The Association of U S West Retirees



Qwest fought back to recapture top spot
By David Milstead
Rocky Mountain News
Saturday, May 5, 2007

When Qwest closed the books on 2006, it had a positive number on its bottom line:  $593 million in net income, unadulterated by special gains or other one-time items.  That profit, its first true positive operating income in its history as the combined Qwest-U S West, propelled it to the top of The Colorado 50 in 2007.

It's the second time Qwest has ranked No. 1.  It also topped the list in 2003, aided by a $2.6 billion gain on the sale of its Dex directory business.

This championship, however, is all about the road back from the troubles of the combo of U S West's traditional land-line phone business and the nationwide fiber-optic network built by the original Qwest.

"On this journey, a critical milestone is the return to profitability," CEO Dick Notebaert told the Rocky Mountain News on Thursday.  "From an employee, a customer point of view, it means a great deal when the company is profitable, and if you sustain the profit over time."

The Rocky created the Colorado 50 to recognize the biggest and best Colorado companies.  The rankings took into account revenue, market capitalization, number of employees, net income and one-year growth in earnings per share for 2006.

This year, 106 companies made the cut for consideration, down from 109 last year.  To be eligible, a company had to be listed on a major stock exchange and have a market capitalization of at least $10 million at year-end 2006.

While Qwest provides a familiar name in the No. 1 position, much has changed near the top of this year's list:

  Five of last year's top 20, including four of the top 11, have disappeared from the list.  No. 4 Dex Media and No. 8 Western Gas Resources were acquired by other companies.  No. 11 Sports Authority and No. 16 TransMontaigne went private.  And No. 10 Titanium Metals moved its headquarters to Dallas.

  Liberty Media, which placed at the top of the Colorado 50 in 2005, recapitalized and created two new stocks, Liberty Media Interactive and Liberty Media Capital.  They rank No. 5 and No. 6 in this year's Colorado 50.

  First Data, a perpetual contender for the top spot, fell from No. 2 to No. 8 after it shrank by spinning off Western Union -- which ranks No. 11 this year.

  Dramatic increases in profitability helped Liberty Global, Molson Coors, and Apartment Investment & Management leap into the top 10.

Departures from the Colorado 50 via acquisition are not uncommon.  Three other companies from the 2006 list -- Intrado, Navigant International and Cenveo -- were acquired.  And a perennial contender for the top spot, First Data, will head off the list next year as it goes private in a leveraged buyout.

Each year, we sound a similar note:  As merger-and-acquisition activity heats up, Colorado companies are more likely to be sellers than buyers.

Why?  Here are some theories advanced over the past five years:

  Colorado is young compared with states on the East Coast and in the Midwest, and its business community is similarly immature.

  Local banks never got very big, leaving cities such as San Francisco, Minneapolis and Charlotte, N.C., to become money centers that helped local businesses finance their transactions.

  Colorado has an entrepreneurial culture that skews toward those who prefer to cash out their ventures and start over rather than build a long-term enterprise.

"Colorado has always been a boom-or-bust kind of state," said Taylor Kirkpatrick of local investment bank W.G. Nielsen & Co.  "From mining and natural resources to the tech bubble, you see a cyclical economy that's created a frothy market.  You'll see more M&A activity in that type of market."

Two of Colorado's hottest debut stocks of 2006 -- Crocs and Chipotle -- can be found in the upper half of the Colorado 50.  Why not higher?  The Colorado 50 doesn't factor in stock gains.

  Crocs ranks 19th, buoyed by a 215.7 percent gain in earnings per share, 11th-best among Colorado companies.  (Its $354.7 million in revenue ranks just 42nd, dragging it down.)

  Chipotle comes in at No. 24.  It's a top 25 company in revenue and market cap, and in the top 10 with 15,000 employees.  But it ranks 32nd in net income, and a 10.5 percent decline in earnings per share ranks it 72nd.

Qwest's championship comes from consistent high rankings.

It's been the revenue king every year of The Colorado 50 even though its revenue has fallen from $15.5 billion in 2003, before it sold the Dex division, to $13.9 billion today.

It's ranked No. 1 or No. 2 in employment every year.  And even with the historic lows of Qwest stock in 2002 and 2003, it's been among Colorado's most valuable companies.

What's different now is that $593 million profit, as opposed to the $779 million net loss in 2005.  It didn't come from more revenue, since the $20 million increase at the top line worked out to a mere 0.1 percent gain.

Instead, it was an across-the- board cost reduction, with nearly every expense line item in the income statement showing a year-over-year decline.

All these things, and more, added up to a swing of nearly $1.4 billion on the bottom line.

"It's both operational and balance sheet," Notebaert said.  "And while total revenue is flat, the (product) mix is better."

Fred Dickson, the chief market strategist of Great Falls, Mont.-based D.A. Davison, has Qwest in its Davidson 99 Regional Index.

"They've come a long way to get their financial house in order and achieved a profitability that's admirable.  It definitely has come back into the world of respectability."

David Milstead is finance editor of the Rocky Mountain News. He can be reached at or 303-954-2648.,2777,DRMN_23908_5522166,00.html