Results affected by continued weakness in the economy and reduced optical capacity asset sales; accordingly, 2002 capital budget further reduced to $4.0 to $4.2 billion
Investors: Please see definitions of terms used in the "Note to Investors" below.
DENVER, January 29, 2002 - Qwest Communications International Inc. (NYSE: Q) today announced its financial results for the fourth quarter and the full year of 2001. For the quarter, the company recorded a ($0.07) pro forma normalized loss per diluted share compared with pro forma normalized earnings per diluted share of $0.16 for the same period last year. For the year, it recorded pro forma normalized earnings per diluted share of $0.05 compared with pro forma normalized earnings per diluted share of $0.59 for 2000.
For the quarter, on a reported basis, prepared in accordance with Generally Accepted Accounting Principles (GAAP), the company reported a net loss of ($516) million or ($0.31) per diluted share, compared to a net loss of ($116) million or ($0.07) per diluted share in the fourth quarter of 2000. The loss in the fourth quarter of 2001 reflects an after-tax charge of $367 million or ($0.22) per diluted share due primarily to previously announced restructuring actions that include personnel reductions, real-estate consolidation and other initiatives designed to streamline operations (see note 4 on Attachment B). In addition, reported results include non-operating restructuring charges and other one-time items associated primarily with KPNQwest (see note 5 on Attachment B) and write-downs for certain equity investments. The after-tax impact of these non-operating expenses in the fourth quarter was $26 million or ($0.02) per diluted share.
For the year, on a reported basis, Qwest reported a net loss of ($2.41) per diluted share, compared to a loss of ($0.06) per diluted share in 2000.
DSL, wireless and Internet services continue to be key growth products. Total DSL customers at the end of the year increased nearly 74 percent from the end of 2000 to 448,000. Wireless services revenues for the quarter grew approximately 42 percent to $211 million with 1.11 million customers at year-end. For the quarter, recurring Internet services revenue increased 30 percent to $287 million compared with the same period last year.
"Our overall performance continues to be impacted by economic conditions nationally and in our local service region, but we are encouraged with the progress made in some of our key growth areas, including global enterprise, DSL and wireless," said Joseph P. Nacchio, Qwest chairman and CEO.
Reported revenue for the quarter was down approximately six percent to $4.70 billion, down $314 million from $5.02 billion in the same period last year. The decrease in revenues for the quarter was mainly due to reduced optical capacity asset sales and certain Internet equipment sales. For the full year, reported revenue increased approximately four percent to $19.74 billion compared with pro forma normalized 2000 revenues of $18.95 billion, or approximately 19 percent compared to 2000 reported revenues of $16.61 billion.
Recurring revenue for the quarter of $4.68 billion declined slightly as compared to $4.70 billion in the fourth quarter of 2000. Recurring revenue for Internet services grew 30 percent, or $67 million in the fourth quarter of 2001, compared with the same period last year. Wireless revenues grew 42 percent, or $62 million in the fourth quarter of 2001, compared with the same period last year. These strong growth rates were offset by weakness in local and traditional data services, reflecting continued slowing of the regional economy. Internet and data services recurring revenue of $1.03 billion for the quarter grew three percent over the same period last year and now represents approximately 22 percent of recurring revenue for the company. For the full year, recurring revenue increased five percent to $18.44 billion compared with recurring pro forma normalized 2000 revenues.
For the quarter, pro forma normalized earnings before interest, taxes, depreciation and amortization (EBITDA) was $1.61 billion compared with pro forma normalized EBITDA for the same period last year of $1.99 billion. This decline was mainly due to reduced optical capacity asset sales and certain Internet equipment sales. In addition, EBITDA was also impacted by continued investments in new product platforms and 271 re-entry, changes in product mix and an increase in uncollectible accounts due to continued weakness in the economy. For the year, Qwest recognized pro forma normalized EBITDA of $7.40 billion compared with pro forma normalized EBITDA of $7.37 billion in 2000.
"Our substantial recent investments in service improvements and new product platforms, such as Internet dial and virtual private networks, have positioned us to better meet the needs of our customers and take advantage of the economic recovery when it occurs," said Robin R. Szeliga, Qwest executive vice president of finance and CFO. "We remain focused on reducing costs and becoming free cash-flow positive as we gain scale and streamline operations."
The workforce reduction of 7,000 jobs that was previously announced is expected to be completed by mid-2002. The job reductions come as Qwest continues to streamline its business. Qwest expects to achieve this workforce reduction through attrition and continued business process improvements. The company does not expect the reductions to impact the delivery of service to customers.
For the quarter, capital expenditures were $752 million, down from $2.24 billion in the same period last year. For the year, capital expenditures were $8.54 billion compared with $8.99 billion (on a pro forma normalized basis) for 2000.
As a result of continued economic weakness, Qwest is also modifying its expected capital expenditures for 2002 to a range of $4.0 to $4.2 billion, from previous guidance of $4.2 to $4.3 billion. Qwest's resulting 2002 capital to revenue ratio is expected to be in the same range as other large communications companies. Qwest expects to be free cash flow positive in the second quarter of 2002 and beyond.
LOCAL REVENUES; LONG-DISTANCE VOICE, DATA AND INTERNET REVENUES
For the quarter, local services revenue was down $75 million, or two percent compared with the fourth quarter of 2000. For the year local services revenue grew $345 million or 2.4 percent compared with pro forma normalized 2000.
For the quarter, revenues for long-distance voice, data and Internet services decreased $238 million, or approximately 19 percent compared with the fourth quarter of 2000 as a result of a decline in optical capacity asset sales and certain Internet equipment sales. For the quarter, recurring revenues for these services grew more than six percent, or $57 million, compared with the same period last year. For the year, revenues for long-distance voice, data and Internet services increased nearly 10 percent, or $445 million, as compared to pro forma normalized 2000. For the year, recurring revenue for these services increased approximately 15 percent, or $506 million, versus pro forma normalized 2000.
For the quarter, recurring revenues for long-distance data and Internet services grew 20 percent over the same period last year.
Commercial services revenue declined approximately 14 percent, or $396 million, compared with the fourth quarter of 2000, primarily due to a decline in optical capacity asset sales and certain Internet equipment sales. Recurring commercial services revenue declined four percent compared with the fourth quarter of 2000. Strong growth in Internet services, including dedicated Internet access (DIA), virtual private network (VPN) services, and dial-up Internet access was offset by declines in local service revenues and delays in major customer installations and acceptances during the quarter.
Following a realignment of the business market unit to focus on the top 1000 global business and national accounts, Qwest continued to capture new market share among enterprise customers and federal and state government accounts.
Consumer revenues increased more than three percent, or $48 million, compared with the fourth quarter of 2000, with continued growth in DSL and wireless services offset by a decline in access lines of three percent.
At the end of 2001, approximately 35 percent of Qwest consumer customers subscribed to a package or bundle of services that may include Internet access, DSL, wireless, voice messaging, caller identification or additional lines. That is an improvement of 25 percent over 2000.
WIRELESS AND DSL SERVICES
Qwest wireless had approximately 1.11 million customers at the end of 2001. For the quarter, wireless services revenue grew approximately 42 percent to $211 million compared with the fourth quarter of 2000. Average revenue per user decreased approximately one percent to $54.30 compared with the third quarter of 2001.
Qwest continues to leverage its infrastructure by offering broadband services for fast Internet connections. Total DSL customers, which includes in-region and out-of-region DSL customers, increased to 448,000 at the end of 2001, which is a nearly 74 percent increase from the end of 2000. Total DSL revenues increased approximately 85 percent for the quarter and 66 percent for the year.
Qwest made strong customer service improvements in 2001 in key areas of installation and repair for residential and small-business customers across its 14 Western states. The number of customers who had been waiting more than 30 days for the installation of their first telephone line reached the lowest level on record. In 2001, Qwest met nearly 99 percent of the more than 22 million installation commitments on time and nearly 95 percent of total repair commitments. Additionally, 89 percent of service outages were repaired in less than 24 hours, the best annual customer service results since 1995.
The results mark the sixth consecutive quarter that Qwest has improved customer service and follow a report by the Federal Communications Commission (FCC) that found that Qwest leads the industry in service quality. In December 2001, the FCC issued its "Quality of Service of the Local Operating Companies" report, which showed that Qwest was first among the major local service providers in four of the seven critical customer service categories measured by the FCC and that Qwest improved in six of the seven.
RE-ENTERING IN-REGION LONG-DISTANCE SERVICE
The company is continuing to make progress toward receiving federal approval to re-enter the long-distance market. On December 21, 2001, Qwest completed a critical and comprehensive operational support systems (OSS) test in Arizona. Qwest is also nearing completion of an OSS test covering 13 other local service states.
In addition to the OSS tests, 12 states have completed workshops on all 14-point checklist items. Of those 12 states, five (Colorado, Idaho, Iowa, Nebraska and Wyoming) have issued orders completing review of all checklist requirements subject to completion of the multi-state OSS test. The remaining seven states have issued final orders on most checklist items and are expected to complete their reviews in January and February.
Qwest's actual performance in serving wholesale customers is better than Verizon's and SBC's at the time they applied, and successfully received, approval to offer long-distance services in New York, Texas, Missouri and Arkansas.
The company plans to file for long-distance approval with the FCC for all states by mid-2002. The FCC is expected to approve all applications within 90 days.
NOTE TO INVESTORS
"Reported" results are prepared in accordance with generally accepted accounting principles in the United States (GAAP). Recurring and pro forma normalized results are not prepared in accordance with GAAP.
"Recurring" results reflect adjustments made for optical capacity asset revenue, certain Internet equipment sales and other items, such as contractual settlements in the periods presented. The Internet equipment sales for which our results have been adjusted to derive "recurring" results primarily include individually large and infrequent wholesale sales. For the three months ended December 31, 2001 and December 31, 2000, the recurring revenue adjustments were $23 million and $319 million, respectively. For the years ended December 31, 2001 and December 31, 2000, the recurring revenue adjustments were $1.30 billion and $1.37 billion, respectively.
Additionally, "pro forma normalized" information regarding Qwest's results from operations is provided as a complement to reported or GAAP results. The condensed consolidated pro forma normalized statements give retroactive effect as though the merger of Qwest and U S WEST, Inc. had occurred as of the beginning of the periods presented. Shares outstanding and earnings per share have been restated to give retroactive effect to the exchange ratio resulting from the merger. In addition, pro forma normalized results have been adjusted to eliminate the impact of non-recurring items such as merger-related and one-time charges, restructuring charges, asset write-offs and impairments, a depreciation adjustment on access lines returned to service, gains/losses on the sale of investments and fixed assets, change in the market value of investments, the write-down of investments, elimination of in-region long-distance activity, and a tax true-up on merger-related and restructuring charges. For additional detail on these adjustments readers should refer to Attachments C and D. Certain reclassifications have been made to prior periods to conform to the current presentation.
The term "local services" refers to our estimate of the classic U S WEST business (including wireless). The term "long-distance voice, data and Internet services" refers to our estimate of the classic Qwest business. We have worked to integrate the businesses and operations of Qwest and U S WEST since the completion of the merger on June 30, 2000. Because we do not operate the two as separate businesses, we have attempted to approximate the revenues attributable to the major lines of business of each company, as they existed prior to the merger. Our estimates do not necessarily reflect the actual results that would have been generated by the two businesses as standalone entities.
CONFERENCE CALL TODAY
As previously announced, Qwest will host a conference call for investors and the media today at 9 a.m. (EST) with Joseph P Nacchio, Qwest chairman and CEO, Robin R. Szeliga, Qwest executive vice president of finance and CFO, and Afshin Mohebbi, Qwest president and COO. The call may be heard on the Web at www.qwest.com/about/investor/meetings.
Qwest Communications International Inc. (NYSE: Q) is a leader in reliable, scalable and secure broadband data, voice and image communications for businesses and consumers. The Qwest Macro Capacity(r) Fiber Network, designed with the newest optical networking equipment for speed and efficiency, spans more than 190,000 miles globally. For more information, please visit the Qwest Web site at www.qwest.com.
This release may contain projections and other forward-looking statements that involve risks and uncertainties. These statements may differ materially from actual future events or results. Readers are referred to the documents filed by Qwest Communications International Inc. (together with its affiliates, "Qwest", "we" or "us") with the Securities and Exchange Commission, specifically the most recent reports which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements, including but not limited to: potential fluctuations in quarterly results; volatility of Qwest's stock price; intense competition in the markets in which we compete; changes in demand for our products and services; the duration and extent of the current economic downturn, including its effect on our customers and suppliers; adverse economic conditions in the markets served by us or by companies in which we have substantial investments; dependence on new product development and acceleration of the deployment of advanced new services, such as broadband data, wireless and video services, which could require substantial expenditure of financial and other resources in excess of contemplated levels; higher than anticipated employee levels, capital expenditures and operating expenses; rapid and significant changes in technology and markets; adverse changes in the regulatory or legislative environment affecting our business, delays in our ability to provide interLATA services within our 14-state local service area; failure to maintain rights-of-way; and failure to achieve the projected synergies and financial results expected to result from the acquisition of U S WEST, and difficulties in combining the operations of the combined company. This release may include analysts' estimates and other information prepared by third parties for which we assume no responsibility. We undertake no obligation to review or confirm analysts' expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
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