DENVER, November 19, 2003 - Qwest Communications International Inc. (NYSE: Q) today announced third quarter 2003 net income of $1.8 billion, or $1.05 per fully diluted share.
"We are confident with the foundation of customer service we have built," said Richard C. Notebaert, Qwest chairman and CEO. "We believe that by improving the customer experience and delivering a comprehensive set of voice, data and video solutions, we will become the first choice for customers' communications needs."
Revenue for the third quarter was $3.6 billion, a 5.4 percent decrease from the third quarter 2002. Third quarter revenues declined primarily because of competitive pressures in local voice and wireless services. These declines were partially offset by growth in data and long-distance services within the local service territory.
The combination of cost of sales and selling, general and administrative expenses for the third quarter increased $265 million or 9.6 percent compared to the third quarter 2002. One-time charges of $393 million to terminate arrangements with Calpoint and another vendor were recorded in the third quarter of 2003.
Operating income declined to a loss of $523 million from income of $76 million in the third quarter 2002. The decrease in operating income was primarily due to the pretax charges of $393 million discussed above and a $230 million impairment charge to reflect the anticipated decrease in usage of Qwest's wireless network as a result of the new wholesale wireless arrangement with Sprint. Net income of $1.8 billion included income from discontinued operations and a gain of $2.5 billion following the completion of the second phase of the QwestDex sale.
"While the industry environment is still challenging, we are seeing signs of stabilization in our business," said Oren G. Shaffer, Qwest's vice chairman and CFO. "We continue to focus on growing profitably and pursuing opportunities to improve our financial strength."
Balance Sheet Strengthened
In the third quarter, Qwest reduced its total debt by $1.2 billion. This reduction was achieved through payments on its credit facility to reduce the balance from $1.57 billion to $1.25 billion and the repayment in full of the $750 million Dex term loan. The company also reduced debt by $106 million through private debt-for-equity transactions and cash repurchases.
Year-to-date, as of November 19, 2003, the company has reduced the principal amount of short-term and long-term borrowings by approximately $1.4 billion through debt payments (net of debt issuances), private exchange transactions and cash repurchases. These private transactions included debt-for-stock exchanges of approximately $247 million of QCF bonds for 52 million shares. The company has also exchanged $560 million of QCF bonds for $406 million of new QSC notes and recorded an unamortized premium of $144 million.
In the quarter, cash and cash equivalents increased approximately $3.3 billion to $6.1 billion. Qwest closed the second phase of the QwestDex sale for gross proceeds of $4.3 billion. For the nine months ended September 30, 2003, Qwest generated cash from operations of $1.9 billion and incurred capital expenditures of $1.5 billion.
Tender Offer Announced
Today the company launched a tender offer for up to $2.25 billion in aggregate principal amount of certain QCII, QCF and QSC notes. With the successful completion of the tender offer, total debt will have been reduced by over $7 billion since the end of the third quarter of 2002. The company will save more than $100 million annually in net interest expense if it successfully retires the $2.25 billion in debt. The tender offer will be open until December 19, 2003 and includes an incentive for early participation for those holders that tender by December 4, 2003. See the accompanying press release for more details.
Long-Distance Growth Continued
In the quarter, Qwest added long-distance service to 572,000 access lines in its local service territory. By the end of the third quarter, 1.7 million access lines had Qwest long-distance service. On September 4, the company submitted a filing to the Federal Communications Commission (FCC) for long-distance authority in Arizona, the final state in its local service region. On October 9, the U.S. Department of Justice recommended that the FCC approve Qwest's application to re-enter the long-distance business in Arizona. A final FCC ruling on Arizona is expected in early December.
Earlier this month, Qwest began using its own network to carry long-distance traffic within its local service territory. Qwest immediately commenced selling advanced business-class services to mid-market and large companies.
DSL Growth Begins to Accelerate
The company continued with its region-wide DSL expansion efforts during the quarter and introduced or expanded coverage in more than 300 communities and neighborhoods. As of September 30, 2003, Qwest had 577,000 in-region DSL subscribers, which represents a subscriber growth of 41,000 lines, or 7.6 percent, from the previous quarter.
In August, Qwest announced an agreement with Sony Pictures Digital Networks to provide Qwest's DSL customers with Sony® entertainment and gaming services, providing an integrated broadband experience.
Building Out the Communications Bundle
Qwest recently launched several initiatives to improve customer satisfaction through bundled services. The company added video services to its bundled offerings when it signed strategic marketing agreements with EchoStar and DIRECTV. Qwest also expanded its wireless offering through a wholesale agreement with Sprint PCS. Qwest will provide nationwide wireless voice and data services with low capital investment by using the enhanced Sprint nationwide wireless network infrastructure.
On October 31, Qwest introduced its Qwest Freedom? Plans, the company's first wireless plans to offer coverage areas throughout the continental U.S. The Qwest Freedom Plans give new Qwest Wireless customers the flexibility of wireless coverage beyond the traditional Qwest region. The introduction of the Qwest Freedom Plans allows Qwest to fulfill consumers' need to stay in touch while away from home, and gives Qwest a significant opportunity to grow its customer base. The Qwest Freedom Plans are the first in a series of new offerings from Qwest Wireless, which will include new technology, such as digital photography.
Voice over IP
Following up on the announcement made earlier this month, the company outlined additional details for its upcoming consumer VoIP deployment. Next month, Qwest will begin offering VoIP services to a select group of consumers in Minnesota. This initiative marks the company's first step in a phased deployment of VoIP services that will continue into 2004.
In addition, to better address the growing customer demand for these types of services, the company also announced today that it will purchase switches and gateways from Lucent that will upgrade its existing infrastructure and give Qwest greater flexibility to offer VoIP services to consumers and businesses across the U.S.
Conference Call Today
As previously announced, Qwest will host a conference call for investors and the media today at 9:00 a.m. EDT with Richard C. Notebaert, Qwest chairman and CEO and Oren G. Shaffer, Qwest vice chairman and CFO. The call can be heard on the Web at www.qwest.com/about/investor/meetings.
Qwest Communications International Inc. (NYSE: Q) is a leading provider of voice, video and data services to more than 25 million customers. The company's 47,000 employees are committed to the "Spirit of Service" and providing world-class services that exceed customers' expectations for quality, value and reliability. For more information, please visit the Qwest Web site at www.qwest.com.
Forward-looking statements made within this release contain risks and uncertainties, which could cause actual results to differ materially from those expressed or implied here and on the conference call. Those risks and uncertainties are on file with the SEC. Additionally, we do not adopt analysts' estimates nor do we necessarily commit to updating the forward-looking statements that we make here.
Forward Looking Statement Note
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 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: the duration and extent of the current economic downturn in our 14-state local service area, including its effect on our customers and suppliers; access line losses due to increased competition, including from technology substitution of our access lines with wireless and cable alternatives; our substantial indebtedness, and our inability to complete any efforts to de-lever our balance sheet through asset sales or other transactions; any adverse outcome of the SEC's current investigation into our accounting policies, practices and procedures and certain transactions; any adverse outcome of the current investigation by the U.S. Attorney's office in Denver into certain matters relating to us; adverse results of increased review and scrutiny by Congress, regulatory authorities, media and others (including any internal analyses) of financial reporting issues and practices or otherwise; further delays in making required public filings with the SEC; rapid and significant changes in technology and markets; any adverse developments in commercial disputes or legal proceedings, including any adverse outcome of current or future legal proceedings related to matters that are the subject of governmental investigations, and, to the extent not covered by insurance, if any, our inability to satisfy any resulting obligations from funds available to us, if any; potential fluctuations in quarterly results; volatility of our stock price; intense competition in the markets in which we compete including the likelihood of certain of our competitors emerging from bankruptcy court protection or otherwise reorganizing their capital structure and competing effectively against us; changes in demand for our products and services; 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; adverse changes in the regulatory or legislative environment affecting our business; and changes in the outcome of future events from the assumed outcome included in our significant accounting policies.
The information contained in this release is a statement of Qwest's present intention, belief or expectation and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general and Qwest's assumptions. Qwest may change its intention, belief or expectation, at any time and without notice, based upon any changes in such factors, in Qwest's assumptions or otherwise. The cautionary statements contained or referred to in this release should be considered in connection with any subsequent written or oral forward-looking statements that Qwest or persons acting on its behalf may issue. This release may include analysts' estimates and other information prepared by third parties for which Qwest assumes no responsibility.Qwest undertakes 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.By including any information in this release, Qwest does not necessarily acknowledge that disclosure of such information is required by applicable law or that the information is material.
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