CENTURYLINK, INC, 10-Q filed on 5/9/2014
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2014
May 2, 2014
Document and Entity Information
 
 
Entity Registrant Name
CENTURYLINK, INC 
 
Entity Central Index Key
0000018926 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2014 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
572,747,122 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q1 
 
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Income Statement [Abstract]
 
 
OPERATING REVENUES
$ 4,538 
$ 4,513 
OPERATING EXPENSES
 
 
Cost of services and products (exclusive of depreciation and amortization)
1,935 
1,796 
Selling, general and administrative
843 
818 
Depreciation and amortization
1,107 
1,117 
Total operating expenses
3,885 
3,731 
OPERATING INCOME
653 
782 
OTHER INCOME (EXPENSE)
 
 
Interest expense
(331)
(316)
Other income
9 
39 
Total other income (expense)
(322)
(277)
INCOME BEFORE INCOME TAX EXPENSE
331 
505 
Income tax expense
128 
207 
Net income
$ 203 
$ 298 
BASIC AND DILUTED EARNINGS PER COMMON SHARE
 
 
BASIC (in dollars per share)
$ 0.35 
$ 0.48 
DILUTED (in dollars per share)
$ 0.35 
$ 0.48 
DIVIDENDS DECLARED PER COMMON SHARE (in dollars per share)
$ 0.54 
$ 0.54 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 
 
BASIC (in shares)
574,535 
619,423 
DILUTED (in shares)
575,456 
621,074 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Statement of Comprehensive Income [Abstract]
 
 
Net income
$ 203 
$ 298 
Items related to employee benefit plans:
 
 
Change in net prior service credit, net of $(2) and $– tax
3 
1 
Change in net actuarial loss, net of $(2) and $(8) tax
3 
13 
Foreign currency translation adjustment and other, net of $- and $(2) tax
1 
(8)
Other comprehensive income
7 
6 
COMPREHENSIVE INCOME
$ 210 
$ 304 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Statement of Comprehensive Income [Abstract]
 
 
Other Comprehensive (Income) Loss, Pension and Other Postretirement Benefit Plans, Tax, Portion Attributable to Parent
$ (2)
$ (8)
Change in net prior service credit, tax
(2)
0 
Foreign currency translation adjustment and other, tax
$ 0 
$ (2)
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
CURRENT ASSETS
 
 
Cash and cash equivalents
$ 219 
$ 168 
Allowance for Doubtful Accounts Receivable, Current
145 
155 
Accounts receivable, less allowance of $145 and $155
1,887 
1,977 
Deferred income taxes, net
1,010 
1,165 
Other
632 
597 
Total current assets
3,748 
3,907 
NET PROPERTY, PLANT AND EQUIPMENT
 
 
Property, plant and equipment
34,847 
34,307 
Accumulated depreciation
(16,354)
(15,661)
Net property, plant and equipment
18,493 
18,646 
GOODWILL AND OTHER ASSETS
 
 
Goodwill
20,674 
20,674 
Customer relationships, less accumulated amortization of $3,909 and $3,641
5,667 
5,935 
Other intangible assets, less accumulated amortization of $1,452 and $1,401
1,750 
1,802 
Other
834 
823 
Total goodwill and other assets
28,925 
29,234 
TOTAL ASSETS
51,166 
51,787 
CURRENT LIABILITIES
 
 
Current maturities of long-term debt
1,126 
785 
Accounts payable
1,183 
1,111 
Accrued expenses and other liabilities
 
 
Salaries and benefits
598 
650 
Taxes Payable, Current
410 
339 
Interest
340 
273 
Other
255 
514 
Advance billings and customer deposits
709 
737 
Total current liabilities
4,621 
4,409 
LONG-TERM DEBT
19,814 
20,181 
DEFERRED CREDITS AND OTHER LIABILITIES
 
 
Deferred income taxes, net
4,709 
4,753 
Pension and Other Postretirement Defined Benefit Plans, Liabilities, Noncurrent
4,012 
4,049 
Other Liabilities
1,212 
1,204 
Total deferred credits and other liabilities
9,933 
10,006 
COMMITMENTS AND CONTINGENCIES (Note 9)
   
   
STOCKHOLDERS' EQUITY
 
 
Preferred stock—non-redeemable, $25.00 par value, authorized 2,000 shares, issued and outstanding 7 and 7 shares
0 
0 
Common stock, $1.00 par value, authorized 1,600,000 and 1,600,000 shares, issued and outstanding 575,113 and 583,637 shares
575 
584 
Additional paid-in capital
16,874 
17,343 
Accumulated other comprehensive loss
(795)
(802)
Retained earnings
144 
66 
Total stockholders' equity
16,798 
17,191 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 51,166 
$ 51,787 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share data in Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Statement of Financial Position [Abstract]
 
 
Allowance for Doubtful Accounts Receivable, Current
$ 145 
$ 155 
Customer relationships, accumulated amortization (in dollars)
3,909 
3,641 
Other intangible assets, accumulated amortization (in dollars)
$ 1,452 
$ 1,401 
Preferred stock-non-redeemable, par value (in dollars per share)
$ 25 
$ 25 
Preferred stock-non-redeemable, authorized shares (shares)
2,000 
2,000 
Preferred stock-non-redeemable, issued shares (shares)
7 
7 
Preferred stock-non-redeemable, outstanding shares (shares)
7 
7 
Common stock, par value (in dollars per share)
$ 1.00 
$ 1.00 
Common stock, authorized shares (shares)
1,600,000 
1,600,000 
Common stock, shares, issued (shares)
575,113 
583,637 
Common Stock, Shares, Outstanding
575,113 
583,637 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
OPERATING ACTIVITIES
 
 
Net income
$ 203 
$ 298 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
1,107 
1,117 
Deferred income taxes
106 
166 
Provision for uncollectible accounts
30 
27 
Gain on sale of intangible assets
0 
(32)
Long-term debt premium amortization
(11)
(16)
Changes in current assets and current liabilities:
 
 
Accounts receivable
60 
(34)
Accounts payable
123 
(34)
Accrued income and other taxes
65 
76 
Other current assets and other current liabilities, net
(295)
(37)
Retirement benefits
(28)
(178)
Changes in other noncurrent assets and liabilities, net
3 
14 
Other, net
17 
20 
Net cash provided by operating activities
1,380 
1,387 
INVESTING ACTIVITIES
 
 
Payments for property, plant and equipment and capitalized software
(670)
(663)
Proceeds from sale of intangible assets or property
1 
75 
Other, net
(13)
4 
Net cash used in investing activities
(682)
(584)
FINANCING ACTIVITIES
 
 
Net proceeds from issuance of long-term debt
0 
988 
Repayments of Long-term Debt
(47)
(56)
Net borrowings (payments) on credit facility
30 
(745)
Dividends paid
(309)
(341)
Net proceeds from issuance of common stock
7 
13 
Repurchase of common stock
(328)
(397)
Net cash used in financing activities
(647)
(538)
Net increase in cash and cash equivalents
51 
265 
Cash and cash equivalents at beginning of period
168 
211 
Cash and cash equivalents at end of period
219 
476 
Supplemental cash flow information:
 
 
Income taxes (paid), net
(10)
(8)
Interest (paid) (net of capitalized interest of $10 and $9)
$ (265)
$ (265)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Statement of Cash Flows [Abstract]
 
 
Interest (paid), capitalized interest
$ 10 
$ 9 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $)
In Millions, unless otherwise specified
Total
COMMON STOCK
ADDITIONAL PAID-IN CAPITAL
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
RETAINED EARNINGS
Balance at Dec. 31, 2012
 
$ 626 
$ 19,079 
$ (1,701)
$ 1,285 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
Issuance of common stock through dividend reinvestment, incentive and benefit plans
 
1 
12 
 
 
Repurchase of common stock
 
(11)
(407)
 
 
Shares withheld to satisfy tax withholdings
 
 
(11)
 
 
Share-based compensation and other, net
 
 
18 
 
 
Other comprehensive income
6 
 
 
6 
 
Net income
298 
 
 
 
298 
Dividends declared
 
 
0 
 
(339)
Balance at Mar. 31, 2013
18,856 
616 
18,691 
(1,695)
1,244 
Balance at Dec. 31, 2013
17,191 
584 
17,343 
(802)
66 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
Issuance of common stock through dividend reinvestment, incentive and benefit plans
 
1 
6 
 
 
Repurchase of common stock
 
(10)
(298)
 
 
Shares withheld to satisfy tax withholdings
 
 
(9)
 
 
Share-based compensation and other, net
 
 
16 
 
 
Other comprehensive income
7 
 
 
7 
 
Net income
203 
 
 
 
203 
Dividends declared
 
 
(184)
 
(125)
Balance at Mar. 31, 2014
$ 16,798 
$ 575 
$ 16,874 
$ (795)
$ 144 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical)
Mar. 31, 2014
Dec. 31, 2013
Statement of Stockholders' Equity [Abstract]
 
 
Common stock, par value (in dollars per share)
$ 1.00 
$ 1.00 
Basis of Presentation
Basis of Presentation
Basis of Presentation
We are an integrated communications company engaged primarily in providing an array of communications services to our residential, business, governmental and wholesale customers. Our communications services include local and long-distance, broadband, private line (including special access), Multiprotocol Label Switching ("MPLS"), data integration, managed hosting (including cloud hosting), colocation, Ethernet, network access, public access, wireless, video and other ancillary services.
Our consolidated balance sheet as of December 31, 2013, which was derived from our audited consolidated financial statements, and our unaudited interim consolidated financial statements provided herein have been prepared in accordance with the instructions for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission ("SEC"); however, in our opinion, the disclosures made are adequate to make the information presented not misleading. We believe that these consolidated financial statements include all normal recurring adjustments necessary to fairly present the results for the interim periods. The consolidated results of operations for the first three months of the year are not necessarily indicative of the consolidated results of operations that might be expected for the entire year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013.
The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries over which we exercise control. All intercompany amounts and transactions with our consolidated subsidiaries have been eliminated.
Effective January 2014, we changed the estimates of the remaining economic lives of certain switch and circuit network equipment. These changes resulted in a net increase in depreciation expense of approximately $19 million during the first quarter of 2014 and are expected to result in a net increase in depreciation expense of approximately $78 million for the year ending December 31, 2014. This net increase in depreciation expense, net of tax, reduced consolidated net income by approximately $12 million, or $0.02 per basic and diluted common share, for the three months ended March 31, 2014 and is expected to reduce consolidated net income by approximately $48 million, or $0.08 per basic and diluted common share, for the year ending December 31, 2014.
During the fourth quarter 2013, we changed the estimates of the remaining economic lives of certain intangible assets, specifically, the Savvis trade name, which is no longer being utilized due to the recently announced trade name change from Savvis to CenturyLink Technology Solutions ("CTS"), and certain Savvis cloud software, which has been replaced by cloud software acquired through our recent acquisitions. These changes resulted in a net increase in amortization expense of approximately $23 million during the first quarter of 2014. This net increase in amortization expense, net of tax, reduced consolidated net income by approximately $14 million, or $0.02 per basic and diluted common share, for the three months ended March 31, 2014. As of March 31, 2014, the Savvis trade name has been fully amortized and the Savvis cloud software has been predominantly amortized. The remaining unamortized balance is not expected to have a significant impact to our consolidated net income for the remaining nine months of 2014.
To simplify the overall presentation of our consolidated financial statements, we report immaterial amounts attributable to noncontrolling interests in certain of our subsidiaries as follows: (i) income attributable to noncontrolling interests in other income (expense), (ii) equity attributable to noncontrolling interests in additional paid-in capital and (iii) cash flows attributable to noncontrolling interests in other, net financing activities.
We reclassified certain prior period amounts to conform to the current period presentation, including the categorization of our revenues and our segment expense reporting. See Note 7—Segment Information for additional information. These changes had no impact on total revenues, total operating expenses or net income for any period.
Long-Term Debt and Credit Facilities
Long-Term Debt and Credit Facilities
Long-Term Debt and Credit Facilities
As of the following dates indicated, our long-term debt, including unamortized discounts and premiums, was as follows:
 
Interest Rates
 
Maturities
 
March 31, 
 2014
 
December 31, 
 2013
 
 
 
 
 
(Dollars in millions)
CenturyLink, Inc.
 
 
 
 
 
 
 
Senior notes
5.000% - 7.650%
 
2015 - 2042
 
$
7,825

 
7,825

Credit facility(1)
2.160% - 4.250%
 
2017
 
755

 
725

Term loan
2.410%
 
2019
 
397

 
402

Subsidiaries
 
 
 
 
 
 
 
Qwest Communications International Inc.(2)
 
 
 
 
 
 
 
Senior notes
6.125% - 8.375%
 
2014 - 2053
 
8,392

 
8,392

Embarq Corporation ("Embarq")
 
 
 
 
 
 
 
Senior notes
7.082% - 7.995%
 
2016 - 2036
 
2,669

 
2,669

First mortgage bonds
7.125% - 8.770%
 
2014 - 2025
 
262

 
262

Other
9.000%
 
2019
 
150

 
150

Capital lease and other obligations
Various
 
Various
 
578

 
619

Unamortized (discounts) premiums and other, net
 
 
 
 
(88
)
 
(78
)
Total long-term debt
 
 
 
 
20,940

 
20,966

Less current maturities
 
 
 
 
(1,126
)
 
(785
)
Long-term debt, excluding current maturities
 
 
 
 
$
19,814

 
20,181

______________________________________________________________________ 
(1)
The outstanding amounts of our credit facility ("Credit Facility") borrowings at March 31, 2014 and December 31, 2013 were $755 million and $725 million, respectively with weighted average interest rates of 2.312% and 2.176%, respectively. These amounts change on a regular basis.
(2)
The information presented here includes Qwest Corporation's senior notes of $7.411 billion and Qwest Capital Funding, Inc.'s senior notes of $981 million.
Covenants
As of March 31, 2014, we believe we were in compliance with the provisions and covenants contained in our Credit Facility and other material debt agreements.
Subsequent Events
On April 1, 2014, a subsidiary of Embarq paid at maturity the $30 million principal amount of its 7.46% first mortgage bonds.
Severance and Leased Real Estate
Severance and Leased Real Estate
Severance and Leased Real Estate
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 integration plans, increased competitive pressures, cost reduction initiatives and reduced workload demands due to the loss of access lines.
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 but, as noted in Note 7—Segment Information, we do not allocate these expenses to our segments.
We recognized liabilities to reflect our estimates of the fair values of the existing lease obligations for real estate for which we had ceased using, net of estimated sublease rentals. Our fair value estimates were determined using discounted cash flow methods. We recognize expense to reflect accretion of the discounted liabilities and periodically we adjust the expense when our actual subleasing experience differs from our initial estimates. We report the current portion of liabilities for ceased-use real estate leases in accrued expenses and other liabilities-other and report the noncurrent portion in deferred credits and other liabilities in our consolidated balance sheets. We report the related expenses in selling, general and administrative expenses in our consolidated statements of operations. At March 31, 2014, the current and noncurrent portions of our leased real estate accrual were $16 million and $93 million, respectively. The remaining lease terms range from 0.1 to 11.8 years, with a weighted average of 8.6 years.
Changes in our accrued liabilities for severance expenses and leased real estate were as follows:
 
Severance
 
Real Estate
 
(Dollars in millions)
Balance at December 31, 2013
$
17

 
113

Accrued to expense
18

 
—

Payments, net
(11
)
 
(4
)
Balance at March 31, 2014
$
24

 
109

Employee Benefits
Employee Benefits
Employee Benefits
Net periodic (income) expense for our qualified and non-qualified pension plans included the following components:
 
Pension Plans
 
Three Months Ended March 31,
 
2014
 
2013
 
(Dollars in millions)
Service cost
$
20

 
25

Interest cost
151

 
135

Expected return on plan assets
(223
)
 
(224
)
Recognition of prior service cost
1

 
1

Recognition of actuarial loss
5

 
20

Net periodic pension benefit income
$
(46
)
 
(43
)

Net periodic expense (income) for our post-retirement benefit plans included the following components:
 
Post-Retirement Benefit Plans
 
Three Months Ended March 31,
 
2014
 
2013
 
(Dollars in millions)
Service cost
$
5

 
6

Interest cost
40

 
35

Expected return on plan assets
(8
)
 
(10
)
Recognition of prior service cost
4

 
—

Recognition of actuarial loss
—

 
1

Net periodic post-retirement benefit expense
$
41

 
32


We report net periodic benefit (income) expense for our qualified pension, non-qualified pension and post-retirement benefit plans in cost of services and products and selling, general and administrative expenses on our consolidated statements of operations.
Earnings per Common Share
Earnings per Common Share
arnings Per Common Share
Basic and diluted earnings per common share for the three months ended March 31, 2014 and 2013 were calculated as follows:
 
Three Months Ended March 31,
 
2014
 
2013
 
(Dollars in millions, except per share amounts, shares in thousands)
Income (Numerator):
 
 
 
Net income
$
203

 
298

Earnings applicable to non-vested restricted stock
—

 
—

Net income applicable to common stock for computing basic earnings per common share
203

 
298

Net income as adjusted for purposes of computing diluted earnings per common share
$
203

 
298

Shares (Denominator):
 
 
 
Weighted average number of shares:
 
 
 
Outstanding during period
578,197

 
622,522

Non-vested restricted stock
(3,662
)
 
(3,099
)
Weighted average shares outstanding for computing basic earnings per common share
574,535

 
619,423

Incremental common shares attributable to dilutive securities:
 
 
 
Shares issuable under convertible securities
10

 
10

Shares issuable under incentive compensation plans
911

 
1,641

Number of shares as adjusted for purposes of computing diluted earnings per common share
575,456

 
621,074

Basic earnings per common share
$
0.35

 
0.48

Diluted earnings per common share
$
0.35

 
0.48


Our calculation of diluted earnings per common share excludes shares of common stock that are issuable upon exercise of stock options when the exercise price is greater than the average market price of our common stock during the periods reflected in the table above. Such potentially issuable shares averaged 3.1 million and 2.4 million for the three months ended March 31, 2014 and 2013.
Fair Value Disclosure
Fair Value Disclosure
Fair Value Disclosure
Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable 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 and accounts payable 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 Financial Accounting Standards Board ("FASB").
We determined the fair values of our long-term debt, including the current portion, based on quoted market prices where available or, if not available, based on discounted future cash flows using current market interest rates.
The three input levels in the hierarchy of fair value measurements are defined by the FASB generally as follows:
Input Level
 
    Description of Input
Level 1
 
Observable inputs such as quoted market prices in active markets.
Level 2
 
Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3
 
Unobservable inputs in which little or no market data exists.

The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding capital lease obligations, as well as the input level used to determine the fair values:
 
 
 
March 31, 2014
 
December 31, 2013
 
Input
Level
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
 
 
(Dollars in millions)
Liabilities—Long-term debt, excluding capital lease obligations
2
 
$
20,362

 
21,239

 
20,347

 
20,413

Segment Information
Segment Information
Segment Information
We report the following four segments in our consolidated financial statements: consumer, business, wholesale and hosting. Each of the segments are described further below:
•
Consumer. Consists generally of providing strategic and legacy products and services to residential consumers. Our strategic products and services offered to these customers include our broadband, wireless and video services, including our Prism TV services. Our legacy services offered to these customers include local and long-distance service.
•
Business. Consists generally of providing strategic and legacy products and services to commercial, enterprise, global and governmental customers. Our strategic products and services offered to these customers include our private line, broadband, Ethernet, MPLS, Voice over Internet Protocol ("VoIP"), and network management services. Our legacy services offered to these customers include local and long-distance service.
•
Wholesale. Consists generally of providing strategic and legacy products and services to other communications providers. Our strategic products and services offered to these customers are mainly private line (including special access), dedicated internet access, digital subscriber line ("DSL") and MPLS. Our legacy services offered to these customers include resale of our services, the sale of unbundled network elements ("UNEs") which allow our wholesale customers the use of our network or a combination of our network and their own networks to provide voice and data services to their customers, long-distance and switched access services and other services, including billing and collection, pole rental, floor space and database services.
•
Hosting. Consists primarily of providing colocation, managed hosting and cloud hosting services to commercial, enterprise, global, governmental and wholesale customers.
Segment results are summarized below:
 
Three Months Ended March 31,
 
2014
 
2013
 
(Dollars in millions)
Total segment revenues
$
4,284

 
4,256

Total segment expenses
2,099

 
1,928

Total segment income
$
2,185

 
2,328

Total margin percentage
51
%
 
55
%
Consumer:
 
 
 
Revenues
$
1,509

 
1,511

Expenses
583

 
549

Income
$
926

 
962

Margin percentage
61
%
 
64
%
Business:
 
 
 
Revenues
$
1,559

 
1,505

Expenses
966

 
857

Income
$
593

 
648

Margin percentage
38
%
 
43
%
Wholesale:
 
 
 
Revenues
$
862

 
906

Expenses
276

 
274

Income
$
586

 
632

Margin percentage
68
%
 
70
%
Hosting:
 
 
 
Revenues
$
354

 
334

Expenses
274

 
248

Income
$
80

 
86

Margin percentage
23
%
 
26
%

During the first quarter of 2014, we adopted several changes with respect to the assignment of certain expenses to our segments. We have restated the previously reported segment results for the three months ended March 31, 2013 to conform to the current presentation. The nature of the most significant changes and the related effect on segment expenses for the three months ended March 31, 2013 are as follows:
•
The method for allocating certain shared costs of consumer sales and care, including bad debt expense and credit card fees, was revised, which resulted in an increase in consumer segment expenses of $20 million and a corresponding decrease in business segment expenses for the three months ended March 31, 2013; and
•
Hosting segment expenses have been conformed to the reporting of our other segments’ expenses. Specifically, our integration efforts and centralization of certain administrative functions reached the point where it has become more practical to discontinue including certain finance, information technology, legal and human resources expenses in the hosting segment, which resulted in a decrease of $18 million in hosting segment expenses for the three months ended March 31, 2013.
We categorize our products and services related to revenues into the following four categories:
•
Strategic services, which include primarily broadband, private line (including special access which we market to wholesale and business customers), MPLS (which is a data networking technology that can deliver the quality of service required to support real-time voice and video service), hosting (including cloud hosting and managed hosting), colocation, Ethernet, video (including resold satellite and our facilities-based video services), VoIP and Verizon Wireless services;
•
Legacy services, which include primarily local, long-distance, switched access, Integrated Services Digital Network ("ISDN") (which uses regular telephone lines to support voice, video and data applications), and traditional wide area network ("WAN") services (which allows a local communications network to link to networks in remote locations);
•
Data integration, which includes the sale of telecommunications equipment located on customers' premises and related professional services, such as network management, installation and maintenance of data equipment and building of proprietary fiber-optic broadband networks for our governmental and business customers; and
•
Other revenues, which consist primarily of Universal Service Fund ("USF") revenue and surcharges. Unlike the first three revenue categories, other revenues are not included in our segment revenues.
Our operating revenues for our products and services consisted of the following categories:
 
Three Months Ended March 31,
 
2014
 
2013
 
(Dollars in millions)
Strategic services
$
2,281

 
2,164

Legacy services
1,829

 
1,952

Data integration
174

 
140

Other
254

 
257

Total operating revenues
$
4,538

 
4,513


During 2013, operating revenues attributable to portions of certain bundled services were revised from legacy services to strategic services. Specifically, the revision resulted in a reduction of revenues from legacy services of $31 million and a corresponding increase in revenues from strategic services for the three months ended March 31, 2013. The revision was in response to over-allocating a percentage of the discounts to broadband services revenues and under-allocating a percentage of the discounts to local and long-distance services revenues under bundled services arrangements, which resulted in strategic services revenues being understated and legacy services revenues being overstated.
During 2013, operating revenues attributable to certain CLEC services were revised from strategic services to legacy services. Specifically, the revision resulted in a reduction of revenue from strategic services of $9 million and a corresponding increase in revenues from legacy services for the three months ended March 31, 2013. The revision was in response to recording certain legacy services revenues generated through CLEC services arrangements as strategic services revenues, which resulted in strategic services revenues being overstated and legacy services revenues being understated.
Other operating revenue include revenues from universal service funds, which allows us to recover a portion of our costs under federal and state cost recovery mechanisms, and certain surcharges to our customers, including billings for our required contributions to several USF programs. We also generate other operating revenues from leasing and subleasing of space in our office buildings, warehouses and other properties. Because we centrally manage the activities that generate these other operating revenues, we do not allocate these revenues to any of our four segments presented above.
USF surcharges and transaction taxes included in billings to our customers are reflected on a gross basis in our statements of operations (included in both operating revenues and expenses) and aggregated approximately $131 million and $128 million for the three months ended March 31, 2014 and 2013, respectively. The USF surcharges are included in the other operating revenues and transaction taxes are included in legacy revenues.
Our segment revenues include all revenues from our strategic, legacy and data integration operations as described in more detail above. Segment revenues are based upon each customer's classification to an individual segment. We report our segment revenues based upon all services provided to that segment's customers, with the exception of hosting revenue generated from business and wholesale customers, which is reported as hosting segment revenues. We report our segment expenses for our four segments as follows:
•
Direct expenses, which primarily are specific expenses incurred as a direct result of providing services and products to segment customers, along with selling, general and administrative expenses that are directly associated with specific segment customers or activities; and
•
Allocated expenses, which include network expenses, facilities expenses and other expenses such as fleet and real estate expenses.
We do not assign depreciation and amortization expense or impairments to our segments, as the related assets and capital expenditures are centrally managed and are not monitored by or reported to the chief operating decision maker ("CODM") by segment. Similarly, severance expenses, restructuring expenses and certain centrally managed administrative functions (such as finance, information technology, legal and human resources) are not assigned to our segments. Interest expense is also excluded from segment results because we manage our financing on a total company basis and have not allocated assets or debt to specific segments. Other income (expense) is not monitored as a part of our segment operations and is therefore excluded from our segment results.
The following table reconciles segment income to net income:
 
Three Months Ended March 31,
 
2014
 
2013
 
(Dollars in millions)
Total segment income
$
2,185

 
2,328

Other operating revenues
254

 
257

Depreciation and amortization
(1,107
)
 
(1,117
)
Other unassigned operating expenses
(679
)
 
(686
)
Other income (expense), net
(322
)
 
(277
)
Income tax expense
(128
)
 
(207
)
Net income
$
203

 
298


We do not have any single customer that provides more than 10% of our total operating revenues. Substantially all of our revenues come from customers located in the United States.
Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies
We are vigorously defending against all of the matters described below. As a matter of course, we are prepared both to litigate the matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities. In this Note, when we refer to a class action as "putative" it is because a class has been alleged, but not certified in that matter. We have established accrued liabilities for the matters described below where losses are deemed probable and reasonably estimable.
Pending Matters
In William Douglas Fulghum, et al. v. Embarq Corporation, et al., filed on December 28, 2007 in the United States District Court for the District of Kansas, a group of retirees filed a putative class action lawsuit challenging the decision to make certain modifications in retiree benefits programs relating to life insurance, medical insurance and prescription drug benefits, generally effective January 1, 2006 and January 1, 2008 (which, at the time of the modifications, was expected to reduce estimated future expenses for the subject benefits by more than $300 million). Defendants include Embarq, certain of its benefit plans, its Employee Benefits Committee and the individual plan administrator of certain of its benefits plans. Additional defendants include Sprint Nextel and certain of its benefit plans. The Court certified a class on certain of plaintiffs' claims, but rejected class certification as to other claims. On October 14, 2011, the Fulghum lawyers filed a new, related lawsuit, Abbott et al. v. Sprint Nextel et al. In Abbott, approximately 1,500 plaintiffs allege breach of fiduciary duty in connection with the changes in retiree benefits that also are at issue in the Fulghum case. The Abbott plaintiffs are all members of the class that was certified in Fulghum on claims for allegedly vested benefits (Counts I and III), and the Abbott claims are similar to the Fulghum breach of fiduciary duty claim (Count II), on which the Fulghum court denied class certification. The Court has stayed proceedings in Abbott indefinitely, except for limited discovery and motion practice as to approximately 80 of the plaintiffs. On February 14, 2013, the Fulghum court dismissed the majority of the plaintiffs' claims in that case. On July 16, 2013, the Fulghum court granted plaintiffs' request to seek interlocutory review by the United States Court of Appeals for the Tenth Circuit. Embarq and the other defendants will defend the appeal, continue to vigorously contest any remaining claims in Fulghum and seek to have the claims in the Abbott case dismissed on similar grounds. We have not accrued a liability for these matters because we believe it is premature (i) to determine whether an accrual is warranted and (ii) if so, to determine a reasonable estimate of probable liability.
In December 2009, subsidiaries of CenturyLink filed two lawsuits against subsidiaries of Sprint Nextel to recover terminating access charges for VoIP traffic owed under various interconnection agreements and tariffs which originally approximated $34 million in the aggregate. In connection with the first lawsuit, a federal court in Virginia issued a ruling in our favor, which resulted in Sprint paying us approximately $24 million. The other lawsuit is pending in federal court in Louisiana. In that case, in early 2011 the Court dismissed certain of CenturyLink's claims, referred other claims to the FCC, and stayed the litigation. In April 2012, Sprint Nextel filed a petition with the FCC, seeking a declaratory ruling that CenturyLink's access charges do not apply to VoIP originated calls, and earlier this year, CenturyLink filed a complaint with the Missouri Public Service Commission to collect the portion of the remaining unpaid charges arising in that state. We have not deferred any revenue recognition related to these matters.
On July 16, 2013, Comcast MO Group, Inc. ("Comcast") filed a lawsuit in Colorado state court against Qwest Communications International, Inc. ("Qwest"). Comcast alleges Qwest breached the parties' 1998 tax sharing agreement ("TSA") when it refused to partially indemnify Comcast for a tax liability settlement Comcast reached with the Commonwealth of Massachusetts in a dispute to which we were not a party. Comcast seeks approximately $80 million in damages, excluding interest. Qwest and Comcast are parties to the TSA in their capacities as successors to the TSA's original parties, U S WEST, Inc., a telecommunications company, and MediaOne Group, Inc., a cable television company, respectively. We have not accrued a liability for this matter because we do not believe that liability is probable.
On September 29, 2010, the trustees in the Dutch bankruptcy proceeding for KPNQwest, N.V. (of which Qwest was a major shareholder) filed a lawsuit in the District Court of Haarlem, the Netherlands, alleging tort and mismanagement claims under Dutch law. Qwest and Koninklijke KPN N.V. ("KPN") were defendants in this lawsuit along with a number of former KPNQwest supervisory board members and a former officer of KPNQwest, some of whom were formerly affiliated with Qwest. Plaintiffs alleged, among other things, that defendants' actions were a cause of the bankruptcy of KPNQwest, and they sought damages for the bankruptcy deficit of KPNQwest, which was claimed to be approximately €4.2billion, plus statutory interest. Qwest, KPN, the individual defendants and the trustees have settled this lawsuit. The settlement terms included Qwest's payment in February 2014 of approximately €171 million (or approximately $235 million) to the KPNQwest bankruptcy estate pursuant to its indemnification obligations, discussed below.
On September 13, 2006, Cargill Financial Markets, Plc and Citibank, N.A. filed a lawsuit in the District Court of Amsterdam, the Netherlands, against Qwest, KPN, KPN Telecom B.V., and other former officers, employees or supervisory board members of KPNQwest, some of whom were formerly affiliated with Qwest. The lawsuit alleges that defendants misrepresented KPNQwest's financial and business condition in connection with the origination of a credit facility and wrongfully allowed KPNQwest to borrow funds under that facility. Plaintiffs allege damages of approximately €219 million (or approximately $301 million based on the exchange rate on March 31, 2014). The value of this claim will be reduced to the degree plaintiffs receive recovery from a distribution of assets from the bankruptcy estate of KPNQwest. The amounts of such expected recovery are not yet known. On April 25, 2012, the court issued its judgment denying the claims asserted by Cargill and Citibank in their lawsuit. Cargill and Citibank are appealing that decision. We do not believe that liability is probable in this matter and will continue to defend against the claims vigorously.
The terms and conditions of applicable bylaws, certificates or articles of incorporation, agreements or applicable law may obligate Qwest to indemnify its former directors, officers or employees with respect to the Cargill matter described above, and Qwest has been advancing legal fees and costs to certain former directors, officers or employees in connection with that matter.
Several putative class actions relating to the installation of fiber optic cable in certain rights-of-way were filed against Qwest on behalf of landowners on various dates and in courts located in 34 states in which Qwest has such cable (Alabama, Arizona, California, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, and Wisconsin.) For the most part, the complaints challenge our right to install our fiber optic cable in railroad rights-of-way. The complaints allege that the railroads own the right-of-way as an easement that did not include the right to permit us to install our cable in the right-of-way without the plaintiffs' consent. Most of the currently pending actions purport to be brought on behalf of state-wide classes in the named plaintiffs' respective states, although one action pending before the Illinois Court of Appeals purports to be brought on behalf of landowners in Illinois, Iowa, Kentucky, Michigan, Minnesota, Nebraska, Ohio and Wisconsin. In general, the complaints seek damages on theories of trespass and unjust enrichment, as well as punitive damages. After previous attempts to enter into a single nationwide settlement in a single court proved unsuccessful, the parties proceeded to seek court approval of settlements on a state-by-state basis. To date, the parties have received final approval of such settlements in 30 states (Alabama, California, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Utah, Virginia and Wisconsin). The settlement administration process, including claim submission and evaluation, is continuing in relation to a number of these settlements. The parties have not yet received either preliminary or final approval in one state where an action is pending (Texas) and three states where actions were at one time, but are not currently, pending (Arizona, Massachusetts, and New Mexico). We have accrued an amount that we believe is probable for resolving these matters; however, the amount is not material to our consolidated financial statements.
CenturyLink and certain of its affiliates are defendants in one consolidated securities and four shareholder derivative actions. The actions are pending in federal court in the Eastern and Western Districts of Louisiana. Plaintiffs in these actions have variously alleged, among other things, that CenturyLink and certain of its current and former officers and directors violated federal securities laws and/or breached fiduciary duties owed to the Company and its shareholders. Plaintiffs' complaints focus on alleged material misstatements or omissions concerning CenturyLink's financial condition and changes in CenturyLink's capital allocation strategy in early 2013. These matters are in preliminary phases and the Company intends to defend against the filed actions vigorously. We have not accrued a liability for these matters as it is premature (i) to determine whether an accrual is warranted and (ii) if so, to determine a reasonable estimate of probable liability.
Other Proceedings and Disputes
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 rate making, actions relating to employee claims, various tax issues, environmental law issues, grievance hearings before labor regulatory agencies, and miscellaneous third party tort actions. 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.
We are currently defending several patent infringement lawsuits asserted against us by non-practicing entities. These cases have progressed to various stages and one or more may go to trial in the coming 24 months if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. As with all litigation, we are vigorously defending these actions and, as a matter of course, are prepared both to litigate the matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities.
We are aware of disputes and litigation within the industry, including disputes involving us, regarding the proper charges to be applied between interexchange and local exchange carriers for certain calls between mobile and wireline devices that are routed through an interexchange carrier. Some carriers are refusing to pay these access charges and some are seeking refunds of past charges paid. As both an interexchange carrier and a local exchange carrier, we both pay and assess the charges in question. The outcome of these disputes is 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.
Other Financial Information
Other Financial Information
Other Financial Information
Other Current Assets
The following table presents details of our other current assets in our consolidated balance sheets as of the following dates:
 
March 31, 
 2014
 
December 31, 2013
 
(Dollars in millions)
Prepaid expenses
$
299

 
266

Materials, supplies and inventory
155

 
167

Assets held for sale
16

 
26

Deferred activation and installation charges
99

 
94

Other
63

 
44

Total other current assets
$
632

 
597


Assets held for sale includes several properties that we expect to sell within the next twelve months.
Selected Current Liabilities
Current liabilities reflected in our consolidated balance sheets include accounts payable and other current liabilities as follows:
 
March 31, 
 2014
 
December 31, 
 2013
 
(Dollars in millions)
Accounts payable
$
1,183

 
1,111

Other current liabilities:
 
 
 
Accrued rent
$
44

 
52

Legal reserves
28

 
273

Other
183

 
189

Total other current liabilities
$
255

 
514


Included in accounts payable at March 31, 2014 and December 31, 2013 were $89 million and $88 million, respectively, representing book overdrafts and $90 million and $140 million, respectively, associated with capital expenditures. Included in legal reserves at December 31, 2013 was $235 million related to the then tentative settlement agreement with the trustees in the KPNQwest Dutch bankruptcy proceeding. As noted in Note 8—Commitments and Contingencies, in February 2014 we paid approximately €171 million (or approximately $235 million) to definitively settle this proceeding.
Repurchase of CenturyLink Common Stock
Repurchase of CenturyLink Common Stock
Repurchase of CenturyLink Common Stock
In February 2013, our Board of Directors authorized us to repurchase up to $2 billion of our outstanding common stock. During the three months ended March 31, 2014, we repurchased 10.4 million shares of our outstanding common stock in the open market. These shares were repurchased for an aggregate market price of $319 million, or an average purchase price of $30.63 per share. The repurchased common stock has been retired. As of March 31, 2014, we had approximately $114 million in stock remaining available for repurchase under the stock repurchase program. The repurchased shares figures set forth above exclude shares that, as of March 31, 2014, we had agreed to purchase under the program for $18 million, or an average purchase price of $32.69 per share, in transactions that settled early in the second quarter of 2014.
In late February 2014, our board authorized a 24-month program to repurchase up to an aggregate of $1 billion of our outstanding common stock. This new program will take effect immediately upon the completion of our current repurchase program, which we expect to complete during the second quarter of 2014 based on current market conditions. We expect to execute this share repurchase program in open market transactions, subject to market conditions and other factors, and expect to complete the new program within 18 to 24 months from its effective date.
Other Comprehensive Earnings
Other Comprehensive Earnings
Other Comprehensive Earnings
The tables below summarize changes in our accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the three months ended March 31, 2014 and 2013:
 
Pension Plans
 
Post-Retirement
Benefit Plans
 
Foreign Currency
Translation
Adjustment
and Other
 
Total
 
(Dollars in millions)
Balance at December 31, 2013
$
(669
)
 
(122
)
 
(11
)
 
(802
)
Other comprehensive income before reclassifications
—

 
—

 
1

 
1

Amounts reclassified from accumulated other comprehensive income
3

 
3

 
—

 
6

Net current-period other comprehensive income
3

 
3

 
1

 
7

Balance at March 31, 2014
$
(666
)
 
(119
)
 
(10
)
 
(795
)
 
Pension Plans
 
Post-Retirement
Benefit Plans
 
Foreign Currency
Translation
Adjustment
and Other
 
Total
 
(Dollars in millions)
Balance at December 31, 2012
$
(1,399
)
 
(289
)
 
(13
)
 
(1,701
)
Other comprehensive income before reclassifications
—

 
—

 
(8
)
 
(8
)
Amounts reclassified from accumulated other comprehensive income
13

 
1

 
—

 
14

Net current-period other comprehensive income
13

 
1

 
(8
)
 
6

Balance at March 31, 2013
$
(1,386
)
 
(288
)
 
(21
)
 
(1,695
)
The tables below present information about our reclassifications out of accumulated other comprehensive loss by component for the three months ended March 31, 2014 and 2013:
Three Months Ended March 31, 2014
 
(Decrease) Increase
in Net Income
 
Affected Line Item in Consolidated Statement of
Operations or Footnote Where Additional
Information is Presented If The Amount is not
Recognized in Net Income in Total
 
 
(Dollars in millions)
 
 
Amortization of pension & post-retirement plans
 
 
 
 
Net actuarial loss
 
$
(5
)
 
See Note 4-Employee Benefits
Prior service cost
 
(5
)
 
See Note 4-Employee Benefits
Total before tax
 
(10
)
 
 
Income tax expense (benefit)
 
4

 
Income tax expense
Net of tax
 
$
(6
)
 
 
Three Months Ended March 31, 2013
 
(Decrease) Increase
in Net Income
 
Affected Line Item in Consolidated Statement of
Operations or Footnote Where Additional
Information is Presented If The Amount is not
Recognized in Net Income in Total
 
 
(Dollars in millions)
 
 
Amortization of pension & post-retirement plans
 
 
 
 
Net actuarial loss
 
$
(21
)
 
See Note 4-Employee Benefits
Prior service cost
 
(1
)
 
See Note 4-Employee Benefits
Total before tax
 
(22
)
 
 
Income tax expense (benefit)
 
8

 
Income tax expense
Net of tax
 
$
(14
)
 
 
Long-Term Debt and Credit Facilities (Tables)
Schedule of long-term debt including unamortized discounts and premiums
ong-term debt, including unamortized discounts and premiums, was as follows:
 
Interest Rates
 
Maturities
 
March 31, 
 2014
 
December 31, 
 2013
 
 
 
 
 
(Dollars in millions)
CenturyLink, Inc.
 
 
 
 
 
 
 
Senior notes
5.000% - 7.650%
 
2015 - 2042
 
$
7,825

 
7,825

Credit facility(1)
2.160% - 4.250%
 
2017
 
755

 
725

Term loan
2.410%
 
2019
 
397

 
402

Subsidiaries
 
 
 
 
 
 
 
Qwest Communications International Inc.(2)
 
 
 
 
 
 
 
Senior notes
6.125% - 8.375%
 
2014 - 2053
 
8,392

 
8,392

Embarq Corporation ("Embarq")
 
 
 
 
 
 
 
Senior notes
7.082% - 7.995%
 
2016 - 2036
 
2,669

 
2,669

First mortgage bonds
7.125% - 8.770%
 
2014 - 2025
 
262

 
262

Other
9.000%
 
2019
 
150

 
150

Capital lease and other obligations
Various
 
Various
 
578

 
619

Unamortized (discounts) premiums and other, net
 
 
 
 
(88
)
 
(78
)
Total long-term debt
 
 
 
 
20,940

 
20,966

Less current maturities
 
 
 
 
(1,126
)
 
(785
)
Long-term debt, excluding current maturities
 
 
 
 
$
19,814

 
20,181

______________________________________________________________________ 
(1)
The outstanding amounts of our credit facility ("Credit Facility") borrowings at March 31, 2014 and December 31, 2013 were $755 million and $725 million, respectively with weighted average interest rates of 2.312% and 2.176%, respectively. These amounts change on a regular basis.
Severance and Leased Real Estate (Tables)
Schedule of changes in accrued liabilities for severance expenses and leased real estate
Changes in our accrued liabilities for severance expenses and leased real estate were as follows:
 
Severance
 
Real Estate
 
(Dollars in millions)
Balance at December 31, 2013
$
17

 
113

Accrued to expense
18

 
—

Payments, net
(11
)
 
(4
)
Balance at March 31, 2014
$
24

 
109

Employee Benefits (Tables)
Schedule of components of net periodic pension benefit (income) expense and post-retirement benefit expense
 
Pension Plans
 
Three Months Ended March 31,
 
2014
 
2013
 
(Dollars in millions)
Service cost
$
20

 
25

Interest cost
151

 
135

Expected return on plan assets
(223
)
 
(224
)
Recognition of prior service cost
1

 
1

Recognition of actuarial loss
5

 
20

Net periodic pension benefit income
$
(46
)
 
(43
)

Net periodic expense (income) for our post-retirement benefit plans included the following components:
 
Post-Retirement Benefit Plans
 
Three Months Ended March 31,
 
2014
 
2013
 
(Dollars in millions)
Service cost
$
5

 
6

Interest cost
40

 
35

Expected return on plan assets
(8
)
 
(10
)
Recognition of prior service cost
4

 
—

Recognition of actuarial loss
—

 
1

Net periodic post-retirement benefit expense
$
41

 
32

Net periodic (income) expense for our qualified and non-qualified pension plans included the following components:
 
Pension Plans
 
Three Months Ended March 31,
 
2014
 
2013
 
(Dollars in millions)
Service cost
$
20

 
25

Interest cost
151

 
135

Expected return on plan assets
(223
)
 
(224
)
Recognition of prior service cost
1

 
1

Recognition of actuarial loss
5

 
20

Net periodic pension benefit income
$
(46
)
 
(43
)
Earnings per Common Share (Tables)
Schedule of basic and diluted earnings per common share
Basic and diluted earnings per common share for the three months ended March 31, 2014 and 2013 were calculated as follows:
 
Three Months Ended March 31,
 
2014
 
2013
 
(Dollars in millions, except per share amounts, shares in thousands)
Income (Numerator):
 
 
 
Net income
$
203

 
298

Earnings applicable to non-vested restricted stock
—

 
—

Net income applicable to common stock for computing basic earnings per common share
203

 
298

Net income as adjusted for purposes of computing diluted earnings per common share
$
203

 
298

Shares (Denominator):
 
 
 
Weighted average number of shares:
 
 
 
Outstanding during period
578,197

 
622,522

Non-vested restricted stock
(3,662
)
 
(3,099
)
Weighted average shares outstanding for computing basic earnings per common share
574,535

 
619,423

Incremental common shares attributable to dilutive securities:
 
 
 
Shares issuable under convertible securities
10

 
10

Shares issuable under incentive compensation plans
911

 
1,641

Number of shares as adjusted for purposes of computing diluted earnings per common share
575,456

 
621,074

Basic earnings per common share
$
0.35

 
0.48

Diluted earnings per common share
$
0.35

 
0.48

Fair Value Disclosure (Tables)
Schedule of the three input levels in the hierarchy of fair value measurements 
The three input levels in the hierarchy of fair value measurements are defined by the FASB generally as follows:
Input Level
 
    Description of Input
Level 1
 
Observable inputs such as quoted market prices in active markets.
Level 2
 
Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3
 
Unobservable inputs in which little or no market data exists.
Schedule of carrying amounts and estimated fair values of long-term debt, excluding capital lease obligations, and input level to determine fair values 
The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding capital lease obligations, as well as the input level used to determine the fair values:
 
 
 
March 31, 2014
 
December 31, 2013
 
Input
Level
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
 
 
(Dollars in millions)
Liabilities—Long-term debt, excluding capital lease obligations
2
 
$
20,362

 
21,239

 
20,347

 
20,413

Segment Information (Tables)
Schedule of segment results 
Segment results are summarized below:
 
Three Months Ended March 31,
 
2014
 
2013
 
(Dollars in millions)
Total segment revenues
$
4,284

 
4,256

Total segment expenses
2,099

 
1,928

Total segment income
$
2,185

 
2,328

Total margin percentage
51
%
 
55
%
Consumer:
 
 
 
Revenues
$
1,509

 
1,511

Expenses
583

 
549

Income
$
926

 
962

Margin percentage
61
%
 
64
%
Business:
 
 
 
Revenues
$
1,559

 
1,505

Expenses
966

 
857

Income
$
593

 
648

Margin percentage
38
%
 
43
%
Wholesale:
 
 
 
Revenues
$
862

 
906

Expenses
276

 
274

Income
$
586

 
632

Margin percentage
68
%
 
70
%
Hosting:
 
 
 
Revenues
$
354

 
334

Expenses
274

 
248

Income
$
80

 
86

Margin percentage
23
%
 
26
%
Schedule of operating revenues by products and services 
Our operating revenues for our products and services consisted of the following categories:
 
Three Months Ended March 31,
 
2014
 
2013
 
(Dollars in millions)
Strategic services
$
2,281

 
2,164

Legacy services
1,829

 
1,952

Data integration
174

 
140

Other
254

 
257

Total operating revenues
$
4,538

 
4,513

Schedule of reconciliation of segment income to net income 
The following table reconciles segment income to net income:
 
Three Months Ended March 31,
 
2014
 
2013
 
(Dollars in millions)
Total segment income
$
2,185

 
2,328

Other operating revenues
254

 
257

Depreciation and amortization
(1,107
)
 
(1,117
)
Other unassigned operating expenses
(679
)
 
(686
)
Other income (expense), net
(322
)
 
(277
)
Income tax expense
(128
)
 
(207
)
Net income
$
203

 
298

Other Financial Information (Tables)
Schedule of components of other current assets 
current assets in our consolidated balance sheets as of the following dates:
 
March 31, 
 2014
 
December 31, 2013
 
(Dollars in millions)
Prepaid expenses
$
299

 
266

Materials, supplies and inventory
155

 
167

Assets held for sale
16

 
26

Deferred activation and installation charges
99

 
94

Other
63

 
44

Total other current assets
$
632

 
597

Schedule of current liabilities included accounts payable and other current liabilities 
Current liabilities reflected in our consolidated balance sheets include accounts payable and other current liabilities as follows:
 
March 31, 
 2014
 
December 31, 
 2013
 
(Dollars in millions)
Accounts payable
$
1,183

 
1,111

Other current liabilities:
 
 
 
Accrued rent
$
44

 
52

Legal reserves
28

 
273

Other
183

 
189

Total other current liabilities
$
255

 
514

Other Comprehensive Earnings (Tables)
Summary of the entity's accumulated other comprehensive income (loss) by component 
The tables below summarize changes in our accumulated other comprehensive loss recorded on our consolidated balance sheets by component for the three months ended March 31, 2014 and 2013:
 
Pension Plans
 
Post-Retirement
Benefit Plans
 
Foreign Currency
Translation
Adjustment
and Other
 
Total
 
(Dollars in millions)
Balance at December 31, 2013
$
(669
)
 
(122
)
 
(11
)
 
(802
)
Other comprehensive income before reclassifications
—

 
—

 
1

 
1

Amounts reclassified from accumulated other comprehensive income
3

 
3

 
—

 
6

Net current-period other comprehensive income
3

 
3

 
1

 
7

Balance at March 31, 2014
$
(666
)
 
(119
)
 
(10
)
 
(795
)
Schedule of reclassifications out of accumulated other comprehensive income (loss) by component 
The tables below present information about our reclassifications out of accumulated other comprehensive loss by component for the three months ended March 31, 2014 and 2013:
Basis of Presentation Basis of Presentation (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Mar. 31, 2014
Change in Estimates of Economic Lives of Property, Plant and Equipment
Mar. 31, 2014
Change in Estimates of Economic Lives of Intangible Assets
Dec. 31, 2014
Forecast
Change in Estimates of Economic Lives of Property, Plant and Equipment
Change in Accounting Estimate [Line Items]
 
 
 
 
 
Depreciation
 
 
$ 19 
 
$ 78 
Amortization
 
 
23 
 
 
Net income
$ (203)
$ (298)
$ 12 
$ 14 
$ 48 
Earnings Per Share, Basic and Diluted
 
 
$ 0.02 
$ 0.02 
$ 0.08 
Long-Term Debt and Credit Facilities (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Mar. 31, 2014
CenturyLink, Inc.
Senior notes
Dec. 31, 2013
CenturyLink, Inc.
Senior notes
Mar. 31, 2014
CenturyLink, Inc.
Senior notes
Minimum
Mar. 31, 2014
CenturyLink, Inc.
Senior notes
Maximum
Mar. 31, 2014
CenturyLink, Inc.
Credit facility
Dec. 31, 2013
CenturyLink, Inc.
Credit facility
Mar. 31, 2014
CenturyLink, Inc.
Credit facility
Minimum
Mar. 31, 2014
CenturyLink, Inc.
Credit facility
Maximum
Mar. 31, 2014
CenturyLink, Inc.
Term loan
Dec. 31, 2013
CenturyLink, Inc.
Term loan
Mar. 31, 2014
Qwest Communications International Inc.
Senior notes
Dec. 31, 2013
Qwest Communications International Inc.
Senior notes
Mar. 31, 2014
Qwest Communications International Inc.
Senior notes
Minimum
Mar. 31, 2014
Qwest Communications International Inc.
Senior notes
Maximum
Mar. 31, 2014
Qwest Capital Funding, Inc.
Senior notes
Mar. 31, 2014
Qwest Corporation
Senior notes
Mar. 31, 2014
Embarq
Senior notes
Dec. 31, 2013
Embarq
Senior notes
Mar. 31, 2014
Embarq
Senior notes
Minimum
Mar. 31, 2014
Embarq
Senior notes
Maximum
Mar. 31, 2014
Embarq
First mortgage bonds
Dec. 31, 2013
Embarq
First mortgage bonds
Mar. 31, 2014
Embarq
First mortgage bonds
Minimum
Mar. 31, 2014
Embarq
First mortgage bonds
Maximum
Apr. 1, 2014
Embarq
Notes, 7.460 Percent Due 2014 [Member]
Mar. 31, 2014
Embarq
Other
Dec. 31, 2013
Embarq
Other
Long-term Debt and Credit Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total long-term debt
 
 
$ 7,825 
$ 7,825 
 
 
$ 755 
$ 725 
 
 
$ 397 
$ 402 
$ 8,392 
$ 8,392 
 
 
$ 981 
$ 7,411 
$ 2,669 
$ 2,669 
 
 
$ 262 
$ 262 
 
 
 
$ 150 
$ 150 
Long-term Debt, Weighted Average Interest Rate
 
 
 
 
 
 
2.312% 
2.176% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital lease and other obligations
578 
619 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unamortized (discounts) premiums and other, net
88 
78 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total long-term debt
20,940 
20,966 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less current maturities
(1,126)
(785)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities
19,814 
20,181 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stated interest rate (as a percent)
 
 
 
 
5.00% 
7.65% 
 
 
2.16% 
4.25% 
2.41% 
 
 
 
6.125% 
8.375% 
 
 
 
 
7.082% 
7.995% 
 
 
7.125% 
8.77% 
7.46% 
9.00% 
 
Debt Instrument, Repurchased Face Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 30 
 
 
Severance and Leased Real Estate (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Severance
 
Restructuring reserve
 
Balance at the beginning of the period
$ 17 
Accrued to expense
18 
Payments, net
(11)
Balance at the end of the period
24 
Leased real estate
 
Severance and Leased Real Estate
 
Current portion of leased real estate accrual
16 
Noncurrent portion of leased real estate accrual
93 
Restructuring reserve
 
Balance at the beginning of the period
113 
Accrued to expense
0 
Payments, net
(4)
Balance at the end of the period
$ 109 
Ceased-use leased real estate accrual |
Leased real estate |
Minimum
 
Severance and Leased Real Estate
 
Remaining lease terms
1 month 6 days 
Ceased-use leased real estate accrual |
Leased real estate |
Maximum
 
Severance and Leased Real Estate
 
Remaining lease terms
11 years 9 months 18 days 
Ceased-use leased real estate accrual |
Leased real estate |
Weighted average
 
Severance and Leased Real Estate
 
Weighted average lease terms
8 years 7 months 6 days 
Employee Benefits (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Pension Plans
 
 
Components of net periodic (benefit) expense
 
 
Service cost
$ 20 
$ 25 
Interest cost
151 
135 
Expected return on plan assets
(223)
(224)
Recognition of prior service cost
1 
1 
Recognition of actuarial loss
5 
20 
Net periodic benefit (income) expense
(46)
(43)
Post-Retirement Benefit Plans
 
 
Components of net periodic (benefit) expense
 
 
Service cost
5 
6 
Interest cost
40 
35 
Expected return on plan assets
(8)
(10)
Recognition of prior service cost
4 
0 
Recognition of actuarial loss
0 
1 
Net periodic benefit (income) expense
$ 41 
$ 32 
Earnings per Common Share (Details) (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Income (Numerator):
 
 
Net income
$ 203 
$ 298 
Earnings applicable to non-vested restricted stock
0 
0 
Net income applicable to common stock for computing basic earnings per common share
203 
298 
Net income as adjusted for purposes of computing diluted earnings per common share
$ 203 
$ 298 
Weighted average number of shares:
 
 
Outstanding during period (in shares)
578,197,000 
622,522,000 
Non-vested restricted stock (in shares)
(3,662,000)
(3,099,000)
Weighted average shares outstanding for computing basic (loss) earnings per common share (in shares)
574,535,000 
619,423,000 
Incremental common shares attributable to dilutive securities:
 
 
Shares issuable under convertible securities (in shares)
10,000 
10,000 
Shares issuable under incentive compensation plans (in shares)
911,000 
1,641,000 
Number of shares as adjusted for purposes of computing diluted (loss) earnings per common share (in shares)
575,456,000 
621,074,000 
Basic earnings per common share:
 
 
Basic (loss) earnings per common share (in dollars per share)
$ 0.35 
$ 0.48 
Diluted earnings per common share:
 
 
Diluted (loss) earnings per common share (in dollars per share)
$ 0.35 
$ 0.48 
Stock option awards
 
 
Diluted earnings per common share:
 
 
Number of shares of common stock excluded from the computation of diluted earnings per share (in shares)
3,100,000 
2,400,000 
Fair Value Disclosure (Details) (Fair value, Level 2, USD $)
In Millions, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Carrying Amount
 
 
Liabilities
 
 
Liabilities - Long-term debt, excluding capital lease obligations
$ 20,362 
$ 20,347 
Fair Value
 
 
Liabilities
 
 
Liabilities - Long-term debt, excluding capital lease obligations
$ 21,239 
$ 20,413 
Segment Information (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
segment
Mar. 31, 2013
Segment information
 
 
Number of operating segments (segments)
4 
 
Other operating revenue
$ 4,538 
$ 4,513 
Expenses
3,885 
3,731 
OPERATING INCOME
653 
782 
Operating segments
 
 
Segment information
 
 
Other operating revenue
4,284 
4,256 
Expenses
2,099 
1,928 
OPERATING INCOME
2,185 
2,328 
Margin percentage (percent)
51.00% 
55.00% 
Consumer
 
 
Segment information
 
 
Intersegment expense reclassification adjustment
20 
 
Other operating revenue
1,509 
1,511 
Expenses
583 
549 
OPERATING INCOME
926 
962 
Margin percentage (percent)
61.00% 
64.00% 
Business
 
 
Segment information
 
 
Other operating revenue
1,559 
1,505 
Expenses
966 
857 
OPERATING INCOME
593 
648 
Margin percentage (percent)
38.00% 
43.00% 
Wholesale
 
 
Segment information
 
 
Other operating revenue
862 
906 
Expenses
276 
274 
OPERATING INCOME
586 
632 
Margin percentage (percent)
68.00% 
70.00% 
Hosting
 
 
Segment information
 
 
Intersegment expense reclassification adjustment
(18)
 
Other operating revenue
354 
334 
Expenses
274 
248 
OPERATING INCOME
$ 80 
$ 86 
Margin percentage (percent)
23.00% 
26.00% 
Segment Information (Details 2) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
category
Mar. 31, 2013
Operating revenues by products and services
 
 
Number of groups of products and services (categories)
4 
 
Number of groups of products and services included in segment revenue (categories)
3 
 
Other operating revenue
$ 4,538 
$ 4,513 
Surcharge amount on customers' bills
131 
128 
Strategic services
 
 
Operating revenues by products and services
 
 
Products and Services Categories Reclassification Adjustment
 
31 
Other operating revenue
2,281 
2,164 
Legacy services
 
 
Operating revenues by products and services
 
 
Products and Services Categories Reclassification Adjustment
 
(9)
Other operating revenue
1,829 
1,952 
Data integration
 
 
Operating revenues by products and services
 
 
Other operating revenue
174 
140 
Other
 
 
Operating revenues by products and services
 
 
Other operating revenue
$ 254 
$ 257 
Segment Information (Details 3) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Reconciliation from segment income to net income
 
 
Total segment income
$ 653 
$ 782 
Depreciation and amortization
(1,107)
(1,117)
Other unassigned operating expenses
(843)
(818)
Other income (expense), net
(322)
(277)
Income tax expense
(128)
(207)
Net income
203 
298 
Operating segments
 
 
Reconciliation from segment income to net income
 
 
Total segment income
2,185 
2,328 
Unallocated amount to segment
 
 
Reconciliation from segment income to net income
 
 
Other operating revenues
254 
257 
Depreciation and amortization
1,107 
1,117 
Other unassigned operating expenses
679 
686 
Other income (expense), net
(322)
(277)
Income tax expense
$ 128 
$ 207 
Commitments and Contingencies (Details)
In Millions, unless otherwise specified
12 Months Ended 24 Months Ended 3 Months Ended 0 Months Ended 1 Months Ended 3 Months Ended
Dec. 31, 2013
Pending litigation related to Federal Communications Act
CenturyLink, Inc.
USD ($)
Dec. 31, 2009
Pending litigation related to Federal Communications Act
CenturyLink, Inc.
USD ($)
Dec. 31, 2007
William Douglas Fulghum, et al. v. Embarq Corporation
Embarq
USD ($)
Mar. 31, 2014
Abbott et al. v. Sprint Nextel et al.
Embarq
plaintiff
Jul. 17, 2013
Comcast
Qwest Communications International Inc.
USD ($)
Feb. 27, 2014
KPNQwest
EUR (€)
Feb. 27, 2014
KPNQwest
Qwest Communications International Inc.
USD ($)
Feb. 27, 2014
KPNQwest
Qwest Communications International Inc.
EUR (€)
Dec. 31, 2013
KPNQwest
Qwest Communications International Inc.
USD ($)
Mar. 31, 2014
Cargill Financial Markets, Plc and Citibank, N.A.
Qwest Communications International Inc.
USD ($)
Mar. 31, 2014
Cargill Financial Markets, Plc and Citibank, N.A.
Qwest Communications International Inc.
EUR (€)
Mar. 31, 2014
Fiber-optic cable installation
Qwest Communications International Inc.
state
lawsuit
Mar. 31, 2014
Securities actions
CenturyLink, Inc.
security
Mar. 31, 2014
Derivative actions
CenturyLink, Inc.
lawsuit
Loss Contingencies [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Charges claimed against Sprint Nextel
 
$ 34 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from Legal Settlements
24 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effect of modifications made to Embarq's benefits program, greater than
 
 
300 
 
 
 
 
 
 
 
 
 
 
 
Number of plaintiffs have alleged breach of fiduciary duty (plaintiffs)
 
 
 
1,500 
 
 
 
 
 
 
 
 
 
 
Litigation Matters Assumed in Qwest Acquisition
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Damages sought by plaintiff
 
 
 
 
80 
 
 
 
 
301 
219 
 
 
 
Payments for legal settlements
 
 
 
 
 
171 
235 
171 
 
 
 
 
 
 
Legal Reserve, KPNQwest Litigation Settlement
 
 
 
 
 
 
 
 
$ 235 
 
 
 
 
 
Number of states in which service is provided (states)
 
 
 
 
 
 
 
 
 
 
 
34 
 
 
Number of action pending before the Illinois Court of Appeals to be brought on behalf of landowner in Illinois, Iowa, Kentucky, Michigan, Minnesota, Nebraska, Ohio and Wisconsin (lawsuit)
 
 
 
 
 
 
 
 
 
 
 
1 
 
 
Number of states in which final approval of settlements received (states)
 
 
 
 
 
 
 
 
 
 
 
30 
 
 
Number of states in which preliminary or final approval of settlements have not yet been received (states)
 
 
 
 
 
 
 
 
 
 
 
1 
 
 
Number of states in which actions are not currently pending
 
 
 
 
 
 
 
 
 
 
 
3 
 
 
Number of securities actions
 
 
 
 
 
 
 
 
 
 
 
 
1 
 
Number of shareholder derivative actions
 
 
 
 
 
 
 
 
 
 
 
 
 
4 
Other Financial Information (Details)
In Millions, unless otherwise specified
3 Months Ended 1 Months Ended
Mar. 31, 2014
USD ($)
Mar. 31, 2013
USD ($)
Dec. 31, 2013
USD ($)
Feb. 27, 2014
KPNQwest
EUR (€)
Other Current Assets
 
 
 
 
Prepaid expenses
$ 299 
 
$ 266 
 
Materials, supplies and inventory
155 
 
167 
 
Assets held for sale
16 
 
26 
 
Deferred activation and installation charges
99 
 
94 
 
Other
63 
 
44 
 
Total other current assets
632 
 
597 
 
Current liabilities
 
 
 
 
Accounts payable
1,183 
 
1,111 
 
Other current liabilities:
 
 
 
 
Accrued rent
44 
 
52 
 
Legal reserves
28 
 
273 
 
Other
183 
 
189 
 
Total other current liabilities
255 
 
514 
 
Book overdraft balance
89 
 
88 
 
Capital Expenditures Incurred but Not yet Paid
90 
140 
 
 
Payments for legal settlements
 
 
 
€ 171 
Repurchase of CenturyLink Common Stock (Details) (USD $)
Share data in Millions, except Per Share data, unless otherwise specified
1 Months Ended 3 Months Ended
Feb. 28, 2014
Feb. 28, 2013
Mar. 31, 2014
Equity [Abstract]
 
 
 
Stock repurchases, aggregate authorized amount
$ 1,000,000,000 
$ 2,000,000,000 
 
Number of shares repurchased (shares)
 
 
10.4 
Aggregate market price of shares repurchased
 
 
319,000,000 
Average purchase price at which shares were repurchased (in dollars per share)
 
 
$ 30.63 
Stock repurchases, remaining authorized amount
 
 
114,000,000 
Aggregate market value of shares agreed to be repurchased, in transactions that will settle early in the second quarter of 2014
 
 
$ 18,000,000 
Average purchase price of shares agreed to be repurchased, in transactions that will settle early in the second quarter of 2014 (in dollars per share)
 
 
$ 32.69 
Other Comprehensive Earnings (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Accumulated other comprehensive income (loss) by component
 
 
Balance at the beginning of the period
$ (802)
$ (1,701)
Other comprehensive (loss) income before reclassifications
1 
(8)
Amounts reclassified from accumulated other comprehensive income
6 
14 
Other comprehensive income
7 
6 
Balance at the end of the period
(795)
(1,695)
Defined benefit plan |
Pension Plans
 
 
Accumulated other comprehensive income (loss) by component
 
 
Balance at the beginning of the period
(669)
(1,399)
Other comprehensive (loss) income before reclassifications
0 
0 
Amounts reclassified from accumulated other comprehensive income
3 
13 
Other comprehensive income
3 
13 
Balance at the end of the period
(666)
(1,386)
Defined benefit plan |
Post-Retirement Benefit Plans
 
 
Accumulated other comprehensive income (loss) by component
 
 
Balance at the beginning of the period
(122)
(289)
Other comprehensive (loss) income before reclassifications
0 
0 
Amounts reclassified from accumulated other comprehensive income
3 
1 
Other comprehensive income
3 
1 
Balance at the end of the period
(119)
(288)
Foreign Currency Translation Adjustment and Other
 
 
Accumulated other comprehensive income (loss) by component
 
 
Balance at the beginning of the period
(11)
(13)
Other comprehensive (loss) income before reclassifications
1 
(8)
Amounts reclassified from accumulated other comprehensive income
0 
0 
Other comprehensive income
1 
(8)
Balance at the end of the period
$ (10)
$ (21)
Other Comprehensive Earnings (Details 2) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Reclassifications out of accumulated other comprehensive income (loss) by component
 
 
Total before tax
$ (331)
$ (505)
Income tax expense (benefit)
(128)
(207)
Net income
203 
298 
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
 
 
Reclassifications out of accumulated other comprehensive income (loss) by component
 
 
Net actuarial loss
(5)
(21)
Prior service cost
(5)
(1)
Total before tax
10 
22 
Income tax expense (benefit)
4 
8 
Net income
$ (6)
$ (14)