDA margin..................... 40.9% 41.0% 42.5% 42.0% 43.8% 44.8% 43.9%
Capital expenditures.............. $ 686,053 $ 513,938 $ 346,046 $ 518,161 $ 300,511 $ 185,691 $ 145,189
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
S-13
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED)
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
1996 1995
----------------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................................. $ 27,943 $ 18,551
Total assets......................................................... 5,740,315 5,080,593
Total debt........................................................... 5,792,523 5,285,159
Redeemable common stock.............................................. 277,659 256,135
Shareowners' deficit................................................. (1,171,620) (1,215,951)
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, AS OF DECEMBER 31,
------------- -------------------------------------
1996 1995 1994 1993
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CONTINENTAL SUBSCRIBER DATA FOR U.S. CABLE SYSTEMS (3):
Homes passed by cable (4)................................... 7,274,000 7,191,000 5,372,000 5,192,000
Number of basic subscribers (5)............................. 4,243,000 4,190,000 3,081,000 2,895,000
Basic penetration (6)....................................... 58.3% 58.3% 57.4% 55.8%
Monthly cable revenue per average basic subscriber (7)...... $ 38.16 $ 35.99 $ 35.06 $ 35.69
</TABLE>
- ------------------------------
(1) Represents the difference between the consideration paid by employees for
shares of Restricted Continental Common Stock under Continental's Restricted
Stock Purchase Program and the fair market value of such shares (as
determined by the Continental Board) at the date of issuance, amortized over
such shares' vesting schedule. See Note 11 to Continental's Consolidated
Financial Statements.
(2) Operating income before depreciation and amortization and non-cash stock
compensation (Continental Restricted Stock Purchase Program expense).
(3) In reporting subscriber and other data for U.S. cable systems not controlled
or managed by Continental, only that portion of data corresponding to
Continental's percentage interest is included.
(4) Represents estimated dwelling units located sufficiently close to
Continental's cable plant to be practicably connected without any further
extension of principal transmission lines.
(5) A "basic subscriber" means a person who, at a minimum, subscribes to
Continental's Basic Broadcast Tier, which consists of broadcast television
signals available off-air locally, local orgination channels and public,
educational and governmental access channels. Bulk subscribers are accounted
for on an "equivalent billing unit" basis, dividing aggregate Basic
Broadcast Tier revenues by the stated Basic Broadcast Tier rate.
(6) Basic subscribers as a percentage of homes passed by cable.
(7) Cable revenues (excluding direct broadcast satellite service revenues)
divided by the weighted average number of basic subscribers for
Continental's subsidiaries during the twelve-month period ended December 31
for each year presented and the nine month period ended September 30, 1996.
S-14
<PAGE>
U S WEST, INC. UNAUDITED SELECTED PRO FORMA FINANCIAL DATA FOR THE CONTINENTAL
MERGER AND U S WEST/AIRTOUCH JOINT VENTURE
The following unaudited selected pro forma combined financial data of U S
WEST gives effect to the Merger and related transactions, certain acquisitions,
dispositions and refinancings by Continental and the consummation of the U S
WEST/AirTouch Joint Venture. The unaudited selected pro forma combined financial
data are derived from, or prepared on a basis consistent with, the unaudited pro
forma condensed combined financial statements of U S WEST and the notes thereto
incorporated by reference in U S WEST's Current Report on Form 8-K, dated
November 15, 1996, as amended by Form 8-K/A, filed December 12, 1996,
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference" in the accompanying Prospectus. This data is presented for
informational purposes only and is not necessarily indicative of the combined
results of operations or financial position that would have occurred if the
transactions had occurred at the beginning of each period presented or on the
dates indicated, nor is it necessarily indicative of the future operating
results or financial position of U S WEST. The data provided below should be
read in conjunction with the historical and pro forma financial statements and
the notes thereto of U S WEST and Continental included in the documents
incorporated by reference herein, including in U S WEST's Current Report on Form
8-K, dated November 15, 1996, as amended by Form 8-K/A, filed December 12, 1996.
See "Incorporation of Certain Documents by Reference" in the accompanying
Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
--------------- -------------------- -------------
1996 1996 1995 1995
--------------- --------- --------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
PRO FORMA FINANCIAL DATA:
Sales and other revenues:
Communications Group...................................................... $ 9,919 $ 7,480 $ 7,045 $ 9,484
Media Group............................................................... 3,405 2,550 2,362 3,217
Intergroup eliminations................................................... (63) (46) (38) (55)
------- --------- --------- -------------
$ 13,261 $ 9,984 $ 9,369 $ 12,646
------- --------- --------- -------------
------- --------- --------- -------------
Operating income:
Communications Group...................................................... $ 2,275 $ 1,744 $ 1,647 $ 2,178
Media Group............................................................... 254 192 157 219
------- --------- --------- -------------
$ 2,529 $ 1,936 $ 1,804 $ 2,397
------- --------- --------- -------------
------- --------- --------- -------------
Interest expense.............................................................. $ 1,022 $ 778 $ 736 $ 980
Income before extraordinary items and cumulative effect of change in
accounting principle........................................................ 804 550 659 913
PRO FORMA OPERATING DATA:
EBITDA:
Communications Group...................................................... $ 4,383 $ 3,324 $ 3,161 $ 4,220
Media Group............................................................... 1,223 921 872 1,174
------- --------- --------- -------------
$ 5,606 $ 4,245 $ 4,033 $ 5,394
------- --------- --------- -------------
------- --------- --------- -------------
EBITDA margin................................................................. 42.3% 42.5% 43.0% 42.7%
Ratio of debt to EBITDA....................................................... 3.0x -- -- --
Ratio of EBITDA to interest expense........................................... 5.5x 5.5x 5.5x 5.5x
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
HISTORICAL PRO FORMA
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................................... $ 160 $ 193
Total assets............................................................................................ 25,583 39,780
Total debt.............................................................................................. 9,130 16,640
Shareowners' equity..................................................................................... 8,282 11,792
</TABLE>
(REFER TO FOOTNOTES ON PAGES S-12 AND S-14)
S-15
<PAGE>
U S WEST, INC. UNAUDITED SELECTED PRO FORMA FINANCIAL DATA FOR THE CONTINENTAL
MERGER
Under Phase II of U S WEST's joint venture agreement with AirTouch, U S WEST
will deconsolidate the operations of NewVector. However, the partnership
agreement stipulates that U S WEST will receive its proportionate share of the
cash flows related to the joint venture operations, subject to periodic capital
calls. The cash flows that will accrue to U S WEST under Phase II of the joint
venture agreement may be different than those which have accrued to U S WEST
prior to entering into Phase II. In the event that U S WEST exercises its right
to convert its joint venture interest into AirTouch common stock under Phase III
of the joint venture agreement, U S WEST would no longer share in the cash flows
of the joint venture. However, U S WEST intends that any such exchange would be
on terms consistent with its strategy, including its need to access the capital
markets at reasonable costs. See "Recent Developments-- U S WEST/AirTouch Joint
Venture."
The following unaudited selected pro forma combined financial data of U S
WEST gives effect to the Merger and related transactions, including certain
acquisitions, dispositions and refinancings by Continental, and excluding the
effects of the AirTouch/New Vector Joint Venture. The unaudited selected pro
forma combined financial data are derived from, or prepared on a basis
consistent with, the unaudited pro forma condensed combined financial statements
of U S WEST and the notes thereto incorporated by reference in U S WEST's
Current Report on Form 8-K, dated November 15, 1996, as amended by Form 8-K/A,
filed December 12, 1996, incorporated herein by reference. See "Incorporation of
Certain Documents by Reference" in the accompanying Prospectus. This data is
presented for informational purposes only and is not necessarily indicative of
the combined results of operations or financial position that would have
occurred if the Continental transaction had occurred at the beginning of each
period presented or on the dates indicated, nor is it necessarily indicative of
the future operating results or financial position of U S WEST. The data
provided below should be read in conjunction with the historical and pro forma
financial statements and the notes thereto of U S WEST and Continental included
in the documents incorporated by reference herein, including U S WEST's Current
Report on Form 8-K, dated November 15, 1996, as amended by Form 8-K/A, filed
December 12, 1996. See "Incorporation of Certain Documents by Reference" in the
accompanying Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
--------------- -------------------- -------------
1996 1996 1995 1995
--------------- --------- --------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
PRO FORMA FINANCIAL DATA:
Sales and other revenues:
Communications Group..................................................... $ 9,919 $ 7,480 $ 7,045 $ 9,484
Media Group.............................................................. 4,537 3,419 3,038 4,156
Intergroup eliminations.................................................. (120) (92) (84) (112)
------- --------- --------- -------------
$ 14,336 $ 10,807 $ 9,999 $ 13,528
------- --------- --------- -------------
------- --------- --------- -------------
Operating income:
Communications Group..................................................... $ 2,275 $ 1,744 $ 1,647 $ 2,178
Media Group.............................................................. 470 392 288 366
------- --------- --------- -------------
$ 2,745 $ 2,136 $ 1,935 $ 2,544
------- --------- --------- -------------
------- --------- --------- -------------
Interest expense............................................................. $ 1,025 $ 780 $ 736 $ 981
Income before extraordinary items and cumulative effect of change in
accounting principle....................................................... 782 553 667 896
PRO FORMA OPERATING DATA:
EBITDA:
Communications Group..................................................... $ 4,383 $ 3,324 $ 3,161 $ 4,220
Media Group.............................................................. 1,581 1,228 1,089 1,442
------- --------- --------- -------------
$ 5,964 $ 4,552 $ 4,250 $ 5,662
------- --------- --------- -------------
------- --------- --------- -------------
EBITDA margin................................................................ 41.6% 42.1% 42.5% 41.9%
Ratio of debt to EBITDA...................................................... 2.8x -- -- --
Ratio of EBITDA to interest expense.......................................... 5.8x 5.8x 5.8x 5.8x
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
HISTORICAL PRO FORMA
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................................... $ 160 $ 193
Total assets............................................................................................ 25,583 40,203
Total debt.............................................................................................. 9,130 16,640
Shareowners' equity..................................................................................... 8,282 11,792
</TABLE>
(REFER TO FOOTNOTES ON PAGES S-12 AND S-14)
S-16
<PAGE>
U S WEST, INC. SELECTED HISTORICAL PROPORTIONATE FINANCIAL DATA
The following table is not required by GAAP or intended to replace the
Consolidated Financial Statements of U S WEST prepared in accordance with GAAP.
It is presented supplementally because U S WEST believes that proportionate
financial and operating data facilitate the understanding and assessment of U S
WEST's Consolidated Financial Statements. The proportionate data for each of the
three years ended December 31, 1995 are derived from the supplementary selected
proportionate results of operations of the Media Group and the Communications
Group Combined Financial Statements which have been audited by Coopers & Lybrand
L.L.P., independent certified public accountants. The summary historical
proportionate data for the nine months ended September 30, 1996 and 1995 are
derived from the unaudited Media Group proportionate results of operations and
the unaudited Communications Group Combined Financial Statements, which have
been prepared on the same basis as the audited proportionate results of
operations and combined financial statements. The table does not reflect
financial data of the capital assets segment, which had net assets of $404 at
September 30, 1996, or the proportionate information for Continental as the
transaction closed on November 15, 1996.
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
TWELVE MONTHS ENDED NINE MONTHS ENDED YEAR ENDED OR AS OF
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
-------------------- -------------------- -------------------------------
1996 1996 1995 1995 1994 1993
-------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
PROPORTIONATE FINANCIAL DATA:
Sales and other revenues:
Communications Group...................... $ 9,919 $ 7,480 $ 7,045 $ 9,484 $ 9,176 $ 8,870
Media Group............................... 5,856 4,376 3,635 5,115 4,213 2,157
Intergroup eliminations................... (120) (92) (84) (112) (131) (125)
------- --------- --------- --------- --------- ---------
$ 15,655 $ 11,764 $ 10,596 $ 14,487 $ 13,258 $ 10,902
------- --------- --------- --------- --------- ---------
------- --------- --------- --------- --------- ---------
Operating income:
Communications Group...................... $ 2,275 $ 1,744 $ 1,647 $ 2,178 $ 2,118 $ 1,035
Media Group............................... 498 431 409 476 401 195
------- --------- --------- --------- --------- ---------
$ 2,773 $ 2,175 $ 2,056 $ 2,654 $ 2,519 $ 1,230
------- --------- --------- --------- --------- ---------
------- --------- --------- --------- --------- ---------
Income from continuing operations before
extraordinary items and cumulative effect of
change in accounting principle:
Communications Group...................... $ 1,188 $ 904 $ 900 $ 1,184 $ 1,150 $ 391
Media Group............................... 82 10 73 145 276 85
------- --------- --------- --------- --------- ---------
$ 1,270 $ 914 $ 973 $ 1,329 $ 1,426 $ 476
------- --------- --------- --------- --------- ---------
------- --------- --------- --------- --------- ---------
PROPORTIONATE OPERATING DATA:
EBITDA (excludes 1993 restructuring charge):
(1)
Communications Group...................... $ 4,383 $ 3,324 $ 3,161 $ 4,220 $ 4,026 $ 3,743
Media Group............................... 1,322 1,058 885 1,149 902 527
------- --------- --------- --------- --------- ---------
$ 5,705 $ 4,382 $ 4,046 $ 5,369 $ 4,928 $ 4,270
------- --------- --------- --------- --------- ---------
------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------------
(1) Proportionate EBITDA represents U S WEST's equity interest in the entities
expressed as a percentage multiplied by the entities' EBITDA.
(REFER TO FOOTNOTES ON PAGES S-12, S-19, S-21 AND S-25)
S-17
<PAGE>
U S WEST COMMUNICATIONS GROUP SUMMARY HISTORICAL FINANCIAL DATA
The summary historical financial data provided below should be read in
conjunction with the financial statements and notes thereto included in U S
WEST's Annual Report on Form 10-K for the year ended December 31, 1995. See
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus. The summary historical financial data at December 31, 1995 and 1994
and for each of the four years ended December 31, 1995 are derived from the
combined financial statements of the Communications Group which have been
audited by Coopers & Lybrand L.L.P., independent certified public accountants.
See "Experts" in the accompanying Prospectus. The summary historical financial
data at September 30, 1996, and for the nine months ended September 30, 1996 and
1995 are derived from the unaudited combined financial statements of the
Communications Group, which have been prepared on the same basis as the
Communications Group's audited combined financial statements and, in the opinion
of management, contain all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations for these periods.
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
TWELVE MONTHS NINE MONTHS
ENDED OR AS OF ENDED OR AS OF
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED OR AS OF DECEMBER 31,
--------------- -------------------- ------------------------------------------
1996 1996 1995 1995 1994 1993 1992
--------------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Operating revenues:
U S WEST Communications................ $ 9,679 $ 7,304 $ 6,909 $ 9,284 $ 8,998 $ 8,656 $ 8,324
Non-regulated/other.................... 240 176 136 200 178 214 206
------- --------- --------- --------- --------- --------- ---------
$ 9,919 $ 7,480 $ 7,045 $ 9,484 $ 9,176 $ 8,870 $ 8,530
------- --------- --------- --------- --------- --------- ---------
------- --------- --------- --------- --------- --------- ---------
Operating income:
U S WEST Communications................ $ 2,332 $ 1,782 $ 1,675 $ 2,225 $ 2,150 $ 1,074 $ 1,822
Non-regulated/other.................... (57) (38) (28) (47) (32) (39) (28)
------- --------- --------- --------- --------- --------- ---------
$ 2,275 $ 1,744 $ 1,647 $ 2,178 $ 2,118 $ 1,035 $ 1,794
------- --------- --------- --------- --------- --------- ---------
------- --------- --------- --------- --------- --------- ---------
Interest expense......................... $ 444 $ 332 $ 315 $ 427 $ 376 $ 412 $ 438
Net income (loss) (1).................... 1,219 938 895 1,176 1,150 (2,809) (815)
Total assets............................. 16,822 16,822 16,423 16,585 15,944 15,423 20,655
Total debt............................... 6,776 6,776 6,838 6,754 6,124 5,673 5,181
Communications Group equity.............. 3,817 3,817 3,272 3,476 3,179 2,722 6,003
OPERATING DATA:
EBITDA (excludes 1993 restructuring
charge):
U S WEST Communications................ $ 4,420 $ 3,347 $ 3,174 $ 4,247 $ 4,037 $ 3,760 $ 3,557
Non-regulated/other.................... (37) (23) (13) (27) (11) (17) (4)
------- --------- --------- --------- --------- --------- ---------
$ 4,383 $ 3,324 $ 3,161 $ 4,220 $ 4,026 $ 3,743 $ 3,553
------- --------- --------- --------- --------- --------- ---------
------- --------- --------- --------- --------- --------- ---------
EBITDA margin............................ 44.2% 44.4% 44.9% 44.5% 43.9% 42.2% 41.7%
Capital expenditures..................... $ 2,824 $ 2,008 $ 1,923 $ 2,739 $ 2,477 $ 2,226 $ 2,385
WHOLLY OWNED DOMESTIC OPERATIONS:
Telephone network access lines in service
(thousands)............................ 15,253 15,253 14,620 14,795 14,229 13,843 13,345
Billed access minutes of use--interstate
(millions)............................. 50,974 38,674 35,501 47,801 43,768 40,594 37,413
Billed access minutes of use--intrastate
(millions)............................. 10,324 7,808 6,988 9,504 8,507 7,529 6,956
Communications Group employees........... 50,351 50,351 50,849 50,825 51,402 52,598 55,352
Telephone company employees.............. 47,568 47,568 47,868 47,934 47,493 49,668 52,423
Telephone company employees per ten
thousand access lines.................. 31.2 31.2 32.7 32.3 33.1 35.9 39.3
</TABLE>
- ------------------------------
(REFER TO FOOTNOTES ON PAGE S-12 AND FOOTNOTE ON FOLLOWING PAGE)
S-18
<PAGE>
(1) Net income for the first nine months of 1996 includes gains of $31 on the
sales of certain rural telephone exchanges and the cumulative and current
year-to-date effects, of $34 and $13, respectively, from adopting SFAS No.
121. Net income for the first nine months of 1995 includes gains of $70 on
the sales of certain rural telephone exchanges, an extraordinary charge of
$5 for the early extinguishment of debt and $5 for expenses associated with
the Recapitalization. 1995 net income includes gains of $85 on the sales of
certain rural telephone exchanges, an extraordinary charge of $8 for the
early extinguishment of debt and $8 for costs associated with the
Recapitalization. 1994 net income includes gains of $51 on the sales of
certain rural telephone exchanges. 1993 net income was reduced by a $534
restructuring charge and $54 for the cumulative effect on deferred taxes of
the 1993 federally mandated increase in income tax rates. 1993 net income
was also reduced by extraordinary charges of $3,123 for the discontinuance
of SFAS No. 71 and $77 for the early extinguishment of debt. 1992 net income
includes a charge of $1,745 for the adoption of SFAS No. 106 and SFAS No.
112.
S-19
<PAGE>
U S WEST MEDIA GROUP SUMMARY HISTORICAL FINANCIAL DATA
The summary historical financial data provided below should be read in
conjunction with the financial statements and notes thereto included in U S
WEST's Annual Report on Form 10-K for the year ended December 31, 1995. See
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus. The summary historical financial data at December 31, 1995 and 1994
and for each of the three years ended December 31, 1995 are derived from the
combined financial statements of the Media Group which have been audited by
Coopers & Lybrand L.L.P., independent certified public accountants. See
"Experts" in the accompanying Prospectus. The summary historical financial data
at September 30, 1996 and for the nine months ended September 30, 1996 and 1995
are derived from the unaudited combined financial statements of the Media Group,
which have been prepared on the same basis as the Media Group's audited combined
financial statements and, in the opinion of management, contain all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. The data provided below should be read in conjunction with the
historical and proforma financial statements and the notes thereto of U S WEST
and Continental included in the documents incorporated by reference herein,
including in U S WEST's Current Report on Form 8-K, dated November 15, 1996, as
amended by Form 8-K/A, filed December 12, 1996. See "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus.
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
TWELVE MONTHS NINE MONTHS
ENDED OR AS OF ENDED OR AS OF YEAR ENDED OR AS OF
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
-------------- -------------- ----------------------
1996 1996 1995 1995 1994 1993
-------------- ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Sales and other revenues:
Directories.................................................... $ 1,232 $ 908 $ 856 $1,180 $1,075 $ 956
Wireless....................................................... 1,134 869 676 941 781 561
Cable and telecommunications................................... 226 176 165 215 18 --
Corporate and other............................................ 22 12 28 38 34 32
-------------- ------ ------ ------ ------ ------
$ 2,614 $1,965 $1,725 $2,374 $1,908 $1,549
-------------- ------ ------ ------ ------ ------
-------------- ------ ------ ------ ------ ------
Operating income:
Directories.................................................... $ 424 $ 318 $ 292 $ 398 $ 396 $ 356
Wireless....................................................... 216 200 131 147 88 (29)
Cable and telecommunications................................... 23 15 15 23 -- --
Corporate and other............................................ (142) (108) (67) (101) (95) (89)
-------------- ------ ------ ------ ------ ------
$ 521 $ 425 $ 371 $ 467 $ 389 $ 238
-------------- ------ ------ ------ ------ ------
-------------- ------ ------ ------ ------ ------
Interest expense (2)............................................. $ 91 $ 80 $ 89 $ 100 $ 66 $ 27
Income from continuing operations before extraordinary item
(1)............................................................ 82 10 73 145 276 85
Net income (3)................................................... 82 10 69 141 276 3
Total assets..................................................... 8,853 8,853 8,450 8,615 7,394 5,446
Total debt (2)................................................... 2,354 2,354 1,946 2,101 1,814 1,526
Preferred securities of subsidiary trust holding Company-
guaranteed debentures.......................................... 600 600 600 600 -- --
Preferred stock subject to mandatory redemption.................. 51 51 51 51 51 --
Media Group equity............................................... 4,465 4,465 4,492 4,472 4,203 3,139
OPERATING DATA:
EBITDA (excludes 1993 restructuring charge):
Directories.................................................... $ 467 $ 350 $ 317 $ 434 $ 426 $ 422
Wireless....................................................... 358 307 217 268 192 144
Cable and telecommunications................................... 109 83 74 100 5 --
Corporate and other............................................ (129) (99) (56) (86) (90) (81)
-------------- ------ ------ ------ ------ ------
$ 805 $ 641 $ 552 $ 716 $ 533 $ 485
-------------- ------ ------ ------ ------ ------
-------------- ------ ------ ------ ------ ------
EBITDA margin.................................................... 30.8% 32.6% 32.0% 30.2% 27.9% 31.3%
Capital expenditures (2)......................................... $ 470 $ 329 $ 260 $ 401 $ 343 $ 215
Employees........................................................ 10,486 10,486 10,274 10,222 10,103 8,180
(REFER TO FOOTNOTES ON PAGE S-12 AND FOOTNOTES ON FOLLOWING PAGE)
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
TWELVE MONTHS NINE MONTHS
ENDED OR AS OF ENDED OR AS OF YEAR ENDED OR AS OF
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
-------------- -------------- ----------------------
1996 1996 1995 1995 1994 1993
-------------- ------ ------ ------ ------ ------
WHOLLY OWNED DOMESTIC OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Cable television basic subscribers--FCC equivalents (thousands)
(4)............................................................ 511 511 482 490 459 --
Cellular subscribers (thousands)................................. 1,816 1,816 1,269 1,463 968 601
Directory advertisers (thousands)................................ 482 482 473 479 468 459
</TABLE>
- ------------------------------
(1) Income from continuing operations before extraordinary item for the first
nine months of 1995 includes $5 for expenses associated with the
Recapitalization. 1995 income from continuing operations before
extraordinary item includes a gain of $95 from the merger of U S WEST's
joint venture interest in Telewest Communications plc with SBC CableComms
(UK) and $9 for expenses associated with the Recapitalization. 1994 income
from continuing operations before extraordinary item includes a gain of $105
on the partial sale of U S WEST's joint venture interest in Telewest
Communications plc and a gain of $41 on the sale of U S WEST's paging
operations. 1993 income from continuing operations before extraordinary item
was reduced by a restructuring charge of $76.
(2) Capital expenditures, interest expense and debt excludes the capital assets
segment, which has been discontinued and is held for sale.
(3) Net income for the first nine months and full year 1995 was reduced by an
extraordinary item of $4 for the early extinguishment of debt. 1993 net
income includes a charge of $120 for U S WEST's decision to discontinue the
operations of its capital assets segment and net income of $38 related to
the discontinued segment.
(4) U S WEST acquired the MediaOne properties on December 6, 1994.
S-21
<PAGE>
U S WEST MEDIA GROUP UNAUDITED SELECTED PRO FORMA FINANCIAL DATA FOR THE
CONTINENTAL MERGER AND U S WEST/AIRTOUCH JOINT VENTURE
The following unaudited selected pro forma combined financial data of the
Media Group gives effect to the Merger and related transactions, certain
acquisitions, dispositions and refinancings by Continental and the consummation
of the U S WEST/AirTouch Joint Venture. The unaudited selected pro forma
combined financial data are derived from, or prepared on a basis consistent with
the unaudited pro forma condensed combined financial statements of the Media
Group and the notes thereto incorporated by reference in U S WEST's Current
Report on Form 8-K, dated November 15, 1996, as amended by Form 8-K/A, filed
December 12, 1996, incorporated herein by reference. See "Incorporation of
Certain Documents by Reference" in the accompanying Prospectus. This data is
presented for informational purposes only and is not necessarily indicative of
the combined results of operations or financial position that would have
occurred if the transactions had occurred at the beginning of each period
presented or on the dates indicated, nor is it necessarily indicative of the
future operating results or financial position of the Media Group. The data
provided below should be read in conjunction with the historical and pro forma
financial statements and the notes thereto of U S WEST and Continental included
in the documents incorporated by reference herein, including in U S WEST's
Current Report on Form 8-K, dated November 15, 1996, as amended by Form 8-K/A,
filed December 12, 1996. See "Incorporation of Certain Documents by Reference"
in the accompanying Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
------------- -------------- ------------
1996 1996 1995 1995
------------- ------ ------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
PRO FORMA FINANCIAL DATA:
Sales and other revenues:
Directories................................................................... $1,232 $ 908 $ 856 $1,180
Wireless...................................................................... -- -- -- --
Cable and telecommunications.................................................. 2,149 1,630 1,478 1,997
Corporate and other........................................................... 24 12 28 40
------ ------ ------ ------
$3,405 $2,550 $2,362 $3,217
Operating income (loss):
Directories................................................................... $ 424 $ 318 $ 292 $ 398
Wireless...................................................................... -- -- -- --
Cable and telecommunications.................................................. (28) (18) (68) (78)
Corporate and other........................................................... (142) (108) (67) (101)
------ ------ ------ ------
$ 254 $ 192 $ 157 $ 219
------ ------ ------ ------
------ ------ ------ ------
Interest expense................................................................ $ 576 $ 444 $ 421 $ 553
Loss before extraordinary item.................................................. (384) (354) (241) (271)
PRO FORMA OPERATING DATA:
EBITDA:
Directories................................................................... $ 467 $ 350 $ 317 $ 434
Wireless...................................................................... -- -- -- --
Cable and telecommunications.................................................. 885 670 611 826
Corporate and other........................................................... (129) (99) (56) (86)
------ ------ ------ ------
$1,223 $ 921 $ 872 $1,174
------ ------ ------ ------
------ ------ ------ ------
EBITDA margin................................................................... 35.9% 36.1% 36.9% 36.5%
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
HISTORICAL PRO FORMA
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................................ $ 54 $ 87
Total assets............................................................................................. 8,853 23,044
Total debt............................................................................................... 2,354 9,864
Shareowners' equity...................................................................................... 4,465 7,975
</TABLE>
(REFER TO FOOTNOTES ON PAGES S-12, S-14 AND S-21)
S-22
<PAGE>
U S WEST MEDIA GROUP UNAUDITED SELECTED PRO FORMA FINANCIAL DATA FOR THE
CONTINENTAL MERGER
Under Phase II of U S WEST's joint venture agreement with AirTouch, U S WEST
will deconsolidate the operations of NewVector. However, the partnership
agreement stipulates that U S WEST will receive its proportionate share of the
cash flows related to the joint venture operations, subject to periodic capital
calls. The cash flows that will accrue to U S WEST under Phase II of the joint
venture agreement may be different than those which have accrued to U S WEST
prior to entering into Phase II. In the event that U S WEST exercises its right
to convert its joint venture interest into AirTouch common stock under Phase III
of the joint venture agreement, U S WEST would no longer share in the cash flows
of the joint venture. However, U S WEST intends that any such exchange would be
on terms consistent with its strategy, including its need to access the capital
markets at reasonable costs. See "Recent Developments-- U S WEST/AirTouch Joint
Venture."
The following unaudited selected pro forma combined financial data of the
Media Group gives effect to the Merger and related transactions, certain
acquisitions, dispositions and refinancings by Continental and excludes the
effects of the AirTouch/New Vector Joint Venture. The unaudited selected pro
forma financial data are derived from, or prepared on a basis consistent with,
the unaudited pro forma condensed combined financial statements of the Media
Group and the notes thereto incorporated by reference in U S WEST's Current
Report on Form 8-K, dated November 15, 1996, as amended by Form 8-K/A, filed
December 12, 1996, incorporated herein by reference in the accompanying
Prospectus. See "Incorporation of Certain Documents by Reference." This data is
presented for informational purposes only and is not necessarily indicative of
the combined results of operations or financial position that would have
occurred if the Continental transaction had occurred at the beginning of each
period presented or on the dates indicated, nor is it necessarily indicative of
the future operating results or financial position of the Media Group. The data
provided below should be read in conjunction with the historical and pro forma
financial statements and the notes thereto of U S WEST and Continental included
in the documents incorporated by reference herein, including in U S WEST's
Current Report on Form 8-K, dated November 15, 1996, as amended by Form 8-K/A,
filed December 12, 1996. See "Incorporation of Certain Documents by Reference"
in the accompanying Prospectus.
<TABLE>
<CAPTION>
TWELVE NINE MONTHS ENDED
MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- --------------------
1996 1996 1995
--------------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
PRO FORMA FINANCIAL DATA:
Sales and other revenues:
Directories................................................................. $ 1,232 $ 908 $ 856
Wireless.................................................................... 1,134 869 676
Cable and telecommunications................................................ 2,149 1,630 1,478
Corporate and other......................................................... 22 12 28
------ --------- ---------
$ 4,537 $ 3,419 $ 3,038
------ --------- ---------
------ --------- ---------
Operating income:
Directories................................................................. $ 424 $ 318 $ 292
Wireless.................................................................... 216 200 131
Cable and telecommunications................................................ (28) (18) (68)
Corporate and other......................................................... (142) (108) (67)
------ --------- ---------
$ 470 $ 392 $ 288
------ --------- ---------
------ --------- ---------
Interest expense.............................................................. $ 582 $ 449 $ 421
Income before extraordinary item.............................................. (406) (351) (233)
PRO FORMA OPERATING DATA:
EBITDA:
Directories................................................................. $ 467 $ 350 $ 317
Wireless.................................................................... 358 307 217
Cable and telecommunications................................................ 885 670 611
Corporate and other......................................................... (129) (99) (56)
------ --------- ---------
$ 1,581 $ 1,228 $ 1,089
------ --------- ---------
------ --------- ---------
EBITDA margin................................................................. 34.8% 35.9% 35.8%
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1995
---------------
<S> <C>
PRO FORMA FINANCIAL DATA:
Sales and other revenues:
Directories................................................................. $ 1,180
Wireless.................................................................... 941
Cable and telecommunications................................................ 1,997
Corporate and other......................................................... 38
------
$ 4,156
------
------
Operating income:
Directories................................................................. $ 398
Wireless.................................................................... 147
Cable and telecommunications................................................ (78)
Corporate and other......................................................... (101)
------
$ 366
------
------
Interest expense.............................................................. $ 554
Income before extraordinary item.............................................. (288)
PRO FORMA OPERATING DATA:
EBITDA:
Directories................................................................. $ 434
Wireless.................................................................... 268
Cable and telecommunications................................................ 826
Corporate and other......................................................... (86)
------
$ 1,442
------
------
EBITDA margin................................................................. 34.7%
</TABLE>
(REFER TO FOOTNOTES ON PAGES S-12, S-14 AND S-21)
S-23
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------
HISTORICAL PRO FORMA
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................................... $ 54 $ 87
Total assets............................................................................................ 8,853 23,473
Total debt.............................................................................................. 2,354 9,864
Shareowners' equity..................................................................................... 4,465 7,975
</TABLE>
(REFER TO FOOTNOTES ON PAGES S-12, S-14 AND S-21)
S-24
<PAGE>
U S WEST MEDIA GROUP SELECTED HISTORICAL PROPORTIONATE FINANCIAL DATA
The following table is not required by GAAP or intended to replace the
Combined Financial Statements of the Media Group prepared in accordance with
GAAP. It is presented supplementally because U S WEST believes that
proportionate financial and operating data facilitate the understanding and
assessment of the Media Group's Combined Financial Statements. The proportionate
data for the nine months ended September 30, 1995 and 1996 and each of the three
years ended December 31, 1995 are derived from the supplementary selected
proportionate results of operations of the Media Group. The proportionate data
for each of the three years ended December 31, 1995 has been audited by Coopers
& Lybrand L.L.P., independent certified public accountants. The proportionate
data for the nine months ended September 30, 1996 and 1995 is derived from the
unaudited proportionate results of operations and has been prepared on the same
basis as the audited proportionate results of operations. The table does not
reflect financial data of the capital assets segment, which had net assets of
$404 at September 30, 1996, or the proportionate information for Continental as
the transaction closed on November 15, 1996.
<TABLE>
<CAPTION>
DIRECTORY AND
CABLE AND INFORMATION
TELECOMMUNICATIONS WIRELESS SERVICES CORP.
-------------------- ---------------- ---------------- AND
DOMESTIC (1) INT'L DOMESTIC INT'L DOMESTIC INT'L OTHER TOTAL
------------ ----- -------- ----- -------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
Revenues................................................ $2,921 $ 203 $1,025 $ 393 $1,100 $ 201 $ 13 $5,856
EBITDA (2).............................................. 667 (57) 289 (14) 455 15 (33) 1,322
Operating income (loss)................................. 221 (168) 158 (93) 426 (2) (44) 498
Net income (loss)....................................... (42) (103) 88 (74) 254 (11) (30) 82
NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenues................................................ $2,168 $ 157 $ 787 $ 298 $ 826 $ 131 $ 9 $4,376
EBITDA (2).............................................. 516 (36) 253 1 349 5 (30) 1,058
Operating income (loss)................................. 172 (115) 154 (63) 327 (7) (37) 431
Net income (loss)....................................... (26) (157) 88 (70) 193 (9) (9) 10
NINE MONTHS ENDED SEPTEMBER 30, 1995
Revenues................................................ $1,890 $ 82 $ 580 $ 200 $ 784 $ 72 $ 27 $3,635
EBITDA (2).............................................. 431 (34) 188 (25) 318 (7) 14 885
Operating income (loss)................................. 132 (64) 112 (62) 300 (15) 6 409
Income (loss) before extraordinary item................. (35) (36) 56 (76) 186 (11) (11) 73
YEAR ENDED 1995
Revenues................................................ $2,643 $ 128 $ 818 $ 295 $1,058 $ 142 $ 31 $5,115
EBITDA (2).............................................. 582 (55) 224 (40) 424 3 11 1,149
Operating income (loss)................................. 181 (117) 116 (92) 399 (10) (1) 476
Income (loss) before extraordinary item................. (51) 18 56 (80) 247 (13) (32) 145
YEAR ENDED 1994
Revenues................................................ $2,176 $ 85 $ 657 $ 186 $ 997 $ 79 $ 33 $4,213
EBITDA (2).............................................. 444 (42) 163 (68) 417 2 (14) 902
Operating income (loss)................................. 138 (73) 81 (103) 397 (8) (31) 401
Income (loss) from continuing operations................ (41) 65 74 (68) 252 (4) (2) 276
YEAR ENDED 1993
Revenues................................................ $ 548 $ 59 $ 482 $ 78 $ 949 $ 7 $ 34 $2,157
EBITDA (excludes 1993 restructuring charge) (2)......... 91 (42) 123 (48) 424 (3) (18) 527
Operating income (loss)................................. 14 (64) (20) (53) 358 (3) (37) 195
Income (loss) from continuing operations................ (23) (49) (30) (22) 224 (3) (12) 85
</TABLE>
- ------------------------
(1) The proportionate results include the Media Group's 25.51 percent pro rata
priority and residual equity interests in reported TWE results. The reported
TWE results are prepared in accordance with GAAP and have not been adjusted
to report TWE investments accounted for under the equity method on a
proportionate basis.
(2) Proportionate EBITDA represents the Media Group's equity interest in the
entities expressed as a percentage multiplied by the entities' EBITDA.
(REFER TO FOOTNOTES ON PAGES S-12 AND S-21)
S-25
<PAGE>
DESCRIPTION OF NOTES AND DEBENTURES
GENERAL
The 2002 Notes, the 2007 Notes, the 2027 Debentures, the 2032 Debentures,
the 2037 Debentures and the 2097 Debentures will be issued as separate series of
Debt Securities under an Indenture, dated as of April 15, 1988, as amended by a
First Supplemental Indenture dated as of November 1, 1995 and as further amended
or supplemented from time to time (the "Indenture"), among U S WEST, Capital
Funding and First National Bank of Santa Fe, as trustee. The provisions of the
Indenture are more fully described under "Description of Debt Securities and
Guarantees" in the accompanying Prospectus, to which reference is hereby made.
Capitalized terms not otherwise defined herein shall have the meanings given to
them in the accompanying Prospectus and the Indenture. As of the date of this
Prospectus Supplement, $851,000,000 aggregate principal amount of Debt
Securities has been issued under the Indenture and $530,000,000 aggregate
principal amount of such Debt Securities remains outstanding.
NOTES
The 2002 Notes will be limited to $600,000,000 aggregate principal amount
and the 2007 Notes will be limited to $1,100,000,000 aggregate principal amount.
The Notes are unconditionally guaranteed as to payment of principal and interest
by U S WEST. The Notes are unsecured obligations of Capital Funding and rank
equally with all other unsecured and unsubordinated indebtedness of Capital
Funding. The Guarantees are unsecured obligations of U S WEST and rank equally
with all other unsecured and unsubordinated indebtedness of U S WEST. Reference
is made to the accompanying Prospectus for a detailed summary of additional
provisions of the Notes and the Guarantees.
The 2002 Notes will bear interest at the rate of 6.85% per annum and the
2007 Notes will bear interest at the rate of 7.30% per annum, in each case from
January 22, 1997, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, payable semiannually on January 15
and July 15 of each year, commencing July 15, 1997, to the Persons in whose
names the Notes are registered at the close of business on the January 1 or July
1, as the case may be, next preceding such Interest Payment Date. The Notes will
be issued in registered form in denominations of $1,000 and integral multiples
thereof. Interest will be calculated on the basis of a 360-day year of twelve
30-day months.
The 2002 Notes will mature on January 15, 2002 and the 2007 Notes will
mature on January 15, 2007. The Notes will not have the benefit of any sinking
fund.
Citibank, N.A., through its corporate trust office in the Borough of
Manhattan in The City of New York (the "Paying Agent"), will act as Capital
Funding's paying agent with respect to the Notes. Payments of principal of and
interest on the Notes will be made by Capital Funding through the Paying Agent
to DTC. See "--Book-Entry System."
The Notes may be transferred or exchanged without any service charge at the
corporate trust office of the Paying Agent in the Borough of Manhattan in The
City of New York, or at any other office or agency maintained by Capital Funding
for such purpose.
DEBENTURES
The 2027 Debentures will be limited to $1,100,000,000 aggregate principal
amount, the 2032 Debentures will be limited to $200,000,000 aggregate principal
amount, the 2037 Debentures will be limited to $600,000,000 aggregate principal
amount and the 2097 Debentures will be limited to $500,000,000 aggregate
principal amount. The Debentures are unconditionally guaranteed as to payment of
principal, premium, if any, and interest by U S WEST. The Debentures are
unsecured obligations of Capital Funding and rank equally with all other
unsecured and unsubordinated indebtedness of Capital Funding. The Guarantees are
unsecured obligations of U S WEST and rank equally with all other unsecured and
S-26
<PAGE>
unsubordinated indebtedness of U S WEST. Reference is made to the accompanying
Prospectus for a detailed summary of additional provisions of the Debentures and
the Guarantees.
The 2027 Debentures will bear interest at the rate of 7.90% per annum, the
2032 Debentures will bear interest at the rate of 8.15% per annum and the 2097
Debentures will bear interest at the rate of 7.95% per annum, in each case from
January 22, 1997, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, payable semiannually on February 1
and August 1 of each year, commencing August 1, 1997, to the Persons in whose
names the 2027 Debentures, the 2032 Debentures and the 2097 Debentures are
registered at the close of business on the January 15 or July 15, as the case
may be, next preceding such Interest Payment Date. The 2037 Debentures will bear
interest at the rate of 6.95% per annum from January 22, 1997, or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, payable semiannually on January 15 and July 15 of each year, commencing
July 15, 1997, to the Persons in whose names the 2037 Debentures are registered
at the close of business on the January 1 or July 1, as the case may be, next
preceding such Interest Payment Date. The Debentures will be issued in
registered form in denominations of $1,000 and integral multiples thereof.
Interest will be calculated on the basis of a 360-day year of twelve 30-day
months.
The 2027 Debentures will mature on February 1, 2027, the 2032 Debentures
will mature on February 1, 2032, the 2037 Debentures will mature on January 15,
2037 and the 2097 Debentures will mature on February 1, 2097. The Debentures
will not have the benefit of any sinking fund.
The Paying Agent will act as Capital Funding's paying agent with respect to
the Debentures. Payments of principal of and premium, if any, and interest on
the Debentures will be made by Capital Funding through the Paying Agent to DTC.
See "--Book-Entry System."
The Debentures may be transferred or exchanged without any service charge at
the corporate trust office of the Paying Agent in the Borough of Manhattan in
The City of New York, or at any other office or agency maintained by Capital
Funding for such purpose.
REDEMPTION
The 2002 Notes, the 2007 Notes, the 2027 Debentures, the 2037 Debentures
and, except in the circumstances described below under "--Conditional Right to
Advance Maturity and Tax Event Redemption," the 2097 Debentures are not
redeemable by Capital Funding prior to maturity.
The 2032 Debentures are not redeemable prior to February 1, 2007. On or
after February 1, 2007 and prior to maturity, Capital Funding, at its option,
may redeem all or, from time to time, any part of the 2032 Debentures on at
least 30 days but not more than 90 days notice, as provided in the Indenture, at
the following redemption prices (expressed in percentages of the principal
amount) during the 12-month periods beginning February 1:
<TABLE>
<S> <C>
2007....................................................... 104.075%
2008....................................................... 103.668%
2009....................................................... 103.260%
2010....................................................... 102.853%
2011....................................................... 102.445%
2012....................................................... 102.038%
2013....................................................... 101.630%
2014....................................................... 101.223%
2015....................................................... 100.815%
2016....................................................... 100.408%
</TABLE>
and thereafter at 100%, together in each case with accrued interest to the date
fixed for redemption.
S-27
<PAGE>
OPTIONAL REPAYMENT
The 2037 Debentures may be repaid on January 15, 2004, at the option of the
registered holders thereof, at a price equal to 100% of their principal amount
plus all accrued interest thereon to January 15, 2004. In order to exercise this
option, a holder must deliver to the Paying Agent, at its corporate trust office
in the Borough of Manhattan in The City of New York, during the period beginning
on November 15, 2003 and ending at 5:00 p.m. (New York City time) on December
15, 2003 (or, if December 15, 2003 is not a Business Day, the next succeeding
Business Day), the certificate representing the 2037 Debenture as to which an
election to exercise the repayment option is being made, together with a duly
signed and completed notice of election to have such 2037 Debenture repaid by
Capital Funding. Once made, an election to exercise the repayment option by a
holder of a 2037 Debenture will be irrevocable. The repayment option may be
exercised by the holder of a 2037 Debenture for less than the entire principal
amount of the 2037 Debentures held by such holder, so long as the principal
amount that is to be repaid is equal to $1,000 or an integral multiple of
$1,000. All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of any 2037 Debenture for repayment will be determined
by Capital Funding, whose determination will be final and binding.
Failure by Capital Funding to repay the 2037 Debentures when required as
described in the preceding paragraph will result in an Event of Default under
the Indenture.
As long as the 2037 Debentures are represented by a Global Debenture (as
defined below), DTC or DTC's nominee will be the registered holder of the 2037
Debenture and therefore will be the only entity that can exercise the repayment
option with respect to the 2037 Debentures. In order to ensure that DTC or its
nominee will exercise in a timely manner the repayment option with respect to a
particular 2037 Debenture, the beneficial owner of an interest in such Global
Debenture must instruct the broker or other direct or indirect participant
through which it holds its interest to notify DTC of its desire to exercise the
repayment option. Different firms have different cut-off times for accepting
instructions from their customers and, accordingly, each such beneficial owner
should consult the broker or other direct or indirect participant through which
it holds its interest in a Global Debenture in order to ascertain the cut-off
time by which such instruction must be given to ensure that timely notice of an
election to exercise the repayment option may be given to DTC. See "--Book-Entry
System."
No similar right of repayment is available to holders of the 2002 Notes, the
2007 Notes, the 2027 Debentures, the 2032 Debentures or the 2097 Debentures.
CONDITIONAL RIGHT TO ADVANCE MATURITY AND TAX EVENT REDEMPTION
Capital Funding intends to deduct interest paid on the 2097 Debentures for
federal income tax purposes. However, the Clinton Administration's budget
proposal for Fiscal Year 1997, released on March 19, 1996, contained a series of
proposed tax law changes (the "Proposed Legislation") that, among other things,
would prohibit an issuer from deducting interest payments on debt instruments
with a maturity of more than 40 years. On March 29, 1996, the Chairmen of the
Senate Finance Committee and the House Ways and Means Committee issued a joint
statement (the "Joint Statement") to the effect that the Proposed Legislation,
if enacted, would not be effective prior to the date of "appropriate
congressional action." In addition, subsequent to the publication of the Joint
Statement, Senator Daniel Patrick Moynihan and Representatives Sam M. Gibbons
and Charles B. Rangel wrote letters to the Treasury Department (the "Democrat
Letters") which concurred with the view expressed in the Joint Statement. The
Proposed Legislation was not enacted by the 104th Congress. If other legislation
similar to the Proposed Legislation were proposed and the principles contained
in the Joint Statement and the Democrat Letters were followed, such other
legislation, if enacted, should not apply to the 2097 Debentures. There can be
no assurance, however, that the Proposed Legislation or similar legislation
affecting Capital Funding's ability to deduct interest paid on the 2097
Debentures will not be enacted in the future or that any such legislation would
not have a retroactive effective date.
S-28
<PAGE>
Upon the occurrence of a Tax Event, Capital Funding will have the right to
advance the maturity date of the 2097 Debentures to the minimum extent required
in order to allow for the payments of interest in respect of the 2097 Debentures
to be deductible (such action being referred to herein as a "Tax Event Maturity
Advancement"). Notwithstanding the foregoing, such maturity date shall be
advanced only if, in the opinion of nationally recognized independent tax
counsel experienced in such matters, after effecting a Tax Event Maturity
Advancement, interest paid on the 2097 Debentures will be deductible for federal
income tax purposes. There can be no assurance that Capital Funding would not
exercise its right to advance the maturity date of the 2097 Debentures upon the
occurrence of such a Tax Event.
In the event that Capital Funding elects to exercise its right to advance
the maturity date of the 2097 Debentures upon the occurrence of a Tax Event,
Capital Funding will mail a notice of the advanced maturity to each holder of
record of the 2097 Debentures by first-class mail not more than 60 days after
the occurrence of such Tax Event, stating the new maturity date of the 2097
Debentures. Such notice shall be effective immediately upon mailing.
Capital Funding believes that the 2097 Debentures should constitute
indebtedness for federal income tax purposes under current law and that an
exercise of its right to advance the maturity date of the 2097 Debentures would
not be a taxable event to holders. Prospective investors should be aware,
however, that Capital Funding's exercise of its right to advance the maturity
date of the 2097 Debentures will be a taxable event to holders if the 2097
Debentures are treated as equity for purposes of federal income taxation before
the maturity date is advanced.
Notwithstanding the foregoing, if a Tax Event occurs and in the opinion of
nationally recognized independent tax counsel experienced in such matters, there
would in all cases, after effecting a Tax Event Maturity Advancement, be more
than an insubstantial risk that an Adverse Tax Consequence (as defined herein)
would continue to exist, Capital Funding will have the right, within 90 days
following the occurrence of such Tax Event, to redeem the 2097 Debentures in
whole (but not in part) at a redemption price equal to the greater of (i) 100%
of the principal amount of such 2097 Debentures or (ii) the sum, as determined
by a Quotation Agent, of the present values of the principal amount and the
remaining scheduled payments of interest from the redemption date to February 1,
2097 (the "Remaining Life"), in each case discounted to the redemption date on a
semi-annual basis (assuming a 360-day year consisting of 30-day months) at the
Adjusted Treasury Rate, plus, in each case, accrued interest thereon to the date
of redemption.
"Tax Event" means the receipt by Capital Funding of an opinion of nationally
recognized independent tax counsel experienced in such matters to the effect
that, as a result of an amendment to, or change (including any announced
prospective change) in, the laws or any regulations thereunder of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative written decision or pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or such pronouncement or decision is made on or
after the date hereof, there is more than an insubstantial risk that interest
payable by Capital Funding on the 2097 Debentures is not, or will not be,
deductible, in whole or in part, by Capital Funding for federal income tax
purposes (referred to herein as an "Adverse Tax Consequence").
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semi-annual yield to maturity of the Comparable
Treasury Issue, calculated on the third Business Day preceding such redemption
date using a price for the Comparable Treasury Issue (expressed as a percentage
of its principal amount) equal to the Comparable Treasury Price for such
redemption date, plus .50%.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity with the
Remaining Life of the 2097 Debentures.
S-29
<PAGE>
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Trustee after consultation with Capital Funding. "Reference Treasury Dealer"
means: (i) Merrill Lynch Government Securities, Inc. and its respective
successors; PROVIDED, HOWEVER, that if the foregoing shall cease to be a primary
U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), Capital Funding shall substitute therefor another Primary Treasury
Dealer; and (ii) any other Primary Treasury Dealer selected by the Trustee after
consultation with Capital Funding.
"Comparable Treasury Price" means, with respect to any redemption date, the
average of five Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or, if the Trustee obtains fewer than three such Reference Treasury
Dealer Quotations, the average of all such quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third Business Day preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of 2097 Debentures to be
redeemed at its registered address. Unless Capital Funding defaults in payment
of the redemption price, on and after the redemption date interest will cease to
accrue on such 2097 Debentures called for redemption.
BOOK-ENTRY SYSTEM
DTC will act as securities depositary for the Notes and the Debentures. The
Notes and the Debentures will each be issued only in the form of one or more
fully registered certificates registered in the name of Cede & Co., DTC's
nominee. Except as provided below, owners of beneficial interests in the
certificates for the Notes registered in the name of DTC or its nominee ("Global
Notes") or in the certificates for the Debentures registered in the name of DTC
or its nominee ("Global Debentures") will not be entitled to have either the
Global Notes or the Global Debentures, as the case may be, registered in their
names and will not receive or be entitled to receive physical delivery of either
the Global Notes or the Global Debentures in definitive form. Unless and until
definitive Notes or Debentures are issued to owners of beneficial interest in
the Global Notes or the Global Debentures, such owners of beneficial interest
will not be recognized as Holders of either the Notes or the Debentures, as the
case may be, by Capital Funding, the Trustee or the Paying Agent. Hence, until
such time, owners of beneficial interests in either the Global Notes or the
Global Debentures will only be able to exercise the rights of Holders indirectly
through DTC and its participating organizations (which may include Morgan
Guaranty Trust Company of New York, Brussels office, as operator of the
Euroclear System, and Citibank, N.A., as operator of Cedel Bank, societe
anonyme). Except as set forth below, the certificates may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any nominee to a successor of DTC or a
nominee of such successor.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in a Global Note or a Global
Debenture.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "Clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby
S-30
<PAGE>
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to DTC's system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Securities and Exchange Commission.
Purchases of Notes or Debentures within DTC's system must be made by or
through Direct Participants, which will receive a credit for the Notes or the
Debentures, as the case may be, on DTC's records. The ownership interest of each
actual purchaser of each Note or Debenture ("Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which the Beneficial Owners
purchased the Notes or the Debentures, as the case may be. Transfers of
ownership interests in the Notes or the Debentures are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Notes or Debentures, except in the event that use of the book-entry
system for the Notes or the Debentures is discontinued.
To facilitate subsequent transfers, all of the Notes and the Debentures
deposited by Participants with DTC are registered in the name of DTC's nominee,
Cede & Co. The deposit of Notes or Debentures with DTC and their registration in
the name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Notes or the Debentures. DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Notes or Debentures are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyances of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Although voting with respect to the Notes and the Debentures is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Notes or Debentures. Under its usual procedures,
DTC would mail an Omnibus Proxy to Capital Funding as soon as possible after the
applicable record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Notes or the
Debentures, as the case may be, are credited on the applicable record date
(identified in a listing attached to the Omnibus Proxy).
Payments of principal of and interest on the Notes and the Debentures will
be made to DTC. DTC's practice is to credit Direct Participants' accounts on the
relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payments
on such payment date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered in
"street name," and will be the responsibility of such Participant and not of
DTC, the Paying Agent, the Trustee, Capital Funding or U S WEST, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of distributions to DTC is the responsibility of Capital Funding, the
Paying Agent or the Trustee, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
S-31
<PAGE>
Except as provided herein, a Beneficial Owner in a Global Note or a Global
Debenture will not be entitled to receive physical delivery of Notes or
Debentures, as the case may be. Accordingly, each Beneficial Owner must rely on
the procedures of DTC to exercise any rights under the Notes or the Debentures.
DTC may discontinue providing its services as securities depositary with
respect to the Notes or the Debentures at any time by giving reasonable notice
to Capital Funding or the Paying Agent. Under such circumstances, in the event
that a successor securities depository is not obtained, certificates for the
Notes or the Debentures, as the case may be, are required to be printed and
delivered. Additionally, Capital Funding may decide to discontinue use of the
system of book-entry transfers through DTC (or a successor depositary) with
respect to the Notes or the Debentures. In that event, certificates for the
Notes or the Debentures, as the case may be, will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Capital Funding and U S WEST believe to be
reliable, but Capital Funding and U S WEST take no responsibility for the
accuracy thereof.
S-32
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among Capital Funding, U S WEST, and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc., Goldman, Sachs
& Co., Morgan Stanley & Co. Incorporated, Salomon Brothers Inc and J.P. Morgan
Securities Inc. (the "Underwriters"), Capital Funding has agreed to sell to the
Underwriters and the Underwriters have severally agreed to purchase, the
respective principal amounts of the Notes and the Debentures set forth opposite
their names below. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Notes and the Debentures
if any are purchased.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
2002 2007 2027 2032 2037 2097
UNDERWRITER NOTES NOTES DEBENTURES DEBENTURES DEBENTURES DEBENTURES
- ------------------------------------------ ----------- ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................... $114,000,000 $ 209,000,000 $ 209,000,000 $38,000,000 $114,000,000 $95,000,000
Lehman Brothers Inc. ..................... 114,000,000 209,000,000 209,000,000 38,000,000 114,000,000 95,000,000
Goldman, Sachs & Co. ..................... 114,000,000 209,000,000 209,000,000 38,000,000 114,000,000 95,000,000
Morgan Stanley & Co. Incorporated......... 114,000,000 209,000,000 209,000,000 38,000,000 114,000,000 95,000,000
Salomon Brothers Inc ..................... 114,000,000 209,000,000 209,000,000 38,000,000 114,000,000 95,000,000
J.P. Morgan Securities Inc. .............. 30,000,000 55,000,000 55,000,000 10,000,000 30,000,000 25,000,000
----------- ------------- ------------- ----------- ----------- -----------
Total........................... $600,000,000 $1,100,000,000 $1,100,000,000 $200,000,000 $600,000,000 $500,000,000
----------- ------------- ------------- ----------- ----------- -----------
----------- ------------- ------------- ----------- ----------- -----------
</TABLE>
The Underwriters have advised Capital Funding that they propose initially to
offer the Notes and the Debentures to the public at the public offering prices
set forth on the cover page of this Prospectus Supplement, and to certain
dealers at such prices less a concession not in excess of .35% of the principal
amount of the 2002 Notes, .4% of the principal amount of the 2007 Notes, .5% of
the principal amount of the 2027 Debentures, .5% of the principal amount of the
2032 Debentures, .375% of the principal amount of the 2037 Debentures and .675%
of the principal amount of the 2097 Debentures. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of .25% of the principal
amount of the 2002 Notes, .25% of the principal amount of the 2007 Notes, .25%
of the principal amount of the 2027 Debentures, .25% of the principal amount of
the 2032 Debentures, .25% of the principal amount of the 2037 Debentures and
.375% of the principal amount of the 2097 Debentures to other brokers and
dealers. After the initial public offering, the offering prices, concessions and
discounts may be changed.
During a period of 30 days from the date of this Prospectus Supplement,
neither Capital Funding nor U S WEST will, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, directly or indirectly,
sell, offer to sell, grant any option for the sale of, or otherwise dispose of,
any senior debt securities with maturities of more than one year.
The Notes and the Debentures are new issues of securities with no
established trading markets. Capital Funding and U S WEST have been advised by
the Underwriters that they intend to make a market in the Notes and the
Debentures but are not obligated to do so and may discontinue market making at
any time without notice. No assurance can be given as to the liquidity of the
trading market for the Notes or the Debentures.
Capital Funding and U S WEST have agreed to indemnify the several
Underwriters against, or contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, U S WEST and its subsidiaries in the ordinary
course of business.
S-33
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Notes, the Debentures and the
Guarantees will be passed upon for Capital Funding and U S WEST by Weil, Gotshal
& Manges LLP, New York, New York and by Stephen E. Brilz, Corporate Counsel and
Assistant Secretary of U S WEST, and for the Underwriters by Brown & Wood LLP,
New York, New York.
S-34
<PAGE>
PROSPECTUS
[LOGO]
$4,150,000,000
U S WEST CAPITAL FUNDING, INC.
DEBT SECURITIES
UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL,
PREMIUM, IF ANY, AND INTEREST, BY
U S WEST, INC.
U S WEST Capital Funding, Inc. ("Capital Funding") from time to time offers
its notes, debentures, or other debt securities (the "Debt Securities"), in one
or more series, up to an aggregate principal amount of $4,150,000,000 (or its
equivalent, based on the applicable exchange rate at the time of offering, in
such foreign currencies, or units of two or more thereof as shall be designated
by Capital Funding). Debt Securities may be issued in registered form without
coupons, bearer form with coupons attached, or in the form of a Global Security.
All Debt Securities will be unconditionally guaranteed as to payment of
principal, premium, if any, and interest by U S WEST, Inc. ("U S WEST").
When a particular series of Debt Securities is offered, a supplement to this
Prospectus will be delivered (the "Prospectus Supplement") together with this
Prospectus setting forth the terms of such Debt Securities, including, where
applicable, the specific designation, aggregate principal amount, denominations,
form of currency or currencies in which the principal, and premium, if any, and
interest are payable, maturity, rate (which may be fixed or variable) and time
of payment of interest, any terms for redemption or repurchase at the option of
Capital Funding or the holder, any terms for sinking fund payments, the initial
public offering price, the names of, and the principal amounts to be purchased
by, underwriters and the compensation of such underwriters, any listing of the
Debt Securities on a securities exchange, and the other terms in connection with
the offering and sale of such Debt Securities.
If an agent of Capital Funding or a dealer or an underwriter is involved in
the sale of the Debt Securities in respect of which this Prospectus is being
delivered, the agent's commission or dealer's or underwriter's discount will be
set forth in, or may be calculated from, the Prospectus Supplement. The net
proceeds to Capital Funding from such sale will be the purchase price of such
Debt Securities less such commission in the case of an agent, the purchase price
of such Debt Securities in the case of a dealer or the public offering price
less such discount in the case of an underwriter, and less, in each case, the
other attributable issuance expenses. The aggregate net proceeds to Capital
Funding from all the Debt Securities will be the purchase price of the Debt
Securities sold, less the aggregate of agents' commissions and dealers' and
underwriters' discounts and other expenses of issuance and distribution. The net
proceeds to Capital Funding from the sale of the Debt Securities will be set
forth in the Prospectus Supplement. See "Plan of Distribution" for possible
indemnification arrangements for any agents, dealers or underwriters.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is December 9, 1996.
<PAGE>
AVAILABLE INFORMATION
U S WEST is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith, files
reports, proxy statements, and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements, and
other information concerning U S WEST can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Room 1024, Washington D.C. 20549, at prescribed rates.
The Commission maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, including U S WEST. In addition,
such material is available for inspection at the New York and Pacific Stock
Exchanges.
U S WEST and Capital Funding have filed with the Commission a registration
statement on Form S-3 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of 1933
(the "Securities Act"). This Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by U S WEST with the Commission
(File No. 1-8611) and are incorporated herein by reference: (i) Annual Report on
Form 10-K for the year ended December 31, 1995, (ii) Quarterly Reports on Form
10-Q for the quarters ended March 31, 1996, June 30, 1996 and September 30,
1996, and (iii) Current Reports on Form 8-K dated February 12, 1996, February
29, 1996, April 4, 1996, May 1, 1996, June 10, 1996, July 29, 1996, October 7,
1996, October 15, 1996, October 23, 1996 and November 15, 1996.
All documents filed by U S WEST pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Debt Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies and supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
U S WEST and Capital Funding will provide without charge to each person to
whom a Prospectus is delivered, upon written or oral request of such person, a
copy of any or all of the documents which are incorporated by reference herein,
other than exhibits to such documents which are not specifically incorporated by
reference therein. Requests should be directed to Investor Relations, U S WEST,
Inc., 7800 East Orchard Road, Englewood, Colorado 80111 (telephone number (303)
793-6500).
------------------------
2
<PAGE>
U S WEST, INC.
U S WEST is a diversified global communications company engaged in the
telecommunications, cable, wireless communications and directory and information
services businesses. U S WEST conducts its businesses through two groups: the U
S WEST Communications Group (the "Communications Group") and the U S WEST Media
Group (the "Media Group"). The Communications Group provides telecommunications
services 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 "Communications Group Region"). The Media Group is comprised
of (i) cable and telecommunications network businesses outside the
Communications Group Region and internationally, (ii) domestic and international
wireless communications network businesses and (iii) domestic and international
directory and information services businesses. U S WEST has two classes of
common stock: U S WEST Communications Group Common Stock, par value $.01 per
share (the "Communications Stock"), and U S WEST Media Group Common Stock, par
value $.01 per share (the "Media Stock"). The Communications Stock is intended
to reflect separately the performance of the Communications Group and the Media
Stock is intended to reflect separately the performance of the Media Group.
U S WEST CAPITAL FUNDING, INC.
Capital Funding is a wholly-owned subsidiary of U S WEST and was
incorporated under the laws of the State of Colorado in June 1986. Capital
Funding was incorporated to provide financing to U S WEST and its affiliates
through the issuance of indebtedness guaranteed by U S WEST. The principal
executive offices of Capital Funding are located at 7800 East Orchard Road,
Englewood, Colorado 80111 (telephone number (303) 793-6500).
USE OF PROCEEDS
Capital Funding will apply the net proceeds from the sale of the Debt
Securities to its general funds to be used for loans to U S WEST and affiliates
of U S WEST, which will in turn use the funds for general corporate purposes,
including acquisitions, the reduction of short-term and long-term borrowings,
and for other business opportunities. The amount and timing of these loans will
depend upon the future growth and financing requirements of U S WEST and its
affiliates.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges from
continuing operations of U S WEST for the periods indicated. For the purpose of
calculating this ratio, earnings consist of income from continuing operations
before income taxes and fixed charges. Fixed charges include interest on
indebtedness (excluding discontinued operations), guaranteed minority
interest-expense and the portion of rentals representative of the interest
factor.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
- ------------------------------------ ------------
1991 1992 1993 1994 1995 1995 1996
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
3.11 3.85 2.38 4.85 4.03 3.98 3.67
</TABLE>
DESCRIPTION OF DEBT SECURITIES AND GUARANTEES
The following description sets forth certain general terms and provisions of
the Debt Securities and Guarantees to which any Prospectus Supplement may
relate. The particular terms and provisions of the series of Debt Securities
offered by a Prospectus Supplement and the extent to which such general terms
and provisions described below may apply thereto, will be described in the
Prospectus Supplement relating to such series of Debt Securities.
3
<PAGE>
The Debt Securities are to be issued under an Indenture ("Indenture"), dated
as of April 15, 1988, and amended as of November 1, 1995, among U S WEST,
Capital Funding, and First National Bank of Santa Fe ("Trustee"). As of the date
of this Prospectus, $841 million of Debt Securities have been issued under the
Indenture and $520 million of such Debt Securities remain outstanding. The
following summaries of certain provisions of the Debt Securities, the
Guarantees, and the Indenture do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all provisions of the Debt
Securities, the Guarantees, and the Indenture, including the definitions therein
of certain terms. Wherever particular sections or defined terms of the Indenture
are referred to, it is intended that such sections or defined terms shall be
incorporated herein by reference.
GENERAL
The Indenture does not limit the amount of Debt Securities which can be
issued thereunder and additional debt securities may be issued thereunder up to
the aggregate principal amount which may be authorized from time to time by, or
pursuant to a resolution of, Capital Funding's Board of Directors or by
supplemental indenture. Reference is made to the Prospectus Supplement for the
following terms of the particular series of Debt Securities being offered
hereby; (i) the title of the Debt Securities of the series; (ii) any limit upon
the aggregate principal amount of the Debt Securities of the series; (iii) the
date or dates on which the principal of the Debt Securities of the series will
mature; (iv) the rate or rates (or manner of calculations thereof), if any, at
which the Debt Securities of the series will bear interest, the date or dates
from which any such interest will accrue and on which such interest will be
payable, and, with respect to Debt Securities of the series in registered form,
the record date for the interest payable on any interest payment date; (v) the
place or places where the principal of and interest, if any, on the Debt
Securities of the series will be payable; (vi) any redemption or sinking fund
provisions; (vii) if other than the principal amount thereof, the portion of the
principal amount of Debt Securities of the series which will be payable upon
declaration of acceleration of the maturity thereof; (viii) whether the Debt
Securities of the series will be issuable in registered or bearer form or both,
any restrictions applicable to the offer, sale, or delivery of Debt Securities
in bearer form ("bearer Debt Securities"), and whether and the terms upon which
bearer Debt Securities will be exchangeable for Debt Securities in registered
form ("registered Debt Securities") and vice versa; (ix) whether and under what
circumstances Capital Funding will pay additional amounts on the Debt Securities
of the series held by a person who is not a U.S. person (as defined below) in
respect of taxes or similar charges withheld or deducted and, if so, whether
Capital Funding will have the option to redeem such Debt Securities rather than
pay such additional amounts; (x) whether the Debt Securities will be denominated
or provide for payment in United States dollars or a foreign currency or units
of two or more such foreign currencies; and (xi) any additional provisions or
other special terms not inconsistent with the provisions of the Indenture,
including any terms which may be required by or advisable under United States
laws or regulations or advisable in connection with the marketing of Debt
Securities of such series. (Section 2.01 and 2.02.) To the extent not described
herein, principal, premium, if any, and interest will be payable, and the Debt
Securities of a particular series will be transferable, in the manner described
in the Prospectus Supplement relating to such series.
Each series of Debt Securities will constitute unsecured and unsubordinated
indebtedness of Capital Funding, and will rank on a parity with Capital
Funding's other indebtedness, and will have the benefit of the Guarantees
described herein. However, since U S WEST is a holding company, the right of U S
WEST and, hence, the right of creditors of U S WEST (including the holders of
the Debt Securities) to participate in any distribution of the assets of any
subsidiaries of U S WEST, whether upon liquidation, reorganization, or
otherwise, is subject to prior claims of creditors of the subsidiary, except to
the extent that claims of U S WEST itself as a creditor of a subsidiary may be
recognized.
Debt Securities of any series may be issued as registered Debt Securities or
bearer Debt Securities or both as specified in the term of the series. Unless
otherwise indicated in the Prospectus Supplement, Debt Securities will be issued
in denominations of $1,000 and integral multiples thereof, and bearer Debt
Securities will not be offered, sold, resold, or delivered to U.S. persons in
connection with
4
<PAGE>
their original issuance. For purposes of this Prospectus, "U.S. person" means a
citizen, national, or resident of the United States, a corporation, partnership,
or other entity created or organized in or under the laws of the United States,
or any political subdivision thereof, or an estate or trust which is subject to
United States federal income taxation regardless of its source of income.
To the extent set forth in the Prospectus Supplement, except in special
circumstances set forth in the Indenture, interest on bearer Debt Securities
will be payable only against presentation and surrender of the coupons for the
interest installments evidenced thereby as they mature at a paying agency of
Capital Funding located outside of the United States and its possessions.
(Section 2.05(c).) Capital Funding will maintain such an agency for a period of
two years after the principal of such bearer Debt Securities has become due and
payable. During any period thereafter for which it is necessary in order to
conform to United States tax law or regulations, Capital Funding will maintain a
paying agent outside the United States and its possessions to which the bearer
Debt Securities may be presented for payment and will provide the necessary
funds therefor to such paying agent upon reasonable notice. (Section 2.04)
Bearer Debt Securities and the coupons related thereto will be transferable
by delivery. (Section 2.08(e).)
If appropriate, federal income tax consequences applicable to a series of
Debt Securities will be described in the Prospectus Supplement relating thereto.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in the form of one or more
fully registered global securities (each a "Global Security") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the Prospectus Supplement relating to such series. Unless and until it is
exchanged for Debt Securities in definitive registered form, a Global Security
may not be transferred except as a whole by the Depositary for such Global
Security to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary or
any such nominee to a successor of such Depositary or a nominee of such
successor.
The specific terms of the depositary arrangements with respect to a series
of Debt Securities will be described in the Prospectus Supplement relating to
such series. Capital Funding anticipates that the following provisions will
apply to all depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit the accounts held with it with the respective principal
amounts of the Debt Securities represented by such Global Security. Such
accounts shall be designated by the underwriters or agents with respect to such
Debt Securities or by Capital Funding if such Debt Securities are offered and
sold directly by Capital Funding. Ownership of beneficial interests in a Global
Security will be limited to persons that have accounts with the Depositary for
such Global Security ("participants") or persons that may hold interests through
participants. Ownership of beneficial interests in such Global Security will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the Depositary for such Global Security or on the records
of participants. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture governing such Debt Securities. Except as provided below, owners of
beneficial interests in a Global Security will not be entitled to have Debt
Securities of the series represented by such Global Security registered in their
names, will not receive or be entitled to receive physical delivery of Debt
Securities of such series in definitive form and will not be considered the
owners or holders thereof under the Indenture governing such Debt Securities.
5
<PAGE>
Principal, premium, if any, and interest payments on Debt Securities
registered in the name of a Depositary or its nominee will be made to the
Depositary or its nominee, as the case may be, as the registered owner of the
Global Security representing such Debt Securities. Neither Capital Funding, the
Trustee for such Debt Securities, any Paying Agent nor the Security Registrar
for such Debt Securities will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Security for such Debt Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Capital Funding expects that the Depositary for a series of Debt Securities
issued in the form of a Global Security, upon receipt of any payment of
principal, premium or interest, will credit immediately participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of the Global Security for such Debt Securities as shown
on the records of such Depositary. Capital Funding also expects that payments by
participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name", and will be the
responsibility of such participants.
If a Depositary for a series of Debt Securities is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
Capital Funding within 90 days, Capital Funding will issue Debt Securities of
such series in definitive form in exchange for the Global Security representing
such series of Debt Securities. In addition, Capital Funding may at any time and
in its sole discretion determine not to have the Debt Securities of a series
represented by a Global Security and, in such event, will issue Debt Securities
of such series in definitive form in exchange for the Global Security
representing such series of Debt Securities. In either instance, an owner of a
beneficial interest in a Global Security will be entitled to have Debt
Securities of the series represented by such Global Security equal in principal
amount to such beneficial interest registered in its name and will be entitled
to physical delivery of such Debt Securities in definitive form. Debt Securities
of such series so issued in definitive form will be issued in denominations of
$1,000 and integral multiples thereof and will be issued in registered form
only, without coupons.
GUARANTEES
U S WEST will unconditionally guarantee the due and punctual payment of the
principal, premium, if any, and interest on the Debt Securities when and as the
same shall become due and payable, whether at maturity, upon redemption, or
otherwise. (Section 2.15.) The Guarantees will rank equally with all other
unsecured and unsubordinated obligations of U S WEST.
EXCHANGE OF SECURITIES
To the extent permitted by the terms of a series of Debt Securities
authorized to be issued in registered form and bearer form, bearer Debt
Securities may be exchanged for an equal aggregate principal amount of
registered or bearer form Debt Securities of the same series and date of
maturity in such authorized denominations as may be requested upon surrender of
the bearer Debt Securities with all unpaid coupons relating thereto, at an
agency of Capital Funding maintained for such purpose and upon fulfillment of
all other requirements of such agent. (Section 2.08(b).) As of the date of this
Prospectus, United States Treasury regulations do not permit exchanges of
registered Debt Securities for bearer Debt Securities and, unless such
regulations are modified, the terms of a series of Debt Securities will not
permit registered Debt Securities to be exchanged for bearer Debt Securities.
LIENS ON ASSETS
If at any time, Capital Funding mortgages, pledges, or otherwise subjects to
any lien the whole or any part of any property or assets now owned or hereafter
acquired by it, except as hereinafter provided, Capital Funding will secure the
outstanding Debt Securities, and any other obligations of Capital Funding which
may then be outstanding and entitled to the benefit of a covenant similar in
effect to this covenant, equally and ratably with the indebtedness or
obligations secured by such mortgage, pledge, or lien, for as long as any such
indebtedness or obligation is so secured. The
6
<PAGE>
foregoing covenant does not apply to the creation, extension, renewal, or
refunding of mortgages or liens created or existing at the time property is
acquired, created within 180 days thereafter, or created for the purpose of
securing the cost of construction and improvement of property, or to the making
of any deposit or pledge to secure public or statutory obligations or with any
governmental agency at any time required by law in order to qualify Capital
Funding to conduct its business or any part thereof or in order to entitle it to
maintain self-insurance or to obtain the benefits of any law relating to
workers' compensation, unemployment insurance, old age pensions, or other social
security, or with any court, board, commission, or governmental agency as
security incident to the proper conduct of any proceeding before it. Nothing
contained in the Indenture prevents any entity other than Capital Funding from
mortgaging, pledging, or subjecting to any lien any of its property or assets,
whether or not acquired from Capital Funding or U S WEST. (Section 4.03.)
AMENDMENT AND WAIVER
Subject to certain exceptions, the Indenture may be amended or supplemented
by Capital Funding, U S WEST, and the Trustee with the consent of the holders of
a majority in principal amount of the outstanding Debt Securities of each series
affected by the amendment or supplement (with each series voting as a class), or
compliance with any provision may be waived with the consent of holders of a
majority in principal amount of the outstanding Debt Securities of each series
affected by such waiver (with each series voting as a class). However, without
the consent of each Debt Securityholder affected, an amendment or waiver may not
(i) reduce the amount of Debt Securities whose holders must consent to an
amendment or waiver; (ii) change the rate of or change the time for payment of
interest on any Debt Security; (iii) change the principal of or change the fixed
maturity of any Debt Security; (iv) waive a default in the payment of the
principal of or interest on any Debt Security; (v) make any Debt Security
payable in money other than that stated in the Debt Security; or (vi) impair the
right to institute suit for the enforcement of any payment on or with respect to
any Debt Security. (Section 9.02.) The Indenture may be amended or supplemented
without the consent of any Debt Securityholder (i) to cure any ambiguity,
defect, or inconsistency in the Indenture, the Debt Securities of any series or
the Guarantees; (ii) to provide for the assumption of all the obligations of
Capital Funding or U S WEST under the Debt Securities, any coupons related
thereto, the Guarantees, and the Indenture by any corporation in connection with
a merger, consolidation, transfer, or lease of Capital Funding's or U S WEST's
property and assets substantially as an entirety, as provided for in the
Indenture; (iii) to provide for uncertificated Debt Securities in addition to or
in place of certificated Debt Securities; (iv) to make any change that does not
adversely affect the rights of any Debt Securityholder; (v) to provide for the
issuance of and establish the form and terms and conditions of a series of Debt
Securities or the Guarantees endorsed thereon or to establish the form of any
certifications required to be furnished pursuant to the terms of the Indenture
or any series of Debt Securities; or (vi) to add to the rights of Debt
Securityholders. (Section 9.01.)
MERGER
Capital Funding or U S WEST may consolidate with or merger into, or transfer
or lease its property and assets substantially as an entirety to, another entity
if the successor entity is a corporation and assumes all the obligations, as the
case may be, of Capital Funding, under the Debt Securities, and any coupons
related thereto and the Indenture, or of U S WEST, under the Guarantees and the
Indenture, and if, after giving effect to such transaction, a Default or Event
of Default would not occur or be continuing. Thereafter, all such obligations of
Capital Funding or U S WEST, as the case may be, shall terminate. (Section 5.01
and 5.02.)
The general provisions of the Indenture do not afford holders of the Debt
Securities protection in the event of a highly-leveraged transaction,
reorganization, merger or similar transaction involving U S WEST or Capital
Funding that may adversely affect holders of the Debt Securities.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default"
with respect to a series of Debt Securities: (i) default in the payment of
interest on any Debt Security of each series for
7
<PAGE>
90 days; (ii) default in the payment of the principal of any Debt Security of
such series; (iii) failure by Capital Funding or U S WEST for 90 days after
notice to it to comply with any of its other agreements in the Debt Securities
of such series, in the Indenture, in the Guarantees, or in any supplemental
indenture; and (iv) certain events of bankruptcy or insolvency of Capital
Funding or the Guarantor. (Section 6.01.) If an Event of Default occurs with
respect to the Debt Securities of any series and is continuing, the Trustee or
the holders of at least 25% in principal amount of all of the outstanding Debt
Securities of that series may declare the principal (or, if the Debt Securities
of that series are original issue discount Debt Securities, such portion of the
principal amount as may be specified in the terms of that series) of all the
Debt Securities of that series to be due and payable. Upon such declaration,
such principal (or, in the case of original issue discount Debt Securities, such
specified amount) shall be due and payable immediately. (Section 6.02.)
Securityholders may not enforce the Indenture, the Debt Securities, or the
Guarantees, except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Debt
Securities. (Section 7.01.) Subject to certain limitations, holders of a
majority in principal amount of the Debt Securities of each series affected
(with each series voting as a class) may direct the Trustee in its exercise of
any trust power. (Section 6.05.) The Trustee may withhold from Debt
Securityholders notice of any continuing default (except a default in payment of
principal or interest) if it determines that withholding notice is in their
interests. (Section 7.05.)
CONCERNING THE TRUSTEE
U S WEST and certain of its affiliates, including Capital Funding, maintain
banking relationships in the ordinary course of business with the Trustee. In
addition, the Trustee and certain of its affiliates serve as trustee,
authenticating agent, or paying agent with respect to certain debt securities of
U S WEST and its affiliates.
PLAN OF DISTRIBUTION
GENERAL
Capital Funding may sell the Debt Securities being offered hereby: (i)
directly to purchasers, (ii) through agents, (iii) through underwriters, (iv)
through dealers, or (v) through a combination of any such methods of sale.
The distribution of the Debt Securities may be effected from time to time in
one or more transactions either (i) at a fixed price or prices, which may be
changed; (ii) at market prices prevailing at the time of sale; (iii) at prices
related to such prevailing market prices; or (iv) at negotiated prices.
Offers to purchase Debt Securities may be solicited directly by Capital
Funding or by agents designated by Capital Funding from time to time. Any such
agent, which may be deemed to be an underwriter, as that term is defined in the
Securities Act, involved in the offer or sale of the Debt Securities in respect
of which this Prospectus is delivered will be named, and any commissions payable
by Capital Funding to such agent will be set forth, in the Prospectus Supplement
or the Pricing Supplement. Unless otherwise indicated in the Prospectus
Supplement or the Pricing Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment. Agents may be customers of,
engage in transactions with, or perform services for, Capital Funding in the
ordinary course of business.
If an underwriter or underwriters are utilized in the sale, Capital Funding
and U S WEST will execute an underwriting agreement with such underwriters at
the time of sale to them and the names of the underwriters and the terms of the
transactions will be set forth in the Prospectus Supplement, which will be used
by the underwriters to make resales of the Debt Securities.
If a dealer is utilized in the sale of the Debt Securities in respect of
which this Prospectus is delivered, Capital Funding will sell such Debt
Securities to the dealer, as principal. The dealer may then resell such Debt
Securities to the public at varying prices to be determined by each dealer at
the time of resale.
8
<PAGE>
Underwriters, dealers, agents, and other persons may be entitled, under
agreements which may be entered into with Capital Funding and U S WEST, to
indemnification against, or contribution with respect to, certain civil
liabilities, including liabilities under the Securities Act.
DELAYED DELIVERY ARRANGEMENTS
If so indicated in the Prospectus Supplement, Capital Funding will authorize
dealers or other persons acting as Capital Funding's agents to solicit offers by
certain institutions to purchase Debt Securities from Capital Funding pursuant
to contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and others, but in all cases, such institutions must be
approved by Capital Funding. The obligations of any purchaser under any such
contract will not be subject to any conditions except that (a) the purchaser of
the Debt Securities shall not at the time of delivery be prohibited under the
laws of the jurisdiction to which such purchaser is subject, and (b) if the Debt
Securities are also being sold to underwriters, Capital Funding shall have sold
to such underwriters the Debt Securities not sold for delayed delivery. The
dealers and such other persons will not have any responsibility in respect of
the validity or performance of such contracts.
EXPERTS
The consolidated and combined financial statements and financial statements
schedule included in U S WEST's Annual Report on Form 10-K for the year ended
December 31, 1995 are incorporated herein by reference in reliance on reports of
Coopers & Lybrand L.L.P., independent certified public accountants, given upon
the authority of that firm as experts in accounting and auditing. The
consolidated financial statements of Continental Cablevision, Inc. and
subsidiaries incorporated by reference in U S WEST's Current Report on Form 8-K
dated October 15, 1996 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated by reference herein,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
LEGAL OPINIONS
Certain legal matters relating to the Debt Securities and the Guarantees to
be offered hereby will be passed upon for Capital Funding and U S WEST by
Stephen E. Brilz, Corporate Counsel and Assistant Secretary of U S WEST, Inc.
9
<PAGE>
DESCRIPTION OF MAP - INSIDE BACK COVER OF PROSPECTUS SUPPLEMENT
Map of the United States showing (i) U S WEST Communication's 14 state
local wireline region, (ii) the locations of PrimeCo Personal Communications,
L.P.'s properties, (iii) the locations of the cellular properties of U S WEST
and Airtouch, (iv) the cable clusters of U S WEST, including properties owned
or managed by Time Warner Entertainment Company, L.P., differentiating those
with between 25,000 and 100,000 subscribers, those with between 100,000 and
250,000 subscribers and those with more than 250,000 subscribers.
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY U S WEST, CAPITAL FUNDING OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF U S WEST OR CAPITAL
FUNDING SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
U S WEST, Inc. ................................ S-4
U S WEST Capital Funding, Inc. ................ S-8
Recent Developments............................ S-8
Use of Proceeds................................ S-10
Capitalization of U S WEST..................... S-10
Summary Historical and Pro Forma Financial
Data......................................... S-11
Description of Notes and Debentures............ S-26
Underwriting................................... S-33
Legal Matters.................................. S-34
PROSPECTUS
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
U S WEST, Inc. ................................ 3
U S WEST Capital Funding, Inc. ................ 3
Use of Proceeds................................ 3
Ratio of Earnings to Fixed Charges............. 3
Description of Debt Securities and
Guarantees................................... 3
Plan of Distribution........................... 8
Experts........................................ 9
Legal Opinions................................. 9
</TABLE>
$4,100,000,000
[LOGO]
U S WEST
CAPITAL FUNDING, INC.
$600,000,000
6.85% NOTES DUE JANUARY 15, 2002
$1,100,000,000
7.30% NOTES DUE JANUARY 15, 2007
$1,100,000,000
7.90% DEBENTURES DUE FEBRUARY 1, 2027
$200,000,000
8.15% DEBENTURES DUE FEBRUARY 1, 2032
$600,000,000
6.95% DEBENTURES DUE JANUARY 15, 2037
$500,000,000
7.95% DEBENTURES DUE FEBRUARY 1, 2097
UNCONDITIONALLY GUARANTEED
AS TO PAYMENT OF PRINCIPAL,
PREMIUM, IF ANY, AND INTEREST BY
U S WEST, INC.
---------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
JANUARY 16, 1997
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