Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2017 | Aug. 07, 2017 | |
Document and Entity Information | ||
Entity Registrant Name | QWEST CORP | |
Entity Central Index Key | 68,622 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Current Reporting Status | Yes | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2017 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 1 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
OPERATING REVENUES | ||||
Operating revenues | $ 1,464 | $ 1,573 | $ 2,950 | $ 3,172 |
Operating revenues - affiliates | 669 | 650 | 1,345 | 1,304 |
Total operating revenues | 2,133 | 2,223 | 4,295 | 4,476 |
OPERATING EXPENSES | ||||
Cost of services and products (exclusive of depreciation and amortization) | 723 | 731 | 1,443 | 1,439 |
Selling, general and administrative | 235 | 235 | 479 | 485 |
Operating expenses - affiliates | 209 | 231 | 436 | 482 |
Depreciation and amortization | 393 | 424 | 784 | 843 |
Total operating expenses | 1,560 | 1,621 | 3,142 | 3,249 |
OPERATING INCOME | 573 | 602 | 1,153 | 1,227 |
OTHER (EXPENSE) INCOME | ||||
Interest expense | (117) | (120) | (231) | (241) |
Interest expense - affiliates, net | (16) | (15) | (31) | (29) |
Other (expense) income, net | (2) | 0 | (1) | 2 |
Total other expense, net | (135) | (135) | (263) | (268) |
INCOME BEFORE INCOME TAX EXPENSE | 438 | 467 | 890 | 959 |
Income tax expense | 170 | 179 | 344 | 367 |
NET INCOME | $ 268 | $ 288 | $ 546 | $ 592 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Statement of Comprehensive Income [Abstract] | ||||
NET INCOME | $ 268 | $ 288 | $ 546 | $ 592 |
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent [Abstract] | ||||
Foreign currency translation adjustment, net of $—, $—, $— and $— tax | 0 | 3 | 0 | 0 |
Other comprehensive income | 0 | 3 | 0 | 0 |
COMPREHENSIVE INCOME | $ 268 | $ 291 | $ 546 | $ 592 |
CONSOLIDATED STATEMENTS OF COM4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Statement of Comprehensive Income [Abstract] | ||||
Foreign currency translation adjustment, tax | $ 0 | $ 0 | $ 0 | $ 0 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions | Jun. 30, 2017 | Dec. 31, 2016 |
CURRENT ASSETS | ||
Cash and cash equivalents | $ 6 | $ 5 |
Accounts receivable, less allowance of $50 and $53 | 620 | 700 |
Advances to affiliates | 844 | 872 |
Other | 127 | 129 |
Total current assets | 1,597 | 1,706 |
NET PROPERTY, PLANT AND EQUIPMENT | ||
Property, plant and equipment | 13,823 | 13,247 |
Accumulated depreciation | (6,017) | (5,602) |
Net property, plant and equipment | 7,806 | 7,645 |
GOODWILL AND OTHER ASSETS | ||
Goodwill | 9,360 | 9,354 |
Other intangible assets, less accumulated amortization of $1,569 and $1,510 | 431 | 471 |
Other, net | 85 | 96 |
Total goodwill and other assets | 11,490 | 11,798 |
TOTAL ASSETS | 20,893 | 21,149 |
CURRENT LIABILITIES | ||
Current maturities of long-term debt | 17 | 514 |
Accounts payable | 358 | 398 |
Note payable - affiliate | 944 | 914 |
Accrued expenses and other liabilities | ||
Salaries and benefits | 201 | 273 |
Income and other taxes | 150 | 175 |
Other | 138 | 122 |
Current affiliate obligations, net | 84 | 87 |
Advance billings and customer deposits | 279 | 313 |
Total current liabilities | 2,171 | 2,796 |
LONG-TERM DEBT | 7,266 | 6,747 |
DEFERRED CREDITS AND OTHER LIABILITIES | ||
Deferred revenues | 125 | 131 |
Deferred income taxes, net | 1,711 | 1,773 |
Affiliate obligations, net | 903 | 944 |
Other | 91 | 66 |
Total deferred credits and other liabilities | 2,830 | 2,914 |
COMMITMENTS AND CONTINGENCIES (Note 6) | ||
STOCKHOLDER'S EQUITY | ||
Common stock - one share without par value, owned by Qwest Services Corporation | 10,050 | 10,050 |
Accumulated deficit | (1,424) | (1,358) |
Total stockholder's equity | 8,626 | 8,692 |
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | 20,893 | 21,149 |
Customer relationships | ||
Customer relationships, less accumulated amortization of $4,085 and $3,822 | $ 1,614 | $ 1,877 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Millions | Jun. 30, 2017 | Dec. 31, 2016 |
Accounts receivable, allowance | $ 50 | $ 53 |
Other intangible assets, accumulated amortization | $ 1,569 | $ 1,510 |
Common stock, share issued (in shares) | 1 | 1 |
Common stock, share outstanding (in shares) | 1 | 1 |
Common stock, value outstanding | $ 10,050 | $ 10,050 |
Customer relationships | ||
Customer relationships, accumulated amortization | $ 4,085 | $ 3,822 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
OPERATING ACTIVITIES | ||
Net income | $ 546 | $ 592 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 784 | 843 |
Deferred income taxes | (63) | (35) |
Provision for uncollectible accounts | 37 | 40 |
Accrued interest on affiliate note | 30 | 29 |
Changes in current assets and liabilities: | ||
Accounts receivable | 43 | (40) |
Accounts payable | (20) | (20) |
Accrued income and other taxes | (25) | (24) |
Other current assets and liabilities, net | (82) | (40) |
Changes in other noncurrent assets and liabilities, net | 15 | (11) |
Changes in affiliate obligations, net | (44) | (51) |
Other, net | (3) | 1 |
Net cash provided by operating activities | 1,218 | 1,284 |
INVESTING ACTIVITIES | ||
Payments for property, plant and equipment and capitalized software | (694) | (546) |
Changes in advances to affiliates | 28 | (23) |
Proceeds from sale of property | 43 | 0 |
Other | (5) | 0 |
Net cash used in investing activities | (628) | (569) |
FINANCING ACTIVITIES | ||
Net proceeds from issuance of long-term debt | 638 | 227 |
Payments of long-term debt | (627) | (241) |
Dividends paid to Qwest Services Corporation | (600) | (700) |
Net cash used in financing activities | (589) | (714) |
Net increase in cash and cash equivalents | 1 | 1 |
Cash and cash equivalents at beginning of period | 5 | 3 |
Cash and cash equivalents at end of period | 6 | 4 |
Supplemental cash flow information: | ||
Income taxes paid, net | (407) | (401) |
Interest paid (net of capitalized interest of $16 and $8) | $ (229) | $ (249) |
CONSOLIDATED STATEMENTS OF CAS8
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2016 | |
Statement of Cash Flows [Abstract] | ||
Interest paid, capitalized interest | $ 16 | $ 8 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY - USD ($) $ in Millions | Total | COMMON STOCK | ACCUMULATED DEFICIT |
Balance at beginning of period at Dec. 31, 2015 | $ 10,050 | $ (1,143) | |
Increase (Decrease) in Stockholder's Equity | |||
Net income | $ 592 | 592 | |
Dividends declared to Qwest Services Corporation | (700) | ||
Dividend of equity interest in limited liability company to Qwest Services Corporation | 0 | ||
Balance at end of period at Jun. 30, 2016 | 8,799 | 10,050 | (1,251) |
Balance at beginning of period at Dec. 31, 2016 | 8,692 | 10,050 | (1,358) |
Increase (Decrease) in Stockholder's Equity | |||
Net income | 546 | 546 | |
Dividends declared to Qwest Services Corporation | (600) | (600) | |
Dividend of equity interest in limited liability company to Qwest Services Corporation | (12) | ||
Balance at end of period at Jun. 30, 2017 | $ 8,626 | $ 10,050 | $ (1,424) |
Basis of Presentation
Basis of Presentation | 6 Months Ended |
Jun. 30, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | Background General We are an integrated communications company engaged primarily in providing an array of communications services to our residential and business customers. Our communications services include local voice, broadband, private line (including special access), network access, Ethernet, information technology, video and other ancillary services. In certain local and regional markets, we also provide local access and fiber transport services to competitive local exchange carriers. We generate the majority of our total consolidated operating revenues from services provided in the 14 -state region of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming . We refer to this region as our local service area. Basis of Presentation Our consolidated balance sheet as of December 31, 2016 , which was derived from our audited consolidated financial statements, and our unaudited interim consolidated financial statements provided herein have been prepared in accordance with the instructions for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission ("SEC"); however, in our opinion, the disclosures made are adequate to make the information presented not misleading. We believe that these consolidated financial statements include all normal recurring adjustments necessary to fairly present the results for the interim periods. The consolidated results of operations for the first six months of the year are not necessarily indicative of the consolidated results of operations that might be expected for the entire year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our annual report on Form 10-K for the year ended December 31, 2016 . The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries. Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated. Transactions with our non-consolidated affiliates (referred to herein as affiliates) have not been eliminated. Recent Accounting Pronouncements Goodwill Impairment On January 26, 2017, The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") ASU 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the impairment testing for goodwill by changing the measurement for goodwill impairment. Under current rules, we are required to compute the implied fair value of goodwill to measure the impairment amount if the carrying value of a reporting unit exceeds its fair value. Under ASU 2017-04, the goodwill impairment charge will equal the excess of the reporting unit carrying value above fair value, limited to the amount of goodwill assigned to the reporting unit. We are required to adopt the provisions of ASU 2017-04 for any goodwill impairment tests, including our required annual test, occurring after January 1, 2020, but have the option to early adopt for any impairment test that we are required to perform. We have not determined if we will elect to early adopt the provisions of ASU 2017-04. The provisions of ASU 2017-04 would not have affected our last goodwill impairment assessment, but no assurance can be provided that the simplified testing methodology will not affect our goodwill impairment assessment in the future. Income Taxes On October 24, 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory” ("ASU 2016-16"). ASU 2016-16 eliminates the current prohibition on the recognition of the income tax effects on the transfer of assets among our subsidiaries. After adoption of this ASU, the income tax effects associated with these asset transfers, except for the transfer of inventory, will be recognized in the period the asset is transferred versus the current deferral and recognition upon either the sale of the asset to a third party or over the remaining useful life of the asset. We are currently reviewing the requirements of this ASU and evaluating the impact on our consolidated financial statements. We expect to adopt the provisions of ASU 2016-16 on the required adoption date of January 1, 2018. The impact of adopting ASU 2016-16, if any, will be recognized through a cumulative adjustment to (accumulated deficit) retained earnings as of the date of adoption. Financial Instruments On June 16, 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). The primary impact of ASU 2016-13 for us is a change in the model for the recognition of credit losses related to our financial instruments from an incurred loss model, which recognized credit losses only if it was probable that a loss had been incurred, to an expected loss model, which requires our management team to estimate the total credit losses expected on the portfolio of financial instruments. We are currently reviewing the requirements of the standard and evaluating the impact on our consolidated financial statements. We are required to adopt the provisions of ASU 2016-13 effective January 1, 2020, but could elect to early adopt the provisions as of January 1, 2019. We expect to recognize the impacts of adopting ASU 2016-13 through a cumulative adjustment to (accumulated deficit) retained earnings as of the date of adoption. As of the date of this report, we have not yet determined the date we will adopt ASU 2016-13. Leases On February 25, 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”). The core principle of ASU 2016-02 will require lessees to present right-of-use assets and lease liabilities on their balance sheets for operating leases, which are currently not reflected on their balance sheets. ASU 2016-02 is effective for annual and interim periods beginning January 1, 2019. Early adoption of ASU 2016-02 is permitted. Upon adoption of ASU 2016-02, we are required to recognize and measure leases at the beginning of the earliest period presented in our consolidated financial statements using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that we may elect to apply. We will implement this new standard on its effective date, but we have not yet decided which practical expedient options we will elect. We are currently evaluating new lease administrative and accounting systems and are in the process of developing an implementation plan. We are also currently evaluating and assessing the impact ASU 2016-02 will have on us and our consolidated financial statements. As of the date of this report, we believe it is premature to provide any estimate of the impact of adopting ASU 2016-02. Revenue Recognition On May 28, 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 replaces virtually all existing GAAP on revenue recognition and replaces them with a principles-based approach for determining revenue recognition using a new five step model. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also includes new accounting principles related to the deferral and amortization of contract acquisition and fulfillment costs. We currently do not defer any contract acquisition costs, but we expect we will defer certain contract acquisition costs in the future, which could have the impact of lowering our operating expenses. We currently defer contract fulfillment costs only to the extent of any deferred revenue. Under ASU 2014-09, in certain transactions our deferred contract fulfillment costs could exceed our deferred revenues, which could result in an increase in deferred costs and could also impact the timing on our recognition of these deferred costs. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year until January 1, 2018, which is the date we plan to adopt this standard. ASU 2014-09 may be adopted by applying the provisions of this standard on a retrospective basis to the periods included in the financial statements or on a modified retrospective basis, which would result in the recognition of a cumulative effect of adopting ASU 2014-09 in the first quarter of 2018. We have completed our initial assessment of our business and systems requirements, and we are currently developing and implementing a new revenue recognition system to comply with the requirements of ASU 2014-09. Based on this initial assessment, we currently plan to adopt the new revenue recognition standard under the modified retrospective transition method. As of the date of this report, we are not able to provide reasonably accurate estimates of the impact of implementing ASU 2014-09 on the timing of our revenue recognition or the transition adjustment that will be recorded to equity on January 1, 2018. |
Long-Term Debt and Revolving Pr
Long-Term Debt and Revolving Promissory Note | 6 Months Ended |
Jun. 30, 2017 | |
Debt Disclosure [Abstract] | |
Long-Term Debt and Revolving Promissory Note | Long-Term Debt and Revolving Promissory Note Long-term debt, including unamortized discounts and premiums, unamortized debt issuance costs and note payable - affiliate, were as follows: Interest Rates Maturities As of As of (Dollars in millions) Senior notes 6.125% - 7.750% 2021 - 2057 $ 7,294 7,259 Term loan 2.980% 2025 100 100 Capital lease and other obligations Various Various 40 32 Unamortized premiums, net — 4 Unamortized debt issuance costs (151 ) (134 ) Total long-term debt 7,283 7,261 Less current maturities (17 ) (514 ) Long-term debt, excluding current maturities $ 7,266 6,747 Note payable - affiliate 6.710% 2022 $ 944 914 New Issuance On April 27, 2017 , Qwest Corporation issued $575 million aggregate principal amount of 6.75% Notes due 2057, and on May 5, 2017, issued an additional $85 million aggregate principal amount of such notes pursuant to an over-allotment option in exchange for aggregate net proceeds, after deducting underwriting discounts and other expenses, of $638 million . All of the 6.75% Notes are senior unsecured obligations and may be redeemed by Qwest Corporation, in whole or in part, on or after June 15, 2022, at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date. Repayments On May 9, 2017 , Qwest Corporation redeemed $125 million aggregate principal amount of the remaining $288 million of its 7.5% Notes due 2051, which resulted in an immaterial loss. On May 4, 2017 , Qwest Corporation redeemed all $500 million of its 6.5% Notes due 2017, which resulted in an immaterial loss . Revolving Promissory Note We are currently indebted to an affiliate of our ultimate parent company, CenturyLink, Inc., under a revolving promissory note that provides us with a funding commitment of up to $1.0 billion aggregate principal amount through June 30, 2022, of which $944 million was outstanding as of June 30, 2017 . As of June 30, 2017 , the weighted-average interest rate was 6.710% . As of June 30, 2017 and December 31, 2016 , this revolving promissory note is reflected on our consolidated balance sheets as a current liability under note payable - affiliate. As of June 30, 2017 , $5 million of accrued interest is reflected in other current liabilities on our consolidated balance sheet. In accordance with the terms of the note, all accrued interest and unpaid interest is capitalized to the unpaid principal balance on June 1 and December 1 of each year. Covenants Our senior notes were issued under indentures dated April 15, 1990 and October 15, 1999. These indentures do not contain any financial covenants, but do include restrictions that limit our ability to (i) incur, issue or create liens upon our property and (ii) consolidate with or merge into, transfer or lease all or substantially all of our assets to any other party. These indentures do not contain any cross-default provisions. As of June 30, 2017 , we believe we were in compliance with the provisions and covenants of our debt agreements. |
Fair Value Disclosure
Fair Value Disclosure | 6 Months Ended |
Jun. 30, 2017 | |
Fair Value Disclosures [Abstract] | |
Fair Value Disclosure | Fair Value Disclosure Our financial instruments consist of cash and cash equivalents, accounts receivable, advances to affiliates, accounts payable, note payable - affiliate and long-term debt, excluding capital lease and other obligations. Due to their short-term nature, the carrying amounts of our cash and cash equivalents, accounts receivable, advances to affiliates, accounts payable, and note payable - affiliate approximate their fair values. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent and knowledgeable parties who are willing and able to transact for an asset or liability at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the inputs used following the fair value hierarchy set forth by the FASB. We determined the fair values of our long-term debt, including the current portion, based on quoted market prices where available or, if not available, based on discounted future cash flows using current market interest rates. The three input levels in the hierarchy of fair value measurements are defined by the FASB generally as follows: Input Level Description of Input Level 1 Observable inputs such as quoted market prices in active markets. Level 2 Inputs other than quoted prices in active markets that are either directly or indirectly observable. Level 3 Unobservable inputs in which little or no market data exists. The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding capital lease and other obligations, as well as the input level used to determine the fair values indicated below: As of June 30, 2017 As of December 31, 2016 Input Level Carrying Amount Fair Value Carrying Amount Fair Value (Dollars in millions) Liabilities—Long-term debt, excluding capital lease and other obligations 2 $ 7,243 7,602 7,229 7,203 |
Severance
Severance | 6 Months Ended |
Jun. 30, 2017 | |
Restructuring and Related Activities [Abstract] | |
Severance | Severance Periodically, we reduce our workforce and accrue liabilities for the related severance costs. These workforce reductions result primarily from the progression or completion of our post-acquisition integration plans related to CenturyLink's indirect acquisition of us, increased competitive pressures, cost reduction initiatives, process improvements through automation and reduced workload demands due to the loss of customers purchasing certain services. We report severance liabilities within accrued expenses and other liabilities-salaries and benefits in our consolidated balance sheets and report severance expenses in cost of services and products and selling, general and administrative expenses in our consolidated statements of operations. Changes in our accrued liability for severance expenses were as follows: Severance (Dollars in millions) Balance at December 31, 2016 $ 52 Accrued to expense 3 Payments, net (50 ) Balance at June 30, 2017 $ 5 |
Products and Services Revenues
Products and Services Revenues | 6 Months Ended |
Jun. 30, 2017 | |
Segment Reporting [Abstract] | |
Products and Services Revenues | Products and Services Revenues We are an integrated communications company engaged primarily in providing an array of communications services, including local voice, broadband, private line (including special access), network access, Ethernet, information technology, video and other ancillary services. We strive to maintain our customer relationships by, among other things, bundling our service offerings to provide our customers with a complete offering of integrated communications services. We categorize our products, services and revenues among the following three categories: • Strategic services , which include primarily broadband, Ethernet, video and other ancillary services; • Legacy services , which include primarily local voice, private line (including special access), Integrated Services Digital Network ("ISDN") (which uses regular telephone lines to support voice, video and data applications), switched access and other ancillary services; and • Affiliates and other services , which consist primarily of Connect America Fund ("CAF") support payments, Universal Service Fund ("USF") support payments, USF surcharges and services we provide to our affiliates. We receive federal support payments from both Phase 1 and Phase 2 of the CAF program, and support payments from both federal and state USF programs. These support payments are government subsidies designed to reimburse us for various costs related to certain telecommunications services, including the costs of deploying, maintaining and operating voice and broadband infrastructure in high-cost rural areas where we are not able to fully recover our costs from our customers. We also collect USF surcharges based on specific items we list on our customers' invoices to fund the FCC's universal service programs. We provide to our affiliates, telecommunication services that we also provide to external customers. In addition, we provide to our affiliates, computer system development and support services, network support and technical services. From time to time, we may change the categorization of our products and services. Our operating revenues for our products and services consisted of the following categories: Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 (Dollars in millions) Strategic services $ 668 676 1,332 1,348 Legacy services 718 812 1,461 1,655 Affiliates and other services 747 735 1,502 1,473 Total operating revenues $ 2,133 2,223 4,295 4,476 We do not have any single external customer that provides more than 10% of our total consolidated operating revenues. Substantially all of our consolidated revenues come from customers located in the United States. We recognize revenues in our consolidated statements of operations for certain USF surcharges and transaction taxes that we bill to our customers. Our consolidated statements of operations also reflect the offsetting expense for the amounts we remit to the government agencies. The total amount of such surcharges and transaction taxes that we included in revenues aggregated $34 million and $38 million for the three months ended June 30, 2017 and 2016 , respectively, and $67 million and $76 million for the six months ended June 30, 2017 and 2016 , respectively. These USF surcharges, where we record revenue, are included in "affiliates and other services" revenues and these transaction taxes are included in "legacy services" revenues. We also act as a collection agent for certain other USF and transaction taxes that we are required by government agencies to bill our customers, for which we do not record any revenue or expense because we only act as a pass-through agent. Our operations are integrated into and reported as part of the consolidated segment data of CenturyLink. CenturyLink's chief operating decision maker ("CODM") is our CODM, but reviews our financial information on an aggregate basis only in connection with our quarterly and annual reports that we file with the Securities and Exchange Commission. Consequently, we do not provide our discrete financial information to the CODM on a regular basis. As such, we believe we have one reportable segment. |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Jun. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Pending Matters Subsidiaries of CenturyLink, Inc., including us, are among hundreds of companies involved in an industry-wide dispute, raised in nearly 100 federal lawsuits (filed between 2014 and 2016) that have been consolidated in the United States District Court for the District of Northern Texas for pretrial procedures. The disputes relate to switched access charges that local exchange carriers ("LECs") collect from interexchange carriers ("IXCs") for IXCs' use of LEC's access services. In the lawsuits, three IXCs, Sprint Communications Company L.P. ("Sprint"), affiliates of Verizon Communications Inc. ("Verizon") and affiliates of Level 3 Communications LLC ("Level 3"), assert that federal and state laws bar LECs from collecting access charges when IXCs exchange certain types of calls between mobile and wireline devices that are routed through an IXC. Some of these IXCs have asserted claims seeking refunds of payments for access charges previously paid and relief from future access charges. In addition, Level 3 has ceased paying switched access charges on these calls. In November 2015, the federal court agreed with the LECs and rejected the IXCs' contention that federal law prohibits these particular access charges, and also allowed the IXCs to refile state-law claims. The Verizon entities did not file any new state claims, while Sprint filed state claims substantially similar to those previously dismissed. Based on the November 2015 ruling, we filed suit against Level 3 seeking payment of charges which Level 3 has disputed and withheld. Separately, some of the defendants, including us, have petitioned the FCC to address these issues on an industry-wide basis. The outcome of these disputes and lawsuits, as well as any related regulatory proceedings that could ensue, are currently not predictable. If we are required to stop assessing these charges or to pay refunds of any such charges, our financial results could be negatively affected. In June 2017, a former employee of CenturyLink filed an employment lawsuit against CentuyLink claiming that she was wrongfully terminated for alleging that CenturyLink charged some of its retail customers for products and services they did not authorize. Shortly thereafter, and based in part on the allegations made by the former employee, a series of consumer and shareholder putative class actions were filed against CenturyLink and it received a shareholder derivative demand. The Minnesota Attorney General also filed a civil suit on behalf of Minnesota consumers alleging that we and certain of our affiliates engaged in improper sales and billing practices. The filing of additional related lawsuits is possible. Although CenturyLink and/or various of its subsidiaries are named in these lawsuits, Qwest Corporation is a named defendant in only the Minnesota Attorney General civil suit. In late June 2017, CenturyLink's Board of Directors formed a special committee of outside directors to investigate the alleged improper sales and billing practices and related matters. The special committee is in the early stages of its investigation. Other Proceedings and Disputes From time to time, we are involved in other proceedings incidental to our business, including patent infringement allegations, administrative hearings or proceedings of state public utility commissions relating primarily to our rates or services, actions relating to employee claims, various tax issues, environmental law issues, grievance hearings before labor regulatory agencies and miscellaneous third party tort actions. We are currently defending several patent infringement lawsuits asserted against us by non-practicing entities, many of which are seeking substantial recoveries. These cases have progressed to various stages and one or more may go to trial in the coming 24 months if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. As with all litigation, we are vigorously defending these actions and, as a matter of course, are prepared to litigate these matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities. We are subject to various federal, state and local environmental protection and health and safety laws. From time to time, we are subject to judicial and administrative proceedings brought by various governmental authorities under these laws. Several such proceedings are currently pending, but none is reasonably expected to exceed $100,000 in fines and penalties. The outcome of these other proceedings is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of these other proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on our financial position, results of operations or cash flows. CenturyLink, Inc. and its affiliates are involved in several legal proceedings to which we are not a party that, if resolved against them, could have a material adverse effect on their business and financial condition. As an indirect wholly-owned subsidiary of CenturyLink, Inc., our business and financial condition could be similarly affected. You can find descriptions of these legal proceedings in CenturyLink, Inc.'s quarterly and annual reports filed with the Securities and Exchange Commission. Because we are not a party to any of the matters, we have not accrued any liabilities for the matters. |
Dividends
Dividends | 6 Months Ended |
Jun. 30, 2017 | |
Dividends [Abstract] | |
Dividends | Dividends From time to time we may declare and pay dividends to our direct parent company, Qwest Services Corporation ("QSC"), sometimes in excess of our earnings to the extent permitted by applicable law. Our debt covenants do not currently limit the amount of dividends we can pay to QSC. During the six months ended June 30, 2017 , we declared and paid dividends of $600 million to QSC. Dividends paid are reflected on our consolidated statements of cash flows as financing activities. On March 31, 2017, we distributed our equity interest valued at $12 million in a limited liability company to QSC. The limited liability company's sole asset was a building that was being utilized by an affiliate. |
Other Financial Information
Other Financial Information | 6 Months Ended |
Jun. 30, 2017 | |
Additional Financial Information Disclosure [Abstract] | |
Other financial information | Other Financial Information Other Current Assets The following table presents details of other current assets in our consolidated balance sheets: As of As of (Dollars in millions) Prepaid expenses $ 54 48 Assets held for sale 4 8 Other 69 73 Total other current assets $ 127 129 Selected Current Liabilities Current liabilities reflected in our consolidated balance sheets include accounts payable: As of As of (Dollars in millions) Accounts payable $ 358 398 Included in accounts payable at June 30, 2017 and December 31, 2016 , were $32 million and $53 million , respectively, associated with capital expenditures. |
Labor Union Contracts
Labor Union Contracts | 6 Months Ended |
Jun. 30, 2017 | |
Labor Union Contracts [Abstract] | |
Concentration risk disclosure | Labor Union Contracts Approximately 10,000 , or 45% , of our employees are members of various bargaining units represented by the Communication Workers of America ("CWA") and the International Brotherhood of Electrical Workers ("IBEW"). We recently reached new agreements with the CWA District 7 and IBEW Local 206 for the portion of these employees that were subject to collective bargaining agreements expiring on October 7, 2017. The new agreements were effective June 18, 2017 and will expire on March 28, 2020 and include terms substantially similar to those contained in the prior agreements. |
Basis of Presentation Basis of
Basis of Presentation Basis of Presentation (Policies) | 6 Months Ended |
Jun. 30, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Consolidation policy | The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries. Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated. Transactions with our non-consolidated affiliates (referred to herein as affiliates) have not been eliminated. |
Recent accounting pronouncements | Recent Accounting Pronouncements Goodwill Impairment On January 26, 2017, The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") ASU 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the impairment testing for goodwill by changing the measurement for goodwill impairment. Under current rules, we are required to compute the implied fair value of goodwill to measure the impairment amount if the carrying value of a reporting unit exceeds its fair value. Under ASU 2017-04, the goodwill impairment charge will equal the excess of the reporting unit carrying value above fair value, limited to the amount of goodwill assigned to the reporting unit. We are required to adopt the provisions of ASU 2017-04 for any goodwill impairment tests, including our required annual test, occurring after January 1, 2020, but have the option to early adopt for any impairment test that we are required to perform. We have not determined if we will elect to early adopt the provisions of ASU 2017-04. The provisions of ASU 2017-04 would not have affected our last goodwill impairment assessment, but no assurance can be provided that the simplified testing methodology will not affect our goodwill impairment assessment in the future. Income Taxes On October 24, 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory” ("ASU 2016-16"). ASU 2016-16 eliminates the current prohibition on the recognition of the income tax effects on the transfer of assets among our subsidiaries. After adoption of this ASU, the income tax effects associated with these asset transfers, except for the transfer of inventory, will be recognized in the period the asset is transferred versus the current deferral and recognition upon either the sale of the asset to a third party or over the remaining useful life of the asset. We are currently reviewing the requirements of this ASU and evaluating the impact on our consolidated financial statements. We expect to adopt the provisions of ASU 2016-16 on the required adoption date of January 1, 2018. The impact of adopting ASU 2016-16, if any, will be recognized through a cumulative adjustment to (accumulated deficit) retained earnings as of the date of adoption. Financial Instruments On June 16, 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). The primary impact of ASU 2016-13 for us is a change in the model for the recognition of credit losses related to our financial instruments from an incurred loss model, which recognized credit losses only if it was probable that a loss had been incurred, to an expected loss model, which requires our management team to estimate the total credit losses expected on the portfolio of financial instruments. We are currently reviewing the requirements of the standard and evaluating the impact on our consolidated financial statements. We are required to adopt the provisions of ASU 2016-13 effective January 1, 2020, but could elect to early adopt the provisions as of January 1, 2019. We expect to recognize the impacts of adopting ASU 2016-13 through a cumulative adjustment to (accumulated deficit) retained earnings as of the date of adoption. As of the date of this report, we have not yet determined the date we will adopt ASU 2016-13. Leases On February 25, 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”). The core principle of ASU 2016-02 will require lessees to present right-of-use assets and lease liabilities on their balance sheets for operating leases, which are currently not reflected on their balance sheets. ASU 2016-02 is effective for annual and interim periods beginning January 1, 2019. Early adoption of ASU 2016-02 is permitted. Upon adoption of ASU 2016-02, we are required to recognize and measure leases at the beginning of the earliest period presented in our consolidated financial statements using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that we may elect to apply. We will implement this new standard on its effective date, but we have not yet decided which practical expedient options we will elect. We are currently evaluating new lease administrative and accounting systems and are in the process of developing an implementation plan. We are also currently evaluating and assessing the impact ASU 2016-02 will have on us and our consolidated financial statements. As of the date of this report, we believe it is premature to provide any estimate of the impact of adopting ASU 2016-02. Revenue Recognition On May 28, 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 replaces virtually all existing GAAP on revenue recognition and replaces them with a principles-based approach for determining revenue recognition using a new five step model. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also includes new accounting principles related to the deferral and amortization of contract acquisition and fulfillment costs. We currently do not defer any contract acquisition costs, but we expect we will defer certain contract acquisition costs in the future, which could have the impact of lowering our operating expenses. We currently defer contract fulfillment costs only to the extent of any deferred revenue. Under ASU 2014-09, in certain transactions our deferred contract fulfillment costs could exceed our deferred revenues, which could result in an increase in deferred costs and could also impact the timing on our recognition of these deferred costs. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year until January 1, 2018, which is the date we plan to adopt this standard. ASU 2014-09 may be adopted by applying the provisions of this standard on a retrospective basis to the periods included in the financial statements or on a modified retrospective basis, which would result in the recognition of a cumulative effect of adopting ASU 2014-09 in the first quarter of 2018. We have completed our initial assessment of our business and systems requirements, and we are currently developing and implementing a new revenue recognition system to comply with the requirements of ASU 2014-09. Based on this initial assessment, we currently plan to adopt the new revenue recognition standard under the modified retrospective transition method. As of the date of this report, we are not able to provide reasonably accurate estimates of the impact of implementing ASU 2014-09 on the timing of our revenue recognition or the transition adjustment that will be recorded to equity on January 1, 2018. |
Long-Term Debt and Revolving 20
Long-Term Debt and Revolving Promissory Note (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Debt Disclosure [Abstract] | |
Schedule of long-term debt | Long-term debt, including unamortized discounts and premiums, unamortized debt issuance costs and note payable - affiliate, were as follows: Interest Rates Maturities As of As of (Dollars in millions) Senior notes 6.125% - 7.750% 2021 - 2057 $ 7,294 7,259 Term loan 2.980% 2025 100 100 Capital lease and other obligations Various Various 40 32 Unamortized premiums, net — 4 Unamortized debt issuance costs (151 ) (134 ) Total long-term debt 7,283 7,261 Less current maturities (17 ) (514 ) Long-term debt, excluding current maturities $ 7,266 6,747 Note payable - affiliate 6.710% 2022 $ 944 914 |
Fair Value Disclosure (Tables)
Fair Value Disclosure (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Fair Value Disclosures [Abstract] | |
Schedule of the three input levels in the hierarchy of fair value measurements | The three input levels in the hierarchy of fair value measurements are defined by the FASB generally as follows: Input Level Description of Input Level 1 Observable inputs such as quoted market prices in active markets. Level 2 Inputs other than quoted prices in active markets that are either directly or indirectly observable. Level 3 Unobservable inputs in which little or no market data exists. |
Schedule of carrying amounts and estimated fair values of long-term debt, excluding capital lease obligations, and input level to determine fair values | The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding capital lease and other obligations, as well as the input level used to determine the fair values indicated below: As of June 30, 2017 As of December 31, 2016 Input Level Carrying Amount Fair Value Carrying Amount Fair Value (Dollars in millions) Liabilities—Long-term debt, excluding capital lease and other obligations 2 $ 7,243 7,602 7,229 7,203 |
Severance (Tables)
Severance (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Restructuring and Related Activities [Abstract] | |
Schedule of changes in accrued liability for severance expenses | Changes in our accrued liability for severance expenses were as follows: Severance (Dollars in millions) Balance at December 31, 2016 $ 52 Accrued to expense 3 Payments, net (50 ) Balance at June 30, 2017 $ 5 |
Products and Services Revenues
Products and Services Revenues (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Segment Reporting [Abstract] | |
Schedule of operating revenues by products and services | Our operating revenues for our products and services consisted of the following categories: Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 (Dollars in millions) Strategic services $ 668 676 1,332 1,348 Legacy services 718 812 1,461 1,655 Affiliates and other services 747 735 1,502 1,473 Total operating revenues $ 2,133 2,223 4,295 4,476 |
Other Financial Information (Ta
Other Financial Information (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Additional Financial Information Disclosure [Abstract] | |
Schedule of components other current assets | The following table presents details of other current assets in our consolidated balance sheets: As of As of (Dollars in millions) Prepaid expenses $ 54 48 Assets held for sale 4 8 Other 69 73 Total other current assets $ 127 129 |
Schedule of selected current liabilities | Current liabilities reflected in our consolidated balance sheets include accounts payable: As of As of (Dollars in millions) Accounts payable $ 358 398 |
Basis of Presentation (Details)
Basis of Presentation (Details) | Jun. 30, 2017 |
Geographic Areas, Revenues from External Customers [Abstract] | |
Number of states in which entity operates (states) | 14 |
Long-Term Debt and Revolving 26
Long-Term Debt and Revolving Promissory Note (Details) - USD ($) $ in Millions | Jun. 30, 2017 | Dec. 31, 2016 |
Long-term debt | ||
Less current maturities | $ (17) | $ (514) |
Long-term debt, excluding current maturities | 7,266 | 6,747 |
Note payable - affiliate | 944 | 914 |
Qwest Corporation | ||
Long-term debt | ||
Capital lease and other obligations | 40 | 32 |
Unamortized premiums, net | 0 | 4 |
Unamortized debt issuance costs | (151) | (134) |
Total long-term debt | 7,283 | 7,261 |
Less current maturities | (17) | (514) |
Long-term debt, excluding current maturities | 7,266 | 6,747 |
Qwest Corporation | Senior notes | ||
Long-term debt | ||
Long-term debt, gross | $ 7,294 | 7,259 |
Qwest Corporation | Senior notes | Minimum | ||
Long-term debt | ||
Stated interest rate (percent) | 6.125% | |
Qwest Corporation | Senior notes | Maximum | ||
Long-term debt | ||
Stated interest rate (percent) | 7.75% | |
Qwest Corporation | Term loan | ||
Long-term debt | ||
Long-term debt, gross | $ 100 | 100 |
Stated interest rate (percent) | 2.98% | |
Qwest Corporation | Loans payable | Affiliated entity | ||
Long-term debt | ||
Weighted average interest rate (percent) | 6.71% | |
Note payable - affiliate | $ 944 | $ 914 |
Long-Term Debt and Revolving 27
Long-Term Debt and Revolving Promissory Note (Details 2) - USD ($) $ in Millions | May 05, 2017 | Apr. 28, 2017 | Jun. 30, 2017 | May 08, 2017 | May 04, 2017 | Dec. 31, 2016 |
Long-term debt | ||||||
Note payable - affiliate | $ 944 | $ 914 | ||||
Qwest Corporation | Senior notes | 6.75% Notes due 2057 | ||||||
Long-term debt | ||||||
Debt instrument, face amount | $ 85 | $ 575 | ||||
Stated interest rate (percent) | 6.75% | |||||
Proceeds from debt, net of issuance costs | $ 638 | |||||
Qwest Corporation | Senior notes | 7.5% Notes due 2051 | ||||||
Long-term debt | ||||||
Debt instrument, face amount | $ 288 | |||||
Stated interest rate (percent) | 7.50% | |||||
Debt instrument, repurchased face amount | $ 125 | |||||
Qwest Corporation | Senior notes | 6.5% Notes due 2017 | ||||||
Long-term debt | ||||||
Stated interest rate (percent) | 6.50% | |||||
Debt instrument, repurchased face amount | $ 500 | |||||
Qwest Corporation | Affiliated entity | Loans payable | ||||||
Long-term debt | ||||||
Line of credit, maximum borrowing capacity | 1,000 | |||||
Note payable - affiliate | $ 944 | $ 914 | ||||
Weighted average interest rate (percent) | 6.71% | |||||
Accrued interest payable on affiliate note payable | $ 5 | |||||
Qwest Corporation | Debt instrument, redemption, period one | Senior notes | 6.75% Notes due 2057 | ||||||
Long-term debt | ||||||
Debt instrument, redemption, description | redeemed by Qwest Corporation, in whole or in part, on or after June 15, 2022, at a redemption price equal to 100% of the principal amount |
Fair Value Disclosure (Details)
Fair Value Disclosure (Details) - Fair value measurements, nonrecurring - Fair value inputs, Level 2 - USD ($) $ in Millions | Jun. 30, 2017 | Dec. 31, 2016 |
Carrying Amount | ||
Liabilities | ||
Liabilities—Long-term debt, excluding capital lease and other obligations | $ 7,243 | $ 7,229 |
Fair Value | ||
Liabilities | ||
Liabilities—Long-term debt, excluding capital lease and other obligations | $ 7,602 | $ 7,203 |
Severance (Details)
Severance (Details) - Employee severance $ in Millions | 6 Months Ended |
Jun. 30, 2017USD ($) | |
Restructuring Cost and Reserve [Line Items] | |
Balance at the beginning of the period | $ 52 |
Accrued to expense | 3 |
Payments, net | (50) |
Balance at the end of the period | $ 5 |
Products and Services Revenue30
Products and Services Revenues (Details) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017USD ($) | Jun. 30, 2016USD ($) | Jun. 30, 2017USD ($)category | Jun. 30, 2016USD ($) | |
Products and Services Revenues | ||||
Operating revenues | $ 2,133 | $ 2,223 | $ 4,295 | $ 4,476 |
Number of categories of products and services (categories) | category | 3 | |||
USF surcharges included in operating revenues | 34 | 38 | $ 67 | 76 |
Number of reportable segments (segments) | 1 | |||
Strategic services | ||||
Products and Services Revenues | ||||
Operating revenues | 668 | 676 | $ 1,332 | 1,348 |
Legacy services | ||||
Products and Services Revenues | ||||
Operating revenues | 718 | 812 | 1,461 | 1,655 |
Affiliates and other services | ||||
Products and Services Revenues | ||||
Operating revenues | $ 747 | $ 735 | $ 1,502 | $ 1,473 |
Commitments and Contingencies (
Commitments and Contingencies (Details) | 6 Months Ended |
Jun. 30, 2017USD ($)plaintifflawsuit | |
Loss Contingencies [Line Items] | |
Number of patents allegedly infringed (minimum) | 1 |
Unfavorable regulatory action | |
Loss Contingencies [Line Items] | |
Estimate of possible loss (per proceeding) | $ | $ 100,000 |
Subsidiaries of CenturyLink, Inc. | Interexchange carriers | |
Loss Contingencies [Line Items] | |
Number of lawsuits (approximately) | 100 |
Number of plaintiffs | plaintiff | 3 |
Dividends (Details)
Dividends (Details) - USD ($) $ in Millions | Mar. 31, 2017 | Jun. 30, 2017 |
Dividends [Abstract] | ||
Dividends declared and paid to Qwest Services Corporation | $ 600 | |
Dividend of equity interest in limited liability company to Qwest Services Corporation | $ 12 |
Other Financial Information (De
Other Financial Information (Details) - USD ($) $ in Millions | 6 Months Ended | 12 Months Ended |
Jun. 30, 2017 | Dec. 31, 2016 | |
Prepaid Expense and Other Assets, Current [Abstract] | ||
Prepaid expenses | $ 54 | $ 48 |
Assets held for sale | 4 | 8 |
Other | 69 | 73 |
Total other current assets | 127 | 129 |
Accounts Payable, Current [Abstract] | ||
Accounts payable | 358 | 398 |
Capital expenditures incurred and included in accounts payable | $ 32 | $ 53 |
Labor Union Contracts (Details)
Labor Union Contracts (Details) - Workforce subject to collective bargaining arrangements, effective June 18, 2017 | 6 Months Ended |
Jun. 30, 2017 | |
Concentration Risk [Line Items] | |
Collective bargaining arrangement, number of unionized employees | 10,000 |
Total number of employees | Unionized employees concentration risk | |
Concentration Risk [Line Items] | |
Concentration risk percentage | 45.00% |