FORM 10-K |
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Colorado (State or other jurisdiction of incorporation or organization) | 84-0273800 (I.R.S. Employer Identification No.) |
100 CenturyLink Drive, Monroe, Louisiana (Address of principal executive offices) | 71203 (Zip Code) |
Title of Each Class | Name of Each Exchange on Which Registered | |
6.5% Notes Due 2017 | New York Stock Exchange | |
7.375% Notes Due 2051 | New York Stock Exchange | |
7.5% Notes Due 2051 | New York Stock Exchange | |
7.00% Notes Due 2052 | New York Stock Exchange | |
7.00% Notes Due 2052 | New York Stock Exchange | |
6.125% Notes Due 2053 | New York Stock Exchange | |
6.875% Notes Due 2054 | New York Stock Exchange | |
6.625% Notes Due 2055 | New York Stock Exchange | |
7% Notes Due 2056 | New York Stock Exchange |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer x (Do not check if a smaller reporting company) | Smaller reporting company o |
Years Ended December 31, | |||||||||
2015(1) | 2014 | 2013 | |||||||
(Dollars in millions) | |||||||||
Consolidated statements of operations summary results: | |||||||||
Operating revenues | $ | 8,964 | 8,838 | 8,753 | |||||
Operating expenses | 6,704 | 6,726 | 6,675 | ||||||
Operating income | $ | 2,260 | 2,112 | 2,078 | |||||
Net income | $ | 1,074 | 970 | 964 |
(1) | During 2015, we recognized an incremental $95 million of revenue associated with the Federal Communications Commission ("FCC") Connect America Fund Phase 2 support program. For additional information, see Note 1—Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements in Item 8 of Part II of this Annual Report. |
As of December 31, | ||||||
2015 | 2014 | |||||
(Dollars in millions) | ||||||
Consolidated balance sheets summary information: | ||||||
Total assets(1) | $ | 21,470 | 22,185 | |||
Total long-term debt(1)(2) | 7,239 | 7,269 | ||||
Total stockholder's equity | 8,907 | 9,183 |
(1) | We adopted both ASU 2015-03 "Simplifying the Presentation of Debt Issuance Costs" and ASU 2015-17 "Balance Sheet Classification of Deferred Taxes" by retrospectively applying the requirements of the ASUs to our previously issued consolidated financial statements. See further discussion in Note 1—Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements in Item 8 of Part II of this Annual Report. |
(2) | Total long-term debt is the sum of current maturities of long-term debt and long-term debt (excluding note payable-affiliate of $855 million) on our consolidated balance sheets. For additional information on our total long-term debt, see Note 3—Long-Term Debt and Revolving Promissory Note to our consolidated financial statements in Item 8 of Part II of this Annual Report. For information on our total obligations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Future Contractual Obligations" in Item 7 of Part II of this Annual Report. |
As of December 31, | ||||||||
2015 | 2014 | 2013 | ||||||
(in thousands) | ||||||||
Operational metrics: | ||||||||
Total access lines(1) | 6,997 | 7,334 | 7,641 | |||||
Total high-speed Internet subscribers(1) | 3,546 | 3,528 | 3,429 |
(1) | Access lines are lines reaching from the customers' premises to a connection with the public network and high-speed Internet subscribers are customers that purchase high-speed Internet connection service through their existing telephone lines, stand-alone telephone lines, or fiber-optic cables. Our methodology for counting our access lines and high-speed Internet subscribers includes only those lines that we use to provide services to external customers and excludes lines used solely by us and our affiliates. It also excludes unbundled loops and includes stand-alone high-speed Internet subscribers. We count lines when we install the service. |
Years Ended December 31, | |||||||||
2015 | 2014 | 2013 | |||||||
(Dollars in millions) | |||||||||
Strategic services | $ | 3,433 | 3,429 | 3,342 | |||||
Legacy services | 2,777 | 2,987 | 3,208 | ||||||
Affiliates and other services | 2,754 | 2,422 | 2,203 | ||||||
Total operating revenues | $ | 8,964 | 8,838 | 8,753 |
• | High-speed Internet. Our high-speed Internet services allow customers to connect to the Internet through their existing telephone lines or fiber-optic cables at high speeds. Substantially all of our high-speed Internet subscribers are located within the local service area of our wireline telephone operations; |
• | Private Line. A private line (including special access) is a direct circuit or channel specifically dedicated for the purpose of directly connecting two or more sites. Private line service offers a high-speed, secure solution for frequent transmission of large amounts of data between sites, including wireless backhaul transmissions; |
• | Ethernet. Ethernet services include point-to-point and multi-point equipment configurations that facilitate data transmissions across metropolitan areas and wide area networks. Ethernet services are also used to provide transmission services to wireless service providers that use our fiber-optic cables connected to their towers; and |
• | Video. Our video services include primarily satellite digital television under CenturyLink's arrangement with DIRECTV that allows us to market, sell and bill for its services under its brand name. |
• | Local Voice Services. We offer local calling services for our residential and business customers within the local service area of our wireline markets, generally for a fixed monthly charge. These services include a number of enhanced calling features and other services, such as call forwarding, caller identification, conference calling, voice mail, selective call ringing and call waiting, for which we generally charge an additional monthly fee. We also generate revenues from non-recurring services, such as inside wire installation, maintenance services, service activation and reactivation. For our wholesale customers, our local calling service offerings include primarily the resale of our voice services and the sale of unbundled network elements ("UNEs"), which allow our wholesale customers to use all or part of our network to provide voice and data services to their customers. Local calling services provided to our wholesale customers allow other telecommunications companies the ability to originate or terminate telecommunications services on our network. Local calling services also include network transport, billing services and access to our network by other telecommunications providers and wireless carriers; |
• | Switched Access Services. As part of our wholesale services, we provide various forms of switched access services to wireline and wireless service providers for the use of our facilities to originate and terminate their interstate and intrastate voice transmissions; |
• | ISDN. We offer integrated services digital network ("ISDN") services, which use regular telephone lines to support voice, video and data applications; and |
• | WAN. We offer wide area network ("WAN") services, which allow a local communications network to link to networks in remote locations. |
• | forecasts of our anticipated future results of operations or financial position; |
• | statements concerning the impact of our transactions, investments and other initiatives, including our participation in government programs; |
• | statements about our liquidity, tax position, tax rates, asset values, contingent liabilities, growth opportunities and growth rates, acquisition and divestiture opportunities, business prospects, regulatory and competitive outlook, investment and expenditure plans, business strategies, capital allocation plans, financing alternatives and sources and pricing plans; and |
• | other similar statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts, many of which are highlighted by words such as "may," "would," "could," "should," "plan," "believes," "expects," "anticipates," "estimates," "projects," "intends," "likely," "seeks," "hopes," or variations or similar expressions. |
• | the effects of competition from a wide variety of competitive providers, including lower demand for our legacy offerings; |
• | the effects of new, emerging or competing technologies, including those that could make our products less desirable or obsolete; |
• | the effects of ongoing changes in the regulation of the communications industry, including the outcome of regulatory or judicial proceedings relating to intercarrier compensation, interconnection obligations, access charges, universal service, broadband deployment, data protection and net neutrality; |
• | our ability to effectively adjust to changes in the communications industry, and changes in the composition of our markets and product mix; |
• | possible changes in the demand for, or pricing of, our products and services, including our ability to effectively respond to increased demand for high-speed broadband service; |
• | our ability to successfully maintain the quality and profitability of our existing product and service offerings and to introduce new offerings on a timely and cost-effective basis; |
• | the adverse impact on our business and network from possible equipment failures, service outages, security breaches or similar events impacting our network; |
• | our ability to generate cash flows sufficient to fund our financial commitments and objectives, including our capital expenditures, operating costs, dividends, pension contributions and debt payments; |
• | changes in our operating plans, corporate strategies, dividend payment plans or other capital allocation plans, whether based upon changes in our cash flows, cash requirements, financial performance, financial position, or otherwise; |
• | our ability to effectively retain and hire key personnel and to successfully negotiate collective bargaining agreements on reasonable terms without work stoppages; |
• | increases in the costs of CenturyLink's pension, health, post-employment or other benefits, including those caused by changes in markets, interest rates, mortality rates, demographics or regulations, could negatively impact CenturyLink, which may in turn affect our business and liquidity; |
• | adverse changes in our access to credit markets on favorable terms, whether caused by changes in our financial position, lower debt credit ratings, unstable markets or otherwise; |
• | our ability to maintain favorable relations with our key business partners, suppliers, vendors, landlords and financial institutions; |
• | our ability to effectively manage our network buildout project and other expansion opportunities; |
• | our ability to collect our receivables from financially troubled customers; |
• | any adverse developments in legal or regulatory proceedings involving CenturyLink or QCII; |
• | changes in tax, communications, pension, healthcare or other laws or regulations, in governmental support programs, or in general government funding levels; |
• | the effects of changes in accounting policies or practices, including potential future impairment charges; |
• | the effects of adverse weather or other natural or man-made disasters; |
• | the effects of more general factors such as changes in interest rates, in operating costs, in general market, labor, economic or geo-political conditions, or in public policy; and |
• | other risks referenced in Item 1A or elsewhere in this Annual Report or other of our filings with the SEC. |
• | an increased focus on selling a broader range of higher-growth strategic services, which are described in detail elsewhere in this Annual Report; |
• | an increased focus on serving a broader range of business, governmental and wholesale customers; and |
• | greater use of service bundles. |
• | power losses or physical damage, whether caused by fire, adverse weather conditions, terrorism, sabotage, vandalism or otherwise; |
• | capacity or system configuration limitations, including those resulting from changes in our customer's usage patterns, the introduction of new technologies or products, or incompatibilities between our newer and older systems; |
• | theft or failure of our equipment; |
• | software or hardware obsolescence, defects or malfunctions; |
• | deficiencies in our processes or controls; |
• | programming, processing and other human error; and |
• | service failures of our third-party vendors and other disruptions that are beyond our control. |
• | disrupt the proper functioning of these networks and systems, which could in turn disrupt (i) our operations or (ii) the operations of certain of our customers who rely upon us to provide services critical to their operations; |
• | require significant management attention or financial resources to remedy the damages that result or to change our systems, including expenses to repair systems, add new personnel or develop additional protective systems; |
• | result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive, classified or otherwise valuable information of ours, our customers or our customers' end users, including trade secrets, which others could use for competitive, disruptive, destructive or otherwise harmful purposes and outcomes; |
• | require us to notify customers, regulatory agencies or the public of data breaches; |
• | require us to provide credits for future service under certain service level commitments we have provided contractually to our customers or to offer expensive incentives to retain customers; |
• | subject us to claims for damages, fines, penalties, termination or other remedies under our customer contracts or service standards set by state regulatory commissions, which in certain cases could exceed our insurance coverage; or |
• | result in a loss of business, damage our reputation among our customers and the public generally, subject us to additional regulatory scrutiny or expose us to prolonged litigation. |
• | become bankrupt or experience substantial financial difficulties; |
• | suffer work stoppages or other labor strife; |
• | challenge our right to receive payments or services under applicable regulations or the terms of our existing contract arrangements; or |
• | are otherwise unable or unwilling to make payments or provide services to us. |
• | limiting our ability to obtain additional financing for working capital, capital expenditures, refinancings or other general corporate purposes, particularly if, as discussed further in the risk factor disclosure below, (i) the ratings assigned to our debt securities by nationally recognized credit rating organizations are revised downward or (ii) we seek capital during periods of turbulent or unsettled market conditions; |
• | requiring us to dedicate a substantial portion of our cash flow from operations to the payment of interest and principal on our debt, thereby reducing the funds available to us for other purposes, including acquisitions, capital expenditures, strategic initiatives, dividends; |
• | hindering our ability to capitalize on business opportunities and to plan for or react to changing market, industry, competitive or economic conditions; |
• | increasing our future borrowing costs; |
• | increasing the risk that third parties will be unwilling or unable to engage in hedging or other financial or commercial arrangements with us; |
• | making us more vulnerable to economic or industry downturns, including interest rate increases; |
• | placing us at a competitive disadvantage compared to less leveraged competitors; |
• | increasing the risk that we will need to sell assets, possibly on unfavorable terms, or take other unfavorable actions to meet payment obligations; or |
• | increasing the risk that we may not meet the financial covenants contained in our debt agreements or timely make all required debt payments. |
As of December 31, | |||||
2015 | 2014 | ||||
Land | 3 | % | 3 | % | |
Fiber, conduit and other outside plant(1) | 44 | % | 42 | % | |
Central office and other network electronics(2) | 30 | % | 30 | % | |
Support assets(3) | 21 | % | 22 | % | |
Construction in progress(4) | 2 | % | 3 | % | |
Gross property, plant and equipment | 100 | % | 100 | % |
(1) | Fiber, conduit and other outside plant consists of fiber and metallic cable, conduit, poles and other supporting structures. |
(2) | Central office and other network electronics consists of circuit and packet switches, routers, transmission electronics and electronics providing service to customers. |
(3) | Support assets consist of buildings, computers and other administrative and support equipment. |
(4) | Construction in progress includes inventory held for construction and property of the aforementioned categories that has not been placed in service as it is still under construction. |
Successor(1) | Predecessor | ||||||||||||||||||
Year Ended December 31, 2015 (2) | Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Nine Months Ended December 31, 2011 | Three Months Ended March 31, 2011 | ||||||||||||||
(Dollars in millions) | |||||||||||||||||||
Operating revenues | $ | 8,964 | 8,838 | 8,753 | 8,848 | 6,635 | 2,268 | ||||||||||||
Operating expenses | 6,704 | 6,726 | 6,675 | 6,943 | 5,436 | 1,630 | |||||||||||||
Operating income | $ | 2,260 | 2,112 | 2,078 | 1,905 | 1,199 | 638 | ||||||||||||
Income before income tax expense | $ | 1,733 | 1,609 | 1,566 | 1,391 | 892 | 490 | ||||||||||||
Net income | $ | 1,074 | 970 | 964 | 849 | 543 | 299 |
(1) | See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" in Item 7 of Part II of this Annual Report for a discussion of unusual items affecting the results for the successor years ended December 31, 2015, 2014 and 2013. |
(2) | During 2015, we recognized an incremental $95 million of revenue associated with the Federal Communications Commission ("FCC") Connect America Fund Phase 2 support program. For additional information, see Note 1—Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements in Item 8 of Part II of this Annual Report. |
December 31, 2015 | December 31, 2014 | December 31, 2013 | December 31, 2012 | December 31, 2011 | |||||||||||
(Dollars in millions) | |||||||||||||||
Net property, plant and equipment | $ | 7,374 | 7,201 | 7,208 | 7,231 | 7,506 | |||||||||
Goodwill | 9,354 | 9,354 | 9,354 | 9,354 | 9,354 | ||||||||||
Total assets(1) | 21,470 | 22,185 | 22,965 | 23,710 | 24,588 | ||||||||||
Total long-term debt(1)(2) | 7,239 | 7,269 | 7,464 | 7,553 | 8,281 | ||||||||||
Total stockholder's equity | 8,907 | 9,183 | 9,613 | 9,974 | 9,865 |
(1) | We adopted both ASU 2015-03 "Simplifying the Presentation of Debt Issuance Costs" and ASU 2015-17 "Balance Sheet Classification of Deferred Taxes" by retrospectively applying the requirements of the ASUs to our previously issued consolidated financial statements. The adoption of both ASU 2015-03 and ASU 2015-17 reduced total assets by $272 million, $253 million, $237 million and $223 million in each year for the four years ended December 31, 2014, respectively, and ASU 2015-03 reduced total long-term debt by $110 million, $94 million, $72 million and $44 million in each year for the four years ended December 31, 2014, respectively. See further discussion in Note 1—Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements in Item 8 of Part II of this Annual Report. |
(2) | Total long-term debt is the sum of current maturities of long-term debt and long-term debt (excluding the note payable-affiliate balance) on our consolidated balance sheets. For additional information on our total long-term debt, see Note 3—Long-Term Debt and Revolving Promissory Note to our consolidated financial statements in Item 8 of Part II of this Annual Report. For total contractual obligations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Future Contractual Obligations" in Item 7 of Part II of this Annual Report. |
Successor | Predecessor | ||||||||||||||||||
Year Ended December 31, 2015 | Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Nine Months Ended December 31, 2011 | Three Months Ended March 31, 2011 | ||||||||||||||
(Dollars in millions) | |||||||||||||||||||
Other data: | |||||||||||||||||||
Net cash provided by operating activities | $ | 2,591 | 2,801 | 2,713 | 2,774 | 2,201 | 869 | ||||||||||||
Net cash used in investing activities | (1,220 | ) | (1,251 | ) | (1,381 | ) | (1,528 | ) | (1,191 | ) | (335 | ) | |||||||
Net cash used in financing activities | (1,374 | ) | (1,558 | ) | (1,326 | ) | (1,241 | ) | (1,208 | ) | (525 | ) | |||||||
Payments for property, plant and equipment and capitalized software | (1,247 | ) | (1,165 | ) | (1,264 | ) | (1,266 | ) | (1,036 | ) | (341 | ) |
As of December 31, | ||||||
2015 | 2014 | 2013 | ||||
(in thousands) | ||||||
Operational metrics: | ||||||
Total access lines(1) | 6,997 | 7,334 | 7,641 | |||
Total high-speed Internet subscribers(1) | 3,546 | 3,528 | 3,429 |
(1) | Access lines are lines reaching from the customers' premises to a connection with the public network and high-speed Internet subscribers are customers that purchase high-speed Internet connection service through their existing telephone lines, stand-alone telephone lines, or fiber-optic cables. Our methodology for counting our access lines and high-speed Internet subscribers includes only those lines that we use to provide services to external customers and excludes lines used solely by us and our affiliates. It also excludes unbundled loops and includes stand-alone high-speed Internet subscribers. We count lines when we install the service. |
• | Strategic services, which include primarily high-speed Internet, private line (including special access), Ethernet, Verizon Wireless and other ancillary services; |
• | Legacy services, which include primarily local voice, Integrated Services Digital Network ("ISDN") (which use regular telephone lines to support voice, video and data applications), switched access and traditional wide area network ("WAN") services (which allow a local communications network to link to networks in remote locations); and |
• | Affiliates and other services, which consist primarily of Connect America Fund ("CAF") support payments, Universal Service Fund ("USF") support payments, USF surcharges and services we provide to our affiliates. We receive federal support payments from both CAF Phase 1 and CAF Phase 2 programs, and support payments from both federal and state USF programs. These support payments are government subsidies designed to reimburse us for various costs related to certain telecommunications services, including the costs of deploying, maintaining and operating voice and high-speed Internet infrastructure in high-cost rural areas where we are not able to recover our costs from our customers. USF surcharges are the amounts we collect based on specific items we list on our customers' invoices to fund the Federal Communications Commission's ("FCC") universal service programs. We provide to our affiliates, telecommunication services that we also provide to external customers. In addition, we provide to our affiliates, computer system development and support services, network support and technical services. |
• | Strategic services. We continue to see shifts in the makeup of our total revenues as customers move to lower margin strategic services, such as high-speed Internet and video services, from higher margin legacy services. Revenues from our strategic services represented 38%, 39% and 38% of our total revenues for the years ended December 31, 2015, 2014 and 2013, respectively. During 2015, we experienced price compression due to competition, which negatively impacted the growth of our strategic revenues. We continue to focus on increasing subscribers of our high-speed Internet services, particularly among consumer and small business customers. We believe that continually increasing the scope and connection speeds of our high-speed Internet services is important to remaining competitive in our industry. As a result, we continue to invest in our broadband network, which allows for the delivery of higher speed broadband services to a greater number of customers. We compete in a maturing broadband market in which most customers already have broadband services and growth rates in new subscribers have slowed. Moreover, as described further in "Risk Factors" in Item 1A of Part I of this Annual Report, demand for our high-speed Internet services could be adversely affected by competitors continuing to provide services at higher broadband speeds than ours or expanding their advanced wireless data service offerings. Demand for our private line services (including special access) continues to decline due to customers' optimization of their networks, industry consolidation and technological migration to higher-speed services. Additionally, we face competition in Ethernet based services in the wholesale market from cable companies and fiber based CLEC providers; |
• | Legacy services. Revenues from our legacy services represented 31%, 34% and 37% of our total revenues for the years ended December 31, 2015, 2014 and 2013, respectively. We expect these percentages to continue to decline. Our legacy services revenues have been, and we expect they will continue to be adversely affected by access line losses and price compression. Intense competition and product substitution continue to drive our access line losses. For example, many consumers are replacing traditional voice telecommunications service with substitute services, including (i) cable and wireless voice services and (ii) electronic mail, texting and social networking services. We expect that these factors will continue to negatively impact our business. As a result of the expected loss of revenue associated with access lines, we continue to offer our customers service bundling and other product promotions to help mitigate this trend, as described below; |
• | Service bundling and product promotions. We offer our customers the ability to bundle multiple products and services. These customers can bundle local services with other services such as high-speed Internet, video and wireless. While we believe our bundled service offerings can help retain customers, they also tend to lower our profit margins; |
• | Operating efficiencies. We continue to evaluate our operating structure and focus. This involves balancing our workforce in response to our workload requirements, productivity improvements and changes in industry, competitive, technological and regulatory conditions; |
• | Pension and post-retirement benefits expenses. Our controlling parent company, CenturyLink, is required to recognize in its consolidated financial statements certain income and expenses relating to its pension and post-retirement health care and life insurance benefits plans. These income and expenses are calculated based on several assumptions, including among other things, discount rates, mortality rates and expected rates of return on plan assets that are generally reset at December 31 of each year. Changes in CenturyLink's assumptions can cause significant changes in the net periodic pension and post-retirement benefits income and expenses we recognize. CenturyLink allocates the service costs of these plans to us and certain of its other affiliates. The allocation of service costs to us is based upon our employees who are currently earning benefits under the plans; and |
• | Disciplined capital expenditures. Our capital expenditures continue to be focused on our strategic services such as broadband and the deployment of "fiber to the tower", which is a type of telecommunications network consisting of fiber-optic cables that run from a wireless carrier's mobile telephone switching office to cellular towers to enable the delivery of higher bandwidth services supporting mobile technologies than would otherwise generally be available through a more traditional copper-based telecommunications network. |
Years Ended December 31, | |||||||||
2015(1) | 2014 | 2013 | |||||||
(Dollars in millions) | |||||||||
Operating revenues | $ | 8,964 | 8,838 | 8,753 | |||||
Operating expenses | 6,704 | 6,726 | 6,675 | ||||||
Operating income | 2,260 | 2,112 | 2,078 | ||||||
Other expense, net | 527 | 503 | 512 | ||||||
Income tax expense | 659 | 639 | 602 | ||||||
Net income | $ | 1,074 | 970 | 964 |
(1) | During 2015, we recognized an incremental $95 million of revenue associated with the Federal Communications Commission ("FCC") Connect America Fund Phase 2 support program. For additional information, see Note 1—Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements in Item 8 of Part II of this Annual Report. |
As of December 31, | ||||||||
2015 | 2014 | 2013 | ||||||
(in thousands) | ||||||||
Operational metrics: | ||||||||
Total access lines(1) | 6,997 | 7,334 | 7,641 | |||||
Total high-speed Internet subscribers(1) | 3,546 | 3,528 | 3,429 | |||||
Total employees | 22.0 | 23.0 | 22.8 |
(1) | Access lines are lines reaching from the customers' premises to a connection with the public network and high-speed Internet subscribers are customers that purchase high-speed Internet connection service through their existing telephone lines, stand-alone telephone lines, or fiber-optic cables. Our methodology for counting our access lines and high-speed Internet subscribers includes only those lines that we use to provide services to external customers and excludes lines used solely by us and our affiliates. It also excludes unbundled loops and includes stand-alone high-speed Internet subscribers. We count lines when we install the service. |
Years Ended December 31, | Increase / (Decrease) | % Change | ||||||||||
2015 | 2014 | |||||||||||
(Dollars in millions) | ||||||||||||
Strategic services | $ | 3,433 | 3,429 | 4 | — | % | ||||||
Legacy services | 2,777 | 2,987 | (210 | ) | (7 | )% | ||||||
Affiliates and other services | 2,754 | 2,422 | 332 | 14 | % | |||||||
Total operating revenues | $ | 8,964 | 8,838 | 126 | 1 | % |
Years Ended December 31, | Increase / (Decrease) | % Change | ||||||||||
2014 | 2013 | |||||||||||
(Dollars in millions) | ||||||||||||
Strategic services | $ | 3,429 | 3,342 | 87 | 3 | % | ||||||
Legacy services | 2,987 | 3,208 | (221 | ) | (7 | )% | ||||||
Affiliates and other services | 2,422 | 2,203 | 219 | 10 | % | |||||||
Total operating revenues | $ | 8,838 | 8,753 | 85 | 1 | % |
Years Ended December 31, | Increase / (Decrease) | % Change | ||||||||||
2015 | 2014 | |||||||||||
(Dollars in millions) | ||||||||||||
Cost of services and products (exclusive of depreciation and amortization) | $ | 2,872 | 2,879 | (7 | ) | — | % | |||||
Selling, general and administrative | 1,015 | 1,086 | (71 | ) | (7 | )% | ||||||
Operating expenses-affiliates | 960 | 756 | 204 | 27 | % | |||||||
Depreciation and amortization | 1,857 | 2,005 | (148 | ) | (7 | )% | ||||||
Total operating expenses | $ | 6,704 | 6,726 | (22 | ) | — | % |
Years Ended December 31, | Increase / (Decrease) | % Change | ||||||||||
2014 | 2013 | |||||||||||
(Dollars in millions) | ||||||||||||
Cost of services and products (exclusive of depreciation and amortization) | $ | 2,879 | 2,790 | 89 | 3 | % | ||||||
Selling, general and administrative | 1,086 | 1,062 | 24 | 2 | % | |||||||
Operating expenses-affiliates | 756 | 695 | 61 | 9 | % | |||||||
Depreciation and amortization | 2,005 | 2,128 | (123 | ) | (6 | )% | ||||||
Total operating expenses | $ | 6,726 | 6,675 | 51 | 1 | % |
Years Ended December 31, | |||||||||
2015 | 2014 | 2013 | |||||||
(Dollars in millions) | |||||||||
Acquisition-related expenses | $ | 4 | 13 | 24 |
Years Ended December 31, | Increase / (Decrease) | % Change | ||||||||||
2015 | 2014 | |||||||||||
(Dollars in millions) | ||||||||||||
Depreciation | $ | 986 | 1,048 | (62 | ) | (6 | )% | |||||
Amortization | 871 | 957 | (86 | ) | (9 | )% | ||||||
Total depreciation and amortization | $ | 1,857 | 2,005 | (148 | ) | (7 | )% |
Years Ended December 31, | Increase / (Decrease) | % Change | ||||||||||
2014 | 2013 | |||||||||||
(Dollars in millions) | ||||||||||||
Depreciation | $ | 1,048 | 1,099 | (51 | ) | (5 | )% | |||||
Amortization | 957 | 1,029 | (72 | ) | (7 | )% | ||||||
Total depreciation and amortization | $ | 2,005 | 2,128 | (123 | ) | (6 | )% |
Years Ended December 31, | Increase / (Decrease) | % Change | ||||||||||
2015 | 2014 | |||||||||||
(Dollars in millions) | ||||||||||||
Interest expense | $ | (473 | ) | (464 | ) | 9 | 2 | % | ||||
Interest expense-affiliates | (53 | ) | (40 | ) | 13 | 33 | % | |||||
Other (expense) income, net | (1 | ) | 1 | (2 | ) | nm | ||||||
Total other expense, net | $ | (527 | ) | (503 | ) | 24 | 5 | % | ||||
Income tax expense | $ | 659 | 639 | 20 | 3 | % |
Years Ended December 31, | Increase / (Decrease) | % Change | ||||||||||
2014 | 2013 | |||||||||||
(Dollars in millions) | ||||||||||||
Interest expense | $ | (464 | ) | (450 | ) | 14 | 3 | % | ||||
Interest expense-affiliates | (40 | ) | (64 | ) | (24 | ) | (38 | )% | ||||
Other income, net | 1 | 2 | (1 | ) | (50 | )% | ||||||
Total other expense, net | $ | (503 | ) | (512 | ) | (9 | ) | (2 | )% | |||
Income tax expense | $ | 639 | 602 | 37 | 6 | % |
Agency | QC |
Standard & Poor's | BBB- |
Moody's Investors Service, Inc. | Baa3 |
Fitch Ratings | BBB- |
2016 | 2017 | 2018 | 2019 | 2020 | 2021 and thereafter | Total | |||||||||||||||
(Dollars in millions) | |||||||||||||||||||||
Long-term debt (1) | $ | 242 | 503 | 3 | 1 | — | 6,597 | 7,346 | |||||||||||||
Interest on long-term debt and capital leases(2) | 493 | 467 | 453 | 453 | 452 | 10,303 | 12,621 | ||||||||||||||
Note payable-affiliate | 855 | — | — | — | — | — | 855 | ||||||||||||||
Interest on note payable-affiliate | 5 | — | — | — | — | — | 5 | ||||||||||||||
Operating leases | 56 | 50 | 45 | 37 | 32 | 52 | 272 | ||||||||||||||
Purchase commitments(3) | 73 | 37 | 16 | 5 | 1 | — | 132 | ||||||||||||||
Non-qualified pension obligations(4) | 2 | 2 | 1 | 1 | 1 | 5 | 12 | ||||||||||||||
Total future contractual obligations(5) | $ | 1,726 | 1,059 | 518 | 497 | 486 | 16,957 | 21,243 |
(1) | Includes current maturities and capital lease obligations but excludes unamortized discounts, net and unamortized debt issuance costs and excludes note payable-affiliate. |
(2) | Actual principal and interest paid in all years may differ due to future refinancing of outstanding debt or issuance of new debt. |
(3) | We have various long-term, non-cancelable purchase commitments for advertising and promotion services, including advertising and marketing at sports arenas and other venues and events. We also have service related commitments with various vendors for data processing, technical and software support services. Future payments under certain service contracts will vary depending on our actual usage. In the table above, we estimated payments for these service contracts based on estimates of the level of services we expect to receive. |
(4) | Reflects only the portion of total obligation that is contractual in nature. See Note 5 below. |
(5) | The table is limited to contractual obligations only and does not include: |
• | contingent liabilities; |
• | our open purchase orders as of December 31, 2015. These purchase orders are generally issued at fair value, and are generally cancelable without penalty; |
• | other long-term liabilities, such as accruals for legal matters and other taxes that are not contractual obligations by nature. We cannot determine with any degree of reliability the years in which these liabilities might ultimately settle; |
• | affiliate cash funding requirements for qualified pension benefits payable to certain eligible current and future retirees allocated to us by CenturyLink. Benefits paid by CenturyLink’s qualified pension plan are paid through a trust. Cash funding requirements for this trust are not included in this table as CenturyLink is not able to reliably estimate required contributions to this trust. CenturyLink's cash funding projections are discussed further below; |
• | affiliate post-retirement benefits payable to certain eligible current and future retirees. Not all of CenturyLink’s post-retirement benefit obligation amount is a contractual obligation and only the portion that we believe is a contractual obligation is reported in the table. See additional information on CenturyLink’s benefits plans in Note 7—Employee Benefits to the consolidated financial statements in Item 8 of Part II of CenturyLink’s Annual Report on Form 10-K for the year ended December 31, 2015; |
• | contract termination fees. These fees are non-recurring payments, the timing and payment of which, if any, is uncertain. In the ordinary course of business and to optimize our cost structure, we enter into contracts with terms greater than one year to purchase other goods and services. Assuming we terminate these contracts in 2015, termination fees for these contracts to purchase goods and services would be approximately $97 million. In the normal course of business, we do not believe payment of these fees is likely; and |
• | potential indemnification obligations to counterparties in certain agreements entered into in the normal course of business. The nature and terms of these arrangements vary. |
Years Ended December 31, | Increase / (Decrease) | ||||||||
2015 | 2014 | ||||||||
(Dollars in millions) | |||||||||
Net cash provided by operating activities | $ | 2,591 | 2,801 | (210 | ) | ||||
Net cash used in investing activities | (1,220 | ) | (1,251 | ) | (31 | ) | |||
Net cash used in financing activities | (1,374 | ) | (1,558 | ) | (184 | ) |
Years Ended December 31, | Increase / (Decrease) | ||||||||
2014 | 2013 | ||||||||
(Dollars in millions) | |||||||||
Net cash provided by operating activities | $ | 2,801 | 2,713 | 88 | |||||
Net cash used in investing activities | (1,251 | ) | (1,381 | ) | (130 | ) | |||
Net cash used in financing activities | (1,558 | ) | (1,326 | ) | 232 |
Years Ended December 31, | From April 1, 2011 through December 31, 2013 | Total Since Acquisition | ||||||||||
2015 | 2014 | |||||||||||
(Dollars in millions) | ||||||||||||
Amortized | $ | 21 | 42 | 254 | 317 | |||||||
Extinguished(1) | 1 | — | 187 | 188 | ||||||||
Total | $ | 22 | 42 | 441 | 505 |
(1) | Extinguished in connection with the payment of Qwest debt securities prior to maturity. |
Years Ended December 31, | |||||||||
2015 | 2014 | 2013 | |||||||
(Dollars in millions) | |||||||||
OPERATING REVENUES | |||||||||
Operating revenues | $ | 6,557 | 6,676 | 6,818 | |||||
Operating revenues - affiliates | 2,407 | 2,162 | 1,935 | ||||||
Total operating revenues | 8,964 | 8,838 | 8,753 | ||||||
OPERATING EXPENSES | |||||||||
Cost of services and products (exclusive of depreciation and amortization) | 2,872 | 2,879 | 2,790 | ||||||
Selling, general and administrative | 1,015 | 1,086 | 1,062 | ||||||
Operating expenses - affiliates | 960 | 756 | 695 | ||||||
Depreciation and amortization | 1,857 | 2,005 | 2,128 | ||||||
Total operating expenses | 6,704 | 6,726 | 6,675 | ||||||
OPERATING INCOME | 2,260 | 2,112 | 2,078 | ||||||
OTHER (EXPENSE) INCOME | |||||||||
Interest expense | (473 | ) | (464 | ) | (450 | ) | |||
Interest expense - affiliates, net | (53 | ) | (40 | ) | (64 | ) | |||
Other (expense) income, net | (1 | ) | 1 | 2 | |||||
Total other expense, net | (527 | ) | (503 | ) | (512 | ) | |||
INCOME BEFORE INCOME TAX EXPENSE | 1,733 | 1,609 | 1,566 | ||||||
Income tax expense | 659 | 639 | 602 | ||||||
NET INCOME | $ | 1,074 | 970 | 964 |
December 31, | ||||||
2015 | 2014 | |||||
(Dollars in millions) | ||||||
ASSETS | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents | $ | 3 | 6 | |||
Accounts receivable, less allowance of $47 and $38 | 688 | 740 | ||||
Advances to affiliates | 788 | 812 | ||||
Other | 123 | 125 | ||||
Total current assets | 1,602 | 1,683 | ||||
NET PROPERTY, PLANT AND EQUIPMENT | ||||||
Property, plant and equipment | 12,182 | 11,157 | ||||
Accumulated depreciation | (4,808 | ) | (3,956 | ) | ||
Net property, plant and equipment | 7,374 | 7,201 | ||||
GOODWILL AND OTHER ASSETS | ||||||
Goodwill | 9,354 | 9,354 | ||||
Customer relationships, net | 2,435 | 3,039 | ||||
Other intangible assets, net | 613 | 808 | ||||
Other, net | 92 | 100 | ||||
Total goodwill and other assets | 12,494 | 13,301 | ||||
TOTAL ASSETS | $ | 21,470 | 22,185 | |||
LIABILITIES AND STOCKHOLDER'S EQUITY | ||||||
CURRENT LIABILITIES | ||||||
Current maturities of long-term debt | $ | 242 | 117 | |||
Accounts payable | 369 | 464 | ||||
Note payable - affiliate | 855 | 796 | ||||
Accrued expenses and other liabilities | ||||||
Salaries and benefits | 211 | 220 | ||||
Income and other taxes | 189 | 197 | ||||
Other | 135 | 140 | ||||
Current affiliates obligations, net | 97 | — | ||||
Advance billings and customer deposits | 324 | 327 | ||||
Total current liabilities | 2,422 | 2,261 | ||||
LONG-TERM DEBT | 6,997 | 7,152 | ||||
DEFERRED CREDITS AND OTHER LIABILITIES | ||||||
Deferred revenues | 137 | 153 | ||||
Deferred income taxes, net | 1,896 | 2,085 | ||||
Affiliates obligations, net | 1,051 | 1,271 | ||||
Other | 60 | 80 | ||||
Total deferred credits and other liabilities | 3,144 | 3,589 | ||||
COMMITMENTS AND CONTINGENCIES (Note 15) | ||||||
STOCKHOLDER'S EQUITY | ||||||
Common stock - one share without par value, owned by Qwest Services Corporation | 10,050 | 10,050 | ||||
Accumulated deficit | (1,143 | ) | (867 | ) | ||
Total stockholder's equity | 8,907 | 9,183 | ||||
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY | $ | 21,470 | 22,185 |
Years Ended December 31, | |||||||||
2015 | 2014 | 2013 | |||||||
(Dollars in millions) | |||||||||
OPERATING ACTIVITIES | |||||||||
Net income | $ | 1,074 | 970 | 964 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
Depreciation and amortization | 1,857 | 2,005 | 2,128 | ||||||
Deferred income taxes | (189 | ) | (228 | ) | (152 | ) | |||
Provision for uncollectible accounts | 78 | 64 | 65 | ||||||
Net long-term debt issuance costs and premium amortization | (18 | ) | (38 | ) | (51 | ) | |||
Accrued interest on affiliate note | 59 | 42 | — | ||||||
Impairment of asset | — | 17 | — | ||||||
Changes in current assets and liabilities: | |||||||||
Accounts receivable | (26 | ) | (66 | ) | (94 | ) | |||
Accounts payable | (79 | ) | (9 | ) | (1 | ) | |||
Accrued income and other taxes | (8 | ) | (9 | ) | (9 | ) | |||
Other current assets and liabilities, net | 1 | 34 | 34 | ||||||
Other current assets and liabilities - affiliates | (4 | ) | 9 | — | |||||
Changes in other noncurrent assets and liabilities, net | (30 | ) | 1 | — | |||||
Changes in affiliate obligations, net | (123 | ) | 8 | (179 | ) | ||||
Other, net | (1 | ) | 1 | 8 | |||||
Net cash provided by operating activities | 2,591 | 2,801 | 2,713 | ||||||
INVESTING ACTIVITIES | |||||||||
Payments for property, plant and equipment and capitalized software | (1,247 | ) | (1,165 | ) | (1,264 | ) | |||
Changes in advances to affiliates | 24 | (100 | ) | (119 | ) | ||||
Proceeds from sale of property | 3 | 14 | 2 | ||||||
Net cash used in investing activities | (1,220 | ) | (1,251 | ) | (1,381 | ) | |||
FINANCING ACTIVITIES | |||||||||
Net proceeds from issuance of long-term debt | 495 | 483 | 752 | ||||||
Payments of long-term debt | (517 | ) | (641 | ) | (806 | ) | |||
Early retirement of debt costs | (2 | ) | — | — | |||||
Dividends paid to Qwest Services Corporation | (1,350 | ) | (1,400 | ) | (1,325 | ) | |||
Changes in note payable - affiliate | — | — | 53 | ||||||
Net cash used in financing activities | (1,374 | ) | (1,558 | ) | (1,326 | ) | |||
Net (decrease) increase in cash and cash equivalents | (3 | ) | (8 | ) | 6 | ||||
Cash and cash equivalents at beginning of period | 6 | 14 | 8 | ||||||
Cash and cash equivalents at end of period | $ | 3 | 6 | 14 | |||||
Supplemental cash flow information: | |||||||||
Income taxes paid, net | $ | (848 | ) | (861 | ) | (750 | ) | ||
Interest paid (net of capitalized interest of $18, $17 and $17) | $ | (497 | ) | (505 | ) | (513 | ) |
Years Ended December 31, | |||||||||
2015 | 2014 | 2013 | |||||||
(Dollars in millions) | |||||||||
COMMON STOCK | |||||||||
Balance at beginning of period | $ | 10,050 | 10,050 | 10,050 | |||||
Balance at end of period | 10,050 | 10,050 | 10,050 | ||||||
ACCUMULATED DEFICIT | |||||||||
Balance at beginning of period | (867 | ) | (437 | ) | (76 | ) | |||
Net income | 1,074 | 970 | 964 | ||||||
Dividends declared to Qwest Services Corporation | (1,350 | ) | (1,400 | ) | (1,325 | ) | |||
Balance at end of period | (1,143 | ) | (867 | ) | (437 | ) | |||
TOTAL STOCKHOLDER'S EQUITY | $ | 8,907 | 9,183 | 9,613 |
(1) | Basis of Presentation and Summary of Significant Accounting Policies |
• | A decrease of $163 million in Total current assets; |
• | A decrease of $109 million in Other assets, net; |
• | A decrease of $110 million in Long-term debt; and |
• | A decrease of $162 million in Deferred income taxes, net. |
(2) | Goodwill, Customer Relationships and Other Intangible Assets |
As of December 31, | ||||||
2015 | 2014 | |||||
(Dollars in millions) | ||||||
Goodwill | $ | 9,354 | 9,354 | |||
Customer relationships, less accumulated amortization of $3,264 and $2,660 | 2,435 | 3,039 | ||||
Other intangible assets subject to amortization: | ||||||
Capitalized software, less accumulated amortization of $1,383 and $1,247 | 613 | 808 |
Years Ended December 31, | |||||||||
2015 | 2014 | 2013 | |||||||
(Dollars in millions) | |||||||||
Amortization expense for intangible assets | $ | 871 | 957 | 1,029 |
(Dollars in millions) | |||
Year ending December 31, | |||
2016 | $ | 725 | |
2017 | 661 | ||
2018 | 587 | ||
2019 | 507 | ||
2020 | 435 |
(3) | Long-Term Debt and Revolving Promissory Note |
As of December 31, | ||||||||||
Interest Rates | Maturities | 2015 | 2014 | |||||||
(Dollars in millions) | ||||||||||
Senior notes | 6.125% - 8.375% | 2016 - 2055 | $ | 7,229 | 7,311 | |||||
Term loan | 2.180% | 2025 | 100 | — | ||||||
Capital lease and other obligations | Various | Various | 17 | 32 | ||||||
Unamortized premiums, net | 16 | 36 | ||||||||
Unamortized debt issuance costs | (123 | ) | (110 | ) | ||||||
Total long-term debt | 7,239 | 7,269 | ||||||||
Less current maturities | (242 | ) | (117 | ) | ||||||
Long-term debt, excluding current maturities | $ | 6,997 | 7,152 | |||||||
Note payable-affiliate | 6.758% | 2022 | $ | 855 | 796 |
(Dollars in millions)(1) | |||
2016 | $ | 242 | |
2017 | 503 | ||
2018 | 3 | ||
2019 | 1 | ||
2020 | — | ||
2021 and thereafter | 6,597 | ||
Total long-term debt | $ | 7,346 |
Years Ended December 31, | |||||||||
2015 | 2014 | 2013 | |||||||
(Dollars in millions) | |||||||||
Interest expense: | |||||||||
Gross interest expense | $ | 491 | 481 | 467 | |||||
Capitalized interest | (18 | ) | (17 | ) | (17 | ) | |||
Total interest expense | $ | 473 | 464 | 450 | |||||
Interest expense-affiliates, net | $ | 53 | 40 | 64 |
(4) | Accounts Receivable |
As of December 31, | ||||||
2015 | 2014 | |||||
(Dollars in millions) | ||||||
Trade and purchased receivables | $ | 620 | 649 | |||
Earned and unbilled receivables | 111 | 120 | ||||
Other | 4 | 9 | ||||
Total accounts receivable | 735 | 778 | ||||
Less: allowance for doubtful accounts | (47 | ) | (38 | ) | ||
Accounts receivable, less allowance | $ | 688 | 740 |
Beginning Balance | Additions | Deductions | Ending Balance | |||||||||
(Dollars in millions) | ||||||||||||
2015 | $ | 38 | 78 | (69 | ) | 47 | ||||||
2014 | $ | 43 | 64 | (69 | ) | 38 | ||||||
2013 | $ | 46 | 65 | (68 | ) | 43 |
(5) | Property, Plant and Equipment |
Depreciable Lives | As of December 31, | |||||||
2015 | 2014 | |||||||
(Dollars in millions) | ||||||||
Property, plant and equipment: | ||||||||
Land | N/A | $ | 349 | 350 | ||||
Fiber, conduit and other outside plant(1) | 15-45 years | 5,362 | 4,640 | |||||
Central office and other network electronics(2) | 4-10 years | 3,614 | 3,362 | |||||
Support assets(3) | 5-30 years | 2,584 | 2,496 | |||||
Construction in progress(4) | N/A | 273 | 309 | |||||
Gross property, plant and equipment | 12,182 | 11,157 | ||||||
Accumulated depreciation | (4,808 | ) | (3,956 | ) | ||||
Net property, plant and equipment | $ | 7,374 | 7,201 |
(1) | Fiber, conduit and other outside plant consists of fiber and metallic cable, conduit, poles and other supporting structures. |
(2) | Central office and other network electronics consists of circuit and packet switches, routers, transmission electronics and electronics providing service to customers. |
(3) | Support assets consist of buildings, computers and other administrative and support equipment. |
(4) | Construction in progress includes inventory held for construction and property of the aforementioned categories that has not been placed in service as it is still under construction. |
(6) | Severance |
Severance | |||
(Dollars in millions) | |||
Balance at December 31, 2013 | $ | 5 | |
Accrued to expense | 44 | ||
Payments, net | (39 | ) | |
Balance at December 31, 2014 | $ | 10 | |
Accrued to expense | 51 | ||
Payments, net | (55 | ) | |
Balance at December 31, 2015 | $ | 6 |
(7) | Employee Benefits |
(8) | Share-based Compensation |
(9) | Products and Services Revenues |
• | Strategic services, which include primarily high-speed Internet, private line (including special access), Ethernet, Verizon Wireless and other ancillary services; |
• | Legacy services, which include primarily local voice, Integrated Services Digital Network ("ISDN") services (which use regular telephone lines to support voice, video and data applications), switched access and traditional wide area network ("WAN") services (which allow a local communications network to link to networks in remote locations); and |
• | Affiliates and other services, which consist primarily of CAF support payments, USF support payments, USF surcharges and services we provide to our affiliates. We receive federal support payments from both CAF Phase 1 and CAF Phase 2 programs, and support payments from both federal and state USF programs. These support payments are government subsidies designed to reimburse us for various costs related to certain telecommunications services, including the costs of deploying, maintaining and operating voice and high-speed Internet infrastructure in high-cost rural areas where we are not able to recover our costs from our customers. USF surcharges are the amounts we collect based on specific items we list on our customers' invoices to fund the FCC's universal service programs. We provide to our affiliates, telecommunication services that we also provide to external customers. In addition, we provide to our affiliates, computer system development and support services, network support and technical services. |
Years Ended December 31, | |||||||||
2015 | 2014 | 2013 | |||||||
(Dollars in millions) | |||||||||
Strategic services | $ | 3,433 | 3,429 | 3,342 | |||||
Legacy services | 2,777 | 2,987 | 3,208 | ||||||
Affiliates and other services | 2,754 | 2,422 | 2,203 | ||||||
Total operating revenues | $ | 8,964 | 8,838 | 8,753 |
(10) | Affiliate Transactions |
• | Telecommunications services. Data, Internet and voice services in support of our affiliates' service offerings; |
• | Computer system development and support services. Information technology services primarily include the labor cost of developing, testing and implementing the system changes necessary to support order entry, provisioning, billing, network and financial systems, as well as the cost of improving, maintaining and operating our operations support systems and shared internal communications networks; and |
• | Network support and technical services. Network support and technical services relate to forecasting demand volumes and developing plans around network utilization and optimization, developing and implementing plans for overall product development, provisioning and customer care. |
(11) | Income Taxes |
Jurisdiction | Open Tax Years | |
Federal | 2012—current | |
State | ||
Arizona | 2010—current | |
Florida | 2010—current | |
Other states | 2011—current |
Years Ended December 31, | |||||||||
2015 | 2014 | 2013 | |||||||
(Dollars in millions) | |||||||||
Income tax expense: | |||||||||
Current tax provision: | |||||||||
Federal and foreign | $ | 734 | 738 | 653 | |||||
State and local | 114 | 129 | 101 | ||||||
Total current tax provision | 848 | 867 | 754 | ||||||
Deferred tax expense: | |||||||||
Federal and foreign | (170 | ) | (209 | ) | (125 | ) | |||
State and local | (19 | ) | (19 | ) | (27 | ) | |||
Total deferred tax expense | (189 | ) | (228 | ) | (152 | ) | |||
Income tax expense | $ | 659 | 639 | 602 |
Years Ended December 31, | ||||||||
2015 | 2014 | 2013 | ||||||
(in percent) | ||||||||
Effective income tax rate: | ||||||||
Federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||
State income taxes-net of federal effect | 3.6 | % | 4.0 | % | 3.1 | % | ||
Other | (0.6 | )% | 0.7 | % | 0.3 | % | ||
Effective income tax rate | 38.0 | % | 39.7 | % | 38.4 | % |
As of December 31, | ||||||
2015 | 2014 | |||||
(Dollars in millions) | ||||||
Deferred tax assets and liabilities: | ||||||
Deferred tax liabilities: | ||||||
Property, plant and equipment | $ | (1,431 | ) | (1,380 | ) | |
Intangibles assets | (1,153 | ) | (1,449 | ) | ||
Receivable from an affiliate due to pension plan participation | (460 | ) | (500 | ) | ||
Other | (59 | ) | (52 | ) | ||
Total deferred tax liabilities | (3,103 | ) | (3,381 | ) | ||
Deferred tax assets: | ||||||
Payable to affiliate due to post-retirement benefit plan participation | 921 | 998 | ||||
Debt premiums | 21 | 36 | ||||
Other | 277 | 274 | ||||
Total deferred tax assets | 1,219 | 1,308 | ||||
Valuation allowance on deferred tax assets | (12 | ) | (12 | ) | ||
Net deferred tax assets | 1,207 | 1,296 | ||||
Net deferred tax liabilities | $ | (1,896 | ) | (2,085 | ) |
(12) | Fair Value Disclosure |
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. |
As of December 31, 2015 | As of December 31, 2014 | |||||||||||||
Input Level | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||
(Dollars in millions) | ||||||||||||||
Liabilities-Long-term debt (excluding capital lease and other obligations) | 2 | $ | 7,222 | 7,456 | 7,237 | 7,702 |
(13) | Stockholder's Equity |
Years Ended December 31, | |||||||||
2015 | 2014 | 2013 | |||||||
(Dollars in millions) | |||||||||
Cash dividend declared to QSC | $ | 1,350 | 1,400 | 1,325 | |||||
Cash dividend paid to QSC | 1,350 | 1,400 | 1,325 |
(14) | Quarterly Financial Data (Unaudited) |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||
(Dollars in millions) | |||||||||||||||
2015 | |||||||||||||||
Operating revenues | $ | 2,217 | 2,222 | 2,287 | 2,238 | 8,964 | |||||||||
Operating income | 545 | 521 | 572 | 622 | 2,260 | ||||||||||
Income tax expense | 167 | 152 | 171 | 169 | 659 | ||||||||||
Net income | 247 | 238 | 268 | 321 | 1,074 |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | |||||||||||
(Dollars in millions) | |||||||||||||||
2014 | |||||||||||||||
Operating revenues | $ | 2,211 | 2,206 | 2,198 | 2,223 | 8,838 | |||||||||
Operating income | 542 | 546 | 528 | 496 | 2,112 | ||||||||||
Income tax expense | 160 | 162 | 156 | 161 | 639 | ||||||||||
Net income | 253 | 256 | 245 | 216 | 970 |
(15) | Commitments and Contingencies |
Years Ended December 31, | |||||||||
2015 | 2014 | 2013 | |||||||
(Dollars in millions) | |||||||||
Assets acquired through capital leases | $ | 10 | 3 | — | |||||
Depreciation expense | 19 | 32 | 42 | ||||||
Cash payments towards capital leases | 20 | 32 | 40 |
As of December 31, | ||||||
2015 | 2014 | |||||
(Dollars in millions) | ||||||
Assets included in property, plant and equipment | $ | 66 | 137 | |||
Accumulated depreciation | 55 | 108 |
Future Minimum Payments | |||
(Dollars in millions) | |||
Capital lease obligations: | |||
2016 | $ | 8 | |
2017 | 4 | ||
2018 | 4 | ||
2019 | 2 | ||
2020 | — | ||
2021 and thereafter | 5 | ||
Total minimum payments | 23 | ||
Less: amount representing interest and executory costs | (7 | ) | |
Present value of minimum payments | 16 | ||
Less: current portion | (6 | ) | |
Long-term portion | $ | 10 |
Future Minimum Payments | |||
(Dollars in millions) | |||
Operating leases: | |||
2016 | $ | 56 | |
2017 | 50 | ||
2018 | 45 | ||
2019 | 37 | ||
2020 | 32 | ||
2021 and thereafter | 52 | ||
Total future minimum payments(1) | $ | 272 |
(1) | Minimum payments have not been reduced by minimum sublease rentals of $30 million due in the future under non-cancelable subleases. |
(16) | Other Financial Information |
As of December 31, | ||||||
2015 | 2014 | |||||
(Dollars in millions) | ||||||
Prepaid expenses | $ | 46 | 45 | |||
Other | 77 | 80 | ||||
Total other current assets | $ | 123 | 125 |
As of December 31, | ||||||
2015 | 2014 | |||||
(Dollars in millions) | ||||||
Accounts payable | $ | 369 | 464 |
(17) | Labor Union Contracts |
Years Ended December 31, | ||||||
2015 | 2014 | |||||
(Dollars in thousands) | ||||||
Audit fees | $ | 2,910 | 2,825 | |||
Audit-related fees | — | — | ||||
Total fees | $ | 2,910 | 2,825 |
Exhibit Number | Description | ||
3.1 | Restated Articles of Incorporation of Qwest Corporation (incorporated by reference to Exhibit 3(a) of Qwest Corporation's Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 001-03040) filed with the Securities and Exchange Commission on March 25, 1998). | ||
3.2 | Articles of Amendment to the Articles of Incorporation of Qwest Corporation (incorporated by reference to Exhibit 3.1 of Qwest Corporation's Quarterly Report on Form 10-Q for the period ended June 30, 2000 (File No. 001-03040) filed with the Securities and Exchange Commission on August 11, 2000). | ||
3.3 | Amended and Restated Bylaws of Qwest Corporation (incorporated by reference to Exhibit 3.3 of Qwest Corporation's Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-03040) filed with the Securities and Exchange Commission on January 13, 2004). | ||
4.1 | Indenture, dated as of April 15, 1990, by and between The Mountain States Telephone and Telegraph Company (currently named Qwest Corporation) and The First National Bank of Chicago (incorporated by reference to Exhibit 4.2 of Qwest Corporation's Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-03040) filed with the Securities and Exchange Commission on January 13, 2004). | ||
a. | First Supplemental Indenture, dated as of April 16, 1991, by and between U S WEST Communications, Inc. (currently named Qwest Corporation) and The First National Bank of Chicago (incorporated by reference to Exhibit 4.3 of Qwest Corporation's Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-03040) filed with the Securities and Exchange Commission on January 13, 2004). | ||
4.2 | Indenture, dated as of April 15, 1990, by and between Northwestern Bell Telephone Company (predecessor to Qwest Corporation) and The First National Bank of Chicago (incorporated by reference to Exhibit 4.5(b) of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended March 31, 2012 (File No. 001-07784) filed with the Securities and Exchange Commission on May 10, 2012). | ||
a. | First Supplemental Indenture, dated as of April 16, 1991, by and between U S WEST Communications, Inc. (currently named Qwest Corporation) and The First National Bank of Chicago (incorporated by reference to Exhibit 4.3 of Qwest Corporation's Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-03040) filed with the Securities and Exchange Commission on January 13, 2004). | ||
4.3 | Indenture, dated as of October 15, 1999, by and between U S West Communications, Inc. (currently named Qwest Corporation) and Bank One Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4(b) of Qwest Corporation's Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 001-03040) filed with the Securities and Exchange Commission on March 3, 2000). | ||
a. | Fifth Supplemental Indenture, dated as of May 16, 2007, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of Qwest Corporation's Current Report on Form 8-K (File No. 001-03040) filed with the Securities and Exchange Commission on May 18, 2007). | ||
b. | Sixth Supplemental Indenture, dated as of April 13, 2009, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of Qwest Corporation's Current Report on Form 8-K (File No. 001-03040) filed with the Securities and Exchange Commission on April 13, 2009). | ||
c. | Seventh Supplemental Indenture, dated as of June 8, 2011, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.8 of Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on June 7, 2011). | ||
d. | Eighth Supplemental Indenture, dated as of September 21, 2011, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.9 of Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on September 20, 2011). | ||
e. | Ninth Supplemental Indenture, dated as of October 4, 2011, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of Qwest Corporation's Current Report on Form 8-K (File No. 001-03040) filed with the Securities and Exchange Commission on October 4, 2011). | ||
f. | Tenth Supplemental Indenture, dated as of April 2, 2012, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on March 30, 2012). | ||
g. | Eleventh Supplemental Indenture, dated as of June 25, 2012, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on June 22, 2012). | ||
h. | Twelfth Supplemental Indenture, dated as of May 23, 2013, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.13 of Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on May 22, 2013). | ||
i. | Thirteenth Supplemental Indenture, dated as of September 29, 2014, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.14 of Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on September 26, 2014). | ||
j. | Fourteenth Supplemental Indenture, dated as of September 21, 2015, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.15 of Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on September 21, 2015). |
(1) | Certain of the items in Sections 4.1 through 4.3 (i) omit supplemental indentures or other instruments governing debt that has been retired, or (ii) refer to trustees who may have been replaced, acquired or affected by similar changes. In accordance with Item 601(b) (4) (iii) (A) of Regulation S-K, copies of certain instruments defining the rights of holders of certain of our long-term debt are not filed herewith. Pursuant to this regulation, we hereby agree to furnish a copy of any such instrument to the SEC upon request. |
Exhibit Number | Description | ||
k. | Fifteenth Supplemental Indenture, dated as of January 29, 2016, by and between Qwest Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.16 of Qwest Corporation's Form 8-A (File No. 001-03040) filed with the Securities and Exchange Commission on January 29, 2016). | ||
4.4 | Revolving Promissory Note, dated as of April 18, 2012, pursuant to which Qwest Corporation may borrow from an affiliate of CenturyLink, Inc. up to $1.0 billion on a revolving basis (incorporated by reference to Exhibit 4.7(b) of CenturyLink, Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 2012 (File No 001-07784) filed with the Securities and Exchange Commission on August 9, 2012). | ||
4.5 | Credit Agreement, dated as of February 20, 2015, by and among Qwest Corporation, the several lenders from time to time parties thereto, and CoBank, ACB, as administrative agent (incorporated by reference to Exhibit 4.5 of Qwest Corporation's Annual Report on Form 10-K for the year ended December 31, 2014 (File No. 001-03040) filed with the Securities and Exchange Commission on February 27, 2015). | ||
12* | Calculation of Ratio of Earnings to Fixed Charges. | ||
23* | Independent Registered Public Accounting Firm Consent. | ||
31.1* | Certification of the Chief Executive Officer of CenturyLink, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2* | Certification of the Chief Financial Officer of CenturyLink, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32* | Certification of the Chief Executive Officer and Chief Financial Officer of CenturyLink, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101* | Financial statements from the Annual Report on Form 10-K of Qwest Corporation for the period ended December 31, 2015, formatted in XBRL: (i) the Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Stockholder's Equity and (v) the Notes to the Consolidated Financial Statements. |
* | Exhibit filed herewith. |
QWEST CORPORATION | ||
By: | /s/ David D. Cole | |
David D. Cole | ||
Executive Vice President, Controller and Operations Support (Chief Accounting Officer and Duly Authorized Officer) |
Signature | Title | |
/s/ Glen F. Post, III | Chief Executive Officer and President (Principal Executive Officer) | |
Glen F. Post, III | ||
/s/ R. Stewart Ewing, Jr. | Director, Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |
R. Stewart Ewing, Jr. | ||
/s/ Stacey W. Goff | Director | |
Stacey W. Goff |
Successor | Predecessor | |||||||||||||||||||
Years Ended December 31, | Nine Months Ended December 31, | Three Months Ended March 31, | ||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | 2011 | |||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Income before income tax expense | $ | 1,733 | 1,609 | 1,566 | 1,391 | 892 | 490 | |||||||||||||
Add: estimated fixed charges | 568 | 546 | 557 | 513 | 342 | 171 | ||||||||||||||
Add: estimated amortization of capitalized interest | 8 | 8 | 8 | 9 | 7 | 2 | ||||||||||||||
Less: interest capitalized | (18 | ) | (17 | ) | (17 | ) | (18 | ) | (5 | ) | (3 | ) | ||||||||
Total earnings available for fixed charges | $ | 2,291 | 2,146 | 2,114 | 1,896 | 1,236 | 660 | |||||||||||||
Estimate of interest factor on rentals | $ | 24 | 25 | 26 | 28 | 38 | 18 | |||||||||||||
Interest expense, including amortization of premiums, discounts and debt issuance costs | 526 | 504 | 514 | 467 | 299 | 150 | ||||||||||||||
Interest capitalized | 18 | 17 | 17 | 18 | 5 | 3 | ||||||||||||||
Total fixed charges | $ | 568 | 546 | 557 | 513 | 342 | 171 | |||||||||||||
Ratio of earnings to fixed charges | 4.0 | 3.9 | 3.8 | 3.7 | 3.6 | 3.9 |
1. | I have reviewed this annual report on Form 10-K of Qwest Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors: |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: March 1, 2016 | /s/ Glen F. Post, III |
Glen F. Post, III | |
Chief Executive Officer and President |
1. | I have reviewed this annual report on Form 10-K of Qwest Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors: |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Dated: March 1, 2016 | /s/ R. Stewart Ewing, Jr. |
R. Stewart Ewing, Jr. | |
Executive Vice President, Chief Financial Officer and Assistant Secretary |
Dated: March 1, 2016 | By: | /s/ Glen F. Post, III |
Glen F. Post, III | ||
Chief Executive Officer and President | ||
Dated: March 1, 2016 | By: | /s/ R. Stewart Ewing, Jr. |
R. Stewart Ewing, Jr. | ||
Executive Vice President and Chief Financial Officer |
Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Mar. 01, 2016 |
Jun. 30, 2015 |
|
Document and Entity Information | |||
Entity Registrant Name | QWEST CORP | ||
Entity Central Index Key | 0000068622 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2015 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Public Float | $ 0 | ||
Entity Common Stock, Shares Outstanding (shares) | 1 | ||
Document Fiscal Year Focus | 2015 | ||
Document Fiscal Period Focus | FY |
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
OPERATING REVENUES | |||
Operating revenues | $ 6,557 | $ 6,676 | $ 6,818 |
Operating revenues - affiliates | 2,407 | 2,162 | 1,935 |
Total operating revenues | 8,964 | 8,838 | 8,753 |
OPERATING EXPENSES | |||
Cost of services and products (exclusive of depreciation and amortization) | 2,872 | 2,879 | 2,790 |
Selling, general and administrative | 1,015 | 1,086 | 1,062 |
Operating expenses - affiliates | 960 | 756 | 695 |
Depreciation and amortization | 1,857 | 2,005 | 2,128 |
Total operating expenses | 6,704 | 6,726 | 6,675 |
OPERATING INCOME | 2,260 | 2,112 | 2,078 |
OTHER (EXPENSE) INCOME | |||
Interest expense | (473) | (464) | (450) |
Interest expense - affiliates, net | (53) | (40) | (64) |
Other (expense) income, net | (1) | 1 | 2 |
Total other expense, net | (527) | (503) | (512) |
INCOME BEFORE INCOME TAX EXPENSE | 1,733 | 1,609 | 1,566 |
Income tax expense | 659 | 639 | 602 |
NET INCOME | $ 1,074 | $ 970 | $ 964 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ / shares in Millions, $ in Millions |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Accounts receivable, allowance (in dollars) | $ 47 | $ 38 |
Common stock, share outstanding (shares) | 1 | 1 |
Common stock, shares issued (shares) | 1 | 1 |
Common stock outstanding, value | $ 10,050 | $ 10,050 |
Common stock issued, value | $ 10,050 | $ 10,050 |
Common stock, no par value | $ 10,050 | $ 10,050 |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Statement of Cash Flows [Abstract] | |||
Interest paid, capitalized interest | $ 18 | $ 17 | $ 17 |
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT) - USD ($) $ in Millions |
Total |
COMMON STOCK |
ACCUMULATED DEFICIT |
---|---|---|---|
Balance at beginning of period at Dec. 31, 2012 | $ 10,050 | $ (76) | |
Increase (Decrease) in Stockholder's Equity | |||
Net income | $ 964 | 964 | |
Dividends declared to Qwest Services Corporation | (1,325) | (1,325) | |
Balance at end of period at Dec. 31, 2013 | 9,613 | 10,050 | (437) |
Increase (Decrease) in Stockholder's Equity | |||
Net income | 970 | 970 | |
Dividends declared to Qwest Services Corporation | (1,400) | (1,400) | |
Balance at end of period at Dec. 31, 2014 | 9,183 | 10,050 | (867) |
Increase (Decrease) in Stockholder's Equity | |||
Net income | 1,074 | 1,074 | |
Dividends declared to Qwest Services Corporation | (1,350) | (1,350) | |
Balance at end of period at Dec. 31, 2015 | $ 8,907 | $ 10,050 | $ (1,143) |
Basis of Presentation and Summary of Significant Accounting Policies |
12 Months Ended | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 | |||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||
Basis of Presentation and Summary of SIgnificant Accounting Policies | Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation 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, high-speed Internet, private line (including special access), network access, Ethernet, information technology, wireless, video and other ancillary services. In certain local and regional markets, we also provide local access and fiber transport services to competitive local exchange carriers. We generate the majority of our total consolidated operating revenues from services provided in the 14-state region of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, and Wyoming. We refer to this region as our local service area. On April 1, 2011, our indirect parent QCII became a wholly-owned subsidiary of CenturyLink, Inc. in a tax-free, stock-for-stock transaction. 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. In 2015, our ultimate parent company, CenturyLink, Inc. ("CenturyLink"), changed their allocation methodology with respect to their now centrally managed pension and post-retirement plans. Specifically, under this new methodology, CenturyLink will allocate current service costs to subsidiaries relative to employees which are currently earning benefits under the pension and post-retirement benefit plans. The net periodic benefit cost allocated to us is now paid on a monthly basis through CenturyLink’s intercompany cash management process. The change in methodology resulted in a decrease of $7 million to our net periodic benefit cost for the year ended December 31, 2015. Changes in Estimates As a result of our annual reviews to evaluate the reasonableness of the depreciable lives for our property, plant and equipment, effective January 2014, we changed the estimates of the remaining economic lives of certain switch and circuit network equipment. These changes resulted in an increase in depreciation expense of approximately $20 million for the year ended December 31, 2014. This increase in depreciation expense, net of tax, reduced consolidated net income by approximately $12 million for the year ended December 31, 2014. Connect America Fund In August of 2015, CenturyLink accepted funding from the Federal Communications Commission's ("FCC") Connect America Fund ("CAF") of approximately $500 million per year for six years to fund the deployment of voice and high-speed Internet infrastructure for approximately 1.2 million rural households and businesses in 33 states under the CAF Phase 2 high-cost support program. The funding from the CAF Phase 2 support program in these 33 states will substantially supplant funding from the interstate Universal Service Fund ("USF") high-cost program that we previously utilized to support voice services in high-cost rural markets. Of these amounts, approximately $150 million is attributable to our service area, to provide service to approximately 0.3 million rural households and businesses in 13 states. In September of 2015, we began receiving these support payments from the FCC under the new CAF Phase 2 support program, which included (i) monthly support payments at a higher rate than under the interstate USF support program and (ii) a one-time cumulative catch-up payment representing the incrementally higher funding under the CAF Phase 2 support program over the interstate USF support program for the first seven months of 2015. During 2015, we recorded $95 million more revenue than we would have otherwise recorded during the same period under the interstate USF support program. Summary of Significant Accounting Policies Use of Estimates Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions we make when accounting for specific items and matters, including, but not limited to, long-term contracts, customer retention patterns, allowance for doubtful accounts, depreciation, amortization, asset valuations, rates used for affiliate cost allocations, internal labor capitalization rates, recoverability of assets (including deferred tax assets), impairment assessments, pension, post-retirement and other post-employment benefits, taxes, certain liabilities and other provisions and contingencies, are reasonable, based on information available at the time they are made. Our accounting for CenturyLink's indirect acquisition of us required extensive use of estimates in determining the acquisition date fair values of our assets and liabilities. These estimates, judgments and assumptions can materially affect the reported amounts of assets, liabilities and components of stockholder's equity or deficit as of the dates of the consolidated balance sheets, as well as the reported amounts of revenues, expenses and components of cash flows during the periods presented in our other consolidated financial statements. We also make estimates in our assessments of potential losses in relation to threatened or pending tax and legal matters. See Note 11—Income Taxes and Note 15—Commitments and Contingencies for additional information. For matters not related to income taxes, if a loss is considered probable and the amount can be reasonably estimated, we recognize an expense for the estimated loss. If we have the potential to recover a portion of the estimated loss from a third party, we make a separate assessment of recoverability and reduce the estimated loss if recovery is also deemed probable. For matters related to income taxes, if we determine that the impact of an uncertain tax position is more likely than not to be sustained upon audit by the relevant taxing authority, then we recognize a benefit for the largest amount that is more likely than not to be sustained. No portion of an uncertain tax position will be recognized if the position has less than a 50% likelihood of being sustained. Interest is recognized on the amount of unrecognized benefit from uncertain tax positions. For all of these and other matters, actual results could differ materially from our estimates. Revenue Recognition We recognize revenue for services when the related services are provided. Recognition of certain payments received in advance of services being provided is deferred until the service is provided. These advance payments include activation and installation charges, which we recognize as revenue over the expected customer relationship period, which ranges from eighteen months to over ten years depending on the service. We also defer costs for customer activations and installations. The deferral of customer activation and installation costs is limited to the amount of revenue deferred on advance payments. Costs in excess of advance payments are recorded as expense in the period such costs are incurred. Expected customer relationship periods are estimated using historical experience. 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. We offer bundle discounts to our customers who receive certain groupings of services. These bundle discounts are recognized concurrently with the associated revenue and are allocated to the various services in the bundled offering based on the estimated selling price of services included in each bundled combination. Customer arrangements that include both equipment and services are evaluated to determine whether the elements are separable. If the elements are deemed separable and separate earnings processes exist, the revenue associated with the customer arrangement is allocated to each element based on the relative estimated selling price of the separate elements. We have estimated the selling prices of each element by reference to vendor-specific objective evidence of selling prices when the elements are sold separately. The revenue associated with each element is then recognized as earned. For example, if we receive an advance payment when we sell equipment and continuing service together, we immediately recognize as revenue the amount allocated to the equipment as long as all the conditions for revenue recognition have been satisfied. The portion of the advance payment allocated to the service based upon its relative selling price is recognized ratably over the longer of the contractual period or the expected customer relationship period. We periodically transfer optical capacity assets on our network to other telecommunications service carriers. 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 20 years. We account for the cash consideration received on transfers of optical capacity assets and on all of the other elements deliverable under an IRU, as revenue ratably over the term of the agreement. We have not recognized revenue on any contemporaneous exchanges of our optical capacity assets for other optical capacity assets. In connection with offering products and services provided by third-party vendors, we review the relationship between us, the vendor and the end customer 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, take title to the products, have risk and rewards of ownership or act as an agent or broker. Based on CenturyLink's agreements with DIRECTV and Verizon Wireless, we offer these services through sales agency relationships which are reported on a net basis. Affiliate Transactions We provide to our affiliates telecommunications services that we also provide to external customers. In addition, we provide to our affiliates computer system development and support services. Services provided by us to our affiliates are recognized as operating revenue-affiliates in our consolidated statements of operations. We also purchase services from our affiliates including telecommunications services, marketing and employee-related support services. Services provided to us from our affiliates are recognized as operating expenses-affiliates on our consolidated statements of operations. Because of the significance of the services we provide to our affiliates and our affiliates provide to us, the results of operations, financial position and cash flows presented herein are not necessarily indicative of the results of operations, financial position and cash flows we would have achieved had we operated as a stand-alone entity during the periods presented. We recognize intercompany charges at the amounts billed to us by our affiliates and we recognize intercompany revenue for services we bill to our affiliates. Regulatory rules require certain revenues and expenses to be recorded at market price or fully distributed cost. Our compliance with regulations is subject to review by regulators. Adjustments to intercompany charges that result from these reviews are recorded in the period they become known. CenturyLink has cash management arrangements between certain of its subsidiaries that include lines of credit, affiliate obligations, capital contributions and dividends. As part of these cash management arrangements, an affiliate provides lines of credit to certain other affiliates. Amounts outstanding under these lines of credit and intercompany obligations vary from time to time. Under these arrangements, the majority of our cash balance is transferred on a daily basis to CenturyLink and most affiliate transactions are deemed to be settled at the time the transactions are recorded in our accounting records, with the resulting net balance at the end of each period reflected as advances to affiliates on the accompanying consolidated balance sheets. From time to time we declare and pay dividends to our parent, QSC, which are settled through the advances to affiliates, which has the net effect of reducing the amount of these advances. Dividends declared are reflected on our consolidated statements of stockholder's equity and the consolidated statements of cash flows reflects the changes in advances to affiliates as investing activities and changes in advances from affiliates as financing activities. Interest is assessed on the advances to/from affiliates on either the three-month U.S T-bill rate (for advances to affiliates) or CenturyLink’s weighted average borrowing rate (for advances from affiliates). The affiliates obligations, net in current and noncurrent liabilities on our consolidated balance sheets primarily represents the cumulative allocation of expense, net of payments, associated with QCII’s pension plans and post-retirement benefits plans prior to the plan mergers. In 2015, we agreed to a plan to settle the outstanding affiliate obligations, net balance with QCII over a 30 year term. Payments will be made on a monthly basis. For the year ended December 31, 2015, we made a settlement payment of $105 million to QCII on our affiliate obligations, net balance. Changes in the affiliates obligations, net are reflected in operating activities on our consolidated statements of cash flows. In the normal course of business, we transfer assets to and from various affiliates through our parent, QSC, which are recorded through our equity. It is our policy to record asset transfers based on carrying values. USF, Gross Receipts Taxes and Other Surcharges In determining whether to include in our revenues and expenses the taxes and surcharges collected from customers and remitted to government authorities, including USF charges, sales, use, value added and some excise taxes, we assess, among other things, whether we are the primary obligor or principal taxpayer for the taxes assessed in each jurisdiction where we do business. In jurisdictions where we determine that we are the principal taxpayer, we record the surcharges on a gross basis and include them in our revenues and costs of services and products. In jurisdictions where we determine that we are merely a collection agent for the government authority, we record the taxes on a net basis and do not include them in our revenues and costs of services and products. Advertising Costs Costs related to advertising are expensed as incurred and included in selling, general and administrative expenses in our consolidated statements of operations. Our advertising expense was $84 million, $83 million and $88 million for the years ended December 31, 2015, 2014 and 2013, respectively. Legal Costs In the normal course of our business, we incur costs to hire and retain external legal counsel to advise us on regulatory, litigation and other matters. We expense these costs as the related services are received. Income Taxes Our results are included in the CenturyLink consolidated federal income tax return and certain combined state income tax returns. CenturyLink allocates income tax expense to us based upon a separate return allocation method which results in income tax expense that approximates the expense that would result if we were a stand-alone entity. Our reported deferred tax assets and liabilities, as discussed below and in Note 11—Income Taxes, are primarily determined as a result of the application of the separate return allocation method and therefore the settlement of these amounts is dependent upon our parent, CenturyLink, rather than tax authorities. Our current expectation is that the vast majority of deferred tax assets and liabilities will be settled through our general intercompany obligation based upon the current CenturyLink policy. CenturyLink has the right to change their policy regarding settlement of these assets and liabilities at any time. The provision for income taxes consists of an amount for taxes currently payable, an amount for tax consequences deferred to future periods and adjustments to our liabilities for uncertain tax positions. We record deferred income tax assets and liabilities reflecting future tax consequences attributable to differences between the financial statement carrying value of assets and liabilities and the tax bases of those assets and liabilities. Deferred taxes are computed using enacted tax rates expected to apply in the year in which the differences are expected to affect taxable income. The effect on deferred income tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date. We establish valuation allowances when necessary to reduce deferred income tax assets to the amounts that we believe are more likely than not to be recovered. Each quarter we evaluate the need to retain all or a portion of the valuation allowance on our deferred tax assets. See Note 11—Income Taxes for additional information. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments that are readily convertible into cash and are not subject to significant risk from fluctuations in interest rates. As a result, the value at which cash and cash equivalents are reported in our consolidated financial statements approximates their fair value. Our cash collections are transferred to CenturyLink on a daily basis and our ultimate parent funds our cash disbursement needs. The net cash transferred to CenturyLink has been reflected as advances to affiliates in our consolidated balance sheets. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are recognized based upon the amount due from customers for the services provided or at cost for purchased and other receivables less an allowance for doubtful accounts. The allowance for doubtful accounts receivable reflects our best estimate of probable losses inherent in our receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence. We generally consider our accounts past due if they are outstanding over 30 days. Our collection process varies by the customer segment, amount of the receivable, and our evaluation of the customer's credit risk. Our past due accounts are written off against our allowance for doubtful accounts when collection is considered to be not probable. Any recoveries of accounts previously written off are generally recognized as a reduction in bad debt expense in the period received. The carrying value of accounts receivable net of the allowance for doubtful accounts approximates fair value. Property, Plant and Equipment As a result of our indirect acquisition by CenturyLink, property, plant and equipment acquired at the time of acquisition was recorded based on its estimated fair value as of the acquisition date. Subsequently purchased and constructed property, plant and equipment is recorded at cost. Property, plant and equipment is depreciated primarily using the straight-line group method. Under the straight-line group method, assets dedicated to providing telecommunications services (which comprise the majority of our property, plant and equipment) that have similar physical characteristics, use and expected useful lives are pooled for purposes of depreciation and tracking. The equal life group procedure is used to establish each pool's average remaining useful life. Generally, under the straight-line group method, when an asset is sold or retired in the course of normal business activities, the cost is deducted from property, plant and equipment and charged to accumulated depreciation without recognition of a gain or loss. A gain or loss is recognized in our consolidated statements of operations only if a disposal is abnormal or unusual. Leasehold improvements are amortized over the shorter of the useful lives of the assets or the expected lease term. Expenditures for maintenance and repairs are expensed as incurred. Interest is capitalized during the construction phase of network and other internal-use capital projects. Employee-related costs for construction of network and other internal use assets are also capitalized during the construction phase. Property, plant and equipment supplies used internally are carried at average cost, except for significant individual items for which cost is based on specific identification. We perform annual internal reviews to evaluate the reasonableness of the depreciable lives for our property, plant and equipment. Our reviews utilize models that take into account actual usage, physical wear and tear, replacement history, assumptions about technology evolution and, in certain instances, actuarially determined probabilities to estimate the remaining useful life of our asset base. Our remaining useful life assessments anticipate the loss in service value of assets that may precede the physical retirement. Assets shared among many customers may lose service value as those customers leave the network. However, the asset is not retired until all customers no longer utilize the asset and we determine there is no alternative use for the asset. We review long-lived tangible assets for impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable. For assessment purposes, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, absent a material change in operations. An impairment loss is recognized only if the carrying amount of the asset group is not recoverable and exceeds its fair value. Recoverability of the asset group to be held and used is assessed by comparing the carrying amount of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset group. If the asset group's carrying value is not recoverable, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds its fair value. We determine fair values by using a combination of comparable market values and discounted cash flows, as appropriate. Goodwill, Customer Relationships and Other Intangible Assets Intangible assets arising from business combinations, such as goodwill, customer relationships and capitalized software are initially recorded at estimated fair value. We amortize customer relationships primarily over an estimated life of ten years, using either the sum-of-the-years-digits or the straight-line methods, depending on the type of customer. We amortize capitalized software using the straight-line method over estimated lives ranging up to seven years. Other intangible assets not arising from business combinations are initially recorded at cost. Internally used software, whether purchased or developed by us, is capitalized and amortized using the straight-line method over its estimated useful life. We have capitalized certain costs associated with software such as costs of employees devoting time to the projects and external direct costs for materials and services. Costs associated with software to be used for internal purposes are expensed until the point at which the project has reached the development stage. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance, data conversion and training costs are expensed in the period in which they are incurred. We review the remaining economic lives of our capitalized software annually. Capitalized software is included in other intangible assets, net, in our consolidated balance sheets. We are required to assess goodwill for impairment at least annually, or more frequently, if an event occurs or circumstances change that would indicate an impairment may have occurred. We are required to write-down the value of goodwill in periods in which the recorded amount of goodwill exceeds the implied fair value of goodwill. The impairment assessment is performed annually at the reporting unit level. We have determined that our operations consist of one reporting unit, consistent with our determination that our business consists of one operating segment. See Note 2—Goodwill, Customer Relationships and Other Intangible Assets for additional information. Pension and Post-Retirement Benefits A substantial portion of our active and retired employees participate in the CenturyLink Combined Pension Plan. On December 31, 2014, the QCII pension plan and a pension plan of an affiliate were merged into the CenturyLink Retirement Plan. The CenturyLink Retirement Plan was renamed the CenturyLink Combined Pension Plan. Prior to the pension plan merger, the above-noted employees participated in the QCII pension plan. In addition, certain employees may become eligible to participate in CenturyLink's post-retirement health care and life insurance benefit plans. CenturyLink allocates service costs relating to pension and post-retirement health care and life insurance benefits to us and its other affiliates. The amounts contributed by us through CenturyLink are not segregated or restricted to pay amounts due to our employees and may be used to provide benefits to other employees of CenturyLink. The allocation of the service costs to us is based upon our employees who are currently earning benefits under the plans. For further information on qualified pension, post-retirement and other post-employment benefit plans, see CenturyLink's Annual Report on Form 10-K for the year ended December 31, 2015. Recently Adopted Accounting Pronouncements In 2015, we adopted Accounting Standards Update (“ASU”) 2015-03 “Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03) and ASU 2015-17 “Balance Sheet Classification of Deferred Taxes” (ASU 2015-17). Both ASUs are intended to simplify the presentation of financial information. ASU 2015-03 requires that debt issuance costs be presented as a reduction in the associated debt rather than as an other asset, net. ASU 2015-17 requires that deferred taxes be presented on a net basis by jurisdiction as either a net noncurrent asset or liability. The ASUs affect neither the timing of expense recognition related to the debt issuance costs nor the timing of income and expense recognition related to deferred income taxes. We adopted both ASU 2015-03 and 2015-17 by retrospectively applying the requirements of the ASUs to our previously issued consolidated financial statements. The retrospective application had no impact on our net income for the years ended December 31, 2014 and 2013, but resulted in the following changes in our previously reported consolidated balance sheet as of December 31, 2014:
The adoption of the ASUs had no impact on our net cash provided by operating activities but did change the presentation of the adjustments to reconcile net income and changes in other noncurrent assets and liabilities, net for the years ended December 31, 2014 and 2013. Recent Accounting Pronouncements Leases On February 25, 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”). The core principle of ASU 2016-02 will require lessees to present right-of-use assets and lease liabilities on their balance sheets. ASU 2016-02 is effective for annual and interim periods beginning January 1, 2019. Early adoption of ASU 2016-02 is permitted. Upon adoption of ASU 2016-02, we are required to recognize and measure leases at the beginning of the earliest period presented in our consolidated financial statements using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that we may elect to apply. We have not yet decided when we will adopt ASU 2016-02 or which practical expedient options we will elect. We are currently evaluating and assessing the impact ASU 2016-02 will have on us and our consolidated financial statements. As of the date of this Annual Report, we cannot provide any estimate of the impact of adopting ASU 2016-02. Revenue Recognition On May 28, 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09” or “new standard”). The new standard replaces virtually all existing generally accepted accounting principles (“GAAP”) on revenue recognition and replaces them with a principles-based approach for determining revenue recognition using a new five step model. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also includes new accounting principles related to the deferral and amortization of contract acquisition and fulfillment costs. We currently do not defer any contract acquisition costs and defer contract fulfillment costs only up to the extent of any revenue deferred. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year until January 1, 2018. Early adoption is permitted as of January 1, 2017. ASU 2014-09 may be adopted by applying the provisions of the new standard on a retrospective basis to the periods included in the financial statements or on a modified retrospective basis which would result in the recognition of a cumulative effect of adopting ASU 2014-09 in the first quarter of 2017, if adopting early, otherwise in the first quarter of 2018. We have not yet decided which implementation method we will adopt. We are studying the new standard and are in the early stages of assessing the impact the new standard will have on us and our consolidated financial statements. We cannot at this time, however, provide any estimate of the impact of adopting the new standard. |
Goodwill, Customer Relationships and Other Intangible Assets |
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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:
As of December 31, 2015, the gross carrying amount of goodwill, customer relationships and other intangible assets was $17.049 billion. Total amortization expense for intangible assets was as follows:
We estimate that total amortization expense for intangible assets for the years ending December 31, 2016 through 2020 will be as follows:
We annually review the estimated lives and methods used to amortize our other intangible assets. The actual amounts of amortization expense may differ materially from our estimates, depending on the results of our annual reviews. Our goodwill is 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 only when our assessment determines the recorded amount of goodwill exceeds the fair value. Our annual impairment assessment date for goodwill is October 31, at which date we assessed goodwill at our reporting units. In reviewing the criteria for reporting units, we have determined that we are one reporting unit. We compare our estimated fair value of equity to our carrying value of equity. If the estimated fair value of our equity is greater than the carrying value of our equity, we conclude that no impairment exists. If the estimated fair value of our equity is less than our carrying value of our equity, a second calculation is required in which the implied fair value of goodwill is compared to our carrying value of goodwill. If the implied fair value of goodwill is less than our carrying value of goodwill, goodwill must be written down to the implied fair value. At October 31, 2015, we estimated the fair value of our equity by considering both a market approach and a discounted cash flow method, which resulted in a Level 3 fair value measurement. The market approach method includes the use of comparable multiples of publicly traded companies whose services are comparable to ours. The discounted cash flow method is based on the present value of projected cash flows and a terminal value, which represents the expected normalized cash flows of the reporting unit beyond the cash flows from the discrete projection period. We discounted the estimated cash flows using a rate that represents our estimated weighted average cost of capital, which we determined to be approximately 6.0% as of the assessment date (which was comprised of an after-tax cost of debt of 3.3% and a cost of equity of 7.6%). Based on our assessment performed with respect to our reporting unit as described above, we concluded that our goodwill was not impaired as of that date. |
Long-Term Debt and Revolving Promissory Note |
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Long-Term Debt and Revolving Promissory Note | Long-Term Debt and Revolving Promissory Note Long-term debt, including unamortized premiums and discounts, unamortized debt issuance costs and note payable-affiliate, were as follows:
New Issuances 2015 On September 21, 2015, we issued $400 million aggregate principal amount of 6.625% Notes due 2055, in exchange for net proceeds, after deducting underwriting discounts and other expenses, of approximately $386 million. The underwriting agreement included an over-allotment option granting the underwriters for the offering an opportunity to purchase additional 6.625% Notes due 2055. On September 30, 2015, we issued an additional $10 million aggregate principal amount of the 6.625% Notes under this over-allotment option. All of the 6.625% Notes are unsecured obligations and may be redeemed by us, in whole or in part, on or after September 15, 2020, at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date. 2014 On September 29, 2014, we issued $500 million aggregate principal amount of 6.875% Notes due 2054, in exchange for net proceeds, after deducting underwriting discounts and other expenses, of $483 million. The Notes are senior unsecured obligations and may be redeemed, in whole or in part, on or after October 1, 2019, at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date. Repayments 2015 On October 13, 2015, we redeemed all $250 million of our 7.20% Notes due 2026, which resulted in an immaterial gain, and redeemed $150 million of our 6.875% Notes due 2033, which resulted in an immaterial loss. On June 15, 2015, we paid at maturity the $92 million principal amount of our 7.625% Notes. 2014 On October 1, 2014, we paid at maturity the $600 million principal amount of our 7.50% Notes. Term Loan On February 20, 2015, we entered into a term loan in the amount of $100 million with CoBank, ACB. The outstanding unpaid principal amount of this term loan plus any accrued and unpaid interest is due on February 20, 2025. Interest is paid monthly based upon either the London Interbank Offered Rate (“LIBOR”) or the base rate (as defined in the credit agreement) plus an applicable margin between 1.50% to 2.50% per annum for LIBOR loans and 0.50% to 1.50% per annum for base rate loans depending on our then current senior unsecured long-term debt rating. At December 31, 2015, the outstanding principal balance on this term loan was $100 million. Aggregate Maturities of Long-Term Debt Set forth below is the aggregate principal amount of our long-term debt (excluding unamortized premiums and discounts, net and unamortized debt issuance costs and other and excluding note payable-affiliate) maturing during the following years:
(1) Actual principal paid in all years may differ due to the possible future refinancing of outstanding debt or the issuance of new debt. Revolving Promissory Note We are currently indebted to an affiliate of our ultimate parent company, CenturyLink, under a revolving promissory note that provides us with a funding commitment of up to $1.0 billion aggregate principal amount through June 30, 2022, of which $855 million was outstanding as of December 31, 2015. As of December 31, 2015, the weighted average interest rate was 6.758%. As of December 31, 2015 and 2014, this revolving promissory note is reflected on our consolidated balance sheets as a current liability under “Note payable-affiliate”. As of December 31, 2015, $5 million of accrued interest is reflected in other current liabilities on our consolidated balance sheet. In accordance with the note agreement, all accrued and unpaid interest is capitalized to the unpaid principal balance on June 1 and December 1 of each year. Interest Expense Interest expense includes interest on long-term debt. The following table presents the amount of gross interest expense, net of capitalized interest and interest expense-affiliates, net:
Covenants The indentures governing our notes contain certain covenants including, but not limited to: (i) a prohibition on certain liens on our assets; and (ii) a limitation on mergers or sales of all, or substantially all, of our assets, which limitation requires that a successor assume the obligation with regard to these notes. These indentures do not contain any cross-default provisions. Our senior notes were issued under indentures dated April 15, 1990 and October 15, 1999. These indentures restrict our ability to (i) incur, issue or create liens upon our property and (ii) consolidate with or merge into, or transfer or lease all or substantially all of our assets to any other party. At December 31, 2015, we believe we were in compliance with all of the provisions and covenants contained in our debt agreements. Subsequent Event In January 2016, we issued $235 million aggregate principal amount of 7% Notes due 2056, in exchange for net proceeds, after deducting underwriting discounts and other expenses, of approximately $227 million. All of the 7% Notes are unsecured obligations and may be redeemed by us, in whole or in part, on or after February 1, 2021, at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date. |
Accounts Receivable |
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Accounts Receivable | Accounts Receivable The following table presents details of our accounts receivable balances:
We are exposed to concentrations of credit risk from residential and business customers within our local service area and from other telecommunications service providers. No customers individually represented more than 10% of our accounts receivable for all periods presented herein. We generally do not require collateral to secure our receivable balances. We have agreements with other telecommunications service providers whereby we agree to bill and collect on their behalf for services rendered by those providers to our customers within our local service area. We purchase accounts receivable from other telecommunications service providers primarily on a recourse basis and include these amounts in our accounts receivable balance. We have not experienced any significant loss associated with these purchased receivables. The following table presents details of our allowance for doubtful accounts:
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Property, Plant and Equipment |
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Property, Plant and Equipment | Property, Plant and Equipment Net property, plant and equipment is composed of the following:
We recorded depreciation expense of $986 million, $1.048 billion and $1.099 billion for the years ended December 31, 2015, 2014 and 2013, respectively. In 2014, we recorded an impairment charge of $17 million in connection with a sale-leaseback transaction involving an office building which closed in the fourth quarter of 2014. This impairment charge is included in selling, general and administrative expense in our consolidated statement of operations for the year ended December 31, 2014. |
Severance |
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Severance | Severance Periodically, we have reductions in our workforce and have accrued liabilities for the related severance costs. These workforce reductions resulted primarily from the progression or completion of our post-acquisition integration plans related to CenturyLink's indirect acquisition of us, increased competitive pressures, cost reduction initiatives and reduced workload demands due to the loss of customers purchasing certain legacy services. We report severance liabilities within accrued expenses and other liabilities-salaries and benefits in our consolidated balance sheets and report severance expenses in cost of services and products and selling, general and administrative expenses in our consolidated statements of operations. Changes in our accrued liability for severance expenses were as follows:
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Employee Benefits |
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Compensation and Retirement Disclosure [Abstract] | |
Employee Benefits | Employee Benefits Pension and Post-Retirement Benefits We are required to disclose the amount of our contributions to CenturyLink relative to the CenturyLink qualified pension plans and post-retirement benefit plans and the amount of income or expense from these plans allocated by CenturyLink to us and their other affiliates. QCII's post-retirement benefit plans were merged into CenturyLink's post-retirement benefit plans on January 1, 2012 and on December 31, 2014, QCII's qualified pension plan and a pension plan of an affiliate were merged into the CenturyLink Retirement Plan, which was renamed the CenturyLink Combined Pension Plan. Prior to the plan mergers, a substantial portion of our active and retired employees participated in QCII's pension and post-retirement plans. Based on current laws and circumstances, (i) CenturyLink was not required to make a cash contribution to the CenturyLink Combined Pension Plan in 2015 and (ii) CenturyLink does not expect it will be required to make a contribution in 2016. The amount of required contributions to the CenturyLink Combined Pension Plan in 2017 and beyond will depend on earnings on plan investments, prevailing discount rates, demographic experience, changes in plan benefits and changes in funding laws and regulations. CenturyLink occasionally makes voluntary contributions in addition to required contributions, and CenturyLink made such a voluntary cash contribution of $100 million to the CenturyLink Combined Pension Plan during the third quarter of 2015. No contributions were made to the post-retirement occupational health care trust in 2015 or 2014 and CenturyLink does not expect to make a contribution in 2016. The unfunded status of CenturyLink's qualified pension plan for accounting purposes was $2.207 billion and $2.402 billion as of December 31, 2015 and 2014, respectively, which includes the merged QCII qualified pension plan. The unfunded status of CenturyLink's post-retirement benefit plans for accounting purposes was $3.374 billion and $3.477 billion as of December 31, 2015 and 2014, respectively. In 2015, our ultimate parent company, CenturyLink, changed their allocation methodology with respect to their now centrally managed pension and post-retirement plans. Specifically, under this new methodology, CenturyLink will allocate current service costs to subsidiaries relative to employees which are currently earning benefits under the pension and post-retirement benefit plans. The net periodic benefit cost allocated to us is now paid on a monthly basis through CenturyLink’s intercompany cash management process. The change in methodology resulted in a decrease of $7 million to our net periodic benefit cost for the year ended December 31, 2015. The affiliates obligations, net in current and noncurrent liabilities on the consolidated balance sheets primarily represents the cumulative allocation of expense, net of payments, associated with QCII's pension plans and post-retirement benefits plans prior to the plan mergers. In 2015, we agreed to a plan to settle the outstanding pension and post-retirement affiliate obligations, net balance with QCII over a 30 year term. Payments will be made on a monthly basis. For the year ended December 31, 2015, we made a settlement payment of $105 million to QCII on our affiliate obligations, net balance. Changes in the affiliates obligations, net are reflected in operating activities on our consolidated statements of cash flows. We were allocated $57 million of pension service costs and $17 million of post-retirement service costs during the year ended December 31, 2015, which represented 69% of CenturyLink's total pension and post-retirement service costs for the year. The combined net pension and post-retirement service costs is included in cost of services and products and selling, general and administrative expenses on our consolidated statement of operations for the year ended December 31, 2015. We were allocated $98 million and $178 million in pension income during the years ended December 31, 2014 and 2013, respectively. Our allocated post-retirement benefit expense for the years ended December 31, 2014 and 2013 was $128 million and $88 million, respectively. These allocated amounts represent our share of the pension and post-retirement benefit expenses based on the actuarially determined amounts. Prior to the plan mergers, our allocated portion of QCII's pension and post-retirement benefit income and expense was 92% and 91% for the years ended December 31, 2014 and 2013, respectively. The combined net pension and post-retirement benefits (income) expenses is included in cost of services and products and selling, general and administrative expenses on our consolidated statements of operations for the years ended December 31, 2014 and 2013. CenturyLink sponsors a noncontributory qualified defined benefit pension plan that covers substantially all of our employees. As noted above, on December 31, 2014, QCII's pension plan was merged into the CenturyLink Retirement Plan, which was renamed the CenturyLink Combined Pension Plan. The plan also provides survivor and disability benefits to certain employees. In November 2009, and prior to the plan merger, the pension plan was amended to no longer provide pension benefit accruals for active non-represented employees after December 31, 2009. In addition, non-represented employees hired after January 1, 2009 are not eligible to participate in the plans. Active non-represented employees who participate in these plans retain their accrued pension benefit earned as of December 31, 2009 and certain participants will continue to earn interest credits on their benefit after December 31, 2009. Employees are eligible to receive their vested accrued benefit when they separate from CenturyLink. The plans also provided a death benefit for eligible beneficiaries of certain retirees; however, the plan was amended to eliminate this benefit effective March 1, 2010 for retirees who retired prior to January 1, 2004 and whose deaths occur after February 28, 2010 and eliminate the death benefit for eligible beneficiaries of certain retirees who retired after December 31, 2003. CenturyLink maintains post-retirement benefit plans that provide health care and life insurance benefits for certain eligible retirees. The QCII post-retirement benefit plans were merged into CenturyLink's post-retirement benefit plans on January 1, 2012. The benefit obligation for the occupational health care and life insurance post-retirement plans is estimated based on the terms of benefit plans. In calculating this obligation, CenturyLink considers numerous assumptions, estimates and judgments, including but not limited to, discount rates, health care cost trend rates and plan amendments. In October 2013, we renewed a four-year collective bargaining agreement which covers approximately 11,000 of our unionized employees. Effective January 1, 2014, the approximately 11,000 active employees and eligible post-1990 retirees who are former represented employees, have changes to their health and welfare benefits including: (i) changes to align the coverage and benefits for these active employees and non-Medicare eligible post-1990 retirees with the health and welfare coverage and benefits offered to all other CenturyLink employees and other CenturyLink retirees (with some exceptions) (ii) increased out-of-pocket health care costs through plan design changes effective January 1, 2014 and the elimination of Class II dependent coverage and (iii) elimination of the group medical plan coverage and benefits for Medicare-eligible post-1990 retirees and the establishment of a health reimbursement account and assistance to this population with their transition effective May 1, 2014 to their own purchase of individual policies through the Medicare Exchange market place using the health reimbursement account. In order to maintain their eligibility, post-1990 retirees continue to be obligated to contribute to the cost of health care benefits in excess of specified limits on the company-funded portion of retiree health care costs (also referred to as the "caps"), as they have since January 1, 2009. The terms of the post-retirement health care and life insurance plans between CenturyLink and its eligible non-represented employees and its eligible post-1990 non-represented retirees are established by CenturyLink and are subject to change at its discretion. CenturyLink has a practice of sharing some of the cost of providing health care benefits with its non-represented employees and post-1990 non-represented retirees. The benefit obligation for the non-represented post-retirement health care benefits is based on the terms of the current written plan documents and is adjusted for anticipated continued cost sharing with non-represented employees and post-1990 non-represented retirees. However, CenturyLink's contribution under its post-1990 non-represented retirees' health care plan is capped at a specific dollar amount. Medicare Prescription Drug, Improvement and Modernization Act of 2003 CenturyLink sponsors post-retirement health care plans with several benefit options that provide prescription drug benefits that CenturyLink deems actuarially equivalent to or exceeding Medicare Part D. CenturyLink recognizes the impact of the federal subsidy received under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 in the calculation of its post-retirement benefit obligation and net periodic post-retirement benefit expense. Other Benefit Plans Health Care and Life Insurance We provide health care and life insurance benefits to essentially all of our active employees. We are largely self-funded for the cost of the health care plan. Our health care benefit expense for current employees was $217 million, $204 million and $223 million for the years ended December 31, 2015, 2014 and 2013, respectively. Union-represented employee benefits are based on negotiated collective bargaining agreements. Employees' group basic life insurance plans are fully insured and the premiums are paid by CenturyLink. 401(k) Plan CenturyLink sponsors qualified defined contribution plans covering substantially all of our employees. Under these plans, employees may contribute a percentage of their annual compensation up to certain maximums, as defined by the plans and by the Internal Revenue Service ("IRS"). Currently, we match a percentage of our employees' contributions in cash. We recognized $43 million, $47 million and $49 million in expense related to these plans for the years ended December 31, 2015, 2014 and 2013, respectively. Deferred Compensation Plans CenturyLink sponsors non-qualified unfunded deferred compensation plans for various groups that includes certain of our current and former highly compensated employees. The plans are frozen and participants can no longer defer compensation to these plans. The value of the assets and liabilities related to these plans is not significant. |
Share-Based Compensation |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Share-Based Compensation | Share-based Compensation Share-based compensation expenses are included in cost of services and products, and selling, general, and administrative expenses in our consolidated statements of operations. We recognized compensation expense for options and awards granted to our employees under CenturyLink's equity incentive plans, including plans assumed in connection with us being indirectly acquired. We record share-based compensation expense that is allocated to us from CenturyLink, which is included in operating expenses-affiliates in our consolidated statements of operations. Based on many factors that affect the allocation, the amount of share-based compensation expense recorded at CenturyLink and ultimately allocated to us may fluctuate. We settle the share-based compensation expense allocated to us from CenturyLink through affiliate transactions. For the years ended December 31, 2015, 2014 and 2013, we were allocated a share-based compensation expense of approximately $21 million, $21 million and $17 million, respectively. We recognized an income tax benefit from our compensation expense of approximately $8 million, $8 million and $7 million, respectively, during the years ended December 31, 2015, 2014 and 2013, respectively. |
Products and Services Revenues |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Products and Services Revenues | Products and Services Revenues We are an integrated communications company engaged primarily in providing an array of communications services, including local voice, high-speed Internet, private line (including special access), network access, Ethernet, information technology, video, wireless 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 currently categorize our products, services and revenues among the following three categories:
Our operating revenues for our products and services consisted of the following categories for the years ended December 31, 2015, 2014 and 2013:
We do not have any single external customer that provides more than 10% of our total consolidated operating revenues. Substantially all of our consolidated revenues come from customers located in the United States. We recognize revenues in our consolidated statements of operations for certain USF surcharges and transaction taxes that we bill to our customers. Our consolidated statements of operations also reflect the related expense for the amounts we remit to the government agencies. The total amount of such surcharges that we included in revenues, aggregated approximately $147 million, $151 million and $154 million for the years ended December 31, 2015, 2014 and 2013, respectively. Those USF surcharges, where we record revenue, are included in "other" operating revenues and transaction tax surcharges are included in "legacy services" revenues. We also act as a collection agent for certain other USF and transaction taxes that we are required by government agencies to include in our bills to customers, for which we do not record any revenue or expense because we only act as a pass-through agent. Our operations are integrated into and reported as part of the consolidated segment data of CenturyLink. CenturyLink's chief operating decision maker ("CODM") is our CODM, but reviews our financial information on an aggregate basis only in connection with our quarterly and annual reports that we file with the Securities and Exchange Commission. Consequently, we do not provide our discrete financial information to the CODM on a regular basis. As such, we believe we have one reportable segment. |
Affiliate Transactions |
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Related Party Transactions [Abstract] | |||||||||||||
Affiliate Transactions | Affiliate Transactions We provide to our affiliates, telecommunications services that we also provide to external customers. In addition, we provide to our affiliates, computer system development and support services and network support and technical services. Below are details of the services we provide to our affiliates:
We charge our affiliates for services based on market price or fully distributed cost ("FDC"). We charge our affiliates market price for services that we also provide to external customers, while other services that we provide only to our affiliates are priced by applying an FDC methodology. FDC rates include salaries and wages, payroll taxes, employee related benefits, miscellaneous expenses, and charges for the use of our buildings, computing and software assets. Whenever possible, costs are directly assigned to our affiliates for the services they use. If costs cannot be directly assigned, they are allocated among all affiliates based upon cost causative measures; or if no cost causative measure is available, these costs are allocated based on a general allocator. These cost allocation methodologies are reasonable. From time to time, we adjust the basis for allocating the costs of a shared service among affiliates. Such changes in allocation methodologies are generally billed prospectively. We also purchase services from our affiliates including telecommunication services, insurance, flight services and other support services such as legal, regulatory, finance and accounting, tax, human resources and executive support. Our affiliates charge us for these services based on market price or FDC. |
Income Taxes |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes We were included in the consolidated federal income tax returns and the combined state income tax returns of QCII until CenturyLink's April 1, 2011 acquisition of QCII and the consolidated federal income tax returns and certain combined state income tax returns of CenturyLink subsequent to the acquisition. Both CenturyLink and QCII treat our consolidated results as if we were a separate taxpayer. The policy requires us to settle our tax liabilities through a change in our general intercompany obligation based upon our separate return taxable income, which is reflected in advances to affiliates on our consolidated balance sheets and the changes in advances to affiliates are reflected as investing activities on our consolidated statements of cash flows. Because we are included in the consolidated federal income tax returns and the combined state income tax returns of CenturyLink (and previously with QCII), any tax audits involving CenturyLink or QCII will also involve us. The IRS previously examined all of QCII's federal income tax returns prior to 2008 because they were included in its coordinated industry case program and now examines all of QCII's federal income tax returns as included in the consolidated federal return of the ultimate parent company, CenturyLink. In 2013, CenturyLink filed an amended 2009 consolidated federal income tax return primarily to report the carryforward impact of prior year settlements. The refund for the 2009 amended return filed in 2013 was received in 2014. In 2014, CenturyLink filed an amended consolidated federal income tax return for 2010. The refund claim filed for 2010 was accepted by the IRS, and the refund was received in 2015. The 2010 amended return released certain general business credits that were required to be carried back to 2009. As a result, a subsequent 2009 federal amended return was filed in 2014 to reflect the carrybacks from 2010. The 2009 refund claim filed in 2014 was accepted by the IRS and the refund was received in 2015. Beginning with the 2012 tax year, CenturyLink's federal consolidated returns are subject to annual examination by the IRS. Our open income tax years by major jurisdiction are as follows at December 31, 2015:
Since the period for assessing additional liability typically begins upon the filing of a return, it is possible that certain jurisdictions could assess tax for years prior to the open tax years disclosed above. Additionally, it is possible that certain jurisdictions in which we do not believe we have an income tax filing responsibility, and accordingly did not file a return, may attempt to assess a liability, or other jurisdictions to which we pay taxes may attempt to assert that we owe additional taxes. As of December 31, 2015, 2014, and 2013, we had no liability for interest related to uncertain tax positions. We did not record a liability for interest related to uncertain tax positions for the year ended December 31, 2015. We made no accrual for penalties related to income tax positions. Income Tax Expense The components of the income tax expense from continuing operations are as follows:
The effective income tax rate for continuing operations differs from the statutory tax rate as follows:
Deferred Tax Assets and Liabilities The components of the deferred tax assets and liabilities are as follows:
At December 31, 2015, we have established a valuation allowance of $12 million as it is not more likely than not that this amount of deferred tax assets will be realized. Other Income Tax Information We paid $848 million, $861 million and $750 million to QSC related to income taxes in the years ended December 31, 2015, 2014 and 2013, respectively. |
Fair Value Disclosure |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosure | Fair Value Disclosure Our financial instruments consist of cash and cash equivalents, accounts receivable, advances to affiliates, accounts payable, note payable-affiliate and long-term debt excluding capital lease obligations. Due to their short-term nature, the carrying amounts of our cash and cash equivalents, accounts receivable, advances to affiliates, accounts payable and note payable-affiliate approximate their fair values. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent and knowledgeable parties who are willing and able to transact for an asset or liability at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the inputs used following the fair value hierarchy set forth by the FASB. We determined the fair values of our long-term debt, including the current portion, based on quoted market prices where available or, if not available, based on discounted future cash flows using current market interest rates. The three input levels in the hierarchy of fair value measurements are defined by the FASB generally as follows:
The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding capital lease and other obligations and unamortized debt issuance costs, as well as the input levels used to determine the fair values:
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Stockholder's Equity |
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Stockholder's Equity | Stockholder's Equity Common Stock We have one share of common stock (no par value) issued and outstanding, which is owned by QSC. In addition, in the normal course of business, we transfer assets and liabilities to and from QSC and its affiliates, which are recorded through our equity. It is our policy to record these asset transfers based on carrying values. Dividends We declared the following cash dividend to QSC:
The timing of cash payments for declared dividends to QSC is at our discretion in consultation with QSC. We may declare and pay dividends to QSC in excess of our earnings to the extent permitted by applicable law. Our debt covenants do not limit the amount of dividends we can pay to QSC. |
Quarterly Financial Data (Unaudited) |
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Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Financial Data (Unaudited) | Quarterly Financial Data (Unaudited)
During the third quarter of 2015, we recognized an incremental $64 million of revenue associated with the FCC's CAF Phase 2 support program, and an additional incremental $31 million in the fourth quarter of 2015. |
Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | Commitments and Contingencies Legal Matters 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 whom 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, we are prepared both to litigate these matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities. We are among hundreds of defendants nationwide in dozens of lawsuits filed by Sprint Communications Company and affiliates of Verizon Communications Inc. The plaintiffs in these suits have challenged the right of local exchange carriers to bill interexchange carriers for switched access charges for certain calls between mobile and wireline devices that are routed through an interexchange carrier. In the lawsuits, the plaintiffs are seeking refunds of access charges previously paid and relief from future access charges. In addition, these and some other interexchange carriers have ceased paying switched access charges on these calls. These lawsuits involving us and many other carriers have been consolidated for pretrial purposes in the United States District Court for the District of Northern Texas. In November 2015, the Court dismissed the plaintiffs' federal law claims and granted them leave to file state law claims, if any. Some of the defendants, including us, have petitioned the Federal Communications Commission to address these issues on an industry-wide basis. The outcome of these disputes and suits, as well as any related regulatory proceedings that could ensue, are currently not predictable. If we are required to stop assessing these charges or to pay refunds of any such charges, our financial results could be negatively affected. CenturyLink and its affiliates are involved in several legal proceedings to which we are not a party that, if resolved against them, could have a material adverse effect on their business and financial condition. As an indirect wholly-owned subsidiary of CenturyLink, our business and financial condition could be similarly affected. You can find descriptions of these legal proceedings in CenturyLink's quarterly and annual reports filed with the Securities and Exchange Commission. Because we are not a party to any of the matters, we have not accrued any liabilities for the matters. We are subject to various federal, state and local environmental protection and health and safety laws. From time to time, we are subject to judicial and administrative proceedings brought by various governmental authorities under these laws. Several such proceedings are currently pending, but none is reasonably expected to exceed $100,000 in fines and penalties. The outcome of these other proceedings is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of these other proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on our financial position, results of operations or cash flows. Capital Leases We lease certain facilities and equipment under various capital lease arrangements. Depreciation of assets under capital leases is included in depreciation and amortization expense in our consolidated statements of operations. Payments on capital leases are included in repayments of long-term debt, including current maturities in our consolidated statements of cash flows. The tables below summarize our capital lease activity:
The future annual minimum payments under capital lease arrangements as of December 31, 2015 were as follows:
Operating Leases We lease various equipment, office facilities, retail outlets, switching facilities and other network sites. These leases, with few exceptions, provide for renewal options and escalations that are either fixed or based on the consumer price index. Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line basis over the lease term. The lease term for most leases includes the initial non-cancelable term plus any term under renewal options that are reasonably assured. For the years ended December 31, 2015, 2014 and 2013, our gross rental expense was $75 million, $79 million and $83 million, respectively. We also received sublease rental income for the years ended December 31, 2015, 2014 and 2013 of $4 million, $4 million and $4 million, respectively. At December 31, 2015, our future rental commitments for operating leases were as follows:
Purchase Commitments We have several commitments primarily for marketing activities and support services from a variety of vendors to be used in the ordinary course of business totaling $132 million at December 31, 2015. Of this amount, we expect to purchase $73 million in 2016, $53 million in 2017 through 2018, $6 million in 2019 through 2020 and none in 2021 and thereafter. These amounts do not represent our entire anticipated purchases in the future, but represent only those items for which we were contractually committed as of December 31, 2015. |
Other Financial Information |
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Additional Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Financial Information | Other Financial Information Other Current Assets The following table presents details of other current assets in our consolidated balance sheets:
Selected Current Liabilities Current liabilities reflected in our consolidated balance sheets include accounts payable:
Included in accounts payable at December 31, 2015 and 2014, were $29 million and $44 million, respectively, associated with capital expenditures. |
Labor Union Contracts |
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Labor Union Contracts | |
Labor Union Contracts | Labor Union Contracts Approximately 11,000, or 50%, of our employees are members of various bargaining units represented by the Communications Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW") and are subject to collective bargaining agreements that expire in 2017. |
Basis of Presentation and Summary of Significant Accounting Policies (Policies) |
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Accounting Policies [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. |
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Use of Estimates | Use of Estimates Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions we make when accounting for specific items and matters, including, but not limited to, long-term contracts, customer retention patterns, allowance for doubtful accounts, depreciation, amortization, asset valuations, rates used for affiliate cost allocations, internal labor capitalization rates, recoverability of assets (including deferred tax assets), impairment assessments, pension, post-retirement and other post-employment benefits, taxes, certain liabilities and other provisions and contingencies, are reasonable, based on information available at the time they are made. Our accounting for CenturyLink's indirect acquisition of us required extensive use of estimates in determining the acquisition date fair values of our assets and liabilities. These estimates, judgments and assumptions can materially affect the reported amounts of assets, liabilities and components of stockholder's equity or deficit as of the dates of the consolidated balance sheets, as well as the reported amounts of revenues, expenses and components of cash flows during the periods presented in our other consolidated financial statements. We also make estimates in our assessments of potential losses in relation to threatened or pending tax and legal matters. See Note 11—Income Taxes and Note 15—Commitments and Contingencies for additional information. For matters not related to income taxes, if a loss is considered probable and the amount can be reasonably estimated, we recognize an expense for the estimated loss. If we have the potential to recover a portion of the estimated loss from a third party, we make a separate assessment of recoverability and reduce the estimated loss if recovery is also deemed probable. For matters related to income taxes, if we determine that the impact of an uncertain tax position is more likely than not to be sustained upon audit by the relevant taxing authority, then we recognize a benefit for the largest amount that is more likely than not to be sustained. No portion of an uncertain tax position will be recognized if the position has less than a 50% likelihood of being sustained. Interest is recognized on the amount of unrecognized benefit from uncertain tax positions. For all of these and other matters, actual results could differ materially from our estimates. |
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Revenue Recognition | Revenue Recognition We recognize revenue for services when the related services are provided. Recognition of certain payments received in advance of services being provided is deferred until the service is provided. These advance payments include activation and installation charges, which we recognize as revenue over the expected customer relationship period, which ranges from eighteen months to over ten years depending on the service. We also defer costs for customer activations and installations. The deferral of customer activation and installation costs is limited to the amount of revenue deferred on advance payments. Costs in excess of advance payments are recorded as expense in the period such costs are incurred. Expected customer relationship periods are estimated using historical experience. 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. We offer bundle discounts to our customers who receive certain groupings of services. These bundle discounts are recognized concurrently with the associated revenue and are allocated to the various services in the bundled offering based on the estimated selling price of services included in each bundled combination. Customer arrangements that include both equipment and services are evaluated to determine whether the elements are separable. If the elements are deemed separable and separate earnings processes exist, the revenue associated with the customer arrangement is allocated to each element based on the relative estimated selling price of the separate elements. We have estimated the selling prices of each element by reference to vendor-specific objective evidence of selling prices when the elements are sold separately. The revenue associated with each element is then recognized as earned. For example, if we receive an advance payment when we sell equipment and continuing service together, we immediately recognize as revenue the amount allocated to the equipment as long as all the conditions for revenue recognition have been satisfied. The portion of the advance payment allocated to the service based upon its relative selling price is recognized ratably over the longer of the contractual period or the expected customer relationship period. We periodically transfer optical capacity assets on our network to other telecommunications service carriers. 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 20 years. We account for the cash consideration received on transfers of optical capacity assets and on all of the other elements deliverable under an IRU, as revenue ratably over the term of the agreement. We have not recognized revenue on any contemporaneous exchanges of our optical capacity assets for other optical capacity assets. In connection with offering products and services provided by third-party vendors, we review the relationship between us, the vendor and the end customer 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, take title to the products, have risk and rewards of ownership or act as an agent or broker. Based on CenturyLink's agreements with DIRECTV and Verizon Wireless, we offer these services through sales agency relationships which are reported on a net basis. |
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Affiliate Transactions | Affiliate Transactions We provide to our affiliates telecommunications services that we also provide to external customers. In addition, we provide to our affiliates computer system development and support services. Services provided by us to our affiliates are recognized as operating revenue-affiliates in our consolidated statements of operations. We also purchase services from our affiliates including telecommunications services, marketing and employee-related support services. Services provided to us from our affiliates are recognized as operating expenses-affiliates on our consolidated statements of operations. Because of the significance of the services we provide to our affiliates and our affiliates provide to us, the results of operations, financial position and cash flows presented herein are not necessarily indicative of the results of operations, financial position and cash flows we would have achieved had we operated as a stand-alone entity during the periods presented. We recognize intercompany charges at the amounts billed to us by our affiliates and we recognize intercompany revenue for services we bill to our affiliates. Regulatory rules require certain revenues and expenses to be recorded at market price or fully distributed cost. Our compliance with regulations is subject to review by regulators. Adjustments to intercompany charges that result from these reviews are recorded in the period they become known. CenturyLink has cash management arrangements between certain of its subsidiaries that include lines of credit, affiliate obligations, capital contributions and dividends. As part of these cash management arrangements, an affiliate provides lines of credit to certain other affiliates. Amounts outstanding under these lines of credit and intercompany obligations vary from time to time. Under these arrangements, the majority of our cash balance is transferred on a daily basis to CenturyLink and most affiliate transactions are deemed to be settled at the time the transactions are recorded in our accounting records, with the resulting net balance at the end of each period reflected as advances to affiliates on the accompanying consolidated balance sheets. From time to time we declare and pay dividends to our parent, QSC, which are settled through the advances to affiliates, which has the net effect of reducing the amount of these advances. Dividends declared are reflected on our consolidated statements of stockholder's equity and the consolidated statements of cash flows reflects the changes in advances to affiliates as investing activities and changes in advances from affiliates as financing activities. Interest is assessed on the advances to/from affiliates on either the three-month U.S T-bill rate (for advances to affiliates) or CenturyLink’s weighted average borrowing rate (for advances from affiliates). The affiliates obligations, net in current and noncurrent liabilities on our consolidated balance sheets primarily represents the cumulative allocation of expense, net of payments, associated with QCII’s pension plans and post-retirement benefits plans prior to the plan mergers. In 2015, we agreed to a plan to settle the outstanding affiliate obligations, net balance with QCII over a 30 year term. Payments will be made on a monthly basis. For the year ended December 31, 2015, we made a settlement payment of $105 million to QCII on our affiliate obligations, net balance. Changes in the affiliates obligations, net are reflected in operating activities on our consolidated statements of cash flows. In the normal course of business, we transfer assets to and from various affiliates through our parent, QSC, which are recorded through our equity. It is our policy to record asset transfers based on carrying values. |
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USF, Gross Receipts Taxes and Other Surcharges | USF, Gross Receipts Taxes and Other Surcharges In determining whether to include in our revenues and expenses the taxes and surcharges collected from customers and remitted to government authorities, including USF charges, sales, use, value added and some excise taxes, we assess, among other things, whether we are the primary obligor or principal taxpayer for the taxes assessed in each jurisdiction where we do business. In jurisdictions where we determine that we are the principal taxpayer, we record the surcharges on a gross basis and include them in our revenues and costs of services and products. In jurisdictions where we determine that we are merely a collection agent for the government authority, we record the taxes on a net basis and do not include them in our revenues and costs of services and products. |
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Advertising Costs | Advertising Costs Costs related to advertising are expensed as incurred and included in selling, general and administrative expenses in our consolidated statements of operations. Our advertising expense was $84 million, $83 million and $88 million for the years ended December 31, 2015, 2014 and 2013, respectively. |
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Legal Costs | Legal Costs In the normal course of our business, we incur costs to hire and retain external legal counsel to advise us on regulatory, litigation and other matters. We expense these costs as the related services are received. |
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Income Taxes | Income Taxes Our results are included in the CenturyLink consolidated federal income tax return and certain combined state income tax returns. CenturyLink allocates income tax expense to us based upon a separate return allocation method which results in income tax expense that approximates the expense that would result if we were a stand-alone entity. Our reported deferred tax assets and liabilities, as discussed below and in Note 11—Income Taxes, are primarily determined as a result of the application of the separate return allocation method and therefore the settlement of these amounts is dependent upon our parent, CenturyLink, rather than tax authorities. Our current expectation is that the vast majority of deferred tax assets and liabilities will be settled through our general intercompany obligation based upon the current CenturyLink policy. CenturyLink has the right to change their policy regarding settlement of these assets and liabilities at any time. The provision for income taxes consists of an amount for taxes currently payable, an amount for tax consequences deferred to future periods and adjustments to our liabilities for uncertain tax positions. We record deferred income tax assets and liabilities reflecting future tax consequences attributable to differences between the financial statement carrying value of assets and liabilities and the tax bases of those assets and liabilities. Deferred taxes are computed using enacted tax rates expected to apply in the year in which the differences are expected to affect taxable income. The effect on deferred income tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date. We establish valuation allowances when necessary to reduce deferred income tax assets to the amounts that we believe are more likely than not to be recovered. Each quarter we evaluate the need to retain all or a portion of the valuation allowance on our deferred tax assets. See Note 11—Income Taxes for additional information. |
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Cash and Cash Equivalents | Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments that are readily convertible into cash and are not subject to significant risk from fluctuations in interest rates. As a result, the value at which cash and cash equivalents are reported in our consolidated financial statements approximates their fair value. Our cash collections are transferred to CenturyLink on a daily basis and our ultimate parent funds our cash disbursement needs. The net cash transferred to CenturyLink has been reflected as advances to affiliates in our consolidated balance sheets. |
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Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are recognized based upon the amount due from customers for the services provided or at cost for purchased and other receivables less an allowance for doubtful accounts. The allowance for doubtful accounts receivable reflects our best estimate of probable losses inherent in our receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence. We generally consider our accounts past due if they are outstanding over 30 days. Our collection process varies by the customer segment, amount of the receivable, and our evaluation of the customer's credit risk. Our past due accounts are written off against our allowance for doubtful accounts when collection is considered to be not probable. Any recoveries of accounts previously written off are generally recognized as a reduction in bad debt expense in the period received. The carrying value of accounts receivable net of the allowance for doubtful accounts approximates fair value. |
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Property, Plant and Equipment | Property, Plant and Equipment As a result of our indirect acquisition by CenturyLink, property, plant and equipment acquired at the time of acquisition was recorded based on its estimated fair value as of the acquisition date. Subsequently purchased and constructed property, plant and equipment is recorded at cost. Property, plant and equipment is depreciated primarily using the straight-line group method. Under the straight-line group method, assets dedicated to providing telecommunications services (which comprise the majority of our property, plant and equipment) that have similar physical characteristics, use and expected useful lives are pooled for purposes of depreciation and tracking. The equal life group procedure is used to establish each pool's average remaining useful life. Generally, under the straight-line group method, when an asset is sold or retired in the course of normal business activities, the cost is deducted from property, plant and equipment and charged to accumulated depreciation without recognition of a gain or loss. A gain or loss is recognized in our consolidated statements of operations only if a disposal is abnormal or unusual. Leasehold improvements are amortized over the shorter of the useful lives of the assets or the expected lease term. Expenditures for maintenance and repairs are expensed as incurred. Interest is capitalized during the construction phase of network and other internal-use capital projects. Employee-related costs for construction of network and other internal use assets are also capitalized during the construction phase. Property, plant and equipment supplies used internally are carried at average cost, except for significant individual items for which cost is based on specific identification. We perform annual internal reviews to evaluate the reasonableness of the depreciable lives for our property, plant and equipment. Our reviews utilize models that take into account actual usage, physical wear and tear, replacement history, assumptions about technology evolution and, in certain instances, actuarially determined probabilities to estimate the remaining useful life of our asset base. Our remaining useful life assessments anticipate the loss in service value of assets that may precede the physical retirement. Assets shared among many customers may lose service value as those customers leave the network. However, the asset is not retired until all customers no longer utilize the asset and we determine there is no alternative use for the asset. We review long-lived tangible assets for impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable. For assessment purposes, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, absent a material change in operations. An impairment loss is recognized only if the carrying amount of the asset group is not recoverable and exceeds its fair value. Recoverability of the asset group to be held and used is assessed by comparing the carrying amount of the asset group to the estimated undiscounted future net cash flows expected to be generated by the asset group. If the asset group's carrying value is not recoverable, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds its fair value. We determine fair values by using a combination of comparable market values and discounted cash flows, as appropriate. |
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Goodwill, Customer Relationships and Other Intangible Assets | Goodwill, Customer Relationships and Other Intangible Assets Intangible assets arising from business combinations, such as goodwill, customer relationships and capitalized software are initially recorded at estimated fair value. We amortize customer relationships primarily over an estimated life of ten years, using either the sum-of-the-years-digits or the straight-line methods, depending on the type of customer. We amortize capitalized software using the straight-line method over estimated lives ranging up to seven years. Other intangible assets not arising from business combinations are initially recorded at cost. Internally used software, whether purchased or developed by us, is capitalized and amortized using the straight-line method over its estimated useful life. We have capitalized certain costs associated with software such as costs of employees devoting time to the projects and external direct costs for materials and services. Costs associated with software to be used for internal purposes are expensed until the point at which the project has reached the development stage. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance, data conversion and training costs are expensed in the period in which they are incurred. We review the remaining economic lives of our capitalized software annually. Capitalized software is included in other intangible assets, net, in our consolidated balance sheets. We are required to assess goodwill for impairment at least annually, or more frequently, if an event occurs or circumstances change that would indicate an impairment may have occurred. We are required to write-down the value of goodwill in periods in which the recorded amount of goodwill exceeds the implied fair value of goodwill. The impairment assessment is performed annually at the reporting unit level. We have determined that our operations consist of one reporting unit, consistent with our determination that our business consists of one operating segment. See Note 2—Goodwill, Customer Relationships and Other Intangible Assets for additional information. |
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Pension and Post-Retirement Benefits | Pension and Post-Retirement Benefits A substantial portion of our active and retired employees participate in the CenturyLink Combined Pension Plan. On December 31, 2014, the QCII pension plan and a pension plan of an affiliate were merged into the CenturyLink Retirement Plan. The CenturyLink Retirement Plan was renamed the CenturyLink Combined Pension Plan. Prior to the pension plan merger, the above-noted employees participated in the QCII pension plan. In addition, certain employees may become eligible to participate in CenturyLink's post-retirement health care and life insurance benefit plans. CenturyLink allocates service costs relating to pension and post-retirement health care and life insurance benefits to us and its other affiliates. The amounts contributed by us through CenturyLink are not segregated or restricted to pay amounts due to our employees and may be used to provide benefits to other employees of CenturyLink. The allocation of the service costs to us is based upon our employees who are currently earning benefits under the plans. For further information on qualified pension, post-retirement and other post-employment benefit plans, see CenturyLink's Annual Report on Form 10-K for the year ended December 31, 2015. |
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Recent Accounting Pronouncements | Recently Adopted Accounting Pronouncements In 2015, we adopted Accounting Standards Update (“ASU”) 2015-03 “Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03) and ASU 2015-17 “Balance Sheet Classification of Deferred Taxes” (ASU 2015-17). Both ASUs are intended to simplify the presentation of financial information. ASU 2015-03 requires that debt issuance costs be presented as a reduction in the associated debt rather than as an other asset, net. ASU 2015-17 requires that deferred taxes be presented on a net basis by jurisdiction as either a net noncurrent asset or liability. The ASUs affect neither the timing of expense recognition related to the debt issuance costs nor the timing of income and expense recognition related to deferred income taxes. We adopted both ASU 2015-03 and 2015-17 by retrospectively applying the requirements of the ASUs to our previously issued consolidated financial statements. The retrospective application had no impact on our net income for the years ended December 31, 2014 and 2013, but resulted in the following changes in our previously reported consolidated balance sheet as of December 31, 2014:
The adoption of the ASUs had no impact on our net cash provided by operating activities but did change the presentation of the adjustments to reconcile net income and changes in other noncurrent assets and liabilities, net for the years ended December 31, 2014 and 2013. Recent Accounting Pronouncements Leases On February 25, 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”). The core principle of ASU 2016-02 will require lessees to present right-of-use assets and lease liabilities on their balance sheets. ASU 2016-02 is effective for annual and interim periods beginning January 1, 2019. Early adoption of ASU 2016-02 is permitted. Upon adoption of ASU 2016-02, we are required to recognize and measure leases at the beginning of the earliest period presented in our consolidated financial statements using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that we may elect to apply. We have not yet decided when we will adopt ASU 2016-02 or which practical expedient options we will elect. We are currently evaluating and assessing the impact ASU 2016-02 will have on us and our consolidated financial statements. As of the date of this Annual Report, we cannot provide any estimate of the impact of adopting ASU 2016-02. Revenue Recognition On May 28, 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09” or “new standard”). The new standard replaces virtually all existing generally accepted accounting principles (“GAAP”) on revenue recognition and replaces them with a principles-based approach for determining revenue recognition using a new five step model. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also includes new accounting principles related to the deferral and amortization of contract acquisition and fulfillment costs. We currently do not defer any contract acquisition costs and defer contract fulfillment costs only up to the extent of any revenue deferred. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year until January 1, 2018. Early adoption is permitted as of January 1, 2017. ASU 2014-09 may be adopted by applying the provisions of the new standard on a retrospective basis to the periods included in the financial statements or on a modified retrospective basis which would result in the recognition of a cumulative effect of adopting ASU 2014-09 in the first quarter of 2017, if adopting early, otherwise in the first quarter of 2018. We have not yet decided which implementation method we will adopt. We are studying the new standard and are in the early stages of assessing the impact the new standard will have on us and our consolidated financial statements. We cannot at this time, however, provide any estimate of the impact of adopting the new standard. |
Goodwill, Customer Relationships and Other Intangible Assets (Tables) |
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Schedule of goodwill, customer relationships and other intangible assets | Goodwill, customer relationships and other intangible assets consisted of the following:
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Summary of amortization expense | Total amortization expense for intangible assets was as follows:
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Schedule of estimated amortization expense for intangible assets | We estimate that total amortization expense for intangible assets for the years ending December 31, 2016 through 2020 will be as follows:
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Long-Term Debt and Revolving Promissory Note (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of long-term debt, including unamortized discounts and premiums | Long-term debt, including unamortized premiums and discounts, unamortized debt issuance costs and note payable-affiliate, were as follows:
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Schedule of aggregate maturities of the entity's long-term debt (excluding unamortized premiums, discounts, and other) | Set forth below is the aggregate principal amount of our long-term debt (excluding unamortized premiums and discounts, net and unamortized debt issuance costs and other and excluding note payable-affiliate) maturing during the following years:
(1) Actual principal paid in all years may differ due to the possible future refinancing of outstanding debt or the issuance of new debt. |
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Schedule of amount of gross interest expense, net of capitalized interest and interest expense (income)-affiliates | Interest expense includes interest on long-term debt. The following table presents the amount of gross interest expense, net of capitalized interest and interest expense-affiliates, net:
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Accounts Receivable (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of the entity's accounts receivable balances | The following table presents details of our accounts receivable balances:
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Schedule of the entity's allowance for doubtful accounts | The following table presents details of our allowance for doubtful accounts:
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Property, Plant and Equipment (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of net property, plant and equipment | Net property, plant and equipment is composed of the following:
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Severance (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||
Schedule of changes in accrued liability for severance expenses | Changes in our accrued liability for severance expenses were as follows:
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Products and Services Revenues (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of operating revenues by products and services | Our operating revenues for our products and services consisted of the following categories for the years ended December 31, 2015, 2014 and 2013:
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Income Taxes (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of open income tax years by jurisdiction | Our open income tax years by major jurisdiction are as follows at December 31, 2015:
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Schedule of components of the income tax expense from continuing operations | The components of the income tax expense from continuing operations are as follows:
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Schedule of effective income tax rate for continuing operations that differs from the statutory tax rate | The effective income tax rate for continuing operations differs from the statutory tax rate as follows:
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Schedule of components of the deferred tax assets and liabilities | The components of the deferred tax assets and liabilities are as follows:
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Fair Value Disclosure (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of the three input levels in the hierarchy of fair value measurements | The three input levels in the hierarchy of fair value measurements are defined by the FASB generally as follows:
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Schedule of carrying amounts and estimated fair values of long-term debt, excluding capital lease obligations, and input levels 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 and unamortized debt issuance costs, as well as the input levels used to determine the fair values:
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Stockholder's Equity (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of cash dividends declared | We declared the following cash dividend to QSC:
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Quarterly Financial Data (Unaudited) (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of quarterly financial information |
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Commitments and Contingencies (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of the entity's capital lease activity | The tables below summarize our capital lease activity:
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Schedule of future annual minimum payments under capital lease | The future annual minimum payments under capital lease arrangements as of December 31, 2015 were as follows:
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Schedule of future minimum payments under operating leases | At December 31, 2015, our future rental commitments for operating leases were as follows:
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Other Financial Information (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of other current assets | The following table presents details of other current assets in our consolidated balance sheets:
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Schedule of accounts payable and accrued liabilities | Current liabilities reflected in our consolidated balance sheets include accounts payable:
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Basis of Presentation and Summary of Significant Accounting Policies (Details) - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Change in accounting estimates | |||||||||||
Depreciation expense | $ 986 | $ 1,048 | $ 1,099 | ||||||||
Net income | $ 321 | $ 268 | $ 238 | $ 247 | $ 216 | $ 245 | $ 256 | $ 253 | 1,074 | $ 970 | $ 964 |
Switch, circuit and cable network equipment | Service life | |||||||||||
Change in accounting estimates | |||||||||||
Depreciation expense | 20 | ||||||||||
Net income | (12) | ||||||||||
Pension, Supplemental and Other Postretirement Benefit Plans | Change in accounting method accounted for as change in estimate | |||||||||||
Change in accounting estimates | |||||||||||
Decrease in defined benefit plans net periodic benefit cost | $ (7) | ||||||||||
Decrease in defined benefit plans net periodic benefit cost (financial effect) | The change in methodology resulted in a decrease of $7 million to our net periodic benefit cost for the year ended December 31, 2015 |
Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Summary of Significant Accounting Policies (Details 2) $ in Millions |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Aug. 27, 2015
USD ($)
|
Dec. 31, 2015
USD ($)
state
|
Sep. 30, 2015
USD ($)
|
Dec. 31, 2015
USD ($)
state
|
|
Products and Services Revenues | ||||
Number of states in which entity operates | state | 14 | 14 | ||
Incremental increase in other operating revenues - CAF Phase II | $ 31 | $ 64 | ||
CAF Phase 2 Support | CenturyLink, Inc. | ||||
Products and Services Revenues | ||||
Federal support, total amount per agreement | $ 500 | |||
Contract or agreement term (in years) | 6 | |||
Number of rural households and businesses | 1,200,000 | |||
Number of states in which entity operates | 33 | |||
CAF Phase 2 Support | Qwest Corporation | ||||
Products and Services Revenues | ||||
Federal support, total amount per agreement | $ 150 | |||
Number of rural households and businesses | 300,000 | |||
Number of states in which entity operates | 13 | |||
Incremental increase in other operating revenues - CAF Phase II | $ 95 |
Basis of Presentation and Summary of Significant Accounting Policies (Details 4) |
12 Months Ended |
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Dec. 31, 2015
segment
| |
Goodwill, Customer Relationships and Other Intangible Assets | |
Number of reporting units | 1 |
Number of operating segments | 1 |
Customer relationships | |
Goodwill, Customer Relationships and Other Intangible Assets | |
Finite-lived intangible assets, maximum useful life | 10 years |
Capitalized software | |
Goodwill, Customer Relationships and Other Intangible Assets | |
Finite-lived intangible assets, maximum useful life | 7 years |
Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation and Summary of Significant Accounting Policies (Details 5) - USD ($) |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
New Accounting Pronouncement, Early Adoption [Line Items] | |||||||||||
Net income | $ 321,000,000 | $ 268,000,000 | $ 238,000,000 | $ 247,000,000 | $ 216,000,000 | $ 245,000,000 | $ 256,000,000 | $ 253,000,000 | $ 1,074,000,000 | $ 970,000,000 | $ 964,000,000 |
Total current assets | 1,602,000,000 | 1,683,000,000 | 1,602,000,000 | 1,683,000,000 | |||||||
Other assets, net | 92,000,000 | 100,000,000 | 92,000,000 | 100,000,000 | |||||||
Long-term debt, excluding current maturities | 6,997,000,000 | 7,152,000,000 | 6,997,000,000 | 7,152,000,000 | |||||||
Deferred income taxes, net | $ 1,896,000,000 | 2,085,000,000 | $ 1,896,000,000 | 2,085,000,000 | |||||||
Restatement adjustment | New accounting pronouncement, early adoption, effect | |||||||||||
New Accounting Pronouncement, Early Adoption [Line Items] | |||||||||||
Net income | 0 | 0 | |||||||||
Total current assets | (163,000,000) | (163,000,000) | |||||||||
Other assets, net | (109,000,000) | (109,000,000) | |||||||||
Long-term debt, excluding current maturities | (110,000,000) | (110,000,000) | |||||||||
Deferred income taxes, net | $ (162,000,000) | (162,000,000) | |||||||||
Net cash provided by (used in) operating activities | $ 0 | $ 0 |
Long-Term Debt and Revolving Promissory Note Long-Term Debt and Revolving Promissory Note (Details 3) $ in Millions |
Dec. 31, 2015
USD ($)
|
---|---|
Maturities of long-term debt (excluding unamortized premiums, net and unamortized debt issuance costs) | |
2016 | $ 242 |
2017 | 503 |
2018 | 3 |
2019 | 1 |
2020 | 0 |
2021 and thereafter | 6,597 |
Total long-term debt | $ 7,346 |
Property, Plant and Equipment (Details 2) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Property, plant and equipment | |||
Impairment of real estate | $ 0 | $ (17) | $ 0 |
Office Building | |||
Property, plant and equipment | |||
Impairment of real estate | $ (17) |
Severance (Details) - Employee severance - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Restructuring reserve | ||
Balance at the beginning of the period | $ 10 | $ 5 |
Accrued to expense | 51 | 44 |
Payments, net | (55) | (39) |
Balance at the end of the period | $ 6 | $ 10 |
Employee Benefits (Details 2) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Health Care and Life Insurance [Abstract] | |||
Health care benefit expenses | $ 217 | $ 204 | $ 223 |
Employee Benefits (Details 3) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Pension Plan | |||
Defined Contribution Plan Disclosure [Line Items] | |||
Costs recognized for 401(k) Plan | $ 43 | $ 47 | $ 49 |
Share-Based Compensation (Details) - Stock compensation plan - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Share-based compensation | |||
Share based compensation expense | $ 21 | $ 21 | $ 17 |
Income tax benefit recognized, associated with share-based compensation expense | $ 8 | $ 8 | $ 7 |
Products and Services Revenues (Details) $ in Millions |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015
USD ($)
|
Sep. 30, 2015
USD ($)
|
Jun. 30, 2015
USD ($)
|
Mar. 31, 2015
USD ($)
|
Dec. 31, 2014
USD ($)
|
Sep. 30, 2014
USD ($)
|
Jun. 30, 2014
USD ($)
|
Mar. 31, 2014
USD ($)
|
Dec. 31, 2015
USD ($)
category
segment
|
Dec. 31, 2014
USD ($)
|
Dec. 31, 2013
USD ($)
|
|
Products and Services Revenues | |||||||||||
Number of categories of products and services (categories) | category | 3 | ||||||||||
Operating revenues | $ 2,238 | $ 2,287 | $ 2,222 | $ 2,217 | $ 2,223 | $ 2,198 | $ 2,206 | $ 2,211 | $ 8,964 | $ 8,838 | $ 8,753 |
Taxes and surcharges included in operating revenues and expenses | $ 147 | 151 | 154 | ||||||||
Number of reportable segments | segment | 1 | ||||||||||
Operating revenues | Customer concentration risk | |||||||||||
Products and Services Revenues | |||||||||||
Concentration risk, percentage | 10.00% | ||||||||||
Strategic services | |||||||||||
Products and Services Revenues | |||||||||||
Operating revenues | $ 3,433 | 3,429 | 3,342 | ||||||||
Legacy services | |||||||||||
Products and Services Revenues | |||||||||||
Operating revenues | 2,777 | 2,987 | 3,208 | ||||||||
Affiliates and other services | |||||||||||
Products and Services Revenues | |||||||||||
Operating revenues | $ 2,754 | $ 2,422 | $ 2,203 |
Income Taxes (Details 2) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
QSC | |||
Related Party Transaction [Line Items] | |||
Income taxes paid | $ 848 | $ 861 | $ 750 |
Fair Value Disclosure (Details) - Fair value, measurements, recurring - Fair value inputs, Level 2 - USD ($) $ in Millions |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Carrying amount | ||
Liabilities | ||
Liabilities-Long-term debt (excluding capital lease and other obligations) | $ 7,222 | $ 7,237 |
Fair value | ||
Liabilities | ||
Liabilities-Long-term debt (excluding capital lease and other obligations) | $ 7,456 | $ 7,702 |
Stockholder's Equity (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Stockholder's Equity (Deficit) | |||
Dividends declared to QSC | $ 1,350 | $ 1,400 | $ 1,325 |
Common stock, shares issued (shares) | 1 | 1 | |
Common stock, shares outstanding (shares) | 1 | 1 | |
Dividends | |||
Cash dividend paid to QSC | $ 1,350 | $ 1,400 | $ 1,325 |
COMMON STOCK | |||
Stockholder's Equity (Deficit) | |||
Common stock, shares issued (shares) | 1 | ||
Common stock, shares outstanding (shares) | 1 |
Quarterly Financial Data (Unaudited) (Details) - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2014 |
Sep. 30, 2014 |
Jun. 30, 2014 |
Mar. 31, 2014 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Quarterly Financial Information Disclosure [Abstract] | |||||||||||
Operating revenues | $ 2,238 | $ 2,287 | $ 2,222 | $ 2,217 | $ 2,223 | $ 2,198 | $ 2,206 | $ 2,211 | $ 8,964 | $ 8,838 | $ 8,753 |
Operating income | 622 | 572 | 521 | 545 | 496 | 528 | 546 | 542 | 2,260 | 2,112 | 2,078 |
Income tax expense | 169 | 171 | 152 | 167 | 161 | 156 | 162 | 160 | 659 | 639 | 602 |
Net income | 321 | 268 | $ 238 | $ 247 | $ 216 | $ 245 | $ 256 | $ 253 | $ 1,074 | $ 970 | $ 964 |
Incremental increase in other operating revenues - CAF Phase II | $ 31 | $ 64 |
Commitments and Contingencies Commitments and Contingencies (Details) |
12 Months Ended |
---|---|
Dec. 31, 2015
USD ($)
| |
Loss Contingencies [Line Items] | |
Number of patents allegedly Infringed, minimum | 1 |
Unfavorable regulatory action | |
Loss Contingencies [Line Items] | |
Maximum possible loss per proceeding | $ 100,000 |
Commitments and Contingencies (Details 2) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Leases, Capital | |||
Assets acquired through capital leases | $ 10 | $ 3 | $ 0 |
Depreciation expense | 19 | 32 | 42 |
Cash payments towards capital leases | 20 | 32 | $ 40 |
Assets included in property, plant and equipment | 66 | 137 | |
Accumulated depreciation | 55 | $ 108 | |
Capital lease obligations: | |||
2016 | 8 | ||
2017 | 4 | ||
2018 | 4 | ||
2019 | 2 | ||
2020 | 0 | ||
2021 and thereafter | 5 | ||
Total minimum payments | 23 | ||
Less: amount representing interest and executory costs | (7) | ||
Present value of minimum payments | 16 | ||
Less: current portion | (6) | ||
Long-term portion | $ 10 |
Commitments and Contingencies (Details 3) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Leases, Operating | |||
Operating leases, rent expense | $ 75 | $ 79 | $ 83 |
Sublease rental income received | 4 | $ 4 | $ 4 |
Operating leases: | |||
2016 | 56 | ||
2017 | 50 | ||
2018 | 45 | ||
2019 | 37 | ||
2020 | 32 | ||
2021 and thereafter | 52 | ||
Total future minimum payments | 272 | ||
Minimum sublease rentals due in the future under non-cancelable subleases | 30 | ||
Purchase Obligations | |||
Total purchase commitments | 132 | ||
2016 | 73 | ||
2017 through 2018 | 53 | ||
2019 through 2020 | 6 | ||
2021 and thereafter | $ 0 |
Other Financial Information (Details) - USD ($) $ in Millions |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Prepaid Expense and Other Assets, Current [Abstract] | ||
Prepaid expenses | $ 46 | $ 45 |
Other | 77 | 80 |
Total other current assets | 123 | 125 |
Accounts Payable, Current [Abstract] | ||
Accounts payable | 369 | 464 |
Capital expenditures incurred but not yet paid | $ 29 | $ 44 |
Labor Union Contracts (Details) |
12 Months Ended |
---|---|
Dec. 31, 2015
Employee
| |
Labor Union Contracts | |
Collective bargaining arrangement, number of participating unionized employees | 11,000 |
Unionized Employees Concentration Risk [Member] | Employees covered under collective bargaining agreements | |
Labor Union Contracts | |
Concentration risk, percentage | 50.00% |
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