6. QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED FINANCIAL RESULTS—WIRELINE SERVICES SEGMENT(1)
(Dollars in millions, operating statistics in thousands, except ARPU amounts)
(Unaudited) Years Ended
Three Months Ended December 31,
3/31/04 6/30/04 9/30/04 12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 2004 2005 2006
Wireline services revenue
Local voice $1,686 $1,633 $1,609 $1,586 $1,581 $1,575 $1,544 $1,526 $1,520 $1,501 $1,466 $1,425 $6,514 $6,226 $5,912
Long-distance 500 492 550 546 558 547 553 558 559 562 572 560 2,088 2,216 2,253
Access 179 179 169 162 161 182 159 162 146 133 139 132 689 664 550
Data and Internet 976 999 980 1,009 1,012 1,025 1,105 1,087 1,102 1,124 1,166 1,221 3,964 4,229 4,613
Total wireline services revenue 3,341 3,303 3,308 3,303 3,312 3,329 3,361 3,333 3,327 3,320 3,343 3,338 13,255 13,335 13,328
Wireline services expenses
Facility costs 653 660 698 574 598 598 617 574 547 536 513 550 2,585 2,387 2,146
Network expenses 53 61 67 61 62 58 70 68 52 61 68 67 242 258 248
Bad debt 75 8 30 44 43 40 15 24 28 15 23 32 157 122 98
Restructuring, realignment and
severance related costs 5 80 4 13 6 4 2 22 2 1 40 2 102 34 45
Employee-related costs 675 648 639 617 604 584 600 581 596 578 597 592 2,579 2,369 2,363
Other non-employee related costs 352 344 320 332 328 344 377 392 385 372 371 367 1,348 1,441 1,495
Total wireline services expenses 1,813 1,801 1,758 1,641 1,641 1,628 1,681 1,661 1,610 1,563 1,612 1,610 7,013 6,611 6,395
$1,528 $1,502 $1,550 $1,662 $1,671 $1,701 $1,680 $1,672 $1,717 $1,757 $1,731 $1,728 $6,242 $6,724 $6,933
Wireline services segment income
45.7% 45.5% 46.9% 50.3% 50.5% 51.1% 50.0% 50.2% 51.6% 52.9% 51.8% 51.8% 47.1% 50.4% 52.0%
Wireline services margin
Capital expenditures—wireline services $375 $384 $326 $265 $255 $252 $346 $394 $322 $364 $321 $307 $1,350 $1,247 $1,314
OPERATING STATISTICS As of and for the
As of and for the Three Months Ended Years Ended December 31,
Access lines: 3/31/04 6/30/04 9/30/04 12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 2004 2005 2006
(2)
Business
Retail 3,192 3,163 3,148 3,109 3,074 3,031 3,012 2,969 2,958 2,920 2,900 2,870 3,109 2,969 2,870
Resold 1,786 1,901 1,907 1,879 1,848 1,808 1,756 1,710 1,667 1,624 1,564 1,495 1,879 1,710 1,495
Total business 4,978 5,064 5,055 4,988 4,922 4,839 4,768 4,679 4,625 4,544 4,464 4,365 4,988 4,679 4,365
Mass markets
Primary 8,539 8,321 8,234 8,184 8,107 7,974 7,916 7,851 7,749 7,592 7,454 7,333 8,184 7,851 7,333
Add 1,205 1,150 1,101 1,063 1,024 985 948 913 876 840 803 770 1,063 913 770
Total retail residential 9,744 9,471 9,335 9,247 9,131 8,959 8,864 8,764 8,625 8,432 8,257 8,103 9,247 8,764 8,103
Small business 1,328 1,304 1,290 1,287 1,286 1,289 1,301 1,296 1,296 1,307 1,316 1,327 1,287 1,296 1,327
Total Mass markets 11,072 10,775 10,625 10,534 10,417 10,248 10,165 10,060 9,921 9,739 9,573 9,430 10,534 10,060 9,430
Total access lines 16,050 15,839 15,680 15,522 15,339 15,087 14,933 14,739 14,546 14,283 14,037 13,795 15,522 14,739 13,795
1,043 1,168 1,176 1,151 1,137 1,077 997 953 925 893 852 801 1,151 953 801
UNEs
Mass markets retail connections
11,072 10,775 10,625 10,534 10,417 10,248 10,165 10,060 9,921 9,739 9,573 9,430 10,534 10,060 9,430
Mass markets access lines
744 853 956 1,037 1,122 1,190 1,340 1,480 1,678 1,798 1,973 2,138 1,037 1,480 2,138
High-speed Internet subscribers
64 67 73 84 100 120 149 178 219 259 350 424 84 178 424
Video subscribers(6)
816 814 778 754 743 744 748 770 784 777 781 801 754 770 801
Wireless subscribers
12,696 12,509 12,432 12,409 12,382 12,302 12,402 12,488 12,602 12,573 12,677 12,793 12,409 12,488 12,793
Total mass markets retail connections
3,344 4,071 4,385 4,508 4,590 4,631 4,705 4,778 4,824 4,840 4,900 4,920 4,508 4,778 4,920
In-Region long distance lines(5)
744 853 956 1,037 1,122 1,190 1,340 1,480 1,678 1,798 1,973 2,138 1,037 1,480 2,138
High-speed Internet subscribers (3)
$43.47 $42.90 $43.21 $45.11 $45.83 $46.27 $46.65 $47.57 $48.55 $49.41 $50.07 $50.81 $43.48 $46.30 $49.51
Consumer ARPU (4)
(1) Certain prior period revenue, expense and access line amounts have been reclassified to conform to the current period presentation.
(2) Access lines were reclassified during 2006 to conform to our revenue channel presentation. Resold lines include UNE lines, unbundled loops and public pay phone lines. Retail lines
at December 31, 2005 reflect a decline of 32,000 lines in the fourth quarter related to affiliate disconnects and 23,000 line and 21,000 line disconnects in the first and second quarter of
2005, respectively, related to UUNet.
(3) Included in the first quarter of 2006 high-speed Internet count are 18,000 subscribers which relate to 2005 and 2004 activity and have not been previously reported.
(4) Consumer ARPU (Average Revenue Per Unit) is measured as consumer wireline revenue in the period divided by the average number of primary access lines for the period. ARPU is
not a measure determined in accordance with accounting principles generally accepted in the United States of America, or GAAP, and should not be considered as a substitute for our
wireline services segment revenue or any other measure determined in accordance with GAAP.
(5) Included in the third quarter of 2006 long distance lines count are approximately 20,000 lines which relate to second quarter of 2006 activity and have not been previously reported.
(6) Video subscribers have been adjusted by approximately 35,000 and 5,000 subscribers as of December 31, 2006 and 2005, respectively, to conform to our current presentation of video
subscribers.
7. QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED FINANCIAL RESULTS—WIRELESS SERVICES SEGMENT
(Dollars in millions, operating statistics in thousands, except ARPU amounts)
(Unaudited) Years Ended
Three Months Ended December 31,
3/31/04 6/30/04 9/30/04 12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 2004 2005 2006
Wireless services revenue $127 $130 $133 $124 $126 $132 $131 $138 $139 $142 $135 $141 $514 $527 $557
Wireless services expenses
Facility costs 6 16 47 74 76 79 75 75 71 74 74 75 143 305 294
Wireless equipment 21 29 38 29 26 28 25 28 30 26 28 27 117 107 111
Bad debt 9 6 9 5 14 14 12 11 12 12 14 15 29 51 53
Employee-related costs 12 12 14 14 14 12 12 12 12 11 12 11 52 50 46
Other non-employee related costs 31 36 38 35 27 14 18 16 16 12 15 15 140 75 58
Total wireless services expenses 79 99 146 157 157 147 142 142 141 135 143 143 481 588 562
Wireless services segment income $48 $31 $(13) $(33) $(31) $(15) $(11) $(4) $(2) $7 $(8) $(2) $33 $(61) $(5)
Wireless services margin 37.8% 23.8% -9.8% -26.6% -24.6% -11.4% -8.4% -2.9% -1.4% 4.9% -5.9% -1.4% 6.4% -11.6% -0.9%
Capital expenditures—wireless services $- $1 $2 $2 $1 $1 $- $- $- $- $- $1 $5 $2 $1
OPERATING STATISTICS As of and for the
As of and for the Three Months Ended Years Ended December 31,
3/31/04 6/30/04 9/30/04 12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 12/31/04 12/31/05 12/31/06
Subscribers 816 814 778 754 743 744 748 770 784 777 781 801 754 770 801
$43 $46 $47 $46 $46 $50 $51 $51 $50 $52 $49 $50 $45 $49 $50
ARPU(1)
(1) ARPU (Average Revenue Per Unit) is measured as the recurring portion of our wireless services revenue stream attributed to subscribing customers (plus certain activation fees)
divided by the average number of subscribers for the period. We believe this metric can be a useful measure of the revenue performance of our wireless business on a per-customer basis.
We use ARPU internally to assess the revenue performance of our wireless business and the impact on this business of periodic customer initiatives and product roll-outs. ARPU is not a
measure determined in accordance with GAAP and should not be considered as a substitute for our wireless segment revenue or any other measure determined in accordance with GAAP.
Wireless ARPU includes surcharges for the recovery of costs associated with providing number portability and wireless 911 services.
8. QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED FINANCIAL RESULTS—OTHER SERVICES SEGMENT
(Dollars in millions)
(Unaudited) Years Ended
Three Months Ended December 31,
3/31/04 6/30/04 9/30/04 12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 2004 2005 2006
Other services revenue $13 $9 $8 $10 $11 $9 $12 $9 $10 $10 $9 $9 $40 $41 $38
Other services expenses
Property and other taxes 81 114 112 78 98 111 100 42 88 72 96 62 385 351 318
Real estate costs 112 101 105 97 105 99 110 108 110 105 110 112 415 422 437
Restructuring, realignment and
severance related costs 10 50 2 44 7 (5) 25 52 20 (3) 3 (1) 106 79 19
Employee-related costs 232 211 189 171 198 201 193 199 189 204 195 215 803 791 803
Other non-employee related costs(1) 281 596 497 284 269 298 277 297 273 287 237 267 1,658 1,141 1,064
Total other services expenses 716 1,072 905 674 677 704 705 698 680 665 641 655 3,367 2,784 2,641
Other services segment income $(703) $(1,063) $(897) $(664) $(666) $(695) $(693) $(689) $(670) $(655) $(632) $(646) $(3,327) $(2,743) $(2,603)
Capital expenditures—other services $80 $101 $90 $105 $57 $99 $99 $109 $68 $78 $73 $98 $376 $364 $317
(1) Certain immaterial expenses for facility costs, bad debt, and network expenses in the other services segment are recorded in other non-employee related costs.
10. QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED FINANCIAL DATA—SPECIAL ITEMS
(Dollars in millions)
(Unaudited)
Three Months Ended
3/31/04 6/30/04 9/30/04 12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06
SPECIAL ITEMS:(1)
Operating expenses:
Bankruptcy settlements (SG&A) $ — $52 $ — $ — $ — $ — $ — $ — $ — $ — $ — $ —
Legal reserve (SG&A) — (318) (250) — — — — — — — — —
Restructuring, realignment and severance related costs (SG&A) (15) (132) (5) (59) (15) 1 (26) (74) (22) — (43) —
OPEB - Medicare one-time benefit (COGS and SG&A) — — 16 — — — — — — — — —
Asset impairment charges — (43) (34) (36) — — — — — — — —
Subtotal operating expenses (15) (441) (273) (95) (15) 1 (26) (74) (22) — (43) —
Other (expense) income—net:
Gain (loss) on debt extinguishment (13) 20 (6) — — (43) 11 (430) — — — —
Gain on sale of assets 1 — — 7 257 — — 6 — — — 64
Gain on agreement terminations (Other—net) — 70 — — — — — — — — — —
Tax penalty adjustment (Other—net) — — (36) 36 — — — — — — — —
Tax sharing settlement (Other—net) — — — — — — — — — — 53 —
Subtotal other (expense) income—net (12) 90 (42) 43 257 (43) 11 (424) — — 53 64
Income tax (expense) benefit:
Change in the valuation allowance against deferred tax assets (Income tax) — (140) 16 — — — — — — — — —
Tax sharing settlement (Income tax) — — — — — — — — — — 39 —
Subtotal income tax (expense) benefit — (140) 16 — — — — — — — 39 —
Other special items (expense):
Cumulative effect of changes in accounting principles—net — — — — — — — (22) — — — —
$—
Total special items—(charges)/benefits $(27) $(491) $(299) $(52) $242 $(42) $(15) $(520) $(22) $49 $64
(1) Effective for the quarter ended June 30, 2006, special items will only be identified herein when they are considered to be material. Although certain costs associated with the items described above continue to be incurred,
they are not considered to be material and, therefore, are not detailed above.
11. QWEST COMMUNICATIONS INTERNATIONAL INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES—EBITDA
(Dollars in millions)
(Unaudited)
Years Ended
Three Months Ended December 31,
3/31/04 6/30/04 9/30/04 12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 2004 2005 2006
EBITDA—as adjusted:(1)
EBITDA—as adjusted $888 $868 $879 $1,024 $989 $990 $1,002 $1,053 $1,067 $1,109 $1,134 $1,080 $3,659 $4,034 $4,390
Less: Restructuring, realignment and severance related costs (15) (132) (5) (59) (15) 1 (26) (74) (22) — (43) — (211) (114) (65)
Less: Asset impairment charges — (43) (34) (36) — — — — — — — — (113) — —
Less: Special items — (266) (234) — — — — — — — — — (500) — —
EBITDA:(1)
EBITDA $873 $427 $606 $929 $974 $991 $976 $979 $1,045 $1,109 $1,091 $1,080 $2,835 $3,920 $4,325
Depreciation and amortization (777) (784) (779) (783) (774) (765) (768) (758) (691) (693) (691) (695) (3,123) (3,065) (2,770)
Total other expense—net (409) (283) (414) (312) (139) (393) (353) (730) (268) (281) (249) (200) (1,418) (1,615) (998)
Income tax benefit (expense) 3 (136) 18 27 (4) 3 1 3 2 (18) 43 9 (88) 3 36
Cumulative effect of accounting changes - net — — — — — — — (22) — — — — — (22) —
Net (loss) income $(310) $(776) $(569) $(139) $57 $(164) $(144) $(528) $88 $117 $194 $194 $(1,794) $(779) $593
EBITDA Margin:(1)
EBITDA $873 $427 $606 $929 $974 $991 $976 $979 $1,045 $1,109 $1,091 $1,080 $2,835 $3,920 $4,325
Operating revenue $3,481 $3,442 $3,449 $3,437 $3,449 $3,470 $3,504 $3,480 $3,476 $3,472 $3,487 $3,488 $13,923
$13,809 $13,903
EBITDA margin (EBITDA divided by operating revenue) 25.1% 12.4% 17.6% 27.0% 28.2% 28.6% 27.9% 28.1% 30.1% 31.9% 31.3% 31.0% 20.5% 28.2% 31.1%
EBITDA—as adjusted:(1)
EBITDA—as adjusted $888 $868 $879 $1,024 $989 $990 $1,002 $1,053 $1,067 $1,109 $1,134 $1,080 $3,659 $4,034 $4,390
Operating revenue $3,481 $3,442 $3,449 $3,437 $3,449 $3,470 $3,504 $3,480 $3,476 $3,472 $3,487 $3,488 $13,923
$13,809 $13,903
EBITDA margin—as adjusted
25.5% 25.2% 25.5% 29.8% 28.7% 28.5% 28.6% 30.3% 30.7% 31.9% 32.5% 31.0% 26.5% 29.0% 31.5%
(EBITDA—as adjusted divided by operating revenue)
(1) EBITDA, EBITDA Margin, Adjusted EBITDA, and Adjusted EBITDA Margin are non-GAAP financial measures. Other companies may calculate these measures (or similarly titled measures) differently.
We believe these measures provide useful information to investors in evaluating our capital-intensive business because they reflect our operating performance before the impacts of non-cash items and are
indicators of our ability to service debt, pay taxes and fund discretionary spending such as capital expenditures. Management also uses EBITDA for a number of purposes, including setting targets for
compensation and assessing the performance of our operations.
12. QWEST COMMUNICATIONS INTERNATIONAL INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES—NET DEBT
(Dollars in millions)
(Unaudited)
3/31/04 6/30/04 9/30/04 12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06
Net Debt:(1)
Current borrowings $996 $836 $652 $596 $601 $261 $527 $512 $604 $2,683 $1,685 $1,686
Long-term borrowings—net 16,544 16,407 16,545 16,690 16,691 17,287 16,702 14,968 14,834 12,693 13,228 13,206
Total borrowings—net 17,540 17,243 17,197 17,286 17,292 17,548 17,229 15,480 15,438 15,376 14,913 14,892
Less: Cash and cash equivalents (1,353) (1,184) (1,314) (1,151) (1,406) (2,245) (2,311) (846) (610) (1,189) (962) (1,241)
Less: Short-term investments (702) (423) (598) (764) (966) (634) (580) (101) (130) (205) (218) (248)
Less: Long-term investments (35) (124) (105) (45) (36) (1) (1) — — — — —
Net Debt $15,450 $15,512 $15,180 $15,326 $14,884 $14,668 $14,337 $14,533 $14,698 $13,982 $13,733 $13,403
(1) Net Debt is a non-GAAP financial measure that we calculate as our total borrowings (current plus long-term) less our cash and cash equivalents and short and long-term investments. We believe
net debt is helpful in analyzing our leverage, and management uses this measure in making decisions regarding potential financings. Net debt is not a measure determined in accordance with GAAP
and should not be considered as a substitute for “current borrowings”, “long-term borrowings” or any other measure determined in accordance with GAAP.
13. QWEST COMMUNICATIONS INTERNATIONAL INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES—FREE CASH FLOW FROM OPERATIONS
(Dollars in millions)
(Unaudited)
Years Ended
Three Months Ended December 31,
3/31/04 6/30/04 9/30/04 12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 2004 2005 2006
Free Cash Flow from Operations:(1)
Cash provided by operating activities $560 $284 $765 $239 $343 $570 $675 $725 $140 $1,037 $752 $860 $1,848 $2,313 $2,789
Less: Expenditures for property, plant and
equipment and intangible assets (455) (486) (418) (372) (313) (352) (445) (503) (390) (442) (394) (406) (1,731) (1,613) (1,632)
Free Cash Flow from Operations 105 (202) 347 (133) 30 218 230 222 (250) 595 358 454 117 700 1,157
Add: One time settlement payments — — — 311 — — — 204 100 — — 140 311 204 240
Free Cash Flow from Operations—as adjusted $105 $(202) $347 $178 $30 $218 $230 $426 $(150) $595 $358 $594 $428 $904 $1,397
(1) Free cash flow from operations is a non-GAAP financial measure that indicates cash generated by our business after operating expenses, capital expenditures and interest expense. We
believe this measure provides useful information to our investors for purposes of evaluating our ability to satisfy our debt and other mandatory payment obligations and because it reflects cash
flows available for financing activities, voluntary debt repayment and to strengthen our balance sheet. This is of particular relevance for our business given our significant debt balance. We also
use free cash flow from operations internally for a variety of purposes, including setting targets for compensation and budgeting our cash needs. Free cash flow from operations is not a measure
determined in accordance with GAAP and should not be considered as a substitute for “operating income” or “net cash flow from operating activities” or any other measure determined in
accordance with GAAP.
14. QWEST COMMUNICATIONS INTERNATIONAL INC.
WIRELESS SERVICES ARPU RECONCILIATION
(Dollars in millions, subscribers in thousands, and ARPU amounts in dollars)
(Unaudited)
Three Months Ended
3/31/04 6/30/04 9/30/04 12/31/04 3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06
ARPU is calculated as follows:(1)
Total quarterly wireless services revenue $127 $130 $133 $124 $126 $132 $131 $138 $139 $142 $135 $141
Less: quarterly non-recurring revenue (18) (19) (21) (19) (23) (21) (17) (22) (22) (20) (20) (22)
Quarterly recurring revenue $109 $111 $112 $105 $103 $111 $114 $116 $117 $122 $115 $119
Average monthly recurring revenue $36 $37 $37 $35 $34 $37 $38 $39 $39 $41 $38 $40
Divided by quarterly average wireless subscribers 838 814 797 767 745 743 745 759 778 782 775 790
Wireless services ARPU $43 $46 $47 $46 $46 $50 $51 $51 $50 $52 $49 $50
(1)ARPU (Average Revenue Per Unit) is measured as the recurring portion of our wireless services revenue stream attributed to subscribing customers (plus certain activation fees) divided by the average number of
subscribers for the period. We believe this metric can be a useful measure of the revenue performance of our wireless business on a per-customer basis. We use ARPU internally to assess the revenue performance
of our wireless business and the impact on this business of periodic customer initiatives and product roll-outs. ARPU is not a measure determined in accordance with GAAP and should not be considered as a
substitute for our wireless segment revenue or any other measure determined in accordance with GAAP. Wireless ARPU includes surcharges for the recovery of costs associated with providing number portability
and wireless 911 services.