Telco files its proxy statement
Qwest faces $57M payment if it loses Anschutz tax case
By Jeff Smith, Rocky Mountain News

Thursday, April 7, 2005

Qwest Communications paid $667,861 in legal fees last year related to a pending U.S. Tax Court case against the Anschutz Co. and could be on the hook for more than $57 million in additional costs, according to the Denver telco's proxy statement filed Wednesday.

The proxy also disclosed that Chief Executive Dick Notebaert made $4.64 million in compensation in 2004, down from $4.9 million the year before.  The compensation included a $2.97 million bonus based on "100 percent" corporate performance.

In addition, longtime Qwest director and Anschutz Co. executive Craig Slater has decided against running for re-election.  Slater had been a Qwest director since February 1997.  His resignation will reduce Qwest's board from 11 to 10 directors, including two Anschutz officials.

Qwest's proxy was filed with federal regulators and will be sent to shareholders in advance of the company's May 24 annual meeting in Denver.

The Anschutz Co. spokesman didn't respond to a phone call Wednesday, and Qwest referred questions to the proxy statement.

Three stockholder proposals are on the ballot this year, all of which are opposed by Qwest.

The proposals include efforts to strengthen board committee independence, give shareholders oversight over supplemental executive retirement packages and recover excessive executive compensation in cases of future financial restatements.

In the proxy, Qwest argues it already has implemented a policy addressing future financial restatements, that it has adopted New York Stock Exchange standards on director independence and that shareholder approval of supplemental executive retirement packages would put the company at a "significant" competitive disadvantage.

The Anschutz tax case stems from Qwest's expenses when building its fiber-optic network.  Qwest was a subsidiary of Anschutz Co. at the time, and the two entities had tax-sharing agreements.

The Internal Revenue Service claims Qwest inappropriately reduced the Anschutz Co. tax bill by $14.8 million from 1994 to 1996.  Similar claims have been made with respect to the 1997 and 1998 tax years, Qwest said.

Qwest said in its proxy that it has assumed responsibility for defending the actions "because the matters at issue relate solely to our operations and the outcome of the litigation could affect our tax liability with respect to subsequent tax years."

The company estimated it would have to pay $57 million plus interest to Anschutz Co. should it lose the case for the tax years between 1994-98.

Running for re-election to Qwest's board this year are Notebaert, Linda Alvarado and Anschutz official Cannon Harvey.

Since 2003, Qwest retirees have been pushing for a reduction in the number of Anschutz executives on Qwest's board, citing the company's lack of independence. Anschutz officials have consistently maintained that the directors, who include Qwest founder Phil Anschutz, have acted independently.