qwest communications Q_2Q07_histres

Qwest Communications International Inc.
Historical Financial Information
As of June 30, 2007

QWEST COMMUNICATIONS INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in millions except per share amounts, shares in thousands) 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 6/30/07 2005 2006

Operating revenue.......................................................... $ 3,449 $ 3,470 $ 3,504 $ 3,480 $ 3,476 $ 3,472 $ 3,487 $ 3,488 $ 3,446 $ 3,463 $ 13,903 $ 13,923
Operating expenses:
Cost of sales (exclusive of depreciation and
and amortization).................................................... 1,439 1,434 1,512 1,451 1,418 1,394 1,382 1,414 1,317 1,310 5,836 5,607
Selling, general and administrative............................. 1,036 1,045 1,016 1,050 1,013 969 1,014 994 998 1,004 4,147 3,991
Depreciation and amortization.................................... 774 765 768 758 691 693 691 695 612 615 3,065 2,770
3,249 3,244 3,296 3,259 3,122 3,056 3,087 3,103 2,927 2,929 13,048 12,368
Total operating expenses................................................
Other expense (income)—net:
Interest expense on long-term borrowings and
capital leases—net................................................... 381 380 384 338 296 298 291 284 282 274 1,483 1,169
Loss (gain) on early retirement of debt—net ............. — 43 (11) 430 — (5) 9 1 — 22 462 5
Gain on sale of assets.................................................. (257) — — (6) — (3) — (65) — — (263) (68)
Other—net.................................................................. 15 (30) (20) (32) (28) (9) (51) (20) (5) (8) (67) (108)
Total other expense (income)—net................................ 139 393 353 730 268 281 249 200 277 288 1,615 998
Income (loss) before income taxes and
Cumulative effect of changes in
accounting principles—net of taxes............................ 61 (167) (145) (509) 86 135 151 185 242 246 (760) 557
Income tax (expense) benefit ........................................ (4) 3 1 3 2 (18) 43 9 (2) — 3 36
Income (loss) before cumulative effect of changes
in accounting principles—net of taxes........................ 57 (164) (144) (506) 88 117 194 194 240 246 (757) 593
accounting principles—net of taxes............................ — — — (22) — — — — — — (22) —
Net income (loss) .......................................................... $ 57 $ (164) $ (144) $ (528) $ 88 $ 117 $ 194 $ 194 $ 240 $ 246 $ (779) $ 593

Earnings per share:
Basic........................................................................... $ 0.03 $ (0.09) $ (0.08) $ (0.28) $ 0.05 $ 0.06 $ 0.10 $ 0.10 $ 0.13 $ 0.13 $ (0.42) $ 0.31
Diluted........................................................................ $ 0.03 $ (0.09) $ (0.08) $ (0.28) $ 0.05 $ 0.06 $ 0.09 $ 0.10 $ 0.12 $ 0.13 $ (0.42) $ 0.30

Weighted average shares outstanding:
Basic........................................................................... 1,816,758 1,823,338 1,843,715 1,861,684 1,874,313 1,882,398 1,901,372 1,900,925 1,864,951 1,841,295 1,836,374 1,889,857
Diluted........................................................................ 1,822,377 1,823,338 1,843,715 1,861,684 1,911,376 1,951,728 2,004,502 1,992,133 1,958,535 1,950,056 1,836,374 1,971,545

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in millions)

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 6/30/07
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 1,406 $ 2,245 $ 2,311 $ 846 $ 610 $ 1,189 $ 962 $ 1,241 $ 887 $ 869
Short-term investments................................................. 966 634 580 101 130 205 218 248 242 240
Accounts receivable—net............................................. 1,603 1,566 1,595 1,525 1,541 1,477 1,718 1,600 1,510 1,497
Prepaid expenses and other.......................................... 552 453 568 692 743 682 677 565 555 481
Total current assets.......................................................... 4,527 4,898 5,054 3,164 3,024 3,553 3,575 3,654 3,194 3,087

Property, plant and equipment—net................................ 16,459 16,101 15,812 15,568 15,273 15,016 14,828 14,579 14,274 14,076
Capitalized software—net............................................... 1,068 1,030 991 963 927 885 840 818 812 817
Prepaid pension............................................................... 1,187 1,182 1,172 1,165 1,147 1,129 1,111 1,311 1,320 1,329
Other................................................................................ 888 859 698 637 755 709 760 877 1,101 1,080
Total assets...................................................................... $ 24,129 $ 24,070 $ 23,727 $ 21,497 $ 21,126 $ 21,292 $ 21,114 $ 21,239 $ 20,701 $ 20,389

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term borrowings..................... $ 601 $ 261 $ 527 $ 512 $ 604 $ 2,683 $ 1,685 $ 1,686 $ 1,688 $ 1,304
Accounts payable......................................................... 1,235 1,161 1,314 1,314 1,103 1,063 1,094 997 895 918
Accrued expenses and other......................................... 1,581 1,602 1,756 1,776 1,618 1,740 1,743 1,856 1,438 1,518
Deferred revenue and advance billings........................ 642 626 635 633 622 609 622 621 613 610
Total current liabilities.................................................... 4,059 3,650 4,232 4,235 3,947 6,095 5,144 5,160 4,634 4,350

Long-term borrowings—net............................................ 16,691 17,287 16,702 14,968 14,834 12,693 13,228 13,206 13,199 13,207
Post-retirement and other post-employment
benefit obligations........................................................ 3,452 3,466 3,457 3,459 3,441 3,439 3,436 2,366 2,364 2,346
Deferred revenue............................................................. 554 548 532 522 514 508 516 506 506 509
Other................................................................................ 1,937 1,782 1,520 1,530 1,450 1,383 1,366 1,446 1,532 1,533
Total liabilities................................................................. 26,693 26,733 26,443 24,714 24,186 24,118 23,690 22,684 22,235 21,945
Stockholders' deficit:
Preferred stock.............................................................. — — — — — — — — — —
Common stock.............................................................. 18 18 19 19 19 19 19 19 19 18
Additional paid-in capital............................................. 43,111 43,170 43,260 43,290 43,355 43,475 43,531 43,384 43,022 42,770
Treasury stock.............................................................. (20) (16) (17) (17) (17) (17) (18) (24) (28) (33)
Accumulated deficit..................................................... (45,664) (45,828) (45,972) (46,500) (46,412) (46,295) (46,101) (45,907) (45,619) (45,373)
Accumulated other comprehensive (loss) income........ (9) (7) (6) (9) (5) (8) (7) 1,083 1,072 1,062
Total stockholders' deficit................................................ (2,564) (2,663) (2,716) (3,217) (3,060) (2,826) (2,576) (1,445) (1,534) (1,556)
Total liabilities and stockholders' deficit......................... $ 24,129 $ 24,070 $ 23,727 $ 21,497 $ 21,126 $ 21,292 $ 21,114 $ 21,239 $ 20,701 $ 20,389

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
3 Mos 6 Mos 9 Mos 12 Mos 3 Mos 6 Mos 9 Mos 12 Mos 3 Mos 6 Mos
Ended Ended Ended Ended Ended Ended Ended Ended Ended 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 6/30/07
Operating activities:
Net income (loss)........................................................ $ 57 $ (107) $ (251) $ (779) $ 88 $ 205 $ 399 $ 593 $ 240 $ 486
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................................. 774 1,539 2,307 3,065 691 1,384 2,075 2,770 612 1,227
Provision for bad debt—net..................................... 57 110 137 173 44 71 108 155 43 80
Cumulative effect of changes in accounting
principles—net of taxes........................................ — — — 22 — — — — — —
Gain on sale of assets.............................................. (257) (257) (257) (263) — (3) (3) (68) — —
Loss (gain) on early retirement of debt—net........... — 43 32 462 — (5) 4 5 — 22
Other non-cash charges—net................................... 1 9 13 32 15 32 35 52 14 18
Changes in operating assets and liabilities:
Accounts receivable................................................. (66) (82) (138) (104) (60) (23) (294) (223) 47 23
Prepaid expenses and other current assets............... 11 98 1 (8) (37) 28 50 168 (50) 22
Accounts payable and accrued expenses and
other current liabilities......................................... (178) (258) 57 73 (368) (284) (236) (372) (584) (447)
Deferred revenue and advance billings.................... (32) (54) (61) (73) (19) (38) (25) (33) (8) (8)
Other non-current assets and liabilities................... (24) (128) (252) (287) (214) (190) (184) (258) (46) (50)
Cash provided by operating activities............................ 343 913 1,588 2,313 140 1,177 1,929 2,789 268 1,373

Investing activities:
Expenditures for property, plant and equipment
and capitalized software.......................................... (313) (665) (1,110) (1,613) (390) (832) (1,226) (1,632) (318) (744)
Proceeds from sale of property and equipment........... 418 418 418 420 26 47 63 173 — —
Proceeds from sale of investment securities................ 630 1,086 1,230 1,793 7 42 56 70 6 31
Purchase of investment securities............................... (822) (912) (1,002) (1,086) (36) (146) (173) (217) — (24)
Other........................................................................... 1 17 22 27 1 — (101) (94) 4 9
Cash used for investing activities................................... (86) (56) (442) (459) (392) (889) (1,381) (1,700) (308) (728)

Financing activities:
Proceeds from long-term borrowings.......................... — 1,885 1,887 3,152 — — 600 600 — 500
Repayments of long-term borrowings,
including current maturities..................................... (5) (1,550) (1,778) (4,716) (41) (47) (1,145) (1,180) (9) (900)
Proceeds from issuances of common stock................. 3 7 10 39 57 102 150 205 34 66
Repurchases of common stock.................................... — — — — — — — (209) (393) (681)
Other........................................................................... — (105) (105) (634) — — (37) (110) 54 (2)
Cash (used for) provided by financing activities............ (2) 237 14 (2,159) 16 55 (432) (694) (314) (1,017)

Cash and cash equivalents:
Increase (decrease) in cash and cash equivalents........ 255 1,094 1,160 (305) (236) 343 116 395 (354) (372)
Beginning balance....................................................... 1,151 1,151 1,151 1,151 846 846 846 846 1,241 1,241
Ending balance............................................................ $ 1,406 $ 2,245 $ 2,311 $ 846 $ 610 $ 1,189 $ 962 $ 1,241 $ 887 $ 869

SELECTED DATA—TOTAL COMPANY
(UNAUDITED)
(Dollars in millions) Years 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 6/30/07 2005 2006
Operating revenue:
Wireline services........................................................ $ 3,312 $ 3,329 $ 3,361 $ 3,333 $ 3,327 $ 3,320 $ 3,343 $ 3,338 $ 3,298 $ 3,314 $ 13,335 $ 13,328
Wireless services........................................................ 126 132 131 138 139 142 135 141 139 139 527 557
Other services............................................................. 11 9 12 9 10 10 9 9 9 10 41 38
Total operating revenue................................................. 3,449 3,470 3,504 3,480 3,476 3,472 3,487 3,488 3,446 3,463 13,903 13,923

Segment expenses:
Cost of sales (COS) (2):
Facility costs........................................................... 671 675 690 647 616 608 585 623 582 558 2,683 2,432
Network expenses................................................... 67 59 72 69 52 62 69 69 52 65 267 252
Employee-related costs........................................... 409 387 404 387 396 388 397 392 379 366 1,587 1,573
Other non-employee related costs........................... 293 311 346 349 354 336 331 330 304 321 1,299 1,351
Total cost of sales....................................................... 1,440 1,432 1,512 1,452 1,418 1,394 1,382 1,414 1,317 1,310 5,836 5,608

Selling, general and administrative (SG&A) (2):
Property and other taxes.......................................... 99 111 100 43 88 72 96 64 90 99 353 320
Bad debt.................................................................. 57 53 27 36 44 27 37 47 43 37 173 155
Restructuring, realignment and severance............... 15 (1) 26 74 22 (2) 43 — (5) 8 114 63
Employee-related costs........................................... 407 410 401 405 401 405 407 426 394 390 1,623 1,639
Other non-employee related costs........................... 457 474 462 491 458 467 431 457 476 470 1,884 1,813
Total selling, general and administrative.................... 1,035 1,047 1,016 1,049 1,013 969 1,014 994 998 1,004 4,147 3,990
Total Segment Expenses................................................ $ 2,475 $ 2,479 $ 2,528 $ 2,501 $ 2,431 $ 2,363 $ 2,396 $ 2,408 $ 2,315 $ 2,314 $ 9,983 $ 9,598

Segment expenses as a percentage of revenue:
COS........................................................................... 42% 41% 43% 42% 41% 40% 40% 41% 38% 38% 42% 40%
SG&A........................................................................ 30% 30% 29% 30% 29% 28% 29% 28% 29% 29% 30% 29%

Capital expenditures (1)................................................. $ 313 $ 352 $ 445 $ 503 $ 390 $ 442 $ 394 $ 406 $ 318 $ 426 $ 1,613 $ 1,632
Employees..................................................................... 40,683 40,303 39,977 39,641 39,127 39,315 39,163 38,383 38,011 37,585 39,641 38,383

(1) Capital expenditures exclude assets acquired through capital leases.
(2) Certain prior period expense amounts have benn reclassified to conform to current period presentation.

SELECTED DATA—WIRELINE SERVICES SEGMENT
(UNAUDITED)
(Dollars in millions except ARPU amounts, operating statistics in thousands)
As of and Years 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 6/30/07 2005 2006

Wireline services revenue (1):
Local voice................................................................. $ 1,581 $ 1,575 $ 1,544 $ 1,526 $ 1,520 $ 1,501 $ 1,466 $ 1,425 $ 1,394 $ 1,392 $ 6,226 $ 5,912
Long-distance............................................................. 558 547 553 558 559 562 572 560 550 536 2,216 2,253
Access........................................................................ 161 182 159 162 146 133 139 132 134 139 664 550
Data, Internet and video............................................. 1,012 1,025 1,105 1,087 1,102 1,124 1,166 1,221 1,220 1,247 4,229 4,613
Total wireline services revenue...................................... 3,312 3,329 3,361 3,333 3,327 3,320 3,343 3,338 3,298 3,314 13,335 13,328
Wireline services expenses:
Facility costs.............................................................. 595 596 615 572 545 534 511 548 507 482 2,378 2,138
Network expenses...................................................... 62 58 70 68 52 61 68 67 51 64 258 248
Bad debt..................................................................... 43 40 15 24 28 15 23 32 30 28 122 98
Restructuring, realignment and severance.................. 6 4 2 22 2 1 40 2 1 4 34 45
Employee-related costs............................................... 604 584 600 581 596 577 596 591 611 600 2,369 2,360
Other non-employee related costs............................... 326 342 375 391 383 372 369 366 353 363 1,434 1,490
Total wireline services expenses.................................... 1,636 1,624 1,677 1,658 1,606 1,560 1,607 1,606 1,553 1,541 6,595 6,379
Wireline services segment income................................. $ 1,676 $ 1,705 $ 1,684 $ 1,675 $ 1,721 $ 1,760 $ 1,736 $ 1,732 $ 1,745 $ 1,773 $ 6,740 $ 6,949
Wireline services margin.............................................. 50.6 % 51.2 % 50.1 % 50.3 % 51.7 % 53.0 % 51.9 % 51.9 % 52.9 % 53.5 % 50.5 % 52.1 %

Capital expenditures—wireline services (2).................. $ 255 $ 252 $ 346 $ 394 $ 322 $ 364 $ 321 $ 307 $ 263 $ 350 $ 1,247 $ 1,314

SELECTED DATA—WIRELINE SERVICES SEGMENT (CONTINUED)
(UNAUDITED)
(Dollars in millions except ARPU amounts, operating statistics in thousands)
As of and Three Months Ended December 31,
Access lines (1): 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 6/30/07 2005 2006
Business access lines:
Retail lines.............................................................. 3,074 3,031 3,012 2,969 2,958 2,920 2,900 2,870 2,842 2,817 2,969 2,870
Resold lines............................................................. 1,848 1,808 1,756 1,710 1,667 1,624 1,564 1,495 1,433 1,385 1,710 1,495
Total business access lines......................................... 4,922 4,839 4,768 4,679 4,625 4,544 4,464 4,365 4,275 4,202 4,679 4,365
Mass markets access lines:
Consumer primary lines.......................................... 8,107 7,974 7,916 7,851 7,749 7,592 7,454 7,333 7,200 7,015 7,851 7,333
Consumer additional lines....................................... 1,024 985 948 913 876 840 803 770 740 713 913 770
Small business lines................................................ 1,286 1,289 1,301 1,296 1,296 1,307 1,316 1,327 1,336 1,342 1,296 1,327
Total mass markets access lines................................. 10,417 10,248 10,165 10,060 9,921 9,739 9,573 9,430 9,276 9,070 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 13,272 14,739 13,795
In-Region long distance lines......................................... 4,590 4,631 4,705 4,778 4,824 4,840 4,900 4,920 4,924 4,884 4,778 4,920
Minutes of use from carriers and CLECS (in millions).. 13,280 12,677 12,750 12,796 12,442 12,047 11,796 11,765 11,690 10,859 51,503 48,050

Mass markets retail connections:
Mass markets access lines.......................................... 10,417 10,248 10,165 10,060 9,921 9,739 9,573 9,430 9,276 9,070 10,060 9,430
Broadband subscribers (4).......................................... 1,122 1,190 1,340 1,480 1,678 1,798 1,973 2,138 2,305 2,405 1,480 2,138
Video subscribers (4)................................................. 100 120 149 178 219 259 350 424 506 572 178 424
Wireless subscribers................................................... 743 744 748 770 784 777 781 801 812 807 770 801
Total mass markets retail connections........................... 12,382 12,302 12,402 12,488 12,602 12,573 12,677 12,793 12,899 12,854 12,488 12,793

Consumer ARPU (3)..................................................... $ 46 $ 46 $ 47 $ 48 $ 49 $ 49 $ 50 $ 51 $ 52 $ 53 $ 46 $ 50

Broadband services:
Subscribers................................................................. 1,122 1,190 1,340 1,480 1,678 1,798 1,973 2,138 2,305 2,405 1,480 2,138
Qualified households/business (in millions)............... 7 7 7 7 7 7 7 7 7 7 7 7

(1) Certain prior period revenue and access line amounts have been reclassified to conform to the current period presentation. Resold lines include UNE lines and public payphone lines.


(3) 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. We believe this metric can be a useful measure of the revenue
performance of our consumer business within our mass markets channel on a per-customer basis. We use ARPU internally to assess the revenue performance of our consumer business within our mass markets channel and the impact on this
business of periodic customer initiatives and product roll-outs. 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.

(4) Broadband and video subscribers include certain business customers.

SELECTED DATA—WIRELESS SERVICES SEGMENT
(UNAUDITED)
(Dollars in millions except ARPU amounts, subscribers in thousands)
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 6/30/07 2005 2006

Wireless services revenue (1)........................................ $ 126 $ 132 $ 131 $ 138 $ 139 $ 142 $ 135 $ 141 $ 139 $ 139 $ 527 $ 557
Wireless services expenses:
Facility costs.............................................................. 76 79 75 75 71 74 74 75 75 76 305 294
Wireless equipment.................................................... 26 28 25 28 30 26 28 27 25 25 107 111
Bad debt..................................................................... 14 14 12 11 12 12 14 15 13 9 51 53
Employee-related costs............................................... 14 12 12 12 12 12 13 12 14 12 50 49
Other non-employee related costs............................... 29 16 20 17 17 12 17 16 12 14 82 62
Total wireless services expenses.................................... 159 149 144 143 142 136 146 145 139 136 595 569
Wireless services segment income................................. $ (33) $ (17) $ (13) $ (5) $ (3) $ 6$ (11) $ (4) $ —$ 3 $ (68) $ (12)
Wireless services margin.............................................. (26.2)% (12.9)% (9.9)% (3.6)% (2.2)% 4.2 % (8.1)% (2.8)% —% 2.2 % (12.9)% (2.2)%

Capital expenditures—wireless services (2).................. $ 1 $ 1$ —$ —$ —$ —$ —$ 1 $ 1$ — $ 2 $ 1

OPERATING STATISTICS As of and Years Ended
As of and 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 6/30/07 2005 2006

Subscribers.................................................................... 743 744 748 770 784 777 781 801 812 807 770 801
ARPU (3)...................................................................... $ 46 $ 50 $ 51 $ 51 $ 50 $ 52 $ 49 $ 50 $ 50 $ 51 $ 50 $ 50

(1) Certain prior period revenue amounts have been reclassified to conform to the current period presentation.


(3) Wireless ARPU (Average Revenue Per Unit) is measured as the recurring portion of our wireless service 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 services 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.

SELECTED DATA—OTHER SERVICES SEGMENT
(UNAUDITED)
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 6/30/07 2005 2006

Other services revenue (1)............................................. $ 11 $ 9 $ 12 $ 9 $ 10 $ 10 $ 9 $ 9 $ 9 $ 10 $ 41 $ 38
Other services expenses:
Property and other taxes............................................. 98 111 100 42 88 72 96 62 90 98 351 318
Real estate costs......................................................... 105 99 110 108 110 105 110 112 109 109 422 437
Restructuring, realignment and
severance related costs............................................ 7 (5) 25 52 20 (3) 3 (1) (6) 2 79 19
Employee-related costs............................................... 198 201 193 199 189 204 195 215 148 144 791 803
Other non-employee related costs (2)......................... 272 300 279 299 276 289 239 269 282 284 1,150 1,073
Total other services expenses......................................... 680 706 707 700 683 667 643 657 623 637 2,793 2,650
Other services segment income...................................... $ (669) $ (697) $ (695) $ (691) $ (673) $ (657) $ (634) $ (648) $ (614) $ (627) $ (2,752) $ (2,612)

Capital expenditures—other services (3)....................... $ 57 $ 99 $ 99 $ 109 $ 68 $ 78 $ 73 $ 98 $ 54 $ 76 $ 364 $ 317


(2) Certain immaterial expenses for facility costs, bad debt, and network expenses in other services segment are recorded in other non-employee related expenses.


SEGMENT REVENUE INCLUDING CUSTOMER CHANNEL WITHIN WIRELINE SERVICES
(UNAUDITED)
Years 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 6/30/07 2005 2006
Operating revenue (1):
Wireline services revenue:
Voice services:
Local voice:
Business............................................................... $ 320 $ 320 $ 321 $ 311 $ 314 $ 309 $ 305 $ 298 $ 283 $ 289 $ 1,272 $ 1,226
Mass markets....................................................... 1,063 1,060 1,039 1,035 1,029 1,017 992 966 952 947 4,197 4,004
Wholesale............................................................. 198 195 184 180 177 175 169 161 159 156 757 682
Total local voice...................................................... 1,581 1,575 1,544 1,526 1,520 1,501 1,466 1,425 1,394 1,392 6,226 5,912
Long-distance:
Business............................................................... 146 145 139 138 144 139 138 133 137 133 568 554
Mass markets....................................................... 135 133 142 152 155 161 162 162 163 166 562 640
Wholesale............................................................. 277 269 272 268 260 262 272 265 250 237 1,086 1,059
Total long-distance.................................................. 558 547 553 558 559 562 572 560 550 536 2,216 2,253
Access services........................................................ 161 182 159 162 146 133 139 132 134 139 664 550
Total voice services.................................................... 2,300 2,304 2,256 2,246 2,225 2,196 2,177 2,117 2,078 2,067 9,106 8,715
Data, Internet and video:
Business.................................................................. 539 561 621 584 583 581 581 593 579 586 2,305 2,338
Mass markets.......................................................... 144 147 161 174 191 206 225 253 278 291 626 875
Wholesale................................................................ 329 317 323 329 328 337 360 375 363 370 1,298 1,400
Total data, Internet and video..................................... 1,012 1,025 1,105 1,087 1,102 1,124 1,166 1,221 1,220 1,247 4,229 4,613
Wireless services revenue.............................................. 126 132 131 138 139 142 135 141 139 139 527 557
Other services revenue................................................... 11 9 12 9 10 10 9 9 9 10 41 38
Total operating revenue.................................................. $ 3,449 $ 3,470 $ 3,504 $ 3,480 $ 3,476 $ 3,472 $ 3,487 $ 3,488 $ 3,446 $ 3,463 $ 13,903 $ 13,923

Operating revenue (1):
Wireline services revenue:
Business...................................................................... $ 1,006 $ 1,027 $ 1,082 $ 1,034 $ 1,041 $ 1,029 $ 1,024 $ 1,024 $ 999 $ 1,008 $ 4,149 $ 4,118
Mass markets.............................................................. 1,344 1,342 1,344 1,363 1,376 1,385 1,380 1,382 1,394 1,405 5,393 5,523
Wholesale................................................................... 962 960 935 936 910 906 939 932 905 901 3,793 3,687
Wireless services revenue.............................................. 126 132 131 138 139 142 135 141 139 139 527 557
Other services revenue................................................... 11 9 12 9 10 10 9 9 9 10 41 38
Total operating revenue.................................................. $ 3,449 $ 3,470 $ 3,504 $ 3,480 $ 3,476 $ 3,472 $ 3,487 $ 3,488 $ 3,446 $ 3,463 $ 13,903 $ 13,923


SELECTED FINANCIAL DATA—SPECIAL ITEMS
(UNAUDITED)
Years 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 6/30/07 2005 2006
Special items (1):
Operating expenses:
Legal reserve (SG&A)................................................ $ —$ —$ —$ —$ —$ —$ —$ —$ (40) $ — $ —$ —
Restructuring, realignment and severance (SG&A).... (15) 1 (26) (74) (22) — (43) — — — (114) (65)
Subtotal operating expenses........................................... (15) 1 (26) (74) (22) — (43) — (40) — (114) (65)
Other (expense) income—net:
(Loss) gain on debt extinguishment............................ — (43) 11 (430) — — — — — — (462) —
Gain on sale of assets................................................. 257 — — 6 — — — 64 — — 263 64
Tax sharing settlement (Other—net).......................... — — — — — — 53 — — — — 53
Subtotal other (expense) income—net........................... 257 (43) 11 (424) — — 53 64 — — (199) 117
Income tax sharing settlement....................................... — — — — — — 39 — — — — 39
accounting principles—net of taxes............................ — — — (22) — — — — — — (22) —
Total special items—(charges) benefits......................... $ 242 $ (42) $ (15) $ (520) $ (22) $ —$ 49 $ 64 $ (40) $ — $ (335) $ 91

(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.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES—EBITDA
(UNAUDITED)
(Dollars in millions) Years 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 6/30/07 2005 2006
EBITDA (1):.................................................................... $ 974 $ 991 $ 976 $ 979 $ 1,045 $ 1,109 $ 1,091 $ 1,080 $ 1,131 $ 1,149 $ 3,920 $ 4,325
Depreciation and amortization..................................... (774) (765) (768) (758) (691) (693) (691) (695) (612) (615) (3,065) (2,770)
Total other expense (income)—net.............................. (139) (393) (353) (730) (268) (281) (249) (200) (277) (288) (1,615) (998)
Income tax benefit (expense)........................................ (4) 3 1 3 2 (18) 43 9 (2) — 3 36
accounting principles—net of taxes.......................... — — — (22) — — — — — — (22) —
Net income (loss)......................................................... $ 57 $ (164) $ (144) $ (528) $ 88 $ 117 $ 194 $ 194 $ 240 $ 246 $ (779) $ 593

EBITDA margin (1):
EBITDA....................................................................... $ 974 $ 991 $ 976 $ 979 $ 1,045 $ 1,109 $ 1,091 $ 1,080 $ 1,131 $ 1,149 $ 3,920 $ 4,325
Divided by total operating revenue............................... $ 3,449 $ 3,470 $ 3,504 $ 3,480 $ 3,476 $ 3,472 $ 3,487 $ 3,488 $ 3,446 $ 3,463 $ 13,903 $ 13,923
28.2 % 28.6 % 27.9 % 28.1 % 30.1 % 31.9 % 31.3 % 31.0 % 32.8 % 33.2 % 28.2 % 31.1 %
EBITDA margin...........................................................

(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 capi
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.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES—NET DEBT
(UNAUDITED)

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 6/30/07

Net Debt (1):
Current borrowings..................................................... $ 601 $ 261 $ 527 $ 512 $ 604 $ 2,683 $ 1,685 $ 1,686 $ 1,688 $ 1,304
Long-term borrowings—net........................................ 16,691 17,287 16,702 14,968 14,834 12,693 13,228 13,206 13,199 13,207
Total borrowings—net................................................ 17,292 17,548 17,229 15,480 15,438 15,376 14,913 14,892 14,887 14,511
Less: cash and cash equivalents ................................. (1,406) (2,245) (2,311) (846) (610) (1,189) (962) (1,241) (887) (869)
Less: short-term investments....................................... (966) (634) (580) (101) (130) (205) (218) (248) (242) (240)
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 $ 13,402

(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 quot;current borrowings,quot; quot;long-term borrowingsquot; or any other measure determined in accordance with GAAP.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES—FREE CASH FLOW FROM OPERATIONS
(UNAUDITED)
Years 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 6/30/07 2005 2006

Free cash flow from operations (1):
Cash provided by operating activities.......................... $ 343 $ 570 $ 675 $ 725 $ 140 $ 1,037 $ 752 $ 860 $ 268 $ 1,105 $ 2,313 $ 2,789
Less: Expenditures for property, plant
and equipment and capitalized software................... (313) (352) (445) (503) (390) (442) (394) (406) (318) (426) (1,613) (1,632)
Free cash flow from operations.................................... 30 218 230 222 (250) 595 358 454 (50) 679 700 1,157
Add: certain one-time settlements................................ — — — 204 100 — — 140 200 — 204 240
Adjusted free cash flow from operations...................... $ 30 $ 218 $ 230 $ 426 $ (150) $ 595 $ 358 $ 594 $ 150 $ 679 $ 904 $ 1,397

(1) Free cash flow and adjusted free cash flow from operations are non-Gaap financial measures that indicates cash generated by our business after operating expenses, capital expenditures and interest expense. We believe these measures provide
useful information to our investors for purposes of evaluating our ability to satisfy our debt and other mandatory payment obligations and because they reflect 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 and adjusted free cash flow from operations internally for a variety of purposes, including setting targets for
compensation and budgeting our cash needs. These measures are not determined in accordance with GAAP and should not be considered as a substitute for quot;operating incomequot; or quot;net cash provided by operating activitiesquot; or any other measure
determined in accordance with GAAP. Due to the forward-looking nature of expected free cash flow amounts for 2007, information to reconcile this non-GAAP financial measure is not available at this time.

WIRELESS SERVICES ARPU RECONCILIATION
(UNAUDITED)
(Dollars in millions, subscribers in in thousands, and ARPU amounts in dollars)
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 6/30/07 2005 2006
ARPU is calculated as follows (1):
Total quarterly wireless services revenue..................... $ 126 $ 132 $ 131 $ 138 $ 139 $ 142 $ 135 $ 141 $ 139 $ 139 $ 535 $ 557
Less: quarterly non-recurring revenue.......................... (23) (21) (17) (22) (22) (20) (20) (22) (19) (17) (91) (84)
Quarterly recurring revenue......................................... $ 103 $ 111 $ 114 $ 116 $ 117 $ 122 $ 115 $ 119 $ 120 $ 122 $ 444 $ 473

Average monthly recurring revenue................................. $ 34 $ 37 $ 38 $ 39 $ 39 $ 41 $ 38 $ 40 $ 40 $ 41 $ 37 $ 39
Divided by quarterly average wireless subscribers.......... 745 743 745 759 778 782 775 790 805 809 748 781
Wireless services ARPU.................................................. $ 46 $ 50 $ 51 $ 51 $ 50 $ 52 $ 49 $ 50 $ 50 $ 51 $ 50 $ 50

(1) Wireless ARPU (Average Revenue Per Unit) is measured as the recurring portion of our wireless service 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 services 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.

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