Qwest Reports Q2 Loss

DENVER -- Qwest Communications International Inc. (NYSE: Q - News) today announced a second quarter 2003 net loss of $91 million or $0.05 per share.

Table 1: Unaudited Results

"During the quarter we made significant progress on our plans to position the company for solid, long-term profitable growth, and we now have the elements in place to offer businesses and consumers a wide-array of communications bundles," said Richard C. Notebaert, Qwest chairman and CEO.

Financial Statements Essentially Complete

Qwest is essentially complete with its restatement of the company's 2000 and 2001 financial statements. The company and its independent auditor are in the process of completing their work, drafting and reviewing the company's Form 10-K filing and performing due diligence procedures. In addition, the company would expect to have discussions with the Securities and Exchange Commission in the course of finalizing its financial statements. Accordingly, while the company does not expect further material changes to the restatement amounts identified in this announcement, the company can give no assurance that the aggregate adjustments to the financial information contained herein are final or that all adjustments necessary to present its financial statements in accordance with generally accepted accounting principles (GAAP) have been identified. The company will file its financial statements for 2000, 2001 and 2002 as soon as possible.

Operating Results

Revenue for the second quarter was $3.6 billion, a 0.8 percent decrease from the first quarter. Second quarter revenues declined primarily because of competitive pressures in local voice services. These losses were partially offset by continued growth in long-distance and data services.

Cost of sales and selling, general and administrative expenses (SG&A) for the second quarter decreased $17 million or 0.6 percent sequentially, due to expense reduction activities. Operating income declined to $184 million from $199 million in the first quarter as revenue losses were offset in part by cost savings.

Capital expenditures from continuing operations were $490 million in the quarter.

Access lines declined 1.4 percent, excluding the impact of services reduced as part of the WorldCom bankruptcy. Total access lines declined 2.3 percent in the second quarter, primarily because of increased competitive activity and seasonal trends. Unbundled Network Element-Platform lines in service increased to 675,000 and represent approximately 4.1 percent of total access lines.

"Our disciplined approach to the business has us on track to meet our 2003 financial objectives," said Oren G. Shaffer, Qwest vice chairman and CFO. "With the financial statements essentially complete, we will continue to focus on activities to grow our key lines of business profitably and strengthen our financial position."

Customer Satisfaction Improves

According to a survey conducted by a leading telecommunications trade publication, Qwest was top-rated in five product categories by business customers -- more than any other service provider in the study. Enterprise customers gave Qwest the highest ratings for: long-distance voice services, VPN/private IP services, outsourced security services, application services, and DSL provider (tied with two other carriers). Customers also rated Qwest the highest for DSL price satisfaction.

In July, J.D. Power & Associates issued its annual rankings for local service. Qwest is generating positive momentum with customers as a result of its Spirit of Service initiatives launched last fall. Qwest improved in all 36 attributes tracked by J.D. Power & Associates and in all six major components of customer satisfaction -- customer service, image, cost of service, performance and reliability, billing, and offerings and promotions.

Notebaert added, "Although we are not satisfied with our overall ranking in the J.D. Power survey, the results show a positive trend. This survey confirms that the investments we are making to improve operations will enhance the overall customer experience and drive improved satisfaction levels."

Qwest's improvement in the J.D. Power & Associates survey tracks with Qwest's own customer satisfaction surveys. July results from the Customer Transaction Survey (CTS) showed the highest customer satisfaction levels in the past two years, indicating that the Spirit of Service initiatives are making inroads with customers. CTS measures customers' satisfaction with Qwest personnel and their overall service experience.

Cash Increases, Business Plan Fully Funded

In the quarter, cash and cash equivalents increased approximately $200 million to $2.8 billion. Qwest closed a $1.75 billion senior term loan at its Qwest Corporation (QC) subsidiary. Qwest expects its business plan to be fully funded upon completion of the sale of its QwestDex subsidiary, based on its ability to generate operating cash flow and continued access to the capital markets. The company also completed additional private debt-for-debt and debt-for-equity exchanges, reducing debt by $122 million in the second quarter. The company paid down its credit facility to $1.6 billion from $2.0 billion and made scheduled maturity payments of $1.05 billion. In addition, on August 12, 2003, the company pre-paid its $750 million Dex Term loan reflecting its confidence that the second stage of the QwestDex transaction will close shortly.

Long-Distance Sales Improve

In the quarter, Qwest added long-distance service to 590,000 access lines in its local service area. In 2003, Qwest has signed up 1.12 million access lines for long-distance service. On August 21, the Arizona Corporation Commission approved the final two checklist items for re-entry, and on September 4, the company is expected to submit its FCC filing for long- distance authority in Arizona, the last state in its local service region.

Building Out the Communications Bundle

Qwest launched several initiatives to improve customer satisfaction through bundled services. The company expanded its wireless offering through a wholesale agreement with Sprint PCS. Qwest will provide nationwide wireless voice and data services to consumers throughout its 14-state local service region and to business customers across the U.S., using the enhanced Sprint nationwide wireless network infrastructure. Qwest also added video services to its bundled offerings when it signed strategic marketing agreements with EchoStar Communications Corporation and DIRECTV, Inc. in July. Qwest will make satellite TV services available to customers in selected Arizona, Colorado, Nebraska, and Washington markets later this year and in other markets in 2004.

Updates to May 29, 2003, Disclosure

Changes have been made to the information disclosed by the company on May 29, 2003. Further analysis identified adjustments that resulted in a net decrease in revenue of $99 million, $133 million and $51 million in 2002, 2001 and 2000, respectively. The 2002 reduction was primarily the result of reclassifying refunds to customers totaling $83 million from expense to a reduction in revenue. The 2001 and 2000 restatement changes were largely the result of changes to accounting for certain contractual termination fees, reducing revenue $75 million and $50 million, respectively. In addition, corrections to previous adjustments for optical capacity transactions decreased revenue $2 million in 2002 and $41 million in 2001, and increased revenue $67 million in 2000. Adjustments also correct errors in accounting entries or treatment that were individually or cumulatively immaterial in all periods presented.

Qwest Communications International Inc.