7. QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED FINANCIAL RESULTS—WIRELINE SERVICES SEGMENT(1)
(Dollars in millions, operating statistics in thousands, except ARPU amounts)
(Unaudited)
OPERATING STATISTICS As of and for the
As of and for the Three Months Ended Years Ended December 31,
Access lines(2): 3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 3/31/07 12/31/05 12/31/06
Business:
Retail 3,074 3,031 3,012 2,969 2,958 2,920 2,900 2,870 2,842 2,969 2,870
Resold 1,848 1,808 1,756 1,710 1,667 1,624 1,564 1,495 1,433 1,710 1,495
Total business 4,922 4,839 4,768 4,679 4,625 4,544 4,464 4,365 4,275 4,679 4,365
Mass markets:
Retail residential:
Primary 8,107 7,974 7,916 7,851 7,749 7,592 7,454 7,333 7,200 7,851 7,333
Add 1,024 985 948 913 876 840 803 770 740 913 770
Total retail residential 9,131 8,959 8,864 8,764 8,625 8,432 8,257 8,103 7,940 8,764 8,103
Small business 1,286 1,289 1,301 1,296 1,296 1,307 1,316 1,327 1,336 1,296 1,327
Total mass markets 10,417 10,248 10,165 10,060 9,921 9,739 9,573 9,430 9,276 10,060 9,430
Total access lines 15,339 15,087 14,933 14,739 14,546 14,283 14,037 13,795 13,551 14,739 13,795
UNEs 1,137 1,077 997 953 925 893 852 801 754 953 801
Mass markets retail connections:
10,417 10,248 10,165 10,060 9,921 9,739 9,573 9,430 9,276 10,060 9,430
Mass markets access lines
High-speed Internet subscribers(3) 1,122 1,190 1,340 1,480 1,678 1,798 1,973 2,138 2,305 1,480 2,138
Video subscribers(3) 100 120 149 178 219 259 350 424 506 178 424
743 744 748 770 784 777 781 801 812 770 801
Wireless subscribers
12,382 12,302 12,402 12,488 12,602 12,573 12,677 12,793 12,899 12,488 12,793
Total mass markets retail connections
In-Region long distance lines 4,590 4,631 4,705 4,778 4,824 4,840 4,900 4,920 4,924 4,778 4,920
High-speed Internet subscribers 1,122 1,190 1,340 1,480 1,678 1,798 1,973 2,138 2,305 1,480 2,138
Consumer ARPU(4) $ 45.83 $ 46.27 $ 46.65 $ 47.57 $ 48.55 $ 49.41 $ 50.07 $ 50.81 $ 52.01 $ 46.30 $ 49.51
(1) Certain prior period revenue, expense and access line amounts have been reclassified to conform to the current period presentation.
(2) 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 of 2005
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) High-speed Internet subscribers and video subscribers include certain business customers.
(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.
8. QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED FINANCIAL RESULTS—WIRELESS SERVICES SEGMENT(1)
(Dollars in millions, operating statistics in thousands, except ARPU amounts)
(Unaudited) Years Ended
Three Months Ended December 31,
3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 3/31/07 2005 2006
Wireless services revenue $ 126 $ 132 $ 131 $ 138 $ 139 $ 142 $ 135 $ 141 $ 139 $ 527 $ 557
Wireless services expenses:
Facility costs 76 79 75 75 71 74 74 75 75 305 294
Wireless equipment 26 28 25 28 30 26 28 27 25 107 111
Bad debt 14 14 12 11 12 12 14 15 13 51 53
Employee-related costs 14 12 12 12 12 12 13 12 14 50 49
Other non-employee related costs 29 16 20 17 17 12 17 16 12 82 62
Total wireless services expenses 159 149 144 143 142 136 146 145 139 595 569
Wireless services segment income $ (33) $ (17) $ (13) $ (5) $ (3) $ 6$ (11) $ (4) $ — $ (68) $ (12)
—%
Wireless services margin -26.2% -12.9% -9.9% -3.6% -2.2% 4.2% -8.1% -2.8% -12.9% -2.2%
Capital expenditures—wireless services $ 1$ 1$ —$ —$ —$ —$ —$ 1$ 1 $ 2$ 1
OPERATING STATISTICS As of and for the
As of and for the Three Months Ended Years Ended December 31,
3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 3/31/07 12/31/05 12/31/06
Subscribers 743 744 748 770 784 777 781 801 812 770 801
(2)
ARPU $ 46 $ 50 $ 51 $ 51 $ 50 $ 52 $ 49 $ 50 $ 50 $ 49 $ 50
(1) Certain prior period revenue and expense amounts have been reclassified to conform to the current period presentation.
(2) 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.
9. QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED FINANCIAL RESULTS—OTHER SERVICES SEGMENT(1)
(Dollars in millions)
(Unaudited) Years Ended
Three Months Ended December 31,
3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 3/31/07 2005 2006
Other services revenue $ 11 $ 9 $ 12 $ 9 $ 10 $ 10 $ 9 $ 9 $ 9 $ 41 $ 38
Other services expenses:
Property and other taxes 98 111 100 42 88 72 96 62 90 351 318
Real estate costs 105 99 110 108 110 105 110 112 109 422 437
Restructuring, realignment and
severance related costs 7 (5) 25 52 20 (3) 3 (1) (6) 79 19
Employee-related costs 198 201 193 199 189 204 195 215 148 791 803
Other non-employee related costs(2) 272 300 279 299 276 289 239 269 282 1,150 1,073
Total other services expenses 680 706 707 700 683 667 643 657 623 2,793 2,650
Other services segment income $ (669) $ (697) $ (695) $ (691) $ (673) $ (657) $ (634) $ (648) $ (614) $ (2,752) $ (2,612)
Capital expenditures—other services $ 57 $ 99 $ 99 $ 109 $ 68 $ 78 $ 73 $ 98 $ 54 $ 364 $ 317
(1) Certain prior period revenue and expense amounts have been reclassified to conform to the current period presentation.
(2) Certain immaterial expenses for facility costs, bad debt, and network expenses in the other services segment are recorded in other non-employee related costs.
11. QWEST COMMUNICATIONS INTERNATIONAL INC.
SELECTED FINANCIAL DATA—SPECIAL ITEMS
(Dollars in millions)
(Unaudited)
Three Months Ended
3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 3/31/07
SPECIAL ITEMS(1):
Operating expenses:
Legal reserve (SG&A) $ —$ —$ —$ —$ —$ —$ —$ —$ (40)
Restructuring, realignment and severance (SG&A) (15) 1 (26) (74) (22) — (43) — —
Subtotal operating expenses (15) 1 (26) (74) (22) — (43) — (40)
Other (expense) income—net:
—
(Loss) gain on debt extinguishment — (43) 11 (430) — — — —
Gain on sale of assets 257 — — 6 — — — 64 —
Tax sharing settlement (Other—net) — — — — — — 53 — —
Subtotal other (expense) income—net 257 (43) 11 (424) — — 53 64 —
Income tax sharing settlement — — — — — — 39 — —
Cumulative effect of changes in accounting principles—net of taxes — — — (22) — — — — —
—$
(22) $
Total special items—(charges) benefits $ 242 $ (42) $ (15) $ (520) $ 49 $ 64 $ (40)
(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.
12. QWEST COMMUNICATIONS INTERNATIONAL INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES—EBITDA
(Dollars in millions)
(Unaudited)
Years Ended
Three Months Ended December 31,
3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 3/31/07 2005 2006
(1)
EBITDA : $ 974 $ 991 $ 976 $ 979 $ 1,045 $ 1,109 $ 1,091 $ 1,080 $ 1,131 $ 3,920 $ 4,325
Depreciation and amortization (774) (765) (768) (758) (691) (693) (691) (695) (612) (3,065) (2,770)
Total other expense—net (139) (393) (353) (730) (268) (281) (249) (200) (277) (1,615) (998)
Income tax benefit (expense) (4) 3 1 3 2 (18) 43 9 (2) 3 36
Cumulative effect of accounting changes - net — — — (22) — — — — — (22) —
Net (loss) income $ 57 $ (164) $ (144) $ (528) $ 88 $ 117 $ 194 $ 194 $ 240 $ (779) $ 593
EBITDA Margin(1):
EBITDA $ 974 $ 991 $ 976 $ 979 $ 1,045 $ 1,109 $ 1,091 $ 1,080 $ 1,131 $ 3,920 $ 4,325
Operating revenue $ 3,449 $ 3,470 $ 3,504 $ 3,480 $ 3,476 $ 3,472 $ 3,487 $ 3,488 $ 3,446 $ 13,903 $ 13,923
EBITDA margin (EBITDA divided by operating revenue) 28.2% 28.6% 27.9% 28.1% 30.1% 31.9% 31.3% 31.0% 32.8% 28.2% 31.1%
(1) EBITDA and 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.
13. QWEST COMMUNICATIONS INTERNATIONAL INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES—NET DEBT
(Dollars in millions)
(Unaudited)
Three Months Ended
3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 3/31/07
Net Debt(1):
Current borrowings $ 601 $ 261 $ 527 $ 512 $ 604 $ 2,683 $ 1,685 $ 1,686 $ 1,688
Long-term borrowings—net 16,691 17,287 16,702 14,968 14,834 12,693 13,228 13,206 13,199
Total borrowings—net 17,292 17,548 17,229 15,480 15,438 15,376 14,913 14,892 14,887
Less: Cash and cash equivalents (1,406) (2,245) (2,311) (846) (610) (1,189) (962) (1,241) (887)
Less: Short-term investments (966) (634) (580) (101) (130) (205) (218) (248) (242)
Less: Long-term investments (36) (1) (1) — — — — — —
Net Debt $ 14,884 $ 14,668 $ 14,337 $ 14,533 $ 14,698 $ 13,982 $ 13,733 $ 13,403 $ 13,758
(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.
14. 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,
3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 3/31/07 2005 2006
Free cash flow from operations(1):
Cash provided by operating activities $ 343 $ 570 $ 675 $ 725 $ 140 $ 1,037 $ 752 $ 860 $ 268 $ 2,313 $ 2,789
Less: Expenditures for property, plant and equipment (313) (352) (445) (503) (390) (442) (394) (406) (318) (1,613) (1,632)
Free cash flow from operations 30 218 230 222 (250) 595 358 454 (50) 700 1,157
Add: certain one-time settlements — — — 204 100 — — 140 200 204 240
Free Cash Flow from Operations—as adjusted $ 30 $ 218 $ 230 $ 426 $ (150) $ 595 $ 358 $ 594 $ 150 $ 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.
15. QWEST COMMUNICATIONS INTERNATIONAL INC.
WIRELESS SERVICES ARPU RECONCILIATION
(Dollars in millions, subscribers in in thousands, and ARPU amounts in dollars)
(Unaudited)
Three Months Ended
3/31/05 6/30/05 9/30/05 12/31/05 3/31/06 6/30/06 9/30/06 12/31/06 3/31/07
ARPU is calculated as follows(1):
Total quarterly wireless services revenue $ 126 $ 132 $ 131 $ 138 $ 139 $ 142 $ 135 $ 141 $ 139
Less: quarterly non-recurring revenue (23) (21) (17) (22) (22) (20) (20) (22) (19)
Quarterly recurring revenue $ 103 $ 111 $ 114 $ 116 $ 117 $ 122 $ 115 $ 119 $ 120
Average monthly recurring revenue $ 34 $ 37 $ 38 $ 39 $ 39 $ 41 $ 38 $ 40 40
Divided by quarterly average wireless subscribers 745 743 745 759 778 782 775 790 796
Wireless services ARPU $ 46 $ 50 $ 51 $ 51 $ 50 $ 52 $ 49 $ 50 $ 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.