Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2018 | Nov. 12, 2018 | |
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 | Sep. 30, 2018 | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Entity Small Business | false | |
Entity Emerging Growth | false | |
Entity Common Stock, Shares Outstanding | 1 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
OPERATING REVENUES | ||||
Total operating revenues | $ 2,149 | $ 2,141 | $ 6,380 | $ 6,436 |
OPERATING EXPENSES | ||||
Cost of services and products (exclusive of depreciation and amortization) | 697 | 742 | 2,106 | 2,185 |
Selling, general and administrative | 172 | 231 | 602 | 710 |
Operating expenses - affiliates | 203 | 211 | 616 | 647 |
Depreciation and amortization | 360 | 397 | 1,081 | 1,181 |
Total operating expenses | 1,432 | 1,581 | 4,405 | 4,723 |
OPERATING INCOME | 717 | 560 | 1,975 | 1,713 |
OTHER (EXPENSE) INCOME | ||||
Interest expense | (112) | (117) | (350) | (348) |
Interest expense - affiliates, net | (15) | (16) | (42) | (47) |
Net loss on early retirement of debt | (34) | 0 | (34) | (5) |
Other income, net | 8 | 6 | 33 | 10 |
Total other expense, net | (153) | (127) | (393) | (390) |
INCOME BEFORE INCOME TAX EXPENSE | 564 | 433 | 1,582 | 1,323 |
Income tax expense | 111 | 168 | 322 | 512 |
NET INCOME | 453 | 265 | 1,260 | 811 |
Non-affiliate services | ||||
OPERATING REVENUES | ||||
Total operating revenues | 1,397 | 1,456 | 4,209 | 4,406 |
Affiliate services | ||||
OPERATING REVENUES | ||||
Total operating revenues | $ 752 | $ 685 | $ 2,171 | $ 2,030 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions | Sep. 30, 2018 | Dec. 31, 2017 |
CURRENT ASSETS | ||
Cash and cash equivalents | $ 6 | $ 1 |
Accounts receivable, less allowance of $46 and $47 | 592 | 646 |
Advances to affiliates | 669 | 1,024 |
Other | 278 | 98 |
Total current assets | 1,545 | 1,769 |
Property, plant and equipment, net of accumulated depreciation of $6,964 and $6,392 | 7,944 | 7,924 |
GOODWILL AND OTHER ASSETS | ||
Goodwill | 9,360 | 9,360 |
Customer relationships, net | 1,006 | 1,362 |
Other intangibles, net | 328 | 379 |
Other, net | 126 | 75 |
Total goodwill and other assets | 10,820 | 11,176 |
TOTAL ASSETS | 20,309 | 20,869 |
CURRENT LIABILITIES | ||
Current maturities of long-term debt | 13 | 17 |
Accounts payable | 298 | 317 |
Note payable - affiliate | 1,008 | 965 |
Accrued expenses and other liabilities | ||
Salaries and benefits | 193 | 238 |
Income and other taxes | 167 | 174 |
Interest | 58 | 77 |
Other | 67 | 61 |
Current affiliate obligations, net | 79 | 82 |
Current portion of deferred revenues | 249 | 265 |
Total current liabilities | 2,132 | 2,196 |
LONG-TERM DEBT | 5,950 | 7,264 |
DEFERRED CREDITS AND OTHER LIABILITIES | ||
Deferred revenues | 128 | 128 |
Deferred income taxes, net | 1,062 | 1,001 |
Affiliate obligations, net | 770 | 861 |
Other | 448 | 82 |
Total deferred credits and other liabilities | 2,408 | 2,072 |
COMMITMENTS AND CONTINGENCIES (Note 7) | ||
STOCKHOLDER'S EQUITY | ||
Common stock - one share without par value, owned by Qwest Services Corporation | 10,050 | 10,050 |
Accumulated deficit | (231) | (713) |
Total stockholder's equity | 9,819 | 9,337 |
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ 20,309 | $ 20,869 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Millions | Sep. 30, 2018 | Dec. 31, 2017 |
Statement of Financial Position [Abstract] | ||
Accounts receivable, allowance | $ 46 | $ 47 |
PP&E, accumulated depreciation | $ 6,964 | $ 6,392 |
Common stock, share issued (in shares) | 1 | 1 |
Common stock, share outstanding (in shares) | 1 | 1 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
OPERATING ACTIVITIES | ||
Net income | $ 1,260 | $ 811 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 1,081 | 1,181 |
Deferred income taxes | 9 | (93) |
Provision for uncollectible accounts | 51 | 55 |
Accrued interest on affiliate note | 43 | 51 |
Net loss on early retirement of debt | 30 | 5 |
Changes in current assets and liabilities: | ||
Accounts receivable | 3 | (39) |
Accounts payable | (5) | (2) |
Accrued income and other taxes | (7) | (9) |
Other current assets and liabilities, net | (108) | (95) |
Other current assets and liabilities - affiliates, net | (7) | (5) |
Changes in other noncurrent assets and liabilities, net | 385 | 24 |
Changes in affiliate obligations, net | (94) | (66) |
Other, net | 11 | (3) |
Net cash provided by operating activities | 2,652 | 1,815 |
INVESTING ACTIVITIES | ||
Capital expenditures | (732) | (1,086) |
Changes in advances to affiliates | 360 | 23 |
Proceeds from sale of property, plant and equipment and other assets | 5 | 43 |
Other | 0 | (5) |
Net cash used in investing activities | (367) | (1,025) |
FINANCING ACTIVITIES | ||
Net proceeds from issuance of long-term debt | 0 | 638 |
Payments of long-term debt | (1,355) | (629) |
Dividends paid to Qwest Services Corporation | (925) | (800) |
Net cash used in financing activities | (2,280) | (791) |
Net increase in cash, cash equivalents and restricted cash | 5 | (1) |
Cash, cash equivalents and restricted cash at beginning of period | 3 | 7 |
Cash, cash equivalents and restricted cash at end of period | 8 | 6 |
Supplemental cash flow information: | ||
Restricted cash included in other noncurrent assets | 2 | 2 |
Income taxes refunded (paid), net | 58 | (604) |
Interest paid (net of capitalized interest of $20 and $24) | $ (366) | $ (343) |
CONSOLIDATED STATEMENTS OF CA_2
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Statement of Cash Flows [Abstract] | ||
Interest paid, capitalized interest | $ 20 | $ 24 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY - USD ($) $ in Millions | Total | COMMON STOCK | ACCUMULATED DEFICIT |
Increase (Decrease) in Stockholder's Equity | |||
Cumulative net effect of adoption of ASU 2014-09, Revenue from Contracts with Customers, net of $(7), $—, $(50) and $— tax | Accounting Standards Update 2014-09 | $ 0 | ||
Balance at beginning of period at Dec. 31, 2016 | $ 10,050 | (1,358) | |
Increase (Decrease) in Stockholder's Equity | |||
Net income | $ 811 | 811 | |
Dividends declared to Qwest Services Corporation | (800) | (800) | |
Dividend of equity interest in limited liability company to Qwest Services Corporation | (12) | ||
Balance at end of period at Sep. 30, 2017 | 8,691 | 10,050 | (1,359) |
Increase (Decrease) in Stockholder's Equity | |||
Cumulative net effect of adoption of ASU 2014-09, Revenue from Contracts with Customers, net of $(7), $—, $(50) and $— tax | Accounting Standards Update 2014-09 | 0 | ||
Balance at beginning of period at Jun. 30, 2017 | 10,050 | (1,424) | |
Increase (Decrease) in Stockholder's Equity | |||
Net income | 265 | 265 | |
Dividends declared to Qwest Services Corporation | (200) | ||
Dividend of equity interest in limited liability company to Qwest Services Corporation | 0 | ||
Balance at end of period at Sep. 30, 2017 | 8,691 | 10,050 | (1,359) |
Increase (Decrease) in Stockholder's Equity | |||
Cumulative net effect of adoption of ASU 2014-09, Revenue from Contracts with Customers, net of $(7), $—, $(50) and $— tax | Accounting Standards Update 2014-09 | 147 | ||
Balance at beginning of period at Dec. 31, 2017 | 9,337 | 10,050 | (713) |
Increase (Decrease) in Stockholder's Equity | |||
Net income | 1,260 | 1,260 | |
Dividends declared to Qwest Services Corporation | (925) | (925) | |
Dividend of equity interest in limited liability company to Qwest Services Corporation | 0 | ||
Balance at end of period at Sep. 30, 2018 | 9,819 | 10,050 | (231) |
Increase (Decrease) in Stockholder's Equity | |||
Cumulative net effect of adoption of ASU 2014-09, Revenue from Contracts with Customers, net of $(7), $—, $(50) and $— tax | Accounting Standards Update 2014-09 | 19 | ||
Balance at beginning of period at Jun. 30, 2018 | 10,050 | (353) | |
Increase (Decrease) in Stockholder's Equity | |||
Net income | 453 | 453 | |
Dividends declared to Qwest Services Corporation | (350) | ||
Dividend of equity interest in limited liability company to Qwest Services Corporation | 0 | ||
Balance at end of period at Sep. 30, 2018 | $ 9,819 | $ 10,050 | $ (231) |
CONSOLIDATED STATEMENTS OF ST_2
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (parenthetical) - USD ($) $ in Millions | Jun. 30, 2018 | Dec. 31, 2017 |
ACCUMULATED DEFICIT | Accounting Standards Update 2014-09 | ||
Cumulative effect of new accounting principle in period of adoption, tax | $ (7) | $ (50) |
Background
Background | 9 Months Ended |
Sep. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Background | 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), Ethernet, network access, information technology 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, 2017 , 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 ("GAAP") 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 and cash flows for the first nine months of the year are not necessarily indicative of the consolidated results of operations and cash flows that might be expected for the entire year. These consolidated financial statements and the accompanying notes 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, 2017 . 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. We reclassified certain prior period amounts to conform to the current period presentation. These changes had no impact on total operating revenues, total operating expenses or net income for any period. Segments 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 have one reportable segment. Income Taxes As of September 30, 2018 , we have not completed our accounting for the tax effects of the Tax Cuts and Jobs Act (the "Act"), which was signed into law in late December 2017. In order to complete our accounting for the impact of the Act, we continue to obtain, analyze and interpret additional guidance as such guidance becomes available from the U.S. Treasury Department, the Internal Revenue Service (“IRS”), state taxing jurisdictions, the Financial Accounting Standards Board (“FASB”) and other standard-setting and regulatory bodies. Guidance issued by these bodies to date does not allow us to definitively calculate the tax effects of the Act. New guidance or interpretations may materially impact our provision for income taxes in future periods. Additional information that is needed to complete the analysis but is currently unavailable includes, but is not limited to, the final determination of certain net deferred tax assets subject to remeasurement and the tax treatment of such provisions of the Act by various state tax authorities. We have provisionally recognized the tax impacts related to the remeasurement of deferred tax assets and liabilities. The ultimate impact may differ from our current provisional estimate due to additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Act. The change from our current provisional estimates will be reflected in fourth quarter statements of operations and could be material. We expect to complete the accounting in the fourth quarter of 2018. The Act reduced the U.S. corporate income tax rate from a maximum of 35% to 21% for all C corporations, effective January 1, 2018, introduced further limitations on the deductibility of interest expense, made certain changes to the tax treatment of capital expenditures and various other items, and imposed a one-time repatriation tax on certain earnings of certain foreign subsidiaries. In addition, the Tax Act introduces additional base-broadening measures, including Global Intangible Low-Taxed Income and the Base-Erosion Anti-Abuse Tax. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21%, we provisionally re-measured our net deferred tax liabilities at December 31, 2017 and recognized a tax benefit of approximately $555 million in our consolidated statement of operations for the year ended December 31, 2017. During the first nine months of 2018, we reduced this $555 million tax benefit by the net tax impact of certain tax accounting method changes filed with CenturyLink's 2017 Federal income tax return that significantly accelerated certain tax deductions into 2017. The tax impact of these accelerated deductions resulted in a net reduction to the provisional benefit recorded of $137 million . During the third quarter of 2018, we continued to evaluate and analyze the tax impacts of the Act. While we have not finalized our analysis, we do not expect the provisions of the Act, exclusive of the rate reduction, to materially impact us during the remainder of 2018. However, we cannot provide any assurance that, upon completion of our analysis, the impact will not be material or that there will not be material tax impacts in future years. Accordingly, other than as noted above, we have not made any additional adjustments related to the Act in our consolidated financial statements. Recently Adopted Accounting Pronouncements In the first quarter of 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” and ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory” . Each of these is described further below. Revenue Recognition In May 2014, the FASB issued ASU 2014-09 which replaces virtually all existing generally accepted accounting principles 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 adopted the new revenue recognition standard under the modified retrospective transition method. During the three and nine months ended September 30, 2018, we recorded a cumulative catch-up adjustment that increased our retained earnings by $19 million , net of $7 million of income taxes and $147 million , net of $50 million of income taxes, respectively. The catch-up adjustment recorded during the three months ended September 30, 2018 resulted from the identification of additional fulfillment costs that should have been considered in our adoption and from correcting certain issues in the accounting system we utilize in calculating revenue under the new revenue recognition standard. Under ASU 2014-09, we are now deferring incremental contract acquisition and fulfillment costs and are recognizing (or amortizing) such costs over either the initial contract (plus anticipated renewal contracts to which the costs relate) or the average customer life. Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average customer life of approximately 49 months for our business customers and 30 months for our consumer customers and are included in cost of services and products and selling, general and administrative expenses in our consolidated statement of operations. The amounts of these deferred costs that are anticipated to be amortized in the next twelve months are included in other current assets on our consolidated balance sheets See Note 3—Revenue Recognition for additional information. Income Taxes ASU 2016-16 eliminates the current prohibition on the recognition of the income tax effects on the transfer of assets among our subsidiaries. Prospectively, 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. The adoption of ASU 2016-16 did not have a material impact to our consolidated financial statements. Recently Issued Accounting Pronouncements Goodwill Impairment In January 2017, the FASB issued 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 its 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 it 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. Financial Instruments In June 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 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 In February 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 under GAAP are currently not required to be reflected on their balance sheets. ASU 2016-02 is effective for annual and interim periods beginning January 1, 2019. 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 transition approach includes a number of optional practical expedients that we may elect to apply. In January 2018, the FASB issued ASU 2018-01, “ Leases: Land Easement Practical Expedient for Transition to ASU 2016-0 2" ("ASU 2018-01"). ASU 2018-01 permits reporting companies to elect to forego reassessments of land easements that exist or expire before the entity’s adoption of ASU 2016-02 and that were not previously accounted for as leases. We plan to adopt ASU 2018-01 at the same time we adopt ASU 2016-02. In July 2018, the FASB issued ASU 2018-11, " Leases: Targeted Improvements " ("ASU 2018-11"). ASU 2018-11 provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We have not yet determined whether we will use ASU 2018-11's newly permitted adoption method. We are in the process of implementing a new lease administration and accounting system. We plan to adopt ASU 2016-02 and ASU 2018-01 effective January 1, 2019. The adoption of ASU 2016-02 will result in our recognition of right of use assets and lease liabilities that we have not previously recorded. Although we believe it is premature as of the date of this report to provide any estimate of the impact of adopting ASU 2016-02, we do expect that it will have a material impact on our consolidated financial statements. |
Goodwill, Customer Relationship
Goodwill, Customer Relationships and Other Intangible Assets | 9 Months Ended |
Sep. 30, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill, Customer Relationships and Other Intangible Assets | Goodwill, Customer Relationships and Other Intangible Assets Goodwill, customer relationships and other intangible assets consisted of the following: September 30, 2018 December 31, 2017 (Dollars in millions) Goodwill $ 9,360 9,360 Customer relationships, less accumulated amortization of $4,693 and $4,337 $ 1,006 1,362 Other intangible assets, less accumulated amortization of $1,684 and $1,619 $ 328 379 As of September 30, 2018 , the gross carrying amount of goodwill, customer relationships and other intangible assets was $17.1 billion . The total amortization expense for intangible assets for the three and nine months ended September 30, 2018 totaled $144 million and $440 million and for the three and nine months ended September 30, 2017 totaled $166 million and $507 million , respectively. We estimate that total amortization expense for intangible assets for the years ending December 31, 2018 through 2022 will be as follows: (Dollars in millions) 2018 (remaining three months) $ 141 2019 519 2020 452 2021 142 2022 38 |
Revenue Recognition
Revenue Recognition | 9 Months Ended |
Sep. 30, 2018 | |
Revenue from Contract with Customer [Abstract] | |
Revenue Recognition | Revenue Recognition We earn most of our consolidated revenue from contracts with customers, primarily through the provision of telecommunications and other services. Revenue from contracts with customers is accounted for under Accounting Standards Codification ("ASC") 606, which we adopted on January 1, 2018 using the modified retrospective approach. We also earn revenues from leasing arrangements (primarily fiber capacity agreements) and governmental subsidy payments, neither of which are accounted for under ASC 606. Under ASC 606, revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled for those goods or services. Revenue is recognized based on the following five-step model: • Identification of the contract with a customer; • Identification of the performance obligations in the contract; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and, • Recognition of revenue when, or as, we satisfy a performance obligation. We provide 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 provide these services to a wide range of businesses, including global/international, enterprise, wholesale, government, small and medium business customers as well as residential customers. Certain contracts also include the sale of equipment, which is not significant to our business. For access services, we generally bill fixed monthly charges one month in advance to customers and recognize revenue as service is provided over the contract term in alignment with the customer's receipt of service. For usage, installation and other ancillary services, we generally bill in arrears and recognize revenue as usage or delivery occurs. In most cases, the amount invoiced for our service offerings constitutes the price that would be billed on a standalone basis. To the extent certain products or services are discounted as a part of a bundle arrangement, the bundle discounts are included in our calculation of the total transaction price with the customer which is allocated to the various services in the bundle offering based on the estimated selling price of services included in each bundle combination. Under ASC 606, we recognize revenue for services when we provide the applicable service or when control is transferred. Recognition of certain payments received in advance of services being provided is deferred until the service is provided. These advance payments include certain activation and certain installation charges. If the activation and installation charges are not separate performance obligations, we recognize as revenue over the actual or expected contract term using historical experience, which ranges from one year to seven years depending on the service. In most cases, termination fees or other fees on existing contracts that are negotiated in conjunction with new contracts are deferred and recognized over the new contract term. A performance obligation is a promise in a contract with a customer to provide a good or service to the customer. We recognize revenue for services when we satisfy our performance obligation. Promotional or performance-based incentive payments are estimated at contract inception (and updated on a periodic basis as needed) and accounted for as variable consideration. In certain cases, customers may be permitted to modify their contracts without incurring a penalty. We evaluate the change in scope or price to identify whether the modification should be treated as a separate contract, whether the modification is a termination of the existing contract and creation of a new contract, or if it is a change to the existing contract. The impact of contract modifications has not been significant to our results in 2018. Customer contracts are evaluated to determine whether the performance obligations are separable. If the performance obligations are deemed separable and separate earnings processes exist, the total transaction price that we expect to receive with the customer is allocated to each performance obligation based on its relative standalone selling price. The revenue associated with each performance obligation is then recognized as earned. The portion of any advance payment allocated to the service based upon its relative selling price is recognized ratably over the contract term. We periodically sell optical capacity on our network. These transactions are structured as indefeasible rights of use, commonly referred to as IRUs, which are the exclusive right to use a specified amount of capacity or fiber for a specified term, typically 10 to 20 years. In most cases, we account for the cash consideration received on transfers of optical capacity as ASC 606 revenue which we recognize ratably over the term of the agreement. Fiber is accounted for as non-ASC 606 lease revenue, which we also recognize ratably over the term of the agreement. We do not recognize revenue on any contemporaneous exchanges of our optical capacity assets for other optical capacity assets. In connection with offering products and services provided to the end user by third-party vendors, we review the relationship between us, the vendor and the end user to assess whether revenue should be reported on a gross or net basis. In assessing whether revenue should be reported on a gross or net basis, we consider whether we act as a principal in the transaction and control the goods and services used to fulfill the performance obligations associated with the transaction. Based on our agreement with DIRECTV, we offer this service through a sales agency relationship which we report on a net basis. We have service level commitments pursuant to contracts with certain of our customers. To the extent that such service levels are not achieved or are otherwise disputed due to performance or service issues or other service interruptions or conditions, we will estimate the amount of credits to be issued and record a corresponding reduction to revenues in the period that the service level commitment was not met. Customer payments are made based on billing schedules included in our customer contracts, which is typically on a monthly basis. For certain products or services and customer types, payment is required before products or services are provided. Comparative Results During the three months ended September 30, 2018, we identified and corrected certain issues in the accounting system we utilize in calculating the effects of ASC 606. Our revenue for the three months ended September 30, 2018 includes an adjustment of $10 million that is attributable to the six months ended June 30, 2018. The following tables present our reported results under ASC 606 and a reconciliation to results using the historical accounting method: Three Months Ended September 30, 2018 Reported as of September 30, 2018 Impact of ASC 606 ASC 605 Historical Adjusted Amount (Dollars in millions) Operating revenues $ 2,149 (13 ) 2,136 Cost of services and products (exclusive of depreciation and amortization) 697 3 700 Selling, general and administrative 172 — 172 Income tax expense 111 (4 ) 107 Net income 453 (12 ) 441 Nine Months Ended September 30, 2018 Reported as of September 30, 2018 Impact of ASC 606 ASC 605 Historical Adjusted Amount (Dollars in millions) Operating revenues $ 6,380 (22 ) 6,358 Cost of services and products (exclusive of depreciation and amortization) 2,106 15 2,121 Selling, general and administrative 602 (2 ) 600 Income tax expense 322 (9 ) 313 Net income 1,260 (26 ) 1,234 The following table presents a reconciliation of certain consolidated balance sheet captions under ASC 606 to the balance sheet results using the historical accounting method: As of September 30, 2018 Reported Balances as of September 30, 2018 Impact of ASC 606 ASC 605 Historical Adjusted Balances (Dollars in millions) Other current assets $ 278 (268 ) 10 Other long-term assets, net 126 (20 ) 106 Deferred revenue 377 (136 ) 241 Deferred income taxes, net 1,062 (59 ) 1,003 Other long-term liabilities 448 79 527 Accumulated deficit (231 ) (172 ) (403 ) Disaggregated Revenue by Service Offering The following tables provide disaggregation of revenue from contracts with customers based on service offerings for the three and nine months ended September 30, 2018 , respectively. It also shows the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards. The adjustment of $10 million noted above was recorded to transport and infrastructure for the three months ended September 30, 2018. Three Months Ended September 30, 2018 Total Revenue Adjustments for Non-ASC 606 Revenue (7) Total Revenue from Contracts with Customers (Dollars in millions) IP and data services (1) $ 155 — 155 Transport and infrastructure (2) 739 (29 ) 710 Voice and collaboration (3) 448 — 448 IT and managed services (4) 2 — 2 Regulatory revenue (5) 53 (53 ) — Affiliate revenue (6) 752 — 752 Total revenues $ 2,149 (82 ) 2,067 Timing of revenue Goods transferred at a point in time $ 13 Services performed over time 2,054 Total revenues from contracts with customers $ 2,067 Nine Months Ended September 30, 2018 Total Revenue Adjustments for Non-ASC 606 Revenue (7) Total Revenue from Contracts with Customers (Dollars in millions) IP and data services (1) $ 460 — 460 Transport and infrastructure (2) 2,216 (83 ) 2,133 Voice and collaboration (3) 1,370 — 1,370 IT and managed services (4) 6 — 6 Regulatory revenues (5) 157 (157 ) — Affiliate revenues (6) 2,171 — 2,171 Total revenues $ 6,380 (240 ) 6,140 Timing of revenue Goods transferred at a point in time $ 35 Services performed over time 6,105 Total revenues from contracts with customers $ 6,140 (1 ) Includes primarily VPN data networks, Ethernet, IP and other ancillary services (2 ) Includes primarily broadband, private line (including business data services) and other ancillary services. (3 ) Includes local voice, including wholesale voice, and other ancillary services. (4 ) Includes IT services and managed services revenues. (5 ) Includes CAF Phase I, CAF Phase 2 and federal and state USF support revenue. (6 ) Includes telecommunications and data services we bill to our affiliates. (7 ) Includes regulatory revenues, lease revenue, sublease rental income, which are not within the scope of ASC 606. Customer Receivables and Contract Balances The following table provides balances of customer receivables, contract assets and contract liabilities as of September 30, 2018 and January 1, 2018: September 30, 2018 January 1, 2018 (Dollars in millions) Customer receivables (1) $ 573 631 Contract liabilities 125 78 Contract assets 228 93 (1) Gross customer receivables of $619 million and $669 million , net of allowance for doubtful accounts of $46 million and $38 million , at September 30, 2018 and January 1, 2018, respectively. Contract liabilities are consideration we have received from our customers in advance of providing goods and services promised in the future. We defer recognizing this consideration as revenue until we have satisfied the related performance obligation to the customer. Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which ranges from one to seven years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheet. Performance Obligations We do not disclose the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have a right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), or contracts that are classified as leasing arrangements that are not subject to ASC 606. As of September 30, 2018 , our estimated revenue expected to be recognized in the future related to performance obligations associated with customer contracts that are unsatisfied (or partially satisfied) is approximately $391 million . We expect to recognize approximately 98% of this revenue through 2020, with the balance recognized thereafter. Contract Costs The following table provides changes in our contract acquisition costs and fulfillment costs: Three Months Ended Nine Months Ended Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs (Dollars in millions) Beginning of period balance $ 89 58 91 61 Costs incurred 29 13 45 20 Amortization (29 ) (13 ) (47 ) (23 ) End of period balance $ 89 58 89 58 Acquisition costs include commission fees paid to employees as a result of obtaining contracts. Fulfillment costs include third party and internal costs associated with the provision, installation and activation of telecommunications services to customers, including labor and materials consumed for these activities. Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average customer life of 30 months for consumer customers and 49 months for business customers and are included in cost of services and products and selling, general and administrative expenses in our consolidated statement of operations. The amounts of these deferred costs that are anticipated to be amortized in the next twelve months are included in other current assets on our consolidated balance sheets. We recognize incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets is less than one year. The amount of deferred costs expected to be amortized beyond the next twelve months is included in other non-current assets on our consolidated balance sheets. Deferred acquisition and fulfillment costs are assessed for impairment on a quarterly basis. During the three months ended September 30, 2018 we made a $24 million adjustment to the beginning balance of the fulfillment costs shown in the table above for additional fulfillment costs we identified that should have been considered in our adoption. The impact to our expenses was less than $1 million for both the three and nine months ended September 30, 2018. |
Long-Term Debt and Revolving Pr
Long-Term Debt and Revolving Promissory Note | 9 Months Ended |
Sep. 30, 2018 | |
Debt Disclosure [Abstract] | |
Long-Term Debt and Revolving Promissory Note | Long-Term Debt and Revolving Promissory Note The following chart reflects (i) the consolidated long-term debt of Qwest Corporation and its subsidiaries, including unamortized discounts and premiums, unamortized debt issuance costs and (ii) note payable - affiliate: Interest Rates Maturities September 30, 2018 December 31, 2017 (Dollars in millions) Senior notes 6.125% - 7.750% 2021 - 2057 $ 5,955 7,294 Term loan 4.250% 2025 100 100 Capital lease and other obligations Various Various 25 36 Unamortized (discounts) premiums, net (1 ) 1 Unamortized debt issuance costs (116 ) (150 ) Total long-term debt 5,963 7,281 Less current maturities (13 ) (17 ) Long-term debt, excluding current maturities $ 5,950 7,264 Note payable - affiliate 5.860% 2022 $ 1,008 965 Note Payable - Affiliate On September 30, 2017, Qwest Corporation entered into an amended and restated revolving promissory note in the amount of $965 million with an affiliate of our ultimate parent company, CenturyLink, Inc. This note replaced and amended the original $1.0 billion revolving promissory note Qwest Corporation entered into on April 18, 2012 with the same affiliate. The outstanding principal balance owed by Qwest Corporation under this revolving promissory note and the accrued interest thereon is due and payable on demand, but if no demand is made, then on June 30, 2022. Interest is accrued on the outstanding balance during an interest period using a weighted average per annum interest rate on the consolidated outstanding debt of CenturyLink and its subsidiaries. As of September 30, 2018 , the amended and restated revolving promissory note had an outstanding balance of $1.008 billion and bore interest at a weighted-average interest rate of 5.860% . As of September 30, 2018 and December 31, 2017 , the amended and restated revolving promissory note is reflected on our consolidated balance sheets as a current liability under "Note payable - affiliate". In accordance with the terms of the amended and restated revolving promissory note, interest shall be assessed on June 30th and December 31st (an "Interest Period"). Any assessed interest for an Interest Period that remains unpaid on the last day of the subsequent Interest Period is to be capitalized on such date and is to begin accruing interest. As of September 30, 2018 , $15 million of accrued interest is reflected in other current liabilities on our consolidated balance sheet. Repayments During the three months ended September 2018, we retired approximately $1.3 billion in debt securities including approximately $164 million of Qwest Corporation 7.5% Notes due 2051, $925 million of Qwest Corporation 7.0% Notes due 2052, and $250 million of Qwest Corporation 7.25% Notes due 2035. Aggregate Maturities of Long-Term Debt Set forth below is the aggregate principal amount of our long-term debt (excluding unamortized premiums and discounts and unamortized debt issuance costs and other and excluding note payable-affiliate) maturing during the following years: (Dollars in millions) 2018 (remaining three months) $ 4 2019 11 2020 5 2021 951 2022 — 2023 and thereafter 5,109 Total long-term debt $ 6,080 Compliance As of September 30, 2018 , we were in compliance with the provisions and financial covenants of our debt agreements. Other For additional information on our long-term debt and credit facilities, see Note 3 — Long-Term Debt and Revolving Promissory Note to our consolidated financial statements in Item 8 of Part II of our annual report on Form 10-K for the year ended December 31, 2017. |
Fair Value Disclosure
Fair Value Disclosure | 9 Months Ended |
Sep. 30, 2018 | |
Fair Value Disclosures [Abstract] | |
Fair Value Disclosure | Fair Value Disclosure 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: September 30, 2018 December 31, 2017 Input Level Carrying Amount Fair Value Carrying Amount Fair Value (Dollars in millions) Liabilities—Long-term debt, excluding capital lease and other obligations 2 $ 5,938 5,867 7,245 7,080 |
Products and Services Revenues
Products and Services Revenues | 9 Months Ended |
Sep. 30, 2018 | |
Revenue from Contract with Customer [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 business data services), Ethernet, network access, information technology 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 six categories: • IP and data services , which include primarily VPN data networks, Ethernet, IP and other ancillary services; • Transport and infrastructure , which include broadband, private line (including business data services) and other ancillary services; • Voice and collaboration , which includes primarily local voice, including wholesale voice, and other ancillary services; • IT and managed services, which include information technology services and managed services, which may be purchased in conjunction with our other network services; • Regulatory revenues, which consist of Universal Service Fund ("USF") and Connect America Fund ("CAF") support payments and other operating revenues. We receive federal support payments from both federal and state USF programs and from the federal CAF program. 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; and • Affiliates services, 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 September 30, Nine Months Ended September 30, 2018 2017 2018 2017 (Dollars in millions) IP and data services $ 155 161 460 475 Transport and infrastructure 739 751 2,216 2,268 Voice and collaboration 448 492 1,370 1,504 IT and managed services 2 — 6 — Regulatory revenues 53 52 157 159 Affiliates services 752 685 2,171 2,030 Total operating revenues $ 2,149 2,141 6,380 6,436 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 $28 million and $33 million for the three months ended September 30, 2018 and 2017 , respectively, and $93 million and $100 million for the nine months ended September 30, 2018 and 2017 , respectively. These USF surcharges are assigned to the products and services categories based on the underlying 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. |
Commitments and Contingencies a
Commitments and Contingencies and Other Items | 9 Months Ended |
Sep. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies and Other Items | Commitments and Contingencies and Other Items We are subject to various claims, legal proceedings and other contingent liabilities, including the matters described below, which individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows. As a matter of course, we are prepared to both litigate these matters to judgment as needed, as well as to evaluate and consider reasonable settlement opportunities. Irrespective of its merits, litigation may be both lengthy and disruptive to our operations and could cause significant expenditure and diversion of management attention. We review our litigation accrual liabilities on a quarterly basis, but in accordance with applicable accounting guidelines only establish accrual liabilities when losses are deemed probable and reasonably estimable and only revise previously-established accrual liabilities when warranted by changes in circumstances, in each case based on then-available information. As such, as of any given date we could have exposure to losses under proceedings as to which no liability has been accrued or as to which the accrued liability is inadequate. Amounts accrued for our litigation contingencies at September 30, 2018 aggregated to approximately $9 million and are included in “Other” current liabilities and “Other Liabilities” in our consolidated balance sheet as of such date. The establishment of an accrual does not mean that actual funds have been set aside to satisfy a given contingency. Thus, the resolution of a particular contingency for the amount accrued could have no effect on our results of operations but nonetheless could have an adverse effect on our cash flows. In this Note, when we refer to a class action as "putative" it is because a class has been alleged, but not certified in that matter. Switched Access Disputes 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 as In Re: IntraMTA Switched Access Charges Litigation, in the United States District Court for the Northern District of 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, various IXCs assert that LECs are prohibited from collecting access charges when IXCs exchange certain types of calls between mobile and wireline devices. Some of these IXCs seek refunds for access charges previously paid and declaratory relief from future access charges. In November 2015, the court rejected the IXCs' claims under federal law and entered final judgments against the IXCs on the LECs' claims for unpaid access charges and for late payment charges. The cases are now on appeal before the U.S. Court of Appeals for the Fifth Circuit. Separately, some of the defendants have petitioned the FCC to address these issues on an industry-wide basis. As both an IXC and a LEC, we both pay and assess significant amounts of the charges in question. The outcome of these disputes and lawsuits, as well as any related regulatory proceedings that could ensue, could affect our financial results and are currently not predictable. Billing Practices Suits In June 2017, a former employee filed an employment lawsuit against CenturyLink claiming that she was wrongfully terminated for alleging that CenturyLink charged some of our retail customers for products and services they did not authorize. Starting shortly thereafter and continuing since then and based in part on the allegations made by the former employee, several legal proceedings have been filed. In June 2017, McLeod v. CenturyLink, a putative consumer class action, was filed against CenturyLink in the U.S. District Court for the Central District of California alleging that CenturyLink charged some of its retail customers for products and services they did not authorize. A number of other complaints asserting similar claims have been filed in other federal and state courts, as well. The lawsuits assert claims including fraud, unfair competition, and unjust enrichment. Also, in June 2017, Craig. v. CenturyLink, Inc., et al., a putative securities investor class action, was filed in U.S. District Court for the Southern District of New York, alleging that CenturyLink failed to disclose material information regarding improper sales practices, and asserting federal securities law claims. A number of other cases asserting similar claims have also been filed. Both the putative consumer class actions and the putative securities investor class actions have been transferred to the U.S. District Court for the District of Minnesota for coordinated and consolidated pretrial proceedings as In Re: CenturyLink Sales Practices and Securities Litigation. Beginning June 2017, CenturyLink also received several shareholder derivative demands addressing related topics. In August 2017, CenturyLink's Board of Directors formed a special litigation committee of outside directors to address the allegations of impropriety contained in the shareholder derivative demands. In April 2018, the special litigation committee concluded its review of the derivative demands and declined to take further action. Since then, another demand has been received, and six derivative cases were filed. Two of these cases, Castagna v. Post and Pinsly v. Post, were filed in Louisiana state court in the Fourth Judicial District Court for the Parish of Ouachita; four others, Ault v. Post, Barbree v. Post, Flanders v. Post, and Palkon v. Boulet, were filed in Louisiana federal court in the Monroe Division of the Western District of Louisiana. These cases have been brought on behalf of CenturyLink against certain current and former officers and directors of the Company and seek damages for alleged breaches of fiduciary duties. In July 2017, the Minnesota state attorney general filed State of Minnesota v. CenturyTel Broadband Services LLC, et al. in the Asoka County Minnesota District Court, alleging claims of fraud and deceptive trade practices relating to improper consumer sales practices. The suit seeks an order of restitution on behalf of all CenturyLink customers, civil penalties, injunctive relief, and costs and fees. Additionally, we and other CenturyLink affiliates have received and responded to information requests and inquiries from other states. Other Proceedings, Disputes and Contingencies 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 individually 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 us. The matters listed above in this Note do not reflect all of our contingencies. For additional information on our contingencies, see Note 15 to the financial statements included in Item 8 of Part II of our annual report on Form 10-K for the year ended December 31, 2017. The ultimate outcome of the above-described matters may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our statements appearing above in this Note, and proceedings currently viewed as immaterial by us may ultimately materially impact us. |
Dividends
Dividends | 9 Months Ended |
Sep. 30, 2018 | |
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 nine months ended September 30, 2018 and 2017 , we declared and paid dividends of $925 million and $800 million , respectively, 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 | 9 Months Ended |
Sep. 30, 2018 | |
Additional Financial Information Disclosure [Abstract] | |
Other Financial Information | Other Financial Information Other Current Assets The following table presents details of other current assets reflected in our consolidated balance sheets: September 30, 2018 December 31, 2017 (Dollars in millions) Prepaid expenses $ 57 42 Contract acquisition costs 52 — Contract assets 155 49 Other 14 7 Total other current assets $ 278 98 |
Labor Union Contracts
Labor Union Contracts | 9 Months Ended |
Sep. 30, 2018 | |
Labor Union Contracts [Abstract] | |
Labor Union Contracts | Labor Union Contracts As of September 30, 2018 , approximately 47% , of our employees were members of various bargaining units represented by the Communication Workers of America and the International Brotherhood of Electrical Workers. We believe that relations with our employees continue to be generally good. |
Background (Policies)
Background (Policies) | 9 Months Ended |
Sep. 30, 2018 | |
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. |
Segments | Segments 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 have one reportable segment. |
Recent accounting pronouncements | Recently Adopted Accounting Pronouncements In the first quarter of 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” and ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory” . Each of these is described further below. Revenue Recognition In May 2014, the FASB issued ASU 2014-09 which replaces virtually all existing generally accepted accounting principles 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 adopted the new revenue recognition standard under the modified retrospective transition method. During the three and nine months ended September 30, 2018, we recorded a cumulative catch-up adjustment that increased our retained earnings by $19 million , net of $7 million of income taxes and $147 million , net of $50 million of income taxes, respectively. The catch-up adjustment recorded during the three months ended September 30, 2018 resulted from the identification of additional fulfillment costs that should have been considered in our adoption and from correcting certain issues in the accounting system we utilize in calculating revenue under the new revenue recognition standard. Under ASU 2014-09, we are now deferring incremental contract acquisition and fulfillment costs and are recognizing (or amortizing) such costs over either the initial contract (plus anticipated renewal contracts to which the costs relate) or the average customer life. Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average customer life of approximately 49 months for our business customers and 30 months for our consumer customers and are included in cost of services and products and selling, general and administrative expenses in our consolidated statement of operations. The amounts of these deferred costs that are anticipated to be amortized in the next twelve months are included in other current assets on our consolidated balance sheets See Note 3—Revenue Recognition for additional information. Income Taxes ASU 2016-16 eliminates the current prohibition on the recognition of the income tax effects on the transfer of assets among our subsidiaries. Prospectively, 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. The adoption of ASU 2016-16 did not have a material impact to our consolidated financial statements. Recently Issued Accounting Pronouncements Goodwill Impairment In January 2017, the FASB issued 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 its 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 it 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. Financial Instruments In June 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 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 In February 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 under GAAP are currently not required to be reflected on their balance sheets. ASU 2016-02 is effective for annual and interim periods beginning January 1, 2019. 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 transition approach includes a number of optional practical expedients that we may elect to apply. In January 2018, the FASB issued ASU 2018-01, “ Leases: Land Easement Practical Expedient for Transition to ASU 2016-0 2" ("ASU 2018-01"). ASU 2018-01 permits reporting companies to elect to forego reassessments of land easements that exist or expire before the entity’s adoption of ASU 2016-02 and that were not previously accounted for as leases. We plan to adopt ASU 2018-01 at the same time we adopt ASU 2016-02. In July 2018, the FASB issued ASU 2018-11, " Leases: Targeted Improvements " ("ASU 2018-11"). ASU 2018-11 provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We have not yet determined whether we will use ASU 2018-11's newly permitted adoption method. We are in the process of implementing a new lease administration and accounting system. We plan to adopt ASU 2016-02 and ASU 2018-01 effective January 1, 2019. The adoption of ASU 2016-02 will result in our recognition of right of use assets and lease liabilities that we have not previously recorded. Although we believe it is premature as of the date of this report to provide any estimate of the impact of adopting ASU 2016-02, we do expect that it will have a material impact on our consolidated financial statements. |
Goodwill, Customer Relationsh_2
Goodwill, Customer Relationships and Other Intangible Assets (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Intangible Assets and Goodwill | Goodwill, customer relationships and other intangible assets consisted of the following: September 30, 2018 December 31, 2017 (Dollars in millions) Goodwill $ 9,360 9,360 Customer relationships, less accumulated amortization of $4,693 and $4,337 $ 1,006 1,362 Other intangible assets, less accumulated amortization of $1,684 and $1,619 $ 328 379 |
Schedule of Finite-Lived Intangible Assets, Future Amortization Expense | We estimate that total amortization expense for intangible assets for the years ending December 31, 2018 through 2022 will be as follows: (Dollars in millions) 2018 (remaining three months) $ 141 2019 519 2020 452 2021 142 2022 38 |
Revenue Recognition (Tables)
Revenue Recognition (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Revenue from Contract with Customer [Abstract] | |
Schedule of new accounting pronouncements and changes in accounting principles | The following tables present our reported results under ASC 606 and a reconciliation to results using the historical accounting method: Three Months Ended September 30, 2018 Reported as of September 30, 2018 Impact of ASC 606 ASC 605 Historical Adjusted Amount (Dollars in millions) Operating revenues $ 2,149 (13 ) 2,136 Cost of services and products (exclusive of depreciation and amortization) 697 3 700 Selling, general and administrative 172 — 172 Income tax expense 111 (4 ) 107 Net income 453 (12 ) 441 Nine Months Ended September 30, 2018 Reported as of September 30, 2018 Impact of ASC 606 ASC 605 Historical Adjusted Amount (Dollars in millions) Operating revenues $ 6,380 (22 ) 6,358 Cost of services and products (exclusive of depreciation and amortization) 2,106 15 2,121 Selling, general and administrative 602 (2 ) 600 Income tax expense 322 (9 ) 313 Net income 1,260 (26 ) 1,234 The following table presents a reconciliation of certain consolidated balance sheet captions under ASC 606 to the balance sheet results using the historical accounting method: As of September 30, 2018 Reported Balances as of September 30, 2018 Impact of ASC 606 ASC 605 Historical Adjusted Balances (Dollars in millions) Other current assets $ 278 (268 ) 10 Other long-term assets, net 126 (20 ) 106 Deferred revenue 377 (136 ) 241 Deferred income taxes, net 1,062 (59 ) 1,003 Other long-term liabilities 448 79 527 Accumulated deficit (231 ) (172 ) (403 ) |
Disaggregation of revenue | The following tables provide disaggregation of revenue from contracts with customers based on service offerings for the three and nine months ended September 30, 2018 , respectively. It also shows the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards. The adjustment of $10 million noted above was recorded to transport and infrastructure for the three months ended September 30, 2018. Three Months Ended September 30, 2018 Total Revenue Adjustments for Non-ASC 606 Revenue (7) Total Revenue from Contracts with Customers (Dollars in millions) IP and data services (1) $ 155 — 155 Transport and infrastructure (2) 739 (29 ) 710 Voice and collaboration (3) 448 — 448 IT and managed services (4) 2 — 2 Regulatory revenue (5) 53 (53 ) — Affiliate revenue (6) 752 — 752 Total revenues $ 2,149 (82 ) 2,067 Timing of revenue Goods transferred at a point in time $ 13 Services performed over time 2,054 Total revenues from contracts with customers $ 2,067 Nine Months Ended September 30, 2018 Total Revenue Adjustments for Non-ASC 606 Revenue (7) Total Revenue from Contracts with Customers (Dollars in millions) IP and data services (1) $ 460 — 460 Transport and infrastructure (2) 2,216 (83 ) 2,133 Voice and collaboration (3) 1,370 — 1,370 IT and managed services (4) 6 — 6 Regulatory revenues (5) 157 (157 ) — Affiliate revenues (6) 2,171 — 2,171 Total revenues $ 6,380 (240 ) 6,140 Timing of revenue Goods transferred at a point in time $ 35 Services performed over time 6,105 Total revenues from contracts with customers $ 6,140 (1 ) Includes primarily VPN data networks, Ethernet, IP and other ancillary services (2 ) Includes primarily broadband, private line (including business data services) and other ancillary services. (3 ) Includes local voice, including wholesale voice, and other ancillary services. (4 ) Includes IT services and managed services revenues. (5 ) Includes CAF Phase I, CAF Phase 2 and federal and state USF support revenue. (6 ) Includes telecommunications and data services we bill to our affiliates. (7 ) Includes regulatory revenues, lease revenue, sublease rental income, which are not within the scope of ASC 606. Our operating revenues for our products and services consisted of the following categories: Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 (Dollars in millions) IP and data services $ 155 161 460 475 Transport and infrastructure 739 751 2,216 2,268 Voice and collaboration 448 492 1,370 1,504 IT and managed services 2 — 6 — Regulatory revenues 53 52 157 159 Affiliates services 752 685 2,171 2,030 Total operating revenues $ 2,149 2,141 6,380 6,436 |
Contract with customer, asset and liability | The following table provides balances of customer receivables, contract assets and contract liabilities as of September 30, 2018 and January 1, 2018: September 30, 2018 January 1, 2018 (Dollars in millions) Customer receivables (1) $ 573 631 Contract liabilities 125 78 Contract assets 228 93 (1) Gross customer receivables of $619 million and $669 million , net of allowance for doubtful accounts of $46 million and $38 million , at September 30, 2018 and January 1, 2018, respectively. |
Capitalized contract cost | The following table provides changes in our contract acquisition costs and fulfillment costs: Three Months Ended Nine Months Ended Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs (Dollars in millions) Beginning of period balance $ 89 58 91 61 Costs incurred 29 13 45 20 Amortization (29 ) (13 ) (47 ) (23 ) End of period balance $ 89 58 89 58 |
Long-Term Debt and Revolving _2
Long-Term Debt and Revolving Promissory Note (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Debt Disclosure [Abstract] | |
Schedule of long-term debt | The following chart reflects (i) the consolidated long-term debt of Qwest Corporation and its subsidiaries, including unamortized discounts and premiums, unamortized debt issuance costs and (ii) note payable - affiliate: Interest Rates Maturities September 30, 2018 December 31, 2017 (Dollars in millions) Senior notes 6.125% - 7.750% 2021 - 2057 $ 5,955 7,294 Term loan 4.250% 2025 100 100 Capital lease and other obligations Various Various 25 36 Unamortized (discounts) premiums, net (1 ) 1 Unamortized debt issuance costs (116 ) (150 ) Total long-term debt 5,963 7,281 Less current maturities (13 ) (17 ) Long-term debt, excluding current maturities $ 5,950 7,264 Note payable - affiliate 5.860% 2022 $ 1,008 965 |
Schedule of maturities of long-term debt | Set forth below is the aggregate principal amount of our long-term debt (excluding unamortized premiums and discounts and unamortized debt issuance costs and other and excluding note payable-affiliate) maturing during the following years: (Dollars in millions) 2018 (remaining three months) $ 4 2019 11 2020 5 2021 951 2022 — 2023 and thereafter 5,109 Total long-term debt $ 6,080 |
Fair Value Disclosure (Tables)
Fair Value Disclosure (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Fair Value Disclosures [Abstract] | |
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: September 30, 2018 December 31, 2017 Input Level Carrying Amount Fair Value Carrying Amount Fair Value (Dollars in millions) Liabilities—Long-term debt, excluding capital lease and other obligations 2 $ 5,938 5,867 7,245 7,080 |
Products and Services Revenues
Products and Services Revenues (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Revenue from Contract with Customer [Abstract] | |
Disaggregation of revenue | The following tables provide disaggregation of revenue from contracts with customers based on service offerings for the three and nine months ended September 30, 2018 , respectively. It also shows the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards. The adjustment of $10 million noted above was recorded to transport and infrastructure for the three months ended September 30, 2018. Three Months Ended September 30, 2018 Total Revenue Adjustments for Non-ASC 606 Revenue (7) Total Revenue from Contracts with Customers (Dollars in millions) IP and data services (1) $ 155 — 155 Transport and infrastructure (2) 739 (29 ) 710 Voice and collaboration (3) 448 — 448 IT and managed services (4) 2 — 2 Regulatory revenue (5) 53 (53 ) — Affiliate revenue (6) 752 — 752 Total revenues $ 2,149 (82 ) 2,067 Timing of revenue Goods transferred at a point in time $ 13 Services performed over time 2,054 Total revenues from contracts with customers $ 2,067 Nine Months Ended September 30, 2018 Total Revenue Adjustments for Non-ASC 606 Revenue (7) Total Revenue from Contracts with Customers (Dollars in millions) IP and data services (1) $ 460 — 460 Transport and infrastructure (2) 2,216 (83 ) 2,133 Voice and collaboration (3) 1,370 — 1,370 IT and managed services (4) 6 — 6 Regulatory revenues (5) 157 (157 ) — Affiliate revenues (6) 2,171 — 2,171 Total revenues $ 6,380 (240 ) 6,140 Timing of revenue Goods transferred at a point in time $ 35 Services performed over time 6,105 Total revenues from contracts with customers $ 6,140 (1 ) Includes primarily VPN data networks, Ethernet, IP and other ancillary services (2 ) Includes primarily broadband, private line (including business data services) and other ancillary services. (3 ) Includes local voice, including wholesale voice, and other ancillary services. (4 ) Includes IT services and managed services revenues. (5 ) Includes CAF Phase I, CAF Phase 2 and federal and state USF support revenue. (6 ) Includes telecommunications and data services we bill to our affiliates. (7 ) Includes regulatory revenues, lease revenue, sublease rental income, which are not within the scope of ASC 606. Our operating revenues for our products and services consisted of the following categories: Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 (Dollars in millions) IP and data services $ 155 161 460 475 Transport and infrastructure 739 751 2,216 2,268 Voice and collaboration 448 492 1,370 1,504 IT and managed services 2 — 6 — Regulatory revenues 53 52 157 159 Affiliates services 752 685 2,171 2,030 Total operating revenues $ 2,149 2,141 6,380 6,436 |
Other Financial Information (Ta
Other Financial Information (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Additional Financial Information Disclosure [Abstract] | |
Schedule of components other current assets | The following table presents details of other current assets reflected in our consolidated balance sheets: September 30, 2018 December 31, 2017 (Dollars in millions) Prepaid expenses $ 57 42 Contract acquisition costs 52 — Contract assets 155 49 Other 14 7 Total other current assets $ 278 98 |
Background (Details)
Background (Details) $ in Millions | 9 Months Ended | 12 Months Ended | |||
Sep. 30, 2018USD ($)statesegment | Dec. 31, 2017USD ($) | Jun. 30, 2018USD ($) | Jun. 30, 2017USD ($) | Dec. 31, 2016USD ($) | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||||
Number of states in which entity operates | state | 14 | ||||
Number of reportable segments | segment | 1 | ||||
Provisional income tax expense (benefit) | $ (555) | ||||
Provisional income tax expense (benefit), adjustment | $ 137 | ||||
Business Customer | |||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||||
Amortization period (in months) | 49 months | ||||
Consumer Customers | |||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||||
Amortization period (in months) | 30 months | ||||
Retained Earnings | Accounting Standards Update 2014-09 | |||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||||
Cumulative net effect of adoption of ASU 2014-09, Revenue from Contracts with Customers | 147 | $ 19 | $ 0 | $ 0 | |
Cumulative effect of new accounting principle in period of adoption, tax | $ 50 | $ 7 |
Goodwill, Customer Relationsh_3
Goodwill, Customer Relationships and Other Intangible Assets - Schedule of Goodwill (Details) - USD ($) $ in Millions | Sep. 30, 2018 | Dec. 31, 2017 |
Finite-Lived Intangible Assets [Line Items] | ||
Goodwill | $ 9,360 | $ 9,360 |
Customer relationships | ||
Finite-Lived Intangible Assets [Line Items] | ||
Finite-lived intangible assets, net | 1,006 | 1,362 |
Accumulated amortization | 4,693 | 4,337 |
Other Intangible Assets | ||
Finite-Lived Intangible Assets [Line Items] | ||
Finite-lived intangible assets, net | 328 | 379 |
Accumulated amortization | $ 1,684 | $ 1,619 |
Goodwill, Customer Relationsh_4
Goodwill, Customer Relationships and Other Intangible Assets - Schedule of Future Amortization Expense (Details) $ in Millions | Sep. 30, 2018USD ($) |
Goodwill and Intangible Assets Disclosure [Abstract] | |
2018 (remaining three months) | $ 141 |
2,019 | 519 |
2,020 | 452 |
2,021 | 142 |
2,022 | $ 38 |
Goodwill, Customer Relationsh_5
Goodwill, Customer Relationships and Other Intangible Assets - Additional Information (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||||
Intangible assets, gross (including goodwill) | $ 17,100 | $ 17,100 | ||
Amortization of intangible assets | $ 144 | $ 166 | $ 440 | $ 507 |
Revenue Recognition - Additiona
Revenue Recognition - Additional Information (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | 9 Months Ended | |||
Sep. 30, 2018 | Sep. 30, 2017 | Jun. 30, 2018 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | |
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||||
Operating revenues | $ 2,149 | $ 2,141 | $ 6,380 | $ 6,436 | ||
Income tax expense | 111 | 168 | $ 322 | 512 | ||
Consumer Customers | ||||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||||
Length of customer life | 30 months | |||||
Business Customer | ||||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||||
Length of customer life | 49 months | |||||
Contract Fulfillment Costs | ||||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||||
Fulfillment costs | 58 | $ 58 | $ 58 | $ 61 | ||
Voice & Collaboration | ||||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||||
Operating revenues | 448 | 492 | 1,370 | 1,504 | ||
Transport & Infrastructure | ||||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||||
Operating revenues | 739 | $ 751 | $ 2,216 | $ 2,268 | ||
Minimum | ||||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||||
Revenue from contract with customer, contract term | 1 year | |||||
Customer relationship period | 10 years | |||||
Maximum | ||||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||||
Revenue from contract with customer, contract term | 7 years | |||||
Customer relationship period | 20 years | |||||
Impact of 606 | Accounting Standards Update 2014-09 | ||||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||||
Operating revenues | (13) | $ (22) | ||||
Income tax expense | (4) | (9) | ||||
Costs and expenses (less than) | $ 1 | $ 1 | ||||
Impact of 606 | Accounting Standards Update 2014-09 | Consumer | ||||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||||
Operating revenues | 10 | |||||
Impact of 606 | Accounting Standards Update 2014-09 | Contract Fulfillment Costs | ||||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||||
Fulfillment costs | $ 24 |
Revenue Recognition - Effects o
Revenue Recognition - Effects of ASC 606 (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | |
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | |||||
Operating revenues | $ 2,149 | $ 2,141 | $ 6,380 | $ 6,436 | |
Cost of services and products (exclusive of depreciation and amortization) | 697 | 742 | 2,106 | 2,185 | |
Selling, general and administrative | 172 | 231 | 602 | 710 | |
Income tax expense | 111 | $ 168 | 322 | $ 512 | |
Net income | 453 | 1,260 | |||
Other current assets | 278 | 278 | $ 98 | ||
Other long-term assets, net | 126 | 126 | |||
Deferred revenue | 377 | 377 | |||
Deferred income taxes, net | 1,062 | 1,062 | 1,001 | ||
Other long-term liabilities | 448 | 448 | |||
Accumulated deficit | (231) | (231) | $ (713) | ||
Impact of 606 | Accounting Standards Update 2014-09 | |||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | |||||
Operating revenues | (13) | (22) | |||
Cost of services and products (exclusive of depreciation and amortization) | 3 | 15 | |||
Selling, general and administrative | 0 | (2) | |||
Income tax expense | (4) | (9) | |||
Net income | (12) | (26) | |||
Other current assets | (268) | (268) | |||
Other long-term assets, net | (20) | (20) | |||
Deferred revenue | (136) | (136) | |||
Deferred income taxes, net | (59) | (59) | |||
Other long-term liabilities | 79 | 79 | |||
Accumulated deficit | (172) | (172) | |||
Calculated under Revenue Guidance in Effect before Topic 606 | |||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | |||||
Operating revenues | 2,136 | 6,358 | |||
Cost of services and products (exclusive of depreciation and amortization) | 700 | 2,121 | |||
Selling, general and administrative | 172 | 600 | |||
Income tax expense | 107 | 313 | |||
Net income | 441 | 1,234 | |||
Other current assets | 10 | 10 | |||
Other long-term assets, net | 106 | 106 | |||
Deferred revenue | 241 | 241 | |||
Deferred income taxes, net | 1,003 | 1,003 | |||
Other long-term liabilities | 527 | 527 | |||
Accumulated deficit | $ (403) | $ (403) |
Revenue Recognition - Disaggreg
Revenue Recognition - Disaggregation of Revenue (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Operating revenues | $ 2,149 | $ 2,141 | $ 6,380 | $ 6,436 |
Adjustments for non-ASC 606 revenue | (82) | (240) | ||
Total revenues from contracts with customers | 2,067 | 6,140 | ||
Transferred at Point in Time | ||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Total revenues from contracts with customers | 13 | 35 | ||
Transferred over Time | ||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Total revenues from contracts with customers | 2,054 | 6,105 | ||
IP & Data Services | ||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Operating revenues | 155 | 161 | 460 | 475 |
Adjustments for non-ASC 606 revenue | 0 | 0 | ||
Total revenues from contracts with customers | 155 | 460 | ||
Transport & Infrastructure | ||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Operating revenues | 739 | 751 | 2,216 | 2,268 |
Adjustments for non-ASC 606 revenue | (29) | (83) | ||
Total revenues from contracts with customers | 710 | 2,133 | ||
Voice & Collaboration | ||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Operating revenues | 448 | 492 | 1,370 | 1,504 |
Adjustments for non-ASC 606 revenue | 0 | 0 | ||
Total revenues from contracts with customers | 448 | 1,370 | ||
IT & Managed Services | ||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Operating revenues | 2 | 0 | 6 | 0 |
Adjustments for non-ASC 606 revenue | 0 | 0 | ||
Total revenues from contracts with customers | 2 | 6 | ||
Regulatory Revenue | ||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Operating revenues | 53 | 52 | 157 | 159 |
Adjustments for non-ASC 606 revenue | (53) | (157) | ||
Total revenues from contracts with customers | 0 | 0 | ||
Affiliate services | ||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Operating revenues | 752 | $ 685 | 2,171 | $ 2,030 |
Adjustments for non-ASC 606 revenue | 0 | 0 | ||
Total revenues from contracts with customers | $ 752 | $ 2,171 |
Revenue Recognition - Contract
Revenue Recognition - Contract with Customer, Asset and Liability (Details) - USD ($) $ in Millions | Sep. 30, 2018 | Jan. 01, 2018 |
Revenue from Contract with Customer [Abstract] | ||
Customer receivables | $ 573 | $ 631 |
Contract liabilities | 125 | 78 |
Contract assets | 228 | 93 |
Accounts receivable, gross | 619 | 669 |
Allowance for doubtful accounts | $ 46 | $ 38 |
Revenue Recognition - Additio_2
Revenue Recognition - Additional Information, Performance Obligation (Details) $ in Millions | Sep. 30, 2018USD ($) |
Revenue from Contract with Customer [Abstract] | |
Remaining performance obligation | $ 391 |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2018-10-01 | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | |
Remaining performance obligation, percentage | 98.00% |
Expected timing of satisfaction, period | 2 years 3 months |
Revenue Recognition - Capitaliz
Revenue Recognition - Capitalized Contract Costs (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended |
Sep. 30, 2018 | Sep. 30, 2018 | |
Contract Acquisition Costs | ||
Capitalized Contract Cost [Roll Forward] | ||
Beginning of period balance | $ 89 | $ 91 |
Costs incurred | 29 | 45 |
Amortization | (29) | (47) |
End of period balance | 89 | 89 |
Contract Fulfillment Costs | ||
Capitalized Contract Cost [Roll Forward] | ||
Beginning of period balance | 58 | 61 |
Costs incurred | 13 | 20 |
Amortization | (13) | (23) |
End of period balance | $ 58 | $ 58 |
Long-Term Debt and Revolving _3
Long-Term Debt and Revolving Promissory Note - Schedule of Long Term Debt (Details) - USD ($) $ in Millions | Sep. 30, 2018 | Dec. 31, 2017 |
Long-term debt | ||
Less current maturities | $ (13) | $ (17) |
Long-term debt, excluding current maturities | 5,950 | 7,264 |
Note payable - affiliate | 1,008 | 965 |
Qwest Corporation | ||
Long-term debt | ||
Capital lease and other obligations | 25 | 36 |
Unamortized (discounts) premiums, net | (1) | 1 |
Unamortized debt issuance costs | (116) | (150) |
Total long-term debt | 5,963 | 7,281 |
Less current maturities | (13) | (17) |
Long-term debt, excluding current maturities | 5,950 | 7,264 |
Qwest Corporation | Senior notes | ||
Long-term debt | ||
Long-term debt, gross | $ 5,955 | 7,294 |
Qwest Corporation | Senior notes | Minimum | ||
Long-term debt | ||
Stated interest rate | 6.125% | |
Qwest Corporation | Senior notes | Maximum | ||
Long-term debt | ||
Stated interest rate | 7.75% | |
Qwest Corporation | Term loan | ||
Long-term debt | ||
Stated interest rate | 4.25% | |
Long-term debt, gross | $ 100 | 100 |
Qwest Corporation | Loans payable | Affiliated entity | ||
Long-term debt | ||
Weighted average interest rate | 5.86% | |
Note payable - affiliate | $ 1,008 | $ 965 |
Long-Term Debt and Revolving _4
Long-Term Debt and Revolving Promissory Note - Additional Information (Details) - USD ($) | 3 Months Ended | |||
Sep. 30, 2018 | Dec. 31, 2017 | Sep. 30, 2017 | Apr. 18, 2012 | |
Long-term debt | ||||
Note payable - affiliate | $ 1,008,000,000 | $ 965,000,000 | ||
Interest | 58,000,000 | 77,000,000 | ||
Repayments of debt | 1,300,000,000 | |||
Loans payable | Qwest Corporation | Affiliated entity | ||||
Long-term debt | ||||
Debt instrument, face amount | $ 965,000,000 | $ 1,000,000,000 | ||
Note payable - affiliate | $ 1,008,000,000 | $ 965,000,000 | ||
Weighted average interest rate | 5.86% | |||
Interest | $ 15,000,000 | |||
Senior notes | Qwest Notes Due 2051 | ||||
Long-term debt | ||||
Repayments of debt | $ 164,000,000 | |||
Stated interest rate | 7.50% | |||
Senior notes | Qwest Notes due 2052 | ||||
Long-term debt | ||||
Repayments of debt | $ 925,000,000 | |||
Stated interest rate | 7.00% | |||
Senior notes | Qwest Notes 2035 | ||||
Long-term debt | ||||
Repayments of debt | $ 250,000,000 | |||
Stated interest rate | 7.25% |
Long-Term Debt and Revolving _5
Long-Term Debt and Revolving Promissory Note - Schedule of Debt Maturity (Details) $ in Millions | Sep. 30, 2018USD ($) |
Debt Disclosure [Abstract] | |
2018 (remaining three months) | $ 4 |
2,019 | 11 |
2,020 | 5 |
2,021 | 951 |
2,022 | 0 |
2023 and thereafter | 5,109 |
Total long-term debt | $ 6,080 |
Fair Value Disclosure (Details)
Fair Value Disclosure (Details) - Fair value measurements, nonrecurring - Fair value inputs, Level 2 - USD ($) $ in Millions | Sep. 30, 2018 | Dec. 31, 2017 |
Carrying Amount | ||
Liabilities | ||
Liabilities—Long-term debt, excluding capital lease and other obligations | $ 5,938 | $ 7,245 |
Fair Value | ||
Liabilities | ||
Liabilities—Long-term debt, excluding capital lease and other obligations | $ 5,867 | $ 7,080 |
Products and Services Revenue_2
Products and Services Revenues - Additional Information (Details) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018USD ($) | Sep. 30, 2017USD ($) | Sep. 30, 2018USD ($)category | Sep. 30, 2017USD ($) | |
Revenue from Contract with Customer [Abstract] | ||||
Number of categories of products and services | category | 6 | |||
Universal service funds taxes and surcharges | $ | $ 28 | $ 33 | $ 93 | $ 100 |
Products and Services Revenue_3
Products and Services Revenues - Operating Revenues for Products and Services (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Disaggregation of Revenue [Line Items] | ||||
Operating revenues | $ 2,149 | $ 2,141 | $ 6,380 | $ 6,436 |
IP & Data Services | ||||
Disaggregation of Revenue [Line Items] | ||||
Operating revenues | 155 | 161 | 460 | 475 |
Transport & Infrastructure | ||||
Disaggregation of Revenue [Line Items] | ||||
Operating revenues | 739 | 751 | 2,216 | 2,268 |
Voice & Collaboration | ||||
Disaggregation of Revenue [Line Items] | ||||
Operating revenues | 448 | 492 | 1,370 | 1,504 |
IT & Managed Services | ||||
Disaggregation of Revenue [Line Items] | ||||
Operating revenues | 2 | 0 | 6 | 0 |
Regulatory Revenue | ||||
Disaggregation of Revenue [Line Items] | ||||
Operating revenues | 53 | 52 | 157 | 159 |
Affiliate services | ||||
Disaggregation of Revenue [Line Items] | ||||
Operating revenues | $ 752 | $ 685 | $ 2,171 | $ 2,030 |
Commitments and Contingencies_2
Commitments and Contingencies and Other Items (Details) $ in Millions | 6 Months Ended | 9 Months Ended |
Sep. 30, 2018USD ($)lawsuit | Sep. 30, 2018USD ($)patentlawsuit | |
Loss Contingencies [Line Items] | ||
Estimate of possible loss | $ | $ 9 | $ 9 |
Number of claims | 6 | |
Number of patents allegedly infringed (minimum) | patent | 1 | |
Louisiana State Court | ||
Loss Contingencies [Line Items] | ||
Number of claims | 2 | |
Louisiana Federal Court | ||
Loss Contingencies [Line Items] | ||
Number of claims | 4 | |
Interexchange carriers | Subsidiaries of CenturyLink, Inc. | ||
Loss Contingencies [Line Items] | ||
Number of lawsuits (approximately) | 100 | 100 |
Dividends (Details)
Dividends (Details) - USD ($) $ in Millions | Mar. 31, 2017 | Sep. 30, 2018 | Sep. 30, 2017 |
Dividends [Abstract] | |||
Dividends declared and paid to Qwest Services Corporation | $ 925 | $ 800 | |
Dividend of equity interest in limited liability company to Qwest Services Corporation | $ 12 |
Other Financial Information (De
Other Financial Information (Details) - USD ($) $ in Millions | Sep. 30, 2018 | Dec. 31, 2017 |
Prepaid Expense and Other Assets, Current [Abstract] | ||
Prepaid expenses | $ 57 | $ 42 |
Contract acquisition costs | 52 | 0 |
Contract assets | 155 | 49 |
Other | 14 | 7 |
Total other current assets | $ 278 | $ 98 |
Labor Union Contracts (Details)
Labor Union Contracts (Details) | 9 Months Ended |
Sep. 30, 2018 | |
Unionized employees concentration risk | Total number of employees | |
Concentration Risk [Line Items] | |
Concentration risk percentage | 47.00% |