Qwest Near Breakeven

The latest-quarter loss is less than a penny a share, excluding items.
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Qwest (Q) posted a wider quarterly loss for the fourth quarter but beat Wall Street's targets on a pro forma basis.

The Denver telco lost $528 million, or 28 cents a share, compared with the year-ago loss of $139 million, or 4 cents a share. The latest quarter included a $430 million charge for the early retirement of debt. Excluding that and other costs, the latest-quarter loss was less than a penny a share, Qwest said, compared with the 5-cent loss expected by analysts surveyed by Thomson Financial.

Revenue rose 1.3% from a year ago but fell 0.7% sequentially to $3.48 billion, matching the First Call target.

"We delivered on our performance goals for revenue, cash flow and continued margin improvement while achieving new highs in service measures and positioning us for profitability," said CEO Richard C. Notebaert. "A robust product portfolio, a leading edge fiber network, and our unwavering focus on the customer have positioned Qwest for growth."

For the full year, revenue was $13.9 billion compared to $13.8 billion for 2004. This marks the first year of improved revenue since 2001.

Revenue trends improved as a result of strong sales within Qwest's portfolio of growth products, including high-speed Internet, advanced data products, long-distance and wireless, as well as bundles. Qwest's growth businesses -- high-speed Internet, data, wireless and long-distance services -- contributed over half of revenue in the quarter, compared with 45% two years ago.

An emphasis on newly launched bundles and promotions continued to drive growth in Qwest's high-speed Internet service subscribers. Qwest added 140,000 high-speed Internet lines in the fourth quarter, bringing the total to 1.5 million -- a 10% increase sequentially and a 43% increase year-over-year. The company's mass markets data and Internet revenues increased 8% sequentially and 28% year over year. The company sees a significant potential revenue opportunity by increasing the current broadband penetration to the industry average.

Total retail line losses improved to a decline of 4% year over year, compared to a decline of 6% a year ago. This marks the seventh consecutive quarter of stable or improving retail access line loss trends.

"The company is showing strong momentum as we enter 2006," said Oren G. Shaffer, Qwest vice chairman and CFO. "That, coupled with the elimination of the high-coupon legacy debt in the fourth quarter, has advanced us to break-even earnings per share, before special items, and put us on a path to profitability."

Fourth-quarter capital expenditures totaled $503 million, compared to $372 million in the fourth quarter of 2004. For the year, capital expenditures totaled $1.6 billion.

Cash generated from operations of $725 million in the fourth quarter includes two one-time payments: the second and final payment of $125 million to the

SEC

and a $79 million settlement payment to KMC. This payment terminates the relationship with KMC, including all obligations and the previously disclosed lawsuit. Adjusting for these items, cash from operations exceeded capital expenditures by $426 million in the quarter and by $904 million for the year. Qwest anticipates cash flow in 2006 will benefit primarily from improved operating results and reduced interest expense.

Interest expense totaled $338 million for the fourth quarter and $1.48 billion for the year, compared to $366 million in the year-ago quarter and $1.53 billion in 2004.