Cover
Cover - shares | 6 Months Ended | |
Jun. 30, 2020 | Aug. 07, 2020 | |
Entity Information [Line Items] | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Period End Date | Jun. 30, 2020 | |
Document Transition Report | false | |
Entity File Number | 001-03040 | |
Entity Registrant Name | Qwest Corp | |
Entity Incorporation, State or Country Code | CO | |
Entity Tax Identification Number | 84-0273800 | |
Entity Address, Address Line One | 100 CenturyLink Drive, | |
Entity Address, City or Town | Monroe, | |
Entity Address, State or Province | LA | |
Entity Address, Postal Zip Code | 71203 | |
City Area Code | 318 | |
Local Phone Number | 388-9000 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding (in shares) | 1 | |
Entity Central Index Key | 0000068622 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | false | |
6.125% Notes Due 2053 | ||
Entity Information [Line Items] | ||
Title of 12(b) Security | 6.125% Notes Due 2053 | |
Trading Symbol | CTY | |
Security Exchange Name | NYSE | |
6.875% Notes Due 2054 | ||
Entity Information [Line Items] | ||
Title of 12(b) Security | 6.875% Notes Due 2054 | |
Trading Symbol | CTV | |
Security Exchange Name | NYSE | |
6.625% Notes Due 2055 | ||
Entity Information [Line Items] | ||
Title of 12(b) Security | 6.625% Notes Due 2055 | |
Trading Symbol | CTZ | |
Security Exchange Name | NYSE | |
7.00% Notes Due 2056 | ||
Entity Information [Line Items] | ||
Title of 12(b) Security | 7.00% Notes Due 2056 | |
Trading Symbol | CTAA | |
Security Exchange Name | NYSE | |
6.5% Notes Due 2056 | ||
Entity Information [Line Items] | ||
Title of 12(b) Security | 6.5% Notes Due 2056 | |
Trading Symbol | CTBB | |
Security Exchange Name | NYSE | |
6.75% Notes Due 2057 | ||
Entity Information [Line Items] | ||
Title of 12(b) Security | 6.75% Notes Due 2057 | |
Trading Symbol | CTDD | |
Security Exchange Name | NYSE |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
OPERATING REVENUE | ||||
Total operating revenue | $ 1,799 | $ 2,028 | $ 3,717 | $ 4,058 |
OPERATING EXPENSES | ||||
Cost of services and products (exclusive of depreciation and amortization) | 490 | 565 | 963 | 1,147 |
Selling, general and administrative | 139 | 157 | 282 | 314 |
Operating expenses - affiliates | 164 | 219 | 359 | 414 |
Depreciation and amortization | 327 | 337 | 655 | 673 |
Total operating expenses | 1,120 | 1,278 | 2,259 | 2,548 |
OPERATING INCOME | 679 | 750 | 1,458 | 1,510 |
OTHER (EXPENSE) INCOME | ||||
Interest expense | (75) | (96) | (150) | (191) |
Interest expense - affiliates, net | (16) | (15) | (32) | (31) |
Other (expense) income, net | (5) | 5 | (13) | 14 |
Total other expense, net | (96) | (106) | (195) | (208) |
INCOME BEFORE INCOME TAXES | 583 | 644 | 1,263 | 1,302 |
Income tax expense | 153 | 167 | 330 | 338 |
NET INCOME | 430 | 477 | 933 | 964 |
Non-affiliate services | ||||
OPERATING REVENUE | ||||
Total operating revenue | 1,207 | 1,308 | 2,442 | 2,616 |
Affiliate Services | ||||
OPERATING REVENUE | ||||
Total operating revenue | $ 592 | $ 720 | $ 1,275 | $ 1,442 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions | Jun. 30, 2020 | Dec. 31, 2019 |
CURRENT ASSETS | ||
Cash and cash equivalents | $ 5 | $ 2 |
Accounts receivable, less allowance of $42 and $39 | 413 | 514 |
Advances to affiliates | 482 | 1,842 |
Other | 141 | 128 |
Total current assets | 1,041 | 2,486 |
Property, plant and equipment, net of accumulated depreciation of $8,020 and $7,746 | 8,294 | 8,170 |
GOODWILL AND OTHER ASSETS | ||
Goodwill | 9,360 | 9,360 |
Other intangible assets, net | 567 | 779 |
Other, net | 185 | 204 |
Total goodwill and other assets | 10,112 | 10,343 |
TOTAL ASSETS | 19,447 | 20,999 |
CURRENT LIABILITIES | ||
Current maturities of long-term debt | 302 | 1,105 |
Accounts payable | 288 | 403 |
Note payable - affiliate | 1,100 | 1,069 |
Accrued expenses and other liabilities | ||
Salaries and benefits | 184 | 276 |
Income and other taxes | 132 | 94 |
Other | 202 | 261 |
Current portion of deferred revenue | 185 | 201 |
Total current liabilities | 2,393 | 3,409 |
LONG-TERM DEBT | 4,358 | 4,846 |
DEFERRED CREDITS AND OTHER LIABILITIES | ||
Deferred income taxes, net | 1,186 | 1,198 |
Affiliate obligations, net | 673 | 717 |
Other | 714 | 712 |
Total deferred credits and other liabilities | 2,573 | 2,627 |
COMMITMENTS AND CONTINGENCIES (Note 8) | ||
STOCKHOLDER'S EQUITY | ||
Common stock - one share without par value, owned by Qwest Services Corporation | 10,050 | 10,050 |
Retained earnings | 73 | 67 |
Total stockholder's equity | 10,123 | 10,117 |
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ 19,447 | $ 20,999 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Millions | Jun. 30, 2020 | Dec. 31, 2019 |
Statement of Financial Position [Abstract] | ||
Accounts receivable, allowance | $ 42 | $ 39 |
PP&E, accumulated depreciation | $ 8,020 | $ 7,746 |
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 | 6 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | |
OPERATING ACTIVITIES | ||
Net income | $ 933 | $ 964 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 655 | 673 |
Deferred income taxes | (19) | (65) |
Provision for uncollectible accounts | 31 | 27 |
Accrued interest on affiliate note | 31 | 30 |
Net loss on early retirement of debt | 19 | 0 |
Changes in current assets and liabilities: | ||
Accounts receivable | 73 | (7) |
Accounts payable | (69) | (32) |
Accrued income and other taxes | 38 | 3 |
Other current assets and liabilities, net | (197) | (60) |
Other current assets and liabilities - affiliates, net | 0 | 1 |
Changes in other noncurrent assets and liabilities, net | 17 | 18 |
Changes in affiliate obligations, net | (36) | (44) |
Other, net | 8 | (3) |
Net cash provided by operating activities | 1,484 | 1,505 |
INVESTING ACTIVITIES | ||
Capital expenditures | (606) | (517) |
Changes in advances to affiliates | 1,360 | (303) |
Proceeds from sale of property, plant and equipment and other assets | 1 | 23 |
Net cash provided by (used in) investing activities | 755 | (797) |
FINANCING ACTIVITIES | ||
Payments of long-term debt | (1,311) | (6) |
Dividends paid to Qwest Services Corporation | (925) | (700) |
Net cash used in financing activities | (2,236) | (706) |
Net increase in cash, cash equivalents and restricted cash | 3 | 2 |
Cash, cash equivalents and restricted cash at beginning of period | 4 | 7 |
Cash, cash equivalents and restricted cash at end of period | 7 | 9 |
Supplemental cash flow information: | ||
Income taxes paid, net | (336) | (391) |
Interest Paid, Excluding Capitalized Interest, Operating Activities | (172) | (189) |
Cash, cash equivalents and restricted cash: | ||
Total | 7 | 9 |
Interest paid, capitalized interest | $ 17 | $ 13 |
CONSOLIDATED STATEMENTS OF CA_2
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | |
Statement of Cash Flows [Abstract] | ||
Interest paid, capitalized interest | $ 17 | $ 13 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY - USD ($) $ in Millions | Total | COMMON STOCK | RETAINED EARNINGS (ACCUMULATED DEFICIT) | RETAINED EARNINGS (ACCUMULATED DEFICIT)Cumulative Effect, Period of Adoption, Adjustment |
Balance at beginning of period at Dec. 31, 2018 | $ 10,050 | $ (182) | $ 22 | |
Increase (Decrease) in Stockholder's Equity | ||||
Net income | $ 964 | 964 | ||
Dividends declared to Qwest Services Corporation | (700) | (700) | ||
Balance at end of period at Jun. 30, 2019 | 10,154 | 10,050 | 104 | |
Balance at beginning of period at Mar. 31, 2019 | 10,050 | (23) | ||
Increase (Decrease) in Stockholder's Equity | ||||
Net income | 477 | 477 | ||
Dividends declared to Qwest Services Corporation | (350) | |||
Balance at end of period at Jun. 30, 2019 | 10,154 | 10,050 | 104 | |
Balance at beginning of period at Dec. 31, 2019 | 10,117 | 10,050 | 67 | $ 3 |
Increase (Decrease) in Stockholder's Equity | ||||
Net income | 933 | 933 | ||
Dividends declared to Qwest Services Corporation | (925) | (925) | ||
Other | (5) | |||
Balance at end of period at Jun. 30, 2020 | 10,123 | 10,050 | 73 | |
Balance at beginning of period at Mar. 31, 2020 | 10,050 | 68 | ||
Increase (Decrease) in Stockholder's Equity | ||||
Net income | 430 | 430 | ||
Dividends declared to Qwest Services Corporation | (425) | |||
Balance at end of period at Jun. 30, 2020 | $ 10,123 | $ 10,050 | $ 73 |
CONSOLIDATED STATEMENTS OF ST_2
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (parenthetical) $ in Millions | Jan. 01, 2020USD ($) |
RETAINED EARNINGS (ACCUMULATED DEFICIT) | |
Cumulative effect of new accounting principle in period of adoption, tax | $ 1 |
Background
Background | 6 Months Ended |
Jun. 30, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Background | Background General We are an integrated communications company engaged primarily in providing a broad array of communications services to our residential and business customers. Our specific products and services are detailed in Note 7—Products and Services Revenue of this report. We generate the majority of our total consolidated operating revenue 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, 2019, 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 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 six 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, 2019. 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, including the categorization of our revenue and expenses for the six months ended June 30, 2020 and 2019. Operating lease assets are included in Other, net under goodwill and other assets on our consolidated balance sheets. Current operating lease liabilities are included in Other under accrued expenses and other liabilities on our consolidated balance sheets. Noncurrent operating lease liabilities are included in Other under deferred credits and other liabilities on our consolidated balance sheets. Segments Our operations are integrated into and reported as part 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 SEC. Consequently, we do not provide our discrete financial information to the CODM on a regular basis. As such, we have one reportable segment. Summary of Significant Accounting Policies The significant accounting policy below is in addition to the significant accounting policies described in Note 1 — Background and Summary of Significant Accounting Policies to the consolidated financial statements and accompanying notes in Part II Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019. Change in Accounting Policy During the first quarter of 2020, we elected to change the presentation for taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, including federal and certain state Universal Service Fund ("USF") regulatory fees, to present all such taxes on a net basis in our statement of operations. Prior to the first quarter of 2020, we assessed whether we were the primary obligor or principal taxpayer for the taxes assessed in each jurisdiction where we do business. The previous policy resulted in presenting such USF fees on a gross basis within operating revenue and cost of services and products, and all other significant taxes on a net basis. We applied this change in accounting policy retrospectively during the first quarter of 2020. As a result, we have decreased both operating revenue and cost of services and products by $22 million and $23 million for the three months ended June 30, 2020 and 2019, respectively, and $47 million and $48 million for the six months ended June 30, 2020 and 2019, respectively. The change had no impact on operating income or net income in our consolidated statements of operations. Refer to our Form 8-K filing dated May 7, 2020 for further information. We changed our policy to present such taxes on the net basis and believe the new policy is preferable because of the historical and potential future regulatory rate changes outside of our control resulting in significant variability in tax and fee revenue that are not indicative of our operating performance. We believe that net presentation provides the most useful and transparent financial information and improves comparability and consistency of financial results. Operating Lease Income Qwest leases various data transmission capacity, office facilities, switching facilities and other network sites to third parties under operating leases. Lease and sublease income are included in operating revenue in the consolidated statements of operations. For the three months ended June 30, 2020 and 2019, our gross rental income was $78 million and $82 million, respectively, which represents approximately 4% and 4%, respectively, of our operating revenue for the three months ended June 30, 2020 and 2019. For the six months ended June 30, 2020 and 2019, our gross rental income was $157 million and $163 million, respectively, which represents approximately 4% and 4%, respectively, of our operating revenue for the six months ended June 30, 2020 and 2019. Recently Adopted Accounting Pronouncements Financial Instruments In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, " Measurement of Credit Losses on Financial Instruments ". 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 us to estimate the total credit losses expected on the portfolio of financial instruments. We adopted ASU 2016-13 Recently Issued Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740 ). ASU 2019-12 removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 will become effective for us in the first quarter of fiscal 2021 and early adoption is permitted. We do not believe the adoption will have a significant impact on our consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, it will be in effect for a limited time through December 31, 2022. We are evaluating the optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued and the related impact on our consolidated financial statements. |
Goodwill, Customer Relationship
Goodwill, Customer Relationships and Other Intangible Assets | 6 Months Ended |
Jun. 30, 2020 | |
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: June 30, 2020 December 31, 2019 (Dollars in millions) Goodwill $ 9,360 9,360 Other intangible assets subject to amortization: Customer relationships, less accumulated amortization of $5,426 and $5,231 $ 273 468 Other intangible assets, less accumulated amortization of $1,817 and $1,780 294 311 Total other intangible assets, net $ 567 779 Substantially, all of our goodwill was derived from CenturyLink's acquisition of us where the purchase price exceeded the fair value of the net assets acquired. We assess our goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment. We are required to write-down the value of goodwill in periods in which the carrying value of equity exceeds the estimated fair value of equity, limited to the amount of goodwill. Our annual impairment assessment date for goodwill is October 31, at which date we assessed goodwill at our reporting unit. In reviewing the criteria for reporting units, we have determined that we are one reporting unit. Because CenturyLink's low stock price was a trigger for impairment testing, we estimated the fair value of our operations using only the market approach in the quarter ended March 31, 2019. Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry, which have historically supported a range of fair values of annualized revenue and EBITDA multiples between 2.1x and 4.9x and 4.9x and 9.8x, respectively. We selected a revenue and EBITDA multiple within this range. As of March 31, 2019, based on our assessments performed as described above, we concluded that our goodwill was not impaired as of that date. The market multiples approach that we used in the quarter ended March 31, 2019 incorporated significant estimates and assumptions related to the forecasted results for the remainder of the year, including revenues, expenses, and the achievement of certain cost synergies. In developing the market multiple, we also considered observed trends of our industry participants. Our assessment included many qualitative factors that required significant judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the size of our impairments. During the first half of 2020, we observed a decline in CenturyLink's stock price as a result of events occurring after the end of 2019, including the COVID-19 pandemic. We evaluated whether such events would indicate the fair value of our reporting unit was below its carrying value. We believe these events have impacted the global economy more directly than us, and when considered with other factors, we have concluded it is not more likely than not that the fair value of our reporting unit was less than its carrying value for the period ended June 30, 2020. In light of the negative impacts of COVID-19 on the global economy, we will continue to evaluate the general economic trends which could have an impact on our assessment of whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. Future changes could cause our reporting unit fair value to be less than its carrying value, resulting in potential impairments of our goodwill which could have a material effect on our results of operations and financial condition. The extent of the impact, if any, will depend on future developments including the length and severity of the pandemic and its long-term impacts on the overall economy. As of June 30, 2020, the gross carrying amount of goodwill, customer relationships and other intangible assets was $17.2 billion. The total amortization expense for intangible assets for the three months ended June 30, 2020 and 2019 totaled $121 million and $134 million, respectively, and for the six months ended June 30, 2020 and 2019 totaled $245 million and $271 million, respectively. We estimate that total amortization expense for intangible assets for the years ending December 31, 2020 through 2024 will be as follows: (Dollars in millions) 2020 (remaining six months) $ 259 2021 150 2022 49 2023 39 2024 31 |
Revenue Recognition
Revenue Recognition | 6 Months Ended |
Jun. 30, 2020 | |
Revenue from Contract with Customer [Abstract] | |
Revenue Recognition | Revenue Recognition Reconciliation of Total Revenue to Revenue from Contracts with Customers The following table provides the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (Dollars in millions) Total revenue $ 1,799 2,028 3,717 4,058 Adjustments for non-ASC 606 revenue (1) (121) (125) (242) (252) Total revenue from contracts with customers $ 1,678 1,903 3,475 3,806 ______________________________________________________________________ (1) Includes regulatory revenue, lease revenue, sublease rental income and revenue from fiber capacity lease arrangements 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 June 30, 2020 and December 31, 2019: June 30, 2020 December 31, 2019 (Dollars in millions) Customer receivables (1) $ 356 430 Contract assets 13 18 Contract liabilities 294 338 ______________________________________________________________________ (1) Gross customer receivables of $390 million and $462 million, net of allowance for doubtful accounts of $34 million and $32 million, at June 30, 2020 and December 31, 2019, respectively. Contract liabilities consist of consideration we have received from our customers or billed in advance of providing goods or 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 Performance Obligations As of June 30, 2020, our estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts that are unsatisfied (or partially satisfied) is approximately $162 million. We expect to recognize approximately 98% of this revenue through 2022, with the balance recognized thereafter. These amounts exclude (i) the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), and (ii) contracts that are classified as leasing arrangements that are not subject to ASC 606 . Contract Costs The following table provides changes in our contract acquisition costs and fulfillment costs: Three Months Ended June 30, 2020 Three Months Ended June 30, 2019 Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs (Dollars in millions) Beginning of period balance $ 84 61 90 57 Costs incurred 13 6 13 15 Amortization (16) (8) (16) (12) End of period balance $ 81 59 87 60 Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs (Dollars in millions) Beginning of period balance $ 86 64 90 57 Costs incurred 27 12 29 19 Amortization (32) (17) (32) (16) End of period balance $ 81 59 87 60 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 communications 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 average contract life of 29 months for business customers. Amortized fulfillment costs are included in cost of services and products and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statements of operations. The amount 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. 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 an annual basis. |
Credit Losses on Financial Inst
Credit Losses on Financial Instruments | 6 Months Ended |
Jun. 30, 2020 | |
Credit Loss [Abstract] | |
Credit Losses on Financial Instruments | Credit Losses on Financial Instruments In accordance with ASC 326, "Financial Instruments - Credit Losses" ("ASC 326") we aggregate financial assets with similar risk characteristics to align our expected credit losses with the credit quality or deterioration over the life of such assets. We monitor certain risk characteristics within our aggregated financial assets and revise their composition accordingly, to the extent internal and external risk factors change each reporting period. Financial assets that do not share risk characteristics with other financial assets are evaluated separately. Our financial assets measured at amortized cost primarily consist of accounts receivable. In developing our accounts receivable portfolio, we pooled certain assets with similar credit risk characteristics based on the nature of our customers, their industry, policies used to grant credit terms and their historical and expected credit loss patterns. Prior to the adoption of the new credit loss standard, the allowance for doubtful accounts receivable reflected our best estimate of probable losses inherent in our receivable portfolio determined based on historical experience, specific allowances for known troubled accounts, and other currently available evidence. We implemented the new standard effective January 1, 2020, using a loss rate method to estimate our allowance for credit losses. Our current expected credit loss rate begins with the use of historical loss experience as a percentage of accounts receivable. We measure our historical loss period based on the average days to move accounts receivable to credit loss. When asset specific characteristics and current conditions change from those in the historical period, due to changes in our credit and collections strategy, certain classes of aged balances, or credit loss and recovery policies, we perform a qualitative and quantitative assessment to update our current loss rate, which as noted below has increased due to an increase in historic loss experience and weakening economic forecasts. We use regression analysis to develop an expected loss rate using historical experience and economic data over a forecast period. We measure our forecast period based on the average days to collect payment on billed accounts receivable. The historical, current, and expected credit loss rates are combined and applied to period end accounts receivable, which results in our allowance for credit losses. If there is a deterioration of a customer's financial condition or if future default rates in general differ from currently anticipated default rates (including changes caused by COVID-19), we may need to adjust the allowance for credit losses, which would affect earnings in the period that adjustments are made. The assessment of the correlation between historical observed default rates, current conditions, and forecasted economic conditions requires judgment. Alternative interpretations of these factors could have resulted in different conclusions regarding the allowance for credit losses. The amount of credit loss is sensitive to changes in circumstances and forecasted economic conditions. Our historical credit loss experience, current conditions, and forecast of economic conditions may also not be representative of the customers' actual default experience in the future. The following table presents the activity of our allowance for credit losses by accounts receivable portfolio: Business Consumer Total (Dollars in millions) Beginning balance at January 1, 2020 (1) $ 17 18 35 Provision for expected losses 17 14 31 Write-offs charged against the allowance (12) (18) (30) Recoveries collected 2 4 6 Ending Balance at June 30, 2020 $ 24 18 42 ______________________________________________________________________ (1) The beginning balance includes the cumulative effect of the adoption of new credit loss standard. For the six months ended June 30, 2020, we increased our allowance for credit losses for our business and consumer accounts receivable portfolio due to an increase in historical and expected loss experience, which we believe is predominantly attributable to the current COVID-19 induced economic slowdown, and recoveries collected. |
Long-Term Debt and Note Payable
Long-Term Debt and Note Payable - Affiliate | 6 Months Ended |
Jun. 30, 2020 | |
Debt Disclosure [Abstract] | |
Long-Term Debt and Note Payable - Affiliate | Long-Term Debt and Note Payable - Affiliate The following chart reflects (i) the consolidated long-term debt of Qwest Corporation and its subsidiaries, including finance lease and other obligations, unamortized premiums, net, unamortized debt issuance costs and (ii) note payable - affiliate: Interest Rates (1) Maturities June 30, 2020 December 31, 2019 (Dollars in millions) Senior notes 6.125% - 7.750% 2021 - 2057 $ 4,656 5,956 Term loan (2) LIBOR + 2.00% 2025 100 100 Finance lease and other obligations Various Various 7 10 Unamortized premiums, net 4 — Unamortized debt issuance costs (107) (115) Total long-term debt 4,660 5,951 Less current maturities (302) (1,105) Long-term debt, excluding current maturities $ 4,358 4,846 Note payable - affiliate 5.561% 2022 $ 1,100 1,069 _______________________________________________________________________________ (1) As of June 30, 2020. (2) Qwest Corporation's Term Loan had an interest rate of 2.180% as of June 30, 2020 and 3.800% as of December 31, 2019. Long-Term Debt Maturities Set forth below is the aggregate principal amount of our long-term debt as of June 30, 2020 (excluding unamortized premiums and discounts and unamortized debt issuance costs and excluding note payable-affiliate) maturing during the following years: (Dollars in millions) 2020 (remaining six months) $ 301 2021 951 2022 1 2023 1 2024 1 2025 and thereafter 3,508 Total long-term debt $ 4,763 Redemption of Senior Notes On January 15, 2020, Qwest Corporation fully redeemed all $850 million aggregate principal amount of its outstanding 6.875% senior notes due 2033 and all $250 million aggregate principal amount of its outstanding 7.125% senior notes due 2043. On June 29, 2020, Qwest Corporation partially redeemed $200 million aggregate principal amount of its outstanding 6.875% Notes due 2054 (the "6.875% Notes"). These transactions resulted in a loss of $19 million. On June 30, 2020, Quest Corporation issued notices to redeem the remaining $300 million in outstanding principal amount of its 6.875% Notes, effective August 7, 2020, see "Subsequent Event" below. 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 (the "Intercompany Note"). This Intercompany Note amended and replaced 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 the Intercompany 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 principal balance during the respective interest period using a weighted average per annum interest rate on the consolidated outstanding debt of CenturyLink and its subsidiaries. As of June 30, 2020, the Intercompany Note had an outstanding balance of $1.1 billion and bore interest at a weighted-average interest rate of 5.561%. As of June 30, 2020 and December 31, 2019, the Intercompany Note is reflected on our consolidated balance sheets as a current liability under "Note payable - affiliate". In accordance with the terms of the Intercompany 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. Through June 30, 2020, $135 million of such interest has been capitalized since entering into the Intercompany Note. As of June 30, 2020, $31 million of accrued interest is reflected in other current liabilities on our consolidated balance sheet. Compliance As of June 30, 2020, we believe we were in compliance with the financial covenants contained in our material debt agreements in all material respects. Other For additional information on our long-term debt and credit facilities, see Note 5—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, 2019. Subsequent Event On August 7, 2020, Qwest Corporation completed the redemption of the remaining $300 million aggregate principal amount of its outstanding 6.875% Notes. |
Fair Value Disclosure
Fair Value Disclosure | 6 Months Ended |
Jun. 30, 2020 | |
Fair Value Disclosures [Abstract] | |
Fair Value Disclosure | Fair Value Disclosure Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, advances to affiliates, accounts payable, note payable-affiliate and long-term debt, excluding finance lease and other obligations. Due to their short-term nature, the carrying amounts of our cash, cash equivalents and restricted cash, accounts receivable, advances to affiliates, accounts payable and note payable-affiliate approximate their fair values. The three input levels in the hierarchy of fair value measurements are defined by the Fair Value Measurement and Disclosure framework generally as follows: Input Level Description of Input Level 1 Observable inputs such as quoted market prices in active markets. Level 2 Inputs other than quoted prices in active markets that are either directly or indirectly observable. Level 3 Unobservable inputs in which little or no market data exists. The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding finance lease and other obligations, as well as the input level used to determine the fair values indicated below: June 30, 2020 December 31, 2019 Input Carrying Fair Carrying Fair (Dollars in millions) Liabilities—Long-term debt (excluding finance lease and other obligations) 2 $ 4,653 4,609 5,941 6,258 |
Products and Services Revenue
Products and Services Revenue | 6 Months Ended |
Jun. 30, 2020 | |
Revenue from Contract with Customer [Abstract] | |
Products and Services Revenue | Products and Services Revenue 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 revenue 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 Revenue, which consist of Connect America Fund ("CAF") support payments and other operating revenue. We receive federal support payments 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 • Affiliate Services, which are 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 revenue for our products and services consisted of the following categories: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (Dollars in millions) IP and Data Services $ 131 145 267 285 Transport and Infrastructure 651 696 1,308 1,397 Voice and Collaboration 380 419 775 837 IT and Managed Services — 1 1 2 Regulatory Revenue 45 47 91 95 Affiliate Services 592 720 1,275 1,442 Total operating revenue $ 1,799 2,028 3,717 4,058 |
Commitments, Contingencies and
Commitments, Contingencies and Other Items | 6 Months Ended |
Jun. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments, Contingencies and Other Items | Commitments, 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 and non-income tax contingencies at June 30, 2020 aggregated to approximately $23 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. Principal Proceedings 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 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, IXCs, including Sprint Communications Company L.P. ("Sprint") and various affiliates of Verizon Communications Inc. ("Verizon"), assert that federal and state laws bar LECs from collecting access charges when IXCs exchange certain types of calls between mobile and wireline devices that are routed through an IXC. Some of these IXCs have asserted claims seeking refunds of payments for access charges previously paid and relief from future access charges. In November 2015, the federal court agreed with the LECs and rejected the IXCs' contention that federal law prohibits these particular access charges. Final judgements were entered in the consolidated lawsuits, and the IXCs appealed. In May 2020, the appellate court rendered a decision in favor of the LECs. Separately, some of the defendants, including us, have petitioned the FCC to address these issues on an industry-wide basis. The outcome of these disputes and lawsuits, as well as any related regulatory proceedings that could ensue, are currently not predictable. Billing Practices Suits In June 2017, a former employee of CenturyLink filed an employment lawsuit against CenturyLink claiming that she was wrongfully terminated for alleging that CenturyLink charged some of its 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 it charged some of its retail customers for products and services they did not authorize. 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 it 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. Beginning June 2017, CenturyLink 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, derivative cases were filed in Louisiana state court in the Fourth Judicial District Court for the Parish of Ouachita and in federal court in Louisiana and Minnesota. 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. The consumer putative class actions, the securities investor putative class actions, and the federal derivative 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. Subject to confirmatory discovery and court approval, CenturyLink agreed to settle the consumer putative class actions for payments of $15.5 million to compensate class members and of up to $3.5 million for administrative costs. In the second quarter of 2019, CenturyLink accrued for these obligations, and a portion of the administrative costs has been expended in 2020. Certain class members may elect to opt out of the class settlement and pursue the resolution of their individual claims against us on these issues through various dispute resolution processes, including individual arbitration. One law firm claims to represent more than 22,000 potential class members. To the extent that a substantial number of class members, meet the contractual requirements to arbitrate, elect to opt out of the settlement (or otherwise successfully exclude their individual claims), and actually pursue arbitrations, CenturyLink and we could incur a material amount of filing and other arbitrations fees in relation to the administration of those claims. In July 2017, the Minnesota state attorney general filed State of Minnesota v. CenturyTel Broadband Services LLC, et al. in the Anoka County Minnesota District Court, alleging claims of fraud and deceptive trade practices relating to improper consumer sales practices. CenturyLink has engaged in discussions regarding potential resolutions of these claims with a number of state attorneys general, and have entered into agreements settling the Minnesota suit and certain of the consumer practices claims asserted by state attorneys general. While CenturyLink does not agree with allegations raised in these matters, it has been willing to consider reasonable settlements where appropriate. 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 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 during 2020 if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. As with all litigation, we are vigorously defending these actions and, as a matter of course, are prepared to litigate these matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities. We are subject to various federal, state and local environmental protection and health and safety laws. From time to time, we are subject to judicial and administrative proceedings brought by various governmental authorities under these laws. Several such proceedings are currently pending, but none is reasonably expected to exceed $100,000 in fines and penalties. The outcome of these other proceedings described under this heading 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 16—Commitments, Contingencies and Other Items 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, 2019. 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 | 6 Months Ended |
Jun. 30, 2020 | |
Dividends [Abstract] | |
Dividends | Dividends From time to time we may declare and pay dividends to our direct parent company, QSC, sometimes in excess of our earnings to the extent permitted by applicable law. Our debt covenants do not currently limit the amount of dividends we can pay to QSC. During the six months ended June 30, 2020 and 2019, we declared and paid dividends to QSC of $925 million and $700 million, respectively. Dividends paid are reflected on our consolidated statements of cash flows as financing activities. |
Other Financial Information
Other Financial Information | 6 Months Ended |
Jun. 30, 2020 | |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |
Other Financial Information | Other Financial Information Other Current Assets The following table presents details of other currents assets reflected in our consolidated balance sheets: June 30, 2020 December 31, 2019 (Dollars in millions) Prepaid expenses $ 56 41 Contract acquisition costs 49 50 Contract fulfillment costs 28 28 Other 8 9 Total other current assets $ 141 128 |
Labor Union Contracts
Labor Union Contracts | 6 Months Ended |
Jun. 30, 2020 | |
Risks and Uncertainties [Abstract] | |
Labor Union Contracts | Labor Union Contracts As of June 30, 2020, approximately 46% of our employees were represented by the Communication Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW"). During the third quarter of 2019, we reached new agreements with each of the CWA and IBEW, which represented all of the above noted represented employees. Therefore, there are no collective bargaining agreements that are scheduled to expire over the next 12 months. We believe relations with our employees continue to be generally good. |
Background (Policies)
Background (Policies) | 6 Months Ended |
Jun. 30, 2020 | |
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 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 SEC. Consequently, we do not provide our discrete financial information to the CODM on a regular basis. As such, we have one reportable segment. |
Operating Lease Income | Operating Lease Income Qwest leases various data transmission capacity, office facilities, switching facilities and other network sites to third parties under operating leases. Lease and sublease income are included in operating revenue in the consolidated statements of operations. |
Recent accounting pronouncements | Recently Adopted Accounting Pronouncements Financial Instruments In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, " Measurement of Credit Losses on Financial Instruments ". 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 us to estimate the total credit losses expected on the portfolio of financial instruments. We adopted ASU 2016-13 Recently Issued Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740 ). ASU 2019-12 removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 will become effective for us in the first quarter of fiscal 2021 and early adoption is permitted. We do not believe the adoption will have a significant impact on our consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, it will be in effect for a limited time through December 31, 2022. We are evaluating the optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued and the related impact on our consolidated financial statements. |
Goodwill, Customer Relationsh_2
Goodwill, Customer Relationships and Other Intangible Assets (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Intangible Assets and Goodwill | Goodwill, customer relationships and other intangible assets consisted of the following: June 30, 2020 December 31, 2019 (Dollars in millions) Goodwill $ 9,360 9,360 Other intangible assets subject to amortization: Customer relationships, less accumulated amortization of $5,426 and $5,231 $ 273 468 Other intangible assets, less accumulated amortization of $1,817 and $1,780 294 311 Total other intangible assets, net $ 567 779 |
Schedule of Finite-Lived Intangible Assets, Future Amortization Expense | We estimate that total amortization expense for intangible assets for the years ending December 31, 2020 through 2024 will be as follows: (Dollars in millions) 2020 (remaining six months) $ 259 2021 150 2022 49 2023 39 2024 31 |
Revenue Recognition (Tables)
Revenue Recognition (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
Revenue from Contract with Customer [Abstract] | |
Schedule of Revenue | The following table provides the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (Dollars in millions) Total revenue $ 1,799 2,028 3,717 4,058 Adjustments for non-ASC 606 revenue (1) (121) (125) (242) (252) Total revenue from contracts with customers $ 1,678 1,903 3,475 3,806 ______________________________________________________________________ (1) Includes regulatory revenue, lease revenue, sublease rental income and revenue from fiber capacity lease arrangements which are not within the scope of ASC 606. |
Contract with customer, asset and liability | The following table provides balances of customer receivables, contract assets and contract liabilities as of June 30, 2020 and December 31, 2019: June 30, 2020 December 31, 2019 (Dollars in millions) Customer receivables (1) $ 356 430 Contract assets 13 18 Contract liabilities 294 338 ______________________________________________________________________ (1) Gross customer receivables of $390 million and $462 million, net of allowance for doubtful accounts of $34 million and $32 million, at June 30, 2020 and December 31, 2019, respectively. |
Capitalized contract cost | The following table provides changes in our contract acquisition costs and fulfillment costs: Three Months Ended June 30, 2020 Three Months Ended June 30, 2019 Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs (Dollars in millions) Beginning of period balance $ 84 61 90 57 Costs incurred 13 6 13 15 Amortization (16) (8) (16) (12) End of period balance $ 81 59 87 60 Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs (Dollars in millions) Beginning of period balance $ 86 64 90 57 Costs incurred 27 12 29 19 Amortization (32) (17) (32) (16) End of period balance $ 81 59 87 60 |
Credit Losses on Financial In_2
Credit Losses on Financial Instruments (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
Credit Loss [Abstract] | |
Financing Receivable, Allowance for Credit Loss | The following table presents the activity of our allowance for credit losses by accounts receivable portfolio: Business Consumer Total (Dollars in millions) Beginning balance at January 1, 2020 (1) $ 17 18 35 Provision for expected losses 17 14 31 Write-offs charged against the allowance (12) (18) (30) Recoveries collected 2 4 6 Ending Balance at June 30, 2020 $ 24 18 42 ______________________________________________________________________ (1) The beginning balance includes the cumulative effect of the adoption of new credit loss standard. |
Long-Term Debt and Note Payab_2
Long-Term Debt and Note Payable - Affiliate (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
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 finance lease and other obligations, unamortized premiums, net, unamortized debt issuance costs and (ii) note payable - affiliate: Interest Rates (1) Maturities June 30, 2020 December 31, 2019 (Dollars in millions) Senior notes 6.125% - 7.750% 2021 - 2057 $ 4,656 5,956 Term loan (2) LIBOR + 2.00% 2025 100 100 Finance lease and other obligations Various Various 7 10 Unamortized premiums, net 4 — Unamortized debt issuance costs (107) (115) Total long-term debt 4,660 5,951 Less current maturities (302) (1,105) Long-term debt, excluding current maturities $ 4,358 4,846 Note payable - affiliate 5.561% 2022 $ 1,100 1,069 _______________________________________________________________________________ (1) As of June 30, 2020. (2) Qwest Corporation's Term Loan had an interest rate of 2.180% as of June 30, 2020 and 3.800% as of December 31, 2019. |
Schedule of maturities of long-term debt | Set forth below is the aggregate principal amount of our long-term debt as of June 30, 2020 (excluding unamortized premiums and discounts and unamortized debt issuance costs and excluding note payable-affiliate) maturing during the following years: (Dollars in millions) 2020 (remaining six months) $ 301 2021 951 2022 1 2023 1 2024 1 2025 and thereafter 3,508 Total long-term debt $ 4,763 |
Fair Value Disclosure (Tables)
Fair Value Disclosure (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
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 finance lease and other obligations, as well as the input level used to determine the fair values indicated below: June 30, 2020 December 31, 2019 Input Carrying Fair Carrying Fair (Dollars in millions) Liabilities—Long-term debt (excluding finance lease and other obligations) 2 $ 4,653 4,609 5,941 6,258 |
Products and Services Revenue (
Products and Services Revenue (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
Revenue from Contract with Customer [Abstract] | |
Disaggregation of revenue | Our operating revenue for our products and services consisted of the following categories: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (Dollars in millions) IP and Data Services $ 131 145 267 285 Transport and Infrastructure 651 696 1,308 1,397 Voice and Collaboration 380 419 775 837 IT and Managed Services — 1 1 2 Regulatory Revenue 45 47 91 95 Affiliate Services 592 720 1,275 1,442 Total operating revenue $ 1,799 2,028 3,717 4,058 |
Other Financial Information (Ta
Other Financial Information (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |
Schedule of components other current assets | The following table presents details of other currents assets reflected in our consolidated balance sheets: June 30, 2020 December 31, 2019 (Dollars in millions) Prepaid expenses $ 56 41 Contract acquisition costs 49 50 Contract fulfillment costs 28 28 Other 8 9 Total other current assets $ 141 128 |
Background (Details)
Background (Details) $ in Millions | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||||
Jun. 30, 2020USD ($)state | Jun. 30, 2019USD ($) | Jun. 30, 2020USD ($)statesegment | Jun. 30, 2019USD ($) | Dec. 31, 2019USD ($) | Dec. 31, 2018USD ($) | Mar. 31, 2020USD ($) | Jan. 01, 2020USD ($) | Mar. 31, 2019USD ($) | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||||||||
Number of states in which entity operates | state | 14 | 14 | |||||||
Number of reportable segments | segment | 1 | ||||||||
Revenue reduction | $ (1,799) | $ (2,028) | $ (3,717) | $ (4,058) | |||||
Cost of services and products reduction | (490) | (565) | (963) | (1,147) | |||||
Lease income | $ 78 | $ 82 | $ 157 | $ 163 | |||||
Percent of operating revenue | 4.00% | 4.00% | 4.00% | 4.00% | |||||
Cumulative adjustment | $ 10,123 | $ 10,154 | $ 10,123 | $ 10,154 | $ 10,117 | ||||
Accounting Standards Update [Extensible List] | us-gaap:AccountingStandardsUpdate201613Member | us-gaap:AccountingStandardsUpdate201602Member | |||||||
RETAINED EARNINGS (ACCUMULATED DEFICIT) | |||||||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||||||||
Cumulative adjustment | 73 | 104 | 73 | 104 | $ 67 | $ (182) | $ 68 | $ (23) | |
RETAINED EARNINGS (ACCUMULATED DEFICIT) | Cumulative Effect, Period of Adoption, Adjustment | |||||||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||||||||
Cumulative adjustment | $ 3 | $ 22 | $ 3 | ||||||
Change in Accounting Principle, Universal Service Fund | |||||||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||||||||
Revenue reduction | 22 | 23 | 47 | 48 | |||||
Cost of services and products reduction | $ 22 | $ 23 | $ 47 | $ 48 |
Goodwill, Customer Relationsh_3
Goodwill, Customer Relationships and Other Intangible Assets - Schedule of Goodwill (Details) - USD ($) $ in Millions | Jun. 30, 2020 | Dec. 31, 2019 |
Finite-Lived Intangible Assets [Line Items] | ||
Goodwill | $ 9,360 | $ 9,360 |
Finite-lived intangible assets, net | 567 | 779 |
Customer relationships | ||
Finite-Lived Intangible Assets [Line Items] | ||
Finite-lived intangible assets, net | 273 | 468 |
Accumulated amortization | 5,426 | 5,231 |
Other Intangible Assets | ||
Finite-Lived Intangible Assets [Line Items] | ||
Finite-lived intangible assets, net | 294 | 311 |
Accumulated amortization | $ 1,817 | $ 1,780 |
Goodwill, Customer Relationsh_4
Goodwill, Customer Relationships and Other Intangible Assets - Additional Information (Details) $ in Millions | Oct. 31, 2017reporting_unit | Jun. 30, 2020USD ($) | Jun. 30, 2019USD ($) | Jun. 30, 2020USD ($) | Jun. 30, 2019USD ($) |
Goodwill and Intangible Assets Disclosure [Abstract] | |||||
Number of reporting units | reporting_unit | 1 | ||||
Intangible assets, gross (including goodwill) | $ 17,200 | $ 17,200 | |||
Amortization of intangible assets | $ 121 | $ 134 | $ 245 | $ 271 |
Goodwill, Customer Relationsh_5
Goodwill, Customer Relationships and Other Intangible Assets - Schedule of Future Amortization Expense (Details) $ in Millions | Jun. 30, 2020USD ($) |
Goodwill and Intangible Assets Disclosure [Abstract] | |
2020 (remaining six months) | $ 259 |
2021 | 150 |
2022 | 49 |
2023 | 39 |
2024 | $ 31 |
Revenue Recognition - Revenue n
Revenue Recognition - Revenue not Under ASC 606 (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Revenue from Contract with Customer [Abstract] | ||||
Total revenue | $ 1,799 | $ 2,028 | $ 3,717 | $ 4,058 |
Adjustments for non-ASC 606 revenue | (121) | (125) | (242) | (252) |
Total revenue from contracts with customers | $ 1,678 | $ 1,903 | $ 3,475 | $ 3,806 |
Revenue Recognition - Contract
Revenue Recognition - Contract with Customer, Asset and Liability (Details) - USD ($) $ in Millions | Jun. 30, 2020 | Dec. 31, 2019 |
Revenue from Contract with Customer [Abstract] | ||
Customer receivables | $ 356 | $ 430 |
Contract liabilities | 294 | 338 |
Contract assets | 13 | 18 |
Accounts receivable, gross | 390 | 462 |
Allowance for doubtful accounts | $ 34 | $ 32 |
Revenue Recognition - Additiona
Revenue Recognition - Additional Information (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Revenue recognized | $ 13 | $ 4 | $ 197 | $ 265 |
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 | 29 months | |||
Minimum | ||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Contract term | 1 year | |||
Maximum | ||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Contract term | 5 years |
Revenue Recognition - Additio_2
Revenue Recognition - Additional Information, Performance Obligation (Details) $ in Millions | Jun. 30, 2020USD ($) |
Revenue from Contract with Customer [Abstract] | |
Remaining performance obligation | $ 162 |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-07-01 | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | |
Remaining performance obligation, percentage | 98.00% |
Expected timing of satisfaction, period | 2 years 6 months |
Revenue Recognition - Capitaliz
Revenue Recognition - Capitalized Contract Costs (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Contract Acquisition Costs | ||||
Capitalized Contract Cost [Roll Forward] | ||||
Beginning of period balance | $ 84 | $ 90 | $ 86 | $ 90 |
Costs incurred | 13 | 13 | 27 | 29 |
Amortization | (16) | (16) | (32) | (32) |
End of period balance | 81 | 87 | 81 | 87 |
Contract Fulfillment Costs | ||||
Capitalized Contract Cost [Roll Forward] | ||||
Beginning of period balance | 61 | 57 | 64 | 57 |
Costs incurred | 6 | 15 | 12 | 19 |
Amortization | (8) | (12) | (17) | (16) |
End of period balance | $ 59 | $ 60 | $ 59 | $ 60 |
Credit Losses on Financial In_3
Credit Losses on Financial Instruments (Details) $ in Millions | 6 Months Ended |
Jun. 30, 2020USD ($) | |
Financing Receivable, Allowance for Credit Loss [Roll Forward] | |
Beginning balance at January 1, 2020 | $ 35 |
Provision for expected losses | 31 |
Write-offs charged against the allowance | (30) |
Recoveries collected | 6 |
Ending Balance at June 30, 2020 | 42 |
Business | |
Financing Receivable, Allowance for Credit Loss [Roll Forward] | |
Beginning balance at January 1, 2020 | 17 |
Provision for expected losses | 17 |
Write-offs charged against the allowance | (12) |
Recoveries collected | 2 |
Ending Balance at June 30, 2020 | 24 |
Consumer | |
Financing Receivable, Allowance for Credit Loss [Roll Forward] | |
Beginning balance at January 1, 2020 | 18 |
Provision for expected losses | 14 |
Write-offs charged against the allowance | (18) |
Recoveries collected | 4 |
Ending Balance at June 30, 2020 | $ 18 |
Long-Term Debt and Note Payab_3
Long-Term Debt and Note Payable - Affiliate - Schedule of Long Term Debt (Details) - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2020 | Dec. 31, 2019 | |
Long-term debt | ||
Unamortized premiums, net | $ 4 | $ 0 |
Unamortized debt issuance costs | (107) | (115) |
Total long-term debt | 4,660 | 5,951 |
Less current maturities | (302) | (1,105) |
Long-term debt, excluding current maturities | 4,358 | 4,846 |
Note payable - affiliate | 1,100 | 1,069 |
Senior notes | ||
Long-term debt | ||
Long-term debt, gross | $ 4,656 | 5,956 |
Senior notes | Minimum | ||
Long-term debt | ||
Stated interest rate | 6.125% | |
Senior notes | Maximum | ||
Long-term debt | ||
Stated interest rate | 7.75% | |
Term loan | ||
Long-term debt | ||
Long-term debt, gross | $ 100 | $ 100 |
Weighted average interest rate | 2.18% | 3.80% |
Term loan | London Interbank Offered Rate (LIBOR) | ||
Long-term debt | ||
Basis spread on variable rate | 2.00% | |
Finance lease and other obligation | ||
Long-term debt | ||
Long-term debt, gross | $ 7 | $ 10 |
Note payable - affiliate | Affiliated entity | ||
Long-term debt | ||
Note payable - affiliate | $ 1,100 | $ 1,069 |
Note payable - affiliate | Affiliated entity | Qwest Corporation | ||
Long-term debt | ||
Weighted average interest rate | 5.561% |
Long-Term Debt and Note Payab_4
Long-Term Debt and Note Payable - Affiliate - Schedule of Debt Maturity (Details) $ in Millions | Jun. 30, 2020USD ($) |
Debt Disclosure [Abstract] | |
2020 (remaining six months) | $ 301 |
2021 | 951 |
2022 | 1 |
2023 | 1 |
2024 | 1 |
2025 and thereafter | 3,508 |
Long-term Debt, Total | $ 4,763 |
Long-Term Debt and Note Payab_5
Long-Term Debt and Note Payable - Affiliate - Additional Information (Details) - USD ($) | 6 Months Ended | |||||||
Jun. 30, 2020 | Jun. 30, 2019 | Aug. 07, 2020 | Jun. 29, 2020 | Jan. 15, 2020 | Dec. 31, 2019 | Sep. 30, 2017 | Apr. 18, 2012 | |
Long-term debt | ||||||||
Net loss on early retirement of debt | $ 19,000,000 | $ 0 | ||||||
Note payable - affiliate | 1,100,000,000 | $ 1,069,000,000 | ||||||
Senior notes | ||||||||
Long-term debt | ||||||||
Net loss on early retirement of debt | (19,000,000) | |||||||
Note payable - affiliate | Affiliated entity | ||||||||
Long-term debt | ||||||||
Note payable - affiliate | $ 1,100,000,000 | $ 1,069,000,000 | ||||||
Note payable - affiliate | Qwest Corporation | Affiliated entity | ||||||||
Long-term debt | ||||||||
Debt instrument, face amount | $ 965,000,000 | $ 1,000,000,000 | ||||||
Weighted average interest rate | 5.561% | |||||||
Interest costs capitalized | $ 135,000,000 | |||||||
Accrued interest | $ 31,000,000 | |||||||
6.875% Notes Due 2033 | Senior notes | ||||||||
Long-term debt | ||||||||
Repurchased face amount | $ 850,000,000 | |||||||
Stated interest rate | 6.875% | |||||||
7.125% Notes Due 2043 | Senior notes | ||||||||
Long-term debt | ||||||||
Repurchased face amount | $ 250,000,000 | |||||||
Stated interest rate | 7.125% | |||||||
6.875% Notes Due 2054 | Senior notes | ||||||||
Long-term debt | ||||||||
Repurchased face amount | $ 200,000,000 | |||||||
Stated interest rate | 6.875% | |||||||
6.875% Notes Due 2054 | Senior notes | Subsequent Event | ||||||||
Long-term debt | ||||||||
Repurchased face amount | $ 300,000,000 | |||||||
Stated interest rate | 6.875% |
Fair Value Disclosure (Details)
Fair Value Disclosure (Details) - Fair value measurements, nonrecurring - Fair value inputs, Level 2 - USD ($) $ in Millions | Jun. 30, 2020 | Dec. 31, 2019 |
Carrying Amount | ||
Liabilities | ||
Liabilities—Long-term debt (excluding finance lease and other obligations) | $ 4,653 | $ 5,941 |
Fair Value | ||
Liabilities | ||
Liabilities—Long-term debt (excluding finance lease and other obligations) | $ 4,609 | $ 6,258 |
Products and Services Revenue -
Products and Services Revenue - Additional Information (Details) | 6 Months Ended |
Jun. 30, 2020category | |
Revenue from Contract with Customer [Abstract] | |
Number of categories of products and services | 6 |
Products and Services Revenue_2
Products and Services Revenue - Operating Revenues for Products and Services (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Disaggregation of Revenue [Line Items] | ||||
Operating revenues | $ 1,799 | $ 2,028 | $ 3,717 | $ 4,058 |
IP and Data Services | ||||
Disaggregation of Revenue [Line Items] | ||||
Operating revenues | 131 | 145 | 267 | 285 |
Transport and Infrastructure | ||||
Disaggregation of Revenue [Line Items] | ||||
Operating revenues | 651 | 696 | 1,308 | 1,397 |
Voice and Collaboration | ||||
Disaggregation of Revenue [Line Items] | ||||
Operating revenues | 380 | 419 | 775 | 837 |
IT and Managed Services | ||||
Disaggregation of Revenue [Line Items] | ||||
Operating revenues | 0 | 1 | 1 | 2 |
Regulatory Revenue | ||||
Disaggregation of Revenue [Line Items] | ||||
Operating revenues | 45 | 47 | 91 | 95 |
Affiliate Services | ||||
Disaggregation of Revenue [Line Items] | ||||
Operating revenues | $ 592 | $ 720 | $ 1,275 | $ 1,442 |
Commitments, Contingencies an_2
Commitments, Contingencies and Other Items (Details) | 6 Months Ended |
Jun. 30, 2020USD ($)plaintifflawsuit | |
Loss Contingencies [Line Items] | |
Estimate of possible loss | $ 23,000,000 |
U.S. District Court for the District of Minnesota | |
Loss Contingencies [Line Items] | |
Amount awarded to other party | 15,500,000 |
Litigation settlement, expense | $ 3,500,000 |
Number of plaintiffs (more than) | plaintiff | 22,000 |
Interexchange carriers | Subsidiaries of CenturyLink, Inc. | |
Loss Contingencies [Line Items] | |
Number of lawsuits (approximately) | lawsuit | 100 |
Unfavorable Regulatory Action | |
Loss Contingencies [Line Items] | |
Estimate of possible loss | $ 100,000 |
Dividends (Details)
Dividends (Details) - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | |
Dividends [Abstract] | ||
Dividends declared and paid to Qwest Services Corporation | $ 925 | $ 700 |
Other Financial Information (De
Other Financial Information (Details) - USD ($) $ in Millions | Jun. 30, 2020 | Dec. 31, 2019 |
Prepaid Expense and Other Assets, Current [Abstract] | ||
Prepaid expenses | $ 56 | $ 41 |
Contract acquisition costs | 49 | 50 |
Contract fulfillment costs | 28 | 28 |
Other | 8 | 9 |
Total other current assets | $ 141 | $ 128 |
Labor Union Contracts (Details)
Labor Union Contracts (Details) | 6 Months Ended |
Jun. 30, 2020 | |
Unionized employees concentration risk | Total number of employees | |
Concentration Risk [Line Items] | |
Concentration risk percentage | 46.00% |
Uncategorized Items - ctl-20200
Label | Element | Value |
Restricted Cash, Noncurrent | us-gaap_RestrictedCashNoncurrent | $ 2,000,000 |
Restricted Cash, Noncurrent | us-gaap_RestrictedCashNoncurrent | $ 2,000,000 |