QWEST CORP, 10-K filed on 3/7/2014
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2013
Mar. 7, 2014
Jun. 30, 2013
Document and Entity Information
 
 
 
Entity Registrant Name
QWEST CORP 
 
 
Entity Central Index Key
0000068622 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2013 
 
 
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
2013 
 
 
Document Fiscal Period Focus
FY 
 
 
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended 3 Months Ended
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Mar. 31, 2011
Predecessor
OPERATING REVENUES
 
 
 
 
Operating revenues
$ 5,419 
$ 6,818 
$ 7,031 
$ 1,870 
Operating revenues-affiliates
1,216 
1,935 
1,817 
398 
Total operating revenues
6,635 
8,753 
8,848 
2,268 
OPERATING EXPENSES
 
 
 
 
Cost of services and products (exclusive of depreciation and amortization)
2,171 
2,790 
2,868 
742 
Selling, general and administrative
1,161 
1,062 
1,166 
385 
Operating expenses-affiliates
238 
695 
619 
52 
Depreciation and amortization
1,866 
2,128 
2,290 
451 
Total operating expenses
5,436 
6,675 
6,943 
1,630 
OPERATING INCOME
1,199 
2,078 
1,905 
638 
OTHER INCOME (EXPENSE)
 
 
 
 
Interest expense
(300)
(450)
(443)
(150)
Interest (expense) income-affiliates
1 
(64)
(24)
0 
Net loss on early retirement of debt
(8)
   
(47)
0 
Other income
   
2 
   
2 
Total other income (expense)
(307)
(512)
(514)
(148)
INCOME BEFORE INCOME TAX EXPENSE
892 
1,566 
1,391 
490 
Income tax expense
349 
602 
542 
191 
Net Income (Loss) Attributable to Parent
$ 543 
$ 964 
$ 849 
$ 299 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended 3 Months Ended
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Mar. 31, 2011
Predecessor
Net Income (Loss) Attributable to Parent
$ 543 
$ 964 
$ 849 
$ 299 
OTHER COMPREHENSIVE INCOME
 
 
 
 
Unrealized gain on investments and other, net of tax
   
   
   
1 
Other comprehensive income
   
   
   
1 
COMPREHENSIVE INCOME
$ 543 
$ 964 
$ 849 
$ 300 
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
CURRENT ASSETS
 
 
Cash and cash equivalents
$ 14 
$ 8 
Accounts receivable, less allowance of $43 and $46
738 
709 
Due from Related Parties, Current
712 
593 
Deferred income taxes, net
161 
166 
Other
126 
114 
Total current assets
1,751 
1,590 
NET PROPERTY, PLANT AND EQUIPMENT
 
 
Property, plant and equipment
10,193 
9,242 
Accumulated depreciation
(2,985)
(2,011)
Net property, plant and equipment
7,208 
7,231 
GOODWILL AND OTHER ASSETS
 
 
Goodwill
9,354 
9,354 
Customer Relationships Finite-lived Intangible Assets, Net
3,687 
4,379 
Other intangible assets, net
1,008 
1,212 
Other
210 
181 
Total goodwill and other assets
14,259 
15,126 
TOTAL ASSETS
23,218 
23,947 
CURRENT LIABILITIES
 
 
Current maturities of long-term debt
637 
804 
Accounts payable
440 
456 
Note payable-affiliate
754 
701 
Accrued expenses and other liabilities
 
 
Salaries and benefits
217 
253 
Income and other taxes
206 
215 
Other
126 
102 
Advance billings and customer deposits
320 
301 
Total current liabilities
2,700 
2,832 
LONG-TERM DEBT
6,921 
6,821 
DEFERRED CREDITS AND OTHER LIABILITIES
 
 
Deferred revenue
161 
130 
Deferred income taxes, net
2,473 
2,631 
Due to Related Parties, Noncurrent
1,263 
1,442 
Deferred Credits and Other Liabilities, Noncurrent
87 
117 
Deferred Credits and Other Liabilities
3,984 
4,320 
COMMITMENTS AND CONTINGENCIES (Note 16)
   
   
STOCKHOLDER'S EQUITY
 
 
Common stock-one share without par value, owned by Qwest Services Corporation
10,050 
10,050 
Retained earnings (Accumulated deficit)
(437)
(76)
Total stockholder's equity
9,613 
9,974 
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
$ 23,218 
$ 23,947 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Statement of Financial Position [Abstract]
 
 
 
Accounts receivable, allowance (in dollars)
$ 43 
$ 46 
$ 42 
Common stock, share outstanding (shares)
1 
1 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
3 Months Ended 9 Months Ended 12 Months Ended
Mar. 31, 2011
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Net Income (Loss) Attributable to Parent
 
$ 543,000,000 
$ 964,000,000 
$ 849,000,000 
Depreciation, Depletion and Amortization
 
1,866,000,000 
2,128,000,000 
2,290,000,000 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Deferred income taxes (benefits)
 
150,000,000 
(152,000,000)
(201,000,000)
Provision for uncollectible accounts
 
44,000,000 
65,000,000 
74,000,000 
Long-term debt (premium) discount amortization
 
(133,000,000)
(52,000,000)
(65,000,000)
Net loss on early retirement of debt
 
8,000,000 
   
47,000,000 
Changes in current assets and liabilities:
 
 
 
 
Accounts receivable
 
(71,000,000)
(94,000,000)
(76,000,000)
Accounts payable
 
(47,000,000)
(1,000,000)
(58,000,000)
Accounts receivable and payable-affiliates, net
 
(108,000,000)
   
   
Accrued income and other taxes
 
(36,000,000)
(9,000,000)
(9,000,000)
Other current assets and other current liabilities, net
 
(6,000,000)
34,000,000 
(17,000,000)
Changes in other noncurrent assets and liabilities
 
11,000,000 
   
61,000,000 
Changes in other noncurrent assets and liabilities-affiliates
 
(53,000,000)
(179,000,000)
(130,000,000)
Other, net
 
33,000,000 
9,000,000 
9,000,000 
Net cash provided by operating activities
 
2,201,000,000 
2,713,000,000 
2,774,000,000 
INVESTING ACTIVITIES
 
 
 
 
Payments for property, plant and equipment and capitalized software
 
(1,036,000,000)
(1,264,000,000)
(1,266,000,000)
Changes in interest in investments managed by Qwest Services Corporation
 
   
   
   
Proceeds from sale of property
 
   
2,000,000 
133,000,000 
Other, net
 
2,000,000 
   
   
Net cash used in investing activities
 
(1,191,000,000)
(1,381,000,000)
(1,528,000,000)
FINANCING ACTIVITIES
 
 
 
 
Net proceeds from issuance of long-term debt
 
2,126,000,000 
752,000,000 
896,000,000 
Payments of long-term debt
 
(2,368,000,000)
(806,000,000)
(1,430,000,000)
Payments of Debt Extinguishment Costs
 
   
   
178,000,000 
Dividends paid to Qwest Services Corporation
 
(900,000,000)
(1,325,000,000)
(1,150,000,000)
Increase (Decrease) in Notes Payable, Related Parties
 
   
53,000,000 
701,000,000 
Increase (Decrease) in Due to Related Parties, Current
   
   
   
(80,000,000)
Increase (Decrease) in Due from Related Parties, Current
   
157,000,000 
119,000,000 
395,000,000 
Other, net
 
(66,000,000)
   
   
Net cash used in financing activities
 
(1,208,000,000)
(1,326,000,000)
(1,241,000,000)
Net increase (decrease) in cash and cash equivalents
 
(198,000,000)
6,000,000 
5,000,000 
Cash and cash equivalents at beginning of period
 
201,000,000 
8,000,000 
3,000,000 
Cash and cash equivalents at end of period
201,000,000 
3,000,000 
14,000,000 
8,000,000 
Supplemental cash flow information:
 
 
 
 
Income taxes (paid) refunded, net
 
(327,000,000)
(750,000,000)
(607,000,000)
Interest (paid) (net of capitalized interest of $17, $18, $8, and $3)
 
(464,000,000)
(513,000,000)
(513,000,000)
Predecessor
 
 
 
 
Net Income (Loss) Attributable to Parent
299,000,000 
 
 
 
Depreciation, Depletion and Amortization
451,000,000 
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Deferred income taxes (benefits)
76,000,000 
 
 
 
Provision for uncollectible accounts
17,000,000 
 
 
 
Long-term debt (premium) discount amortization
3,000,000 
 
 
 
Net loss on early retirement of debt
0 
 
 
 
Changes in current assets and liabilities:
 
 
 
 
Accounts receivable
18,000,000 
 
 
 
Accounts payable
(20,000,000)
 
 
 
Accounts receivable and payable-affiliates, net
93,000,000 
 
 
 
Accrued income and other taxes
50,000,000 
 
 
 
Other current assets and other current liabilities, net
(89,000,000)
 
 
 
Changes in other noncurrent assets and liabilities
(36,000,000)
 
 
 
Changes in other noncurrent assets and liabilities-affiliates
   
 
 
 
Other, net
7,000,000 
 
 
 
Net cash provided by operating activities
869,000,000 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
Payments for property, plant and equipment and capitalized software
(341,000,000)
 
 
 
Changes in interest in investments managed by Qwest Services Corporation
4,000,000 
 
 
 
Proceeds from sale of property
   
 
 
 
Other, net
2,000,000 
 
 
 
Net cash used in investing activities
(335,000,000)
 
 
 
FINANCING ACTIVITIES
 
 
 
 
Net proceeds from issuance of long-term debt
   
 
 
 
Payments of long-term debt
(14,000,000)
 
 
 
Payments of Debt Extinguishment Costs
   
 
 
 
Dividends paid to Qwest Services Corporation
(530,000,000)
 
 
 
Increase (Decrease) in Notes Payable, Related Parties
   
 
 
 
Other, net
19,000,000 
 
 
 
Net cash used in financing activities
(525,000,000)
 
 
 
Net increase (decrease) in cash and cash equivalents
9,000,000 
 
 
 
Cash and cash equivalents at beginning of period
192,000,000 
 
 
 
Cash and cash equivalents at end of period
201,000,000 
 
 
 
Supplemental cash flow information:
 
 
 
 
Income taxes (paid) refunded, net
116,000,000 
 
 
 
Interest (paid) (net of capitalized interest of $17, $18, $8, and $3)
$ (149,000,000)
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended 3 Months Ended
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Mar. 31, 2011
Predecessor
Interest paid, capitalized interest
$ 8 
$ 17 
$ 18 
$ 3 
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT) (USD $)
In Millions, unless otherwise specified
Total
Predecessor
COMMON STOCK
COMMON STOCK
Predecessor
ACCUMULATED DEFICIT
ACCUMULATED DEFICIT
Predecessor
Balance at beginning of period at Dec. 31, 2010
 
 
 
$ 11,425 
 
$ (12,256)
Net Income (Loss) Attributable to Parent
 
299 
 
 
 
299 
COMMON STOCK
 
 
 
 
 
 
Asset transfers
 
 
 
   
 
 
Tax benefit of pension deduction
 
 
 
   
 
 
ACCUMULATED DEFICIT
 
 
 
 
 
 
Dividends declared to Qwest Services Corporation
 
(1,000)
 
 
 
(1,000)
Change in other comprehensive income
 
 
 
 
 
1 
Balance at end of period at Mar. 31, 2011
 
(1,531)
9,951 
11,425 
   
(12,956)
Net Income (Loss) Attributable to Parent
543 
 
 
 
543 
 
COMMON STOCK
 
 
 
 
 
 
Asset transfers
 
 
(1)
 
 
 
Tax benefit of pension deduction
 
 
0 
 
 
 
ACCUMULATED DEFICIT
 
 
 
 
 
 
Dividends declared to Qwest Services Corporation
(600)
 
 
 
(628)
 
Change in other comprehensive income
 
 
 
 
   
 
Balance at end of period at Dec. 31, 2011
9,865 
 
9,950 
 
(85)
 
Net Income (Loss) Attributable to Parent
849 
 
 
 
849 
 
COMMON STOCK
 
 
 
 
 
 
Asset transfers
 
 
   
 
 
 
Tax benefit of pension deduction
 
 
100 
 
 
 
ACCUMULATED DEFICIT
 
 
 
 
 
 
Dividends declared to Qwest Services Corporation
(840)
 
 
 
(840)
 
Change in other comprehensive income
0 
 
 
 
 
 
Balance at end of period at Dec. 31, 2012
9,974 
 
10,050 
 
(76)
 
Net Income (Loss) Attributable to Parent
964 
 
 
 
964 
 
COMMON STOCK
 
 
 
 
 
 
Asset transfers
0 
 
 
 
 
 
Tax benefit of pension deduction
 
 
   
 
 
 
ACCUMULATED DEFICIT
 
 
 
 
 
 
Dividends declared to Qwest Services Corporation
(1,325)
 
 
 
(1,325)
 
Change in other comprehensive income
0 
 
 
 
 
 
Balance at end of period at Dec. 31, 2013
$ 9,613 
 
$ 10,050 
 
$ (437)
 
Basis of Presentation and Summary of Significant Accounting Policies
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, business, governmental and wholesale customers. Our communications services include local, broadband, private line (including special access), network access, Ethernet, wireless and video 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 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. Although we have continued as a surviving corporation and legal entity since the acquisition, the accompanying consolidated statements of operations, comprehensive income, cash flows and stockholder's equity (deficit) are presented for two periods: predecessor and successor, which relate to the period preceding the acquisition and the period succeeding the acquisition, respectively. On the date of the acquisition, April 1, 2011, our assets and liabilities were recognized at their fair value. This revaluation has been reflected in our consolidated financial statements and, therefore, has resulted in a new basis of accounting for the "successor period". This new basis of accounting means that our consolidated financial statements for the successor periods are not comparable to our consolidated financial statements relating to periods prior to the acquisition, including the predecessor period consolidated financial statements in this annual report.
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 1, 2012, in connection with post-acquisition systems integration activities, we adopted the affiliate expense allocation methodology used by our ultimate parent. This methodology results in certain overhead costs incurred by us and by our direct parent that were previously assessed to us on a net basis now being assessed on a gross basis both to and from our ultimate parent, resulting in both higher affiliate revenues and expenses for us. This change resulting from systems integration activities did not have a significant impact to our consolidated net income for the successor years ended December 31, 2013 and 2012.
During the year ended December 31, 2013, we recorded a correction of an error related to an understatement of our current deferred tax asset, an understatement of our deferred tax liabilities and an overstatement of goodwill recorded in connection with the purchase accounting of us in 2011. Therefore, we recognized a $17 million increase to current deferred income tax asset, a $2 million increase to noncurrent deferred income tax liability and a $15 million reduction to goodwill on our consolidated balance sheet as of December 31, 2012. The correction of the error did not have an effect on our consolidated statements of operations or on our consolidated statements of cash flows for the years ended December 31, 2012 and 2011.
During the first quarter of 2012, in connection with post-acquisition systems integration activities, CenturyLink changed certain cash management processes applicable to us. Therefore, we now present the balances related to these cash management transactions on a net basis with our other affiliate transactions.
During the first quarter of 2012, we recognized a $100 million equity contribution for the tax benefit associated with a deduction for pension funding. Since we are the employer of a significant percentage of the participants and none of the 2011 QCII pension funding was allocated to us, a tax deduction was recognized on our separate company tax return and, therefore, we recognized an equity contribution for the tax benefits associated with this deduction.
Effective January 1, 2012, we changed our rates of capitalized labor as we transitioned certain legacy systems to the historical systems of our ultimate parent, CenturyLink. This transition resulted in an estimated $40 million to $55 million increase in the amount of labor capitalized as an asset compared to the amount that would have been capitalized if we had continued to use our legacy systems and a corresponding estimated $40 million to $55 million decrease in operating expenses for the successor year ended December 31, 2012. The reduction in expenses described above, net of tax, increased net income approximately $25 million to $34 million for the successor year ended December 31, 2012.
Effective January 1, 2012, we changed our estimates of the remaining useful lives and net salvage value for certain telecommunications equipment. These changes resulted in a decrease to depreciation expense of approximately $52 million for the successor year ended December 31, 2012. This decrease in depreciation expense, net of tax, had the effect of increasing net income by approximately $32 million for the successor year ended December 31, 2012.
Effective January 2014, we will change the estimates of the remaining economic lives of certain switch and circuit network equipment. We estimate this will result in a net increase in depreciation expense in our consolidated statements of operations of $19 million for the year ended December 31, 2014.
We also reclassified certain other prior period amounts to conform to the current period presentation. These changes had no impact on total operating expenses or net income for any period.
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 items and matters such as, but not limited to, long-term contracts, customer retention patterns, allowance for doubtful accounts, depreciation, amortization, asset valuations, 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 were 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 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 revenue, expenses and components of cash flows during the periods presented in our consolidated statements of operations, our consolidated statements of comprehensive income and our consolidated statements of cash flows. We also make estimates in our assessments of potential losses in relation to threatened or pending tax and legal matters. See Note 12—Income Taxes and Note 16—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 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. 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 revenues 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 on 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 record intercompany charges at the amounts billed to us by our affiliates. Regulatory rules require certain 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 (deficit) 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 affiliate obligations, net in noncurrent liabilities on the consolidated balance sheets represents the cumulative allocation of expense associated with QCII’s pension plans and CenturyLink’s post-retirement benefits plans. Changes in the affiliate obligation, 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. We recorded $28 million of noncash dividends associated with asset transfers to QSC during the successor nine months ended December 31, 2011.
USF, Gross Receipts Taxes and Other Surcharges
In determining whether to include in our revenue and expenses the taxes and surcharges collected from customers and remitted to government authorities, including Universal Service Fund ("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 revenue 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 revenue and costs of services and products.
Advertising Costs
Costs related to advertising are expensed as incurred and is included in selling general and administrative expenses in our consolidated statements of operations. Our advertising expense was $88 million for the successor year ended December 31, 2013, $90 million for the successor year ended December 31, 2012, $174 million for the successor nine months ended December 31, 2011, and $65 million for the predecessor three months ended March 31, 2011.
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
Effective April 1, 2011, 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 12—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, adjustments to our liabilities for uncertain tax positions and amortization of investment tax credits. 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 12—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. Subsequent to CenturyLink's indirect acquisition of us, 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 CenturyLink's indirect acquisition of us, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Therefore, the allocated fair values of the assets represent their new basis of accounting in our consolidated financial statements. This resulted in adjustments to our property, plant and equipment accounts, including accumulated depreciation at the acquisition date. The adjustments related to CenturyLink's indirect acquisition of us are described in Note 2—Acquisition of QCII by CenturyLink and Note 6—Property, Plant and Equipment.
Purchased and constructed property, plant and equipment is stated at original 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 categorized in the year acquired on the basis of equal life groups for purposes of depreciation and tracking. 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 life of our asset base.
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 tangible 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. We review long-lived intangible assets, other than goodwill, for impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable.
As a result of CenturyLink's indirect acquisition of us, the software used by us for internal use was adjusted to fair value as of the acquisition date. During the predecessor and successor periods internally used software, whether purchased or developed by us is capitalized. We capitalize 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 assess customer relationships for impairment whenever facts and circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized only if the carrying amount is not recoverable and exceeds its fair value. Recoverability of the our customer relationships is measured by comparing the carrying amount to the estimated undiscounted future net cash flows expected to be generated by them. If the customer relationship's carrying value is not recoverable, an impairment charge is recognized for the amount by which the carrying amount exceeds its fair value. We determine fair values by using the discounted cash flows method.
We are required to assess goodwill for impairment at least annually, or more frequently, if events or a change in circumstances indicate that an impairment may have occurred. We are required to write-down the value of goodwill only in periods in which the recorded amount of goodwill exceeds the implied fair value of goodwill. Our annual assessment date for assessing goodwill impairment was September 30. The impairment assessment is at the reporting unit level, and in reviewing the criteria for reporting units when assigning the goodwill resulting from CenturyLink's indirect acquisition of us, 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 3—Goodwill, Customer Relationships and Other Intangible Assets for additional information.
During the fourth quarter of 2013, we elected to change the date of our annual assessment of goodwill impairment from September 30 to October 31. This is a change in method of applying an accounting principle which management believes is a preferable alternative as the new date of the assessment is more closely aligned with our strategic planning process. The change in the assessment date did not delay, accelerate or avoid a potential impairment charge in 2013. We performed our annual goodwill impairment assessment at September 30, 2013, prior to the change in our annual assessment date. We then performed a qualitative assessment of our goodwill as of October 31 and concluded that our goodwill was not impaired as of either date.
Pension and Post-Retirement Benefits
A substantial portion of our employees participate in the QCII pension plan. QCII also maintains a non-qualified pension plan for certain of our eligible highly compensated employees. In addition, certain employees may become eligible to participate in CenturyLink's post-retirement health care and life insurance benefit plans. CenturyLink and QCII allocate income and expenses relating to pension, non-qualified pension, and post-retirement health care and life insurance benefits . The amounts contributed by us through CenturyLink and QCII are not segregated or restricted to pay amounts due to our employees and may be used to provide benefits to other employees of CenturyLink and QCII's affiliates. The allocation of expense to us is based upon the demographics of our employees and retirees compared to all the remaining participants.
For further information on pension, non-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, 2013.
Acquisition of QCII by CenturyLink
Acquisition of QCII by CenturyLink
Acquisition of QCII by CenturyLink
On April 1, 2011, our indirect parent QCII became a wholly owned subsidiary of CenturyLink.
Since April 1, 2011, our consolidated results of operations have been included in the consolidated results of operations of CenturyLink. CenturyLink has accounted for its acquisition of QCII and us under the acquisition method of accounting, which resulted in the assignment of the purchase price to the assets acquired and liabilities assumed based on their acquisition date fair values. In the first quarter of 2012, we completed our valuation of the assets acquired and liabilities assumed, along with the related allocations to goodwill and intangible assets.
The aggregate consideration exceeded the aggregate estimated fair value of the assets acquired and liabilities assumed by $9.354 billion, which we recognized as goodwill. This goodwill is attributable to strategic benefits, including enhanced financial and operational scale, product and market diversification and leveraged combined networks that we expect to realize. None of the goodwill associated with this acquisition is deductible for income tax purposes.
The following was our assignment of the aggregate consideration:
 
April 1, 2011
 
(Dollars in millions)
Cash, accounts receivable and other current assets*
$
1,108

Property, plant and equipment
7,460

Identifiable intangible assets:
 
Customer relationships
5,699

Capitalized software
1,702

Other noncurrent assets
209

Current liabilities, excluding current maturities of long-term debt
(2,446
)
Current maturities of long-term debt
(2,378
)
Long-term debt
(6,310
)
Deferred credits and other liabilities
(4,447
)
Goodwill
9,354

Aggregate consideration
$
9,951

_______________________________________________________________________________
*
Includes estimated fair value of $674 million for accounts receivable, excluding affiliate accounts receivable, which had gross contractual value of $722 million on April 1, 2011. The $48 million difference between the gross contractual value and the estimated fair value assigned represents our best estimate as of April 1, 2011 of contractual cash flows that would not be collected.
Acquisition-Related Expenses
We have incurred operating expenses related to CenturyLink's indirect acquisition of us, which consist primarily of integration and severance expenses. The table below summarizes our acquisition-related expenses:
 
Successor
 
 
Predecessor
 
Combined
 
Year 
 Ended 
 December 31, 
 2013
 
Year 
 Ended 
 December 31, 
 2012
 
Nine Months 
 Ended 
 December 31,  
 2011
 
 
Three Months  
 Ended  
 March 31,  
 2011
 
Twelve Months
Ended
December 31,
2011
 
(Dollars in millions)
Acquisition-related expenses
$
24

 
39

 
146

 
 
2

 
148


The total amounts of these expenses are recognized in our cost of services and products and selling, general and administrative expenses.
Goodwill, Customer Relationships and Other Intangible Assets
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:
 
 
 
Successor
 
Weighted
Average of
Remaining Lives
 
December 31, 2013
 
December 31, 2012
 
 
 
(Dollars in millions)
Goodwill
N/A
 
$
9,354

 
9,354

Customer relationships, less accumulated amortization of $2,012 and $1,320
7.3 years
 
3,687

 
4,379

Other intangible assets subject to amortization Capitalized software, less accumulated amortization of $994 and $704
3.0 years
 
1,008

 
1,212


As of the successor date of December 31, 2013, the gross carrying amounts of goodwill, customer relationships and other intangible assets were $17.055 billion.
Total amortization expense for intangible assets was as follows:
 
Successor
 
 
Predecessor
 
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)
Amortization expense for intangible assets
$
1,029

 
1,115

 
952

 
 
58


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. The estimated future amortization expense for intangible assets is as follows:
 
(Dollars in millions)
Year ending December 31,
 
2014
$
894

2015
821

2016
743

2017
667

2018
581

2019 and thereafter
989


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.
We have accounted for CenturyLink's acquisition of us under the acquisition method of accounting, which resulted in the assignment of the aggregate consideration to the assets acquired and liabilities assumed based on their acquisition date fair values. The fair value of the aggregate consideration transferred exceeded the acquisition date fair value of the recorded tangible and intangible assets, and assumed liabilities by $9.354 billion, which has been recognized as goodwill. The impairment assessment is done at the reporting unit level; in reviewing the criteria for reporting units when assigning the goodwill resulting from our acquisition by CenturyLink, we have determined that we are one reporting unit. We are required to assess goodwill recorded in business combinations for impairment at least annually, or more frequently, if events or circumstances indicate there may be impairment. Our annual goodwill impairment assessment date was September 30. We are required to write-down the value of goodwill only in periods in which the recorded amount of goodwill exceeds the fair value.
We compare Qwest’s estimated fair value to the carrying value of equity. If the estimated fair value of Qwest is greater than the carrying value, we conclude that no impairment exists. If the estimated fair value of Qwest is less than the carrying value, a second calculation is required in which the implied fair value of goodwill is compared to the carrying value of goodwill. If the implied fair value of goodwill is less than its carrying value of goodwill, goodwill must be written down to its implied fair value.
At September 30, 2013, as a result of changes in our forecasted cash flows since our previous quantitative assessment, we did not have a baseline valuation upon which to perform a qualitative assessment. Therefore, we estimated the fair value of Qwest by considering both a market approach method 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 beyond the cash flows from the discrete projection period. We discounted the estimated cash flows using a rate that represents a market participant's 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 3.4% and a cost of equity of 8.3%). Based on our assessment performed with respect to our reporting unit described above, we concluded that our goodwill was not impaired.
Long-Term Debt and Revolving Promissory Note
Long-Term Debt and Revolving Promissory Note
Long-Term Debt and Revolving Promissory Note
Long-term debt, including unamortized discounts and premiums, and note payable-affiliate is as follows:
 
 
 
 
 
Successor
 
Interest Rates
 
Maturities
 
December 31, 2013
 
December 31, 2012
 
 
 
 
 
(Dollars in millions)
Senior notes
6.125% - 8.375%
 
2014 - 2053
 
$
7,411

 
7,386

Capital lease and other obligations
Various
 
Various
 
72

 
112

Unamortized premiums, net
 
 
 
 
75

 
127

Total long-term debt
 
 
 
 
7,558

 
7,625

Less current maturities
 
 
 
 
(637
)
 
(804
)
Long-term debt, excluding current maturities
 
 
 
 
$
6,921

 
6,821

Note payable-affiliate
6.765%
 
2022
 
$
754

 
701

New Issuances
2013
On May 23, 2013, we issued $775 million aggregate principal amount of 6.125% Notes due 2053, including $25 million principal amount that was sold pursuant to an over-allotment option granted to the underwriters for the offering, in exchange for net proceeds, after deducting underwriting discounts and expenses, of approximately $752 million. The Notes are unsecured obligations and may be redeemed, in whole or in part, on or after June 1, 2018 at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date.
2012
On June 25, 2012, we issued $400 million aggregate principal amount of 7.00% Notes due 2052 in exchange for net proceeds, after deducting underwriting discounts and expenses, of $387 million. The Notes are unsecured obligations and may be redeemed, in whole or in part, on or after July 1, 2017 at a redemption price equal to 100% of the principal amount redeemed plus accrued interest.
In connection with consummating the April 18, 2012 tender offer described below under "Repayments", we borrowed from a CenturyLink affiliate approximately $580 million under a revolving promissory note, payable upon demand. The promissory note is unsecured and ranked equally to our senior notes.
On April 2, 2012, we issued $525 million aggregate principal amount of 7.00% Notes due 2052 in exchange for net proceeds, after deducting underwriting discounts and expenses, of $508 million. The Notes are unsecured obligations and may be redeemed, in whole or in part, on or after April 1, 2017 at a redemption price equal to 100% of the principal amount redeemed plus accrued interest.
Repayments
2013
On June 17, 2013, we paid at maturity the $750 million principal amount of our floating rate Notes.
2012
On July 20, 2012, we redeemed all $484 million of our 7.50% Notes due 2023, which resulted in an immaterial loss.
On April 18, 2012, we completed a cash tender offer to purchase a portion of our $811 million of 8.375% Notes due 2016 and our $400 million of 7.625% Notes due 2015. With respect to our 8.375% Notes due 2016, we received and accepted tenders of approximately $575 million aggregate principal amount of these notes, or 71%, for $722 million including a premium, fees and accrued interest. With respect to our 7.625% Notes due 2015, we received and accepted tenders of approximately $308 million aggregate principal amount of these notes, or 77%, for $369 million including a premium, fees and accrued interest. The completion of this tender offer resulted in a loss of $46 million.
Aggregate Maturities of Long-Term Debt
Aggregate maturities of our long-term debt (excluding unamortized premiums, discounts, and other and excluding note payable-affiliate):
 
(Dollars in millions)
2014
$
637

2015
122

2016
237

2017
500

2018
—

2019 and thereafter
5,987

Total long-term debt
$
7,483


Revolving Promissory Note
We have a revolving promissory note with an affiliate of CenturyLink that provides us with a funding commitment with an aggregate principle amount available to $1.0 billion through June 30, 2022, of which $754 million was outstanding as of the successor date of December 31, 2013. As of the successor date of December 31, 2013, the weighted average interest rate was 6.765%. This revolving promissory note and accrued interest thereon is reflected on our consolidated balance sheets as a current liability under “Note payable-affiliate”.
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 (income)-affiliates:
 
Successor
 
 
Predecessor
 
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)
Interest expense:
 
 
 
 
 
 
 
 
Gross interest expense
$
467

 
461

 
305

 
 
153

Capitalized interest
(17
)
 
(18
)
 
(5
)
 
 
(3
)
Total interest expense
$
450

 
443

 
300

 
 
150

Interest expense (income)-affiliates
$
64

 
24

 
(1
)
 
 
—


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. As of the successor date of December 31, 2013, we believe we were in compliance with the provisions and covenants of our debt agreements.
Accounts Receivable
Accounts Receivable
Accounts Receivable
The following table presents details of our accounts receivable balances:
 
Successor
 
December 31, 2013
 
December 31, 2012
 
(Dollars in millions)
Trade and purchased receivables
$
697

 
661

Earned and unbilled receivables
73

 
82

Other
11

 
12

Total accounts receivable
781

 
755

Less: allowance for doubtful accounts
(43
)
 
(46
)
Accounts receivable, less allowance
$
738

 
709

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:
 
Allowance for Doubtful
Accounts
 
(Dollars in millions)
Balance at December 31, 2010 (Predecessor)
$
48

Charged to expense-net
17

Deductions
(18
)
Balance at March 31, 2011(Predecessor)
$
47

Fair value adjustment
(47
)
Balance at April 1, 2011 (Successor)
$
—

Charged to expense-net
44

Deductions
(2
)
Balance at December 31, 2011 (Successor)
$
42

Charged to expense-net
74

Deductions
(70
)
Balance at December 31, 2012 (Successor)
$
46

Charged to expense-net
65

Deductions
(68
)
Balance at December 31, 2013 (Successor)
$
43


As a result of CenturyLink's indirect acquisition of us, the allowance for doubtful accounts as of the April 1, 2011 acquisition date of $47 million was reduced to zero and our gross accounts receivable were reduced by $47 million to reflect its estimated acquisition date fair value.
Property, Plant and Equipment
Property, Plant and Equipment
Property, Plant and Equipment
CenturyLink accounted for its indirect acquisition of us under the acquisition method of accounting, which requires the assignment of the purchase price to the assets acquired based on their fair values at the acquisition date.
Net property, plant and equipment is composed of the following:
 
 
 
Successor
 
Depreciable
Lives
 
December 31, 2013
 
December 31, 2012
 
 
 
(Dollars in millions)
Property, plant and equipment:
 
 
 
 
 
Land
N/A
 
$
356

 
356

Fiber, conduit and other outside plant(1)
15-45 years
 
4,033

 
3,475

Central office and other network electronics(2)
4-10 years
 
3,026

 
2,611

Support assets(3)
5-30 years
 
2,470

 
2,428

Construction in progress(4)
N/A
 
308

 
372

Gross property, plant and equipment
 
 
10,193

 
9,242

Accumulated depreciation
 
 
(2,985
)
 
(2,011
)
Net property, plant and equipment
 
 
$
7,208

 
7,231

_______________________________________________________________________________

(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.
We recorded depreciation expense of $1.099 billion, $1.175 billion, $914 million, and $393 million for the successor years ended December 31, 2013 and 2012, the successor nine months ended December 31, 2011, and the predecessor three months ended March 31, 2011, respectively.
On April 2, 2012, we sold an office building for net proceeds of $133 million. As part of the transaction, we agreed to lease a portion of the building from the new owner. As a result, the $16 million gain from the sale was deferred and will be recognized as a reduction to rent expense over the 10 year lease term.
Severance
Severance
Severance
Periodically, we have reductions in our workforce and have accrued liabilities for related severance costs. These workforce reductions resulted primarily from the progression or completion of our integration plans related to CenturyLink's indirect acquisition of us, increased competitive pressures 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.
Changes in our accrued liability for severance expenses were as follows:
 
Severance
 
(Dollars in millions)
Balance at December 31, 2010 (Predecessor)
$
28

Accrued to expense
3

Payments, net
(11
)
Reversals and adjustments
(1
)
Balance at March 31, 2011 (Predecessor)
$
19

Fair value adjustment
(2
)
Balance at April 1, 2011 (Successor)
$
17

Accrued to expense
118

Payments, net
(97
)
Reversals and adjustments
(9
)
Balance at December 31, 2011 (Successor)
$
29

Accrued to expense
64

Payments, net
(85
)
Reversals and adjustments
(1
)
Balance at December 31, 2012 (Successor)
$
7

Accrued to expense
10

Payments, net
(12
)
Reversals and adjustments
—

Balance at December 31, 2013 (Successor)
$
5


Our severance expenses for the successor nine months ended December 31, 2011 also included $12 million of share-based compensation associated with the accelerated vesting of stock awards that occurred in connection with workforce reductions relating to CenturyLink's indirect acquisition of us.
Employee Benefits
Employee Benefits
Employee Benefits
Pension and Post-Retirement Benefits
We are required to disclose the amount of our contributions to CenturyLink and QCII relative to the QCII pension plans and CenturyLink post-retirement benefit plans. QCII's post-retirement benefit plans were merged into CenturyLink's post-retirement benefit plans on January 1, 2012. QCII was not required and did not make contributions to the pension plan trust in 2013. Based on current laws and circumstances, (i) QCII will not be required to make a cash contribution to this plan in 2014 and (ii) QCII does not expect it will be required to make a contribution in 2015. The amount of required contributions to the plan in 2015 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. No contributions were made to the post-retirement occupational health care trust in 2013 or 2012 and CenturyLink does not expect to make a contribution in 2014.
The unfunded status of QCII's qualified pension plan for accounting purposes was $159 million and $948 million as of the successor dates of December 31, 2013 and 2012, respectively. The unfunded status of CenturyLink's post-retirement benefit plans for accounting purposes was $3.153 billion and $3.448 billion as of the successor dates of December 31, 2013 and 2012, respectively. CenturyLink and QCII allocate income and expenses to us based upon the demographics of our employee and retirees compared to all the remaining participants.
We were allocated $178 million and $117 million in pension income during the successor years ended December 31, 2013 and 2012 and $51 million for the successor nine months ended December 31, 2011, as well as $11 million in pension expense for the predecessor three months ended March 31, 2011. Our allocated post-retirement benefit expense for the successor years ended December 31, 2013 and 2012, the successor nine months ended December 31, 2011, and the predecessor three months ended March 31, 2011 was $88 million, $106 million, $84 million, $16 million, respectively. These allocated amounts represent our share of the pension and post-retirement benefit expenses based on the actuarially determined amounts. Our allocated portion of QCII's total pension and CenturyLink's post-retirement benefit income and expenses were 91%, 91%, 96%, and 102% for the successor years ended December 31, 2013 and 2012, the successor nine months ended December 31, 2011, and the predecessor three months ended March 31, 2011, respectively. CenturyLink and QCII allocate the income and expenses of these plans to us and their other affiliates. The allocation of income and expense to us is based upon demographics of our employees compared to all remaining participants. The combined net pension and post-retirement benefits (income) expenses is included in cost of services and products and selling, general and administrative expenses.
QCII sponsors a noncontributory qualified defined benefit pension plan (referred to as QCII's pension plan) for substantially all of our employees. In addition to this tax qualified pension plan, QCII also maintains a non-qualified pension plan for certain eligible highly compensated employees. These plans also provide survivor and disability benefits to certain employees. In November 2009, QCII amended the pension plan and the non-qualified pension plans 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, QCII has eliminated this benefit effective March 1, 2010 for retirees who retired prior to January 1, 2004 and whose deaths occur after February 28, 2010. QCII previously eliminated the death benefit for eligible beneficiaries of certain retirees who retired after December 31, 2003.
QCII maintains post-retirement benefit plans that provide health care and life insurance benefits for certain eligible retirees, which were merged into CenturyLink's post-retirement benefit plans on January 1, 2012. The benefit obligation for QCII's occupational health care and life insurance post-retirement plans is estimated based on the terms of QCII's written benefit plans. In calculating this obligation, QCII 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 12,000 of our unionized employees. Effective January 1, 2014, the approximately 12,000 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 QCII and its eligible non-represented employees and its eligible post-1990 non-represented retirees are established by QCII and are subject to change at its discretion. QCII 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, QCII's contribution under its post-1990 non-represented retirees' health care plan is capped at a specific dollar amount. Effective January 1, 2009, QCII amended its post-1990 non-represented retiree plan to, among other things, (i) require retirees to pay increased out-of-pocket costs and (ii) eliminate the reimbursement of Medicare Part B premiums.
Medicare Prescription Drug, Improvement and Modernization Act of 2003
CenturyLink (formerly QCII) 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 active health care benefit expenses were $223 million, $221 million, $167 million, and $57 million for the successor years ended December 31, 2013 and 2012, the successor nine months ended December 31, 2011 and the predecessor three months ended March 31, 2011, respectively. Represented employee benefits are based on negotiated collective bargaining agreements. Employees are required to partially fund the health care benefits provided by us, in addition to paying their own out-of-pocket costs. Our group life insurance plan is fully insured and the premiums are paid by us.
401(k) Plan
CenturyLink sponsors a qualified defined contribution benefit plan covering substantially all of our employees. Under this plan, employees may contribute a percentage of their annual compensation to the plan up to certain maximums, as defined by the plan and by the Internal Revenue Service ("IRS"). Currently, we match a percentage of our employees' contributions in cash. We recognized $49 million, $46 million, $36 million, and $12 million in expense related to this plan for the successor years ended December 31, 2013 and 2012, the successor nine months ended December 31, 2011, and the predecessor three months ended March 31, 2011, respectively.
Deferred Compensation Plans
QCII sponsored a non-qualified unfunded deferred compensation plan for various groups that include certain of our current and former highly compensated employees. The plan is frozen and participants can no longer defer compensation to the plan. The value of the assets and liabilities related to this plan is not significant.
Stock-Based Compensation
Stock-Based Compensation
Stock-Based Compensation
Stock-based compensation expenses are included in cost of services and products, and selling, general, and administrative expenses in our consolidated statements of operations. During our predecessor years, we recognized compensation expense relating to awards granted to our employees under the Equity Incentive Program or EIP using the straight-line method over the applicable vesting periods. We also recognized compensation expense when our employees purchased QCII's common stock under the Employee Stock Purchase Plan or ESPP for the difference between the employees' purchase price and the fair value of QCII's stock.
For the successor years ended December 31, 2013 and 2012, we were allocated a stock based compensation expense of approximately $17 million and $18 million, respectively. For the successor nine months ended December 31, 2011 and the predecessor three months ended March 31, 2011, total stock-based compensation expense allocated was approximately $19 million and $3 million, respectively. We recognized an income tax benefit from our stock compensation expense of approximately $7 million and $7 million, respectively, during the successor years ended December 31, 2013 and 2012. We recognized an income tax benefit from our stock compensation expense of approximately $7 million and $1 million, respectively, for the successor nine months ended December 31, 2011 and the predecessor three months ended March 31, 2011.
Due to CenturyLink's acquisition of QCII, we now record the stock-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 stock-based compensation expense recorded at CenturyLink and ultimately allocated to us may fluctuate. We settle the stock-based compensation expense allocated to us from CenturyLink through affiliate transactions.
Products and Services Revenues
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, broadband, private line (including special access, which we market to our business and wholesale customers), network access, Ethernet, information technology, wireless and video services. We strive to maintain our customer relationships by, among other things, bundling our service offerings to provide our customers with a complete offering of integrated communications services. We categorize our products and services into the following three categories:
•
Strategic services, which include primarily broadband, private line (including special access, which we market to our business and wholesale customers), Ethernet, video (including resold satellite video services) and Verizon Wireless services;
•
Legacy services, which include primarily local, integrated services digital network (which uses regular telephone lines to support voice, video and data applications), switched access and traditional wide area network services (which allows a local communications network to link to networks in remote locations); and
•
Affiliates and other services, which consist primarily of USF revenues and surcharges and services we provide to our non-consolidated affiliates. 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, network support and technical services.
Our operations are integrated into and reported as part of the segments 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.
Operating revenues for our products and services are summarized below:
 
Successor
 
 
Predecessor
 
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)
Strategic services
$
3,342

 
3,265

 
2,406

 
 
792

Legacy services
3,208

 
3,471

 
2,796

 
 
1,003

Affiliates and other services
2,203

 
2,112

 
1,433

 
 
473

Total operating revenues
$
8,753

 
8,848

 
6,635

 
 
2,268


We do not have any single customer that provides more than 10% of our total revenue. Substantially all of our revenue comes from customers located in the United States.
The table below presents the aggregate USF surcharges recognized on a gross basis:
 
Successor
 
 
Predecessor
 
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)
Taxes and surcharges included in operating revenues and expenses
$
154

 
171

 
122

 
 
43

Affiliate Transactions
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:
•
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.
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
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 years prior to 2011, QCII filed amended federal income tax returns for 2002-2007 to make protective claims with respect to items reserved in our audit settlements and to correct items not addressed in prior audits. The examination of those amended federal income tax returns by the IRS was completed in 2012. In 2012, QCII filed an amended 2008 federal income tax return primarily to report the carryforward impact of prior year settlements and in 2013, QCII filed an amended return for 2009. Such amended filings are subject to adjustment by the IRS.
CenturyLink also files combined income tax returns in many states, and these combined returns remain open for adjustments to its federal income tax returns. In addition, certain combined state income tax returns filed by CenturyLink and QCII since 1999 are still open for state specific adjustments.
Effective on April 1, 2011 in conjunction with CenturyLink's indirect acquisition of us, we changed our accounting policy to recognize interest expense and penalties related to income taxes as income tax expense. Prior to April 1, 2011, interest expense and penalties related to income taxes were included in the other income (expense) line of our consolidated statements of operations. As of the successor date of December 31, 2013, we had no liability for interest related to uncertain tax positions. As of the successor date of December 31, 2012, we had a recorded liability for interest related to uncertain tax positions in the amounts of $5 million. We did not record a liability for interest related to uncertain tax positions for the successor year ended December 31, 2013. 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:

Successor


Predecessor

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)
Income tax expense:








Current tax provision:








Federal and foreign
$
653


638

 
173

 
 
104

State and local
101


105

 
26

 
 
11

Total current tax provision
754


743


199



115

Deferred tax expense (benefit):








Federal and foreign
(125
)

(175
)
 
128

 
 
61

State and local
(27
)

(26
)
 
22

 
 
15

Total deferred tax expense (benefit)
(152
)

(201
)

150



76

Income tax expense
$
602


542


349



191


The effective income tax rate for continuing operations differs from the statutory tax rate as follows:
 
Successor
 
 
Predecessor
 
Year 
 Ended 
 December 31, 
 2013
 
Year 
 Ended 
 December 31, 
 2012
 
Nine Months 
 Ended 
 December 31,  
 2011
 
 
Three Months  
 Ended  
 March 31,  
 2011
 
(in percent)
Effective income tax rate:
 
 
 
 
 
 
 
 
Federal statutory income tax rate
35.0
%
 
35.0
%
 
35.0
%
 
 
35.0
%
State income taxes-net of federal effect
3.1

 
3.7

 
3.5

 
 
3.4

Other
0.3

 
0.3

 
0.6

 
 
0.6

Effective income tax rate
38.4
%
 
39.0
%
 
39.1
%
 
 
39.0
%

Deferred Tax Assets and Liabilities
The components of the deferred tax assets and liabilities are as follows:
 
Successor
 
December 31, 2013
 
December 31, 2012
 
(Dollars in millions)
Deferred tax assets and liabilities:
 
 
 
Deferred tax liabilities:
 
 
 
Property, plant and equipment
$
(1,281
)
 
(1,179
)
Intangibles assets
(1,772
)
 
(2,118
)
Receivable from an affiliate due to pension plan participation
(462
)
 
(397
)
Other
(52
)
 
(61
)
Total deferred tax liabilities
(3,567
)
 
(3,755
)
Deferred tax assets:
 
 
 
Payable to affiliate due to post-retirement benefit plan participation
983

 
982

Debt premiums
55

 
67

Other
229

 
253

Total deferred tax assets
1,267

 
1,302

Valuation allowance on deferred tax assets
(12
)
 
(12
)
Net deferred tax assets
1,255

 
1,290

Net deferred tax liabilities
$
(2,312
)
 
(2,465
)

At December 31, 2013, 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 $750 million, $607 million, and $211 million to QSC related to income taxes in the successor years ended December 31, 2013, 2012 and 2011, respectively.
Fair Value Disclosure
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 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 levels used to determine the fair values:
 
 
 
Successor
 
 
 
December 31, 2013
 
December 31, 2012
 
Input
Level
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
 
 
(Dollars in millions)
Liabilities-Long-term debt excluding capital lease obligations
2
 
$
7,486

 
7,226

 
7,513

 
8,019


For the assets and liabilities measured at fair value on our acquisition date, we employed a variety of methods to determine these fair values, including quoted market price, observable market values of comparable assets, current replacement costs and discounted cash flow analysis. The factors that most significantly impact our estimate of fair value included forecasted cash flows and a market participant discount rate. The applicable market participant discount rate is impacted by the market risk free rate of return and risk premium associated with a group of peer telecommunication companies which have been deemed to be market participants for determining the fair value. The discount rates used in our valuations ranged from 7.5% to 9.5% depending upon the asset or liability valued and relative risk associated with the cash flows.
Stockholder's Equity
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.
Other Net Asset Transfers
During 2012, we recognized a $100 million equity contribution for the tax benefit associated with a deduction for pension funding. Since we are the employer of a significant percentage of the participants and none of the 2011 QCII pension funding was allocated to us, a tax deduction will be recognized on our separate company tax return and, therefore, we recognized an equity contribution for the tax benefits associated with this deduction.
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 and non-cash dividends to QSC:
 
Successor
 
 
Predecessor
 
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)
Non-cash dividend to QSC(1)
$
—

 
—

 
28

 
 
—

Cash dividend declared to QSC
1,325

 
840

 
600

 
 
1,000

Cash dividend paid to QSC
1,325

 
1,150

 
900

 
 
530

_______________________________________________________________________________

(1) 
This was a non-cash transaction whereby we transferred assets via dividends to our parent company, 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)
Quarterly Financial Data (Unaudited)
Quarterly Financial Data (Unaudited)
 
Quarterly Financial Data
 
Successor
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
Twelve
Months
Total
 
(Dollars in millions)
2013
 
 
 
 
 
 
 
 
 
Operating revenues
$
2,159

 
2,199

 
2,188

 
2,207

 
8,753

Operating income
553

 
525

 
493

 
507

 
2,078

Income tax expense
166

 
155

 
139

 
142

 
602

Net income
264

 
246

 
218

 
236

 
964


 
Quarterly Financial Data
 
Successor
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
Twelve
Months
Total
 
(Dollars in millions)
2012
 
 
 
 
 
 
 
 
 
Operating revenues
$
2,260

 
2,195

 
2,183

 
2,210

 
8,848

Operating income
466

 
455

 
459

 
525

 
1,905

Income tax expense
136

 
113

 
133

 
160

 
542

Net income
218

 
178

 
212

 
241

 
849

Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies
From time to time, we are involved in other proceedings incidental to our business, including patent infringement allegations, administrative hearings of state public utility commissions relating primarily to 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 insurance coverage, 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 settlement opportunities.
CenturyLink and QCII 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 a wholly owned subsidiary of CenturyLink and QCII, 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 SEC. Because we are not a party to any of the matters, we have not accrued any liabilities for these matters.
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:
 
Successor
 
 
Predecessor
 
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)
Assets acquired through capital leases
$
—

 
—

 
2

 
 
16

Depreciation expense
42

 
50

 
41

 
 
11

Cash payments towards capital leases
40

 
41

 
35

 
 
11

 
Successor
 
December 31, 2013
 
December 31, 2012
 
(Dollars in millions)
Assets included in property, plant and equipment
$
168

 
188

Accumulated depreciation
109

 
85


The future annual minimum payments under capital lease arrangements as of December 31, 2013 were as follows:
 
Future
Minimum
Payments
 
(Dollars in
millions)
Capital lease obligations:
 
2014
$
33

2015
23

2016
2

2017
1

2018
1

2019 and thereafter
5

Total minimum payments
65

Less: amount representing interest and executory costs
(10
)
Present value of minimum payments
55

Less: current portion
(31
)
Long-term portion
$
24


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 successor years ended December 31, 2013 and 2012 and the successor nine months ended December 31, 2011, our gross rental expense was $83 million, $93 million, and $125 million, respectively. Also, gross rental expense was $58 million for the predecessor three months ended March 31, 2011. We also received sublease rental income for the same periods of $4 million, $8 million, $10 million, and $4 million, respectively.
At December 31, 2013, our future minimum payments under operating leases were as follows:
 
Future
Minimum
Payments
 
(Dollars in
millions)
Operating leases:
 
2014
$
59

2015
51

2016
46

2017
41

2018
34

2019 and thereafter
61

Total future minimum payments(1)
$
292

_______________________________________________________________________________

(1) 
Minimum payments have not been reduced by minimum sublease rentals of $32 million due in the future under non-cancelable subleases.
Purchase Obligations
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 $284 million as of December 31, 2013. Of this amount, we expect to purchase $100 million in 2014, $134 million in 2015 through 2016, $46 million in 2017 through 2018 and $4 million in 2019 and thereafter. These amounts do not represent our entire anticipated purchases in the future, but represent only those items for which we are contractually committed.
Other Financial Information
Other Financial Information
Other Financial Information
Other Current Assets
Other current assets reflected in our consolidated balance sheets consisted of the following:
 
Other Current Assets
 
December 31, 2013
 
December 31, 2012
 
(Dollars in millions)
Prepaid expenses
$
47

 
64

Other
79

 
50

Total other current assets
$
126

 
114


Selected Current Liabilities
Current liabilities reflected in our consolidated balance sheets include accounts payable as follows:
 
 
 
December 31, 2013
 
December 31, 2012
 
(Dollars in millions)
Accounts payable
$
440

 
456


Included in accounts payable at December 31, 2013 and 2012 were $11 million and $27 million, respectively, associated with capital expenditures.
Labor Union Contracts
Labor Union Contracts
Labor Union Contracts
Approximately 12,000 or 53% 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 expired October 6, 2012. Since the expirations, we have been negotiating the terms of new agreements. Recently, we reached conditional agreements with CWA District 7 and IBEW Local 206 for a four-year collective bargaining agreement covering approximately 12,000 of our employees. After rejecting the initial agreements, the CWA and IBEW members approved the second agreements and they became effective on October 25, 2013. The new agreements will expire on October 7, 2017.
Basis of Presentation and Summary of Significant Accounting Policies (Policies)
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 items and matters such as, but not limited to, long-term contracts, customer retention patterns, allowance for doubtful accounts, depreciation, amortization, asset valuations, 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 were 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 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 revenue, expenses and components of cash flows during the periods presented in our consolidated statements of operations, our consolidated statements of comprehensive income and our consolidated statements of cash flows. We also make estimates in our assessments of potential losses in relation to threatened or pending tax and legal matters. See Note 12—Income Taxes and Note 16—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 from our estimates.
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. 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 revenues 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.
Affiliates Transactions 
Affiliate Transactions
USF, Gross Receipts Taxes and Other Surcharges 
USF, Gross Receipts Taxes and Other Surcharges
In determining whether to include in our revenue and expenses the taxes and surcharges collected from customers and remitted to government authorities, including Universal Service Fund ("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 revenue 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 revenue and costs of services and products.
Advertising Costs 
Advertising Costs
Costs related to advertising are expensed as incurred and is included in selling general and administrative expenses in our consolidated statements of operations. Our advertising expense was $88 million for the successor year ended December 31, 2013, $90 million for the successor year ended December 31, 2012, $174 million for the successor nine months ended December 31, 2011, and $65 million for the predecessor three months ended March 31, 2011.
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.
Income Taxes 
Income Taxes
Effective April 1, 2011, 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 12—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, adjustments to our liabilities for uncertain tax positions and amortization of investment tax credits. 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 12—Income Taxes for additional information.
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. Subsequent to CenturyLink's indirect acquisition of us, 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 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 
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 CenturyLink's indirect acquisition of us, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Therefore, the allocated fair values of the assets represent their new basis of accounting in our consolidated financial statements. This resulted in adjustments to our property, plant and equipment accounts, including accumulated depreciation at the acquisition date. The adjustments related to CenturyLink's indirect acquisition of us are described in Note 2—Acquisition of QCII by CenturyLink and Note 6—Property, Plant and Equipment.
Purchased and constructed property, plant and equipment is stated at original 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 categorized in the year acquired on the basis of equal life groups for purposes of depreciation and tracking. 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 life of our asset base.
We review long-lived
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. We review long-lived intangible assets, other than goodwill, for impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable.
As a result of CenturyLink's indirect acquisition of us, the software used by us for internal use was adjusted to fair value as of the acquisition date. During the predecessor and successor periods internally used software, whether purchased or developed by us is capitalized. We capitalize 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 assess customer relationships for impairment whenever facts and circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized only if the carrying amount is not recoverable and exceeds its fair value. Recoverability of the our customer relationships is measured by comparing the carrying amount to the estimated undiscounted future net cash flows expected to be generated by them. If the customer relationship's carrying value is not recoverable, an impairment charge is recognized for the amount by which the carrying amount exceeds its fair value. We determine fair values by using the discounted cash flows method.
We are required to assess goodwill for impairment at least annually, or more frequently, if events or a change in circumstances indicate that an impairment may have occurred. We are required to write-down the value of goodwill only in periods in which the recorded amount of goodwill exceeds the implied fair value of goodwill. Our annual assessment date for assessing goodwill impairment was September 30. The impairment assessment is at the reporting unit level, and in reviewing the criteria for reporting units when assigning the goodwill resulting from CenturyLink's indirect acquisition of us, 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 3—Goodwill, Customer Relationships and Other Intangible Assets for additional information.
Pension and Post-Retirement Benefits 
Pension and Post-Retirement Benefits
A substantial portion of our employees participate in the QCII pension plan. QCII also maintains a non-qualified pension plan for certain of our eligible highly compensated employees. In addition, certain employees may become eligible to participate in CenturyLink's post-retirement health care and life insurance benefit plans. CenturyLink and QCII allocate income and expenses relating to pension, non-qualified pension, and post-retirement health care and life insurance benefits . The amounts contributed by us through CenturyLink and QCII are not segregated or restricted to pay amounts due to our employees and may be used to provide benefits to other employees of CenturyLink and QCII's affiliates. The allocation of expense to us is based upon the demographics of our employees and retirees compared to all the remaining participants.
For further information on pension, non-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, 2013.
Acquisition of QCII by CenturyLink (Tables)
Schedule of assets acquired and liabilities assumed 
The following was our assignment of the aggregate consideration:
 
April 1, 2011
 
(Dollars in millions)
Cash, accounts receivable and other current assets*
$
1,108

Property, plant and equipment
7,460

Identifiable intangible assets:
 
Customer relationships
5,699

Capitalized software
1,702

Other noncurrent assets
209

Current liabilities, excluding current maturities of long-term debt
(2,446
)
Current maturities of long-term debt
(2,378
)
Long-term debt
(6,310
)
Deferred credits and other liabilities
(4,447
)
Goodwill
9,354

Aggregate consideration
$
9,951

_______________________________________________________________________________
*
Includes estimated fair value of $674 million for accounts receivable, excluding affiliate accounts receivable, which had gross contractual value of $722 million on April 1, 2011. The $48 million difference between the gross contractual value and the estimated fair value assigned represents our best estimate as of April 1, 2011 of contractual cash flows that would not be collected.
Schedule of acquisition related expenses 
The table below summarizes our acquisition-related expenses:
 
Successor
 
 
Predecessor
 
Combined
 
Year 
 Ended 
 December 31, 
 2013
 
Year 
 Ended 
 December 31, 
 2012
 
Nine Months 
 Ended 
 December 31,  
 2011
 
 
Three Months  
 Ended  
 March 31,  
 2011
 
Twelve Months
Ended
December 31,
2011
 
(Dollars in millions)
Acquisition-related expenses
$
24

 
39

 
146

 
 
2

 
148

Goodwill, Customer Relationships and Other Intangible Assets (Tables)
Schedule of goodwill, customer relationships and other intangible assets 
Goodwill, customer relationships and other intangible assets consisted of the following:
 
 
 
Successor
 
Weighted
Average of
Remaining Lives
 
December 31, 2013
 
December 31, 2012
 
 
 
(Dollars in millions)
Goodwill
N/A
 
$
9,354

 
9,354

Customer relationships, less accumulated amortization of $2,012 and $1,320
7.3 years
 
3,687

 
4,379

Other intangible assets subject to amortization Capitalized software, less accumulated amortization of $994 and $704
3.0 years
 
1,008

 
1,212

Summary of amortization expense 
Total amortization expense for intangible assets was as follows:
 
Successor
 
 
Predecessor
 
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)
Amortization expense for intangible assets
$
1,029

 
1,115

 
952

 
 
58

Schedule of estimated amortization expense for intangible assets 
The estimated future amortization expense for intangible assets is as follows:
 
(Dollars in millions)
Year ending December 31,
 
2014
$
894

2015
821

2016
743

2017
667

2018
581

2019 and thereafter
989

Long-Term Debt and Revolving Promissory Note (Tables)
Schedule of long-term debt, including unamortized discounts and premiums 
Long-term debt, including unamortized discounts and premiums, and note payable-affiliate is as follows:
 
 
 
 
 
Successor
 
Interest Rates
 
Maturities
 
December 31, 2013
 
December 31, 2012
 
 
 
 
 
(Dollars in millions)
Senior notes
6.125% - 8.375%
 
2014 - 2053
 
$
7,411

 
7,386

Capital lease and other obligations
Various
 
Various
 
72

 
112

Unamortized premiums, net
 
 
 
 
75

 
127

Total long-term debt
 
 
 
 
7,558

 
7,625

Less current maturities
 
 
 
 
(637
)
 
(804
)
Long-term debt, excluding current maturities
 
 
 
 
$
6,921

 
6,821

Note payable-affiliate
6.765%
 
2022
 
$
754

 
701

Schedule of aggregate maturities of the entity's long-term debt (excluding unamortized premiums, discounts, and other) 
Aggregate maturities of our long-term debt (excluding unamortized premiums, discounts, and other and excluding note payable-affiliate):
 
(Dollars in millions)
2014
$
637

2015
122

2016
237

2017
500

2018
—

2019 and thereafter
5,987

Total long-term debt
$
7,483

Schedule of amount of gross interest expense, net of capitalized interest and interest expense (income)-affiliates 
The following table presents the amount of gross interest expense, net of capitalized interest and interest expense (income)-affiliates:
 
Successor
 
 
Predecessor
 
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)
Interest expense:
 
 
 
 
 
 
 
 
Gross interest expense
$
467

 
461

 
305

 
 
153

Capitalized interest
(17
)
 
(18
)
 
(5
)
 
 
(3
)
Total interest expense
$
450

 
443

 
300

 
 
150

Interest expense (income)-affiliates
$
64

 
24

 
(1
)
 
 
—

Accounts Receivable (Tables)
Schedule of the entity's accounts receivable balances 
The following table presents details of our accounts receivable balances:
 
Successor
 
December 31, 2013
 
December 31, 2012
 
(Dollars in millions)
Trade and purchased receivables
$
697

 
661

Earned and unbilled receivables
73

 
82

Other
11

 
12

Total accounts receivable
781

 
755

Less: allowance for doubtful accounts
(43
)
 
(46
)
Accounts receivable, less allowance
$
738

 
709

Schedule of the entity's allowance for doubtful accounts 
The following table presents details of our allowance for doubtful accounts:
 
Allowance for Doubtful
Accounts
 
(Dollars in millions)
Balance at December 31, 2010 (Predecessor)
$
48

Charged to expense-net
17

Deductions
(18
)
Balance at March 31, 2011(Predecessor)
$
47

Fair value adjustment
(47
)
Balance at April 1, 2011 (Successor)
$
—

Charged to expense-net
44

Deductions
(2
)
Balance at December 31, 2011 (Successor)
$
42

Charged to expense-net
74

Deductions
(70
)
Balance at December 31, 2012 (Successor)
$
46

Charged to expense-net
65

Deductions
(68
)
Balance at December 31, 2013 (Successor)
$
43

Property, Plant and Equipment (Tables)
Schedule of net property, plant and equipment
Net property, plant and equipment is composed of the following:
 
 
 
Successor
 
Depreciable
Lives
 
December 31, 2013
 
December 31, 2012
 
 
 
(Dollars in millions)
Property, plant and equipment:
 
 
 
 
 
Land
N/A
 
$
356

 
356

Fiber, conduit and other outside plant(1)
15-45 years
 
4,033

 
3,475

Central office and other network electronics(2)
4-10 years
 
3,026

 
2,611

Support assets(3)
5-30 years
 
2,470

 
2,428

Construction in progress(4)
N/A
 
308

 
372

Gross property, plant and equipment
 
 
10,193

 
9,242

Accumulated depreciation
 
 
(2,985
)
 
(2,011
)
Net property, plant and equipment
 
 
$
7,208

 
7,231

_______________________________________________________________________________

(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.
Severance (Tables)
Schedule of changes in accrued liability for severance expenses
Changes in our accrued liability for severance expenses were as follows:
 
Severance
 
(Dollars in millions)
Balance at December 31, 2010 (Predecessor)
$
28

Accrued to expense
3

Payments, net
(11
)
Reversals and adjustments
(1
)
Balance at March 31, 2011 (Predecessor)
$
19

Fair value adjustment
(2
)
Balance at April 1, 2011 (Successor)
$
17

Accrued to expense
118

Payments, net
(97
)
Reversals and adjustments
(9
)
Balance at December 31, 2011 (Successor)
$
29

Accrued to expense
64

Payments, net
(85
)
Reversals and adjustments
(1
)
Balance at December 31, 2012 (Successor)
$
7

Accrued to expense
10

Payments, net
(12
)
Reversals and adjustments
—

Balance at December 31, 2013 (Successor)
$
5

Products and Services Revenues (Tables)
Schedule of operating revenues by products and services 
Operating revenues for our products and services are summarized below:
 
Successor
 
 
Predecessor
 
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)
Strategic services
$
3,342

 
3,265

 
2,406

 
 
792

Legacy services
3,208

 
3,471

 
2,796

 
 
1,003

Affiliates and other services
2,203

 
2,112

 
1,433

 
 
473

Total operating revenues
$
8,753

 
8,848

 
6,635

 
 
2,268

Schedule of aggregate USF surcharges recognized on a gross basis 
The table below presents the aggregate USF surcharges recognized on a gross basis:
 
Successor
 
 
Predecessor
 
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)
Taxes and surcharges included in operating revenues and expenses
$
154

 
171

 
122

 
 
43

Income Taxes (Tables)
Schedule of components of the income tax expense from continuing operations 
The components of the income tax expense from continuing operations are as follows:

Successor


Predecessor

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)
Income tax expense:








Current tax provision:








Federal and foreign
$
653


638

 
173

 
 
104

State and local
101


105

 
26

 
 
11

Total current tax provision
754


743


199



115

Deferred tax expense (benefit):








Federal and foreign
(125
)

(175
)
 
128

 
 
61

State and local
(27
)

(26
)
 
22

 
 
15

Total deferred tax expense (benefit)
(152
)

(201
)

150



76

Income tax expense
$
602


542


349



191

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:
 
Successor
 
 
Predecessor
 
Year 
 Ended 
 December 31, 
 2013
 
Year 
 Ended 
 December 31, 
 2012
 
Nine Months 
 Ended 
 December 31,  
 2011
 
 
Three Months  
 Ended  
 March 31,  
 2011
 
(in percent)
Effective income tax rate:
 
 
 
 
 
 
 
 
Federal statutory income tax rate
35.0
%
 
35.0
%
 
35.0
%
 
 
35.0
%
State income taxes-net of federal effect
3.1

 
3.7

 
3.5

 
 
3.4

Other
0.3

 
0.3

 
0.6

 
 
0.6

Effective income tax rate
38.4
%
 
39.0
%
 
39.1
%
 
 
39.0
%
Schedule of components of the deferred tax assets and liabilities 
The components of the deferred tax assets and liabilities are as follows:
 
Successor
 
December 31, 2013
 
December 31, 2012
 
(Dollars in millions)
Deferred tax assets and liabilities:
 
 
 
Deferred tax liabilities:
 
 
 
Property, plant and equipment
$
(1,281
)
 
(1,179
)
Intangibles assets
(1,772
)
 
(2,118
)
Receivable from an affiliate due to pension plan participation
(462
)
 
(397
)
Other
(52
)
 
(61
)
Total deferred tax liabilities
(3,567
)
 
(3,755
)
Deferred tax assets:
 
 
 
Payable to affiliate due to post-retirement benefit plan participation
983

 
982

Debt premiums
55

 
67

Other
229

 
253

Total deferred tax assets
1,267

 
1,302

Valuation allowance on deferred tax assets
(12
)
 
(12
)
Net deferred tax assets
1,255

 
1,290

Net deferred tax liabilities
$
(2,312
)
 
(2,465
)
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 levels 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 levels used to determine the fair values:
 
 
 
Successor
 
 
 
December 31, 2013
 
December 31, 2012
 
Input
Level
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
 
 
(Dollars in millions)
Liabilities-Long-term debt excluding capital lease obligations
2
 
$
7,486

 
7,226

 
7,513

 
8,019

Stockholder's Equity (Tables)
Schedule of cash and non-cash dividends declared
We declared the following cash and non-cash dividends to QSC:
 
Successor
 
 
Predecessor
 
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)
Non-cash dividend to QSC(1)
$
—

 
—

 
28

 
 
—

Cash dividend declared to QSC
1,325

 
840

 
600

 
 
1,000

Cash dividend paid to QSC
1,325

 
1,150

 
900

 
 
530

_______________________________________________________________________________

(1) 
This was a non-cash transaction whereby we transferred assets via dividends to our parent company, QSC.
Quarterly Financial Data (Unaudited) (Tables)
Schedule of quarterly financial information
 
Quarterly Financial Data
 
Successor
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
Twelve
Months
Total
 
(Dollars in millions)
2013
 
 
 
 
 
 
 
 
 
Operating revenues
$
2,159

 
2,199

 
2,188

 
2,207

 
8,753

Operating income
553

 
525

 
493

 
507

 
2,078

Income tax expense
166

 
155

 
139

 
142

 
602

Net income
264

 
246

 
218

 
236

 
964


 
Quarterly Financial Data
 
Successor
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
Twelve
Months
Total
 
(Dollars in millions)
2012
 
 
 
 
 
 
 
 
 
Operating revenues
$
2,260

 
2,195

 
2,183

 
2,210

 
8,848

Operating income
466

 
455

 
459

 
525

 
1,905

Income tax expense
136

 
113

 
133

 
160

 
542

Net income
218

 
178

 
212

 
241

 
849

Commitments and Contingencies (Tables)
Summary of the entity's capital lease activity 
The tables below summarize our capital lease activity:
 
Successor
 
 
Predecessor
 
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)
Assets acquired through capital leases
$
—

 
—

 
2

 
 
16

Depreciation expense
42

 
50

 
41

 
 
11

Cash payments towards capital leases
40

 
41

 
35

 
 
11

 
Successor
 
December 31, 2013
 
December 31, 2012
 
(Dollars in millions)
Assets included in property, plant and equipment
$
168

 
188

Accumulated depreciation
109

 
85

Schedule of future annual minimum payments under capital lease 
The future annual minimum payments under capital lease arrangements as of December 31, 2013 were as follows:
 
Future
Minimum
Payments
 
(Dollars in
millions)
Capital lease obligations:
 
2014
$
33

2015
23

2016
2

2017
1

2018
1

2019 and thereafter
5

Total minimum payments
65

Less: amount representing interest and executory costs
(10
)
Present value of minimum payments
55

Less: current portion
(31
)
Long-term portion
$
24

Schedule of future minimum payments under operating leases 
At December 31, 2013, our future minimum payments under operating leases were as follows:
 
Future
Minimum
Payments
 
(Dollars in
millions)
Operating leases:
 
2014
$
59

2015
51

2016
46

2017
41

2018
34

2019 and thereafter
61

Total future minimum payments(1)
$
292

_______________________________________________________________________________

(1) 
Minimum payments have not been reduced by minimum sublease rentals of $32 million due in the future under non-cancelable subleases.
Other Financial Information (Tables)
Schedule of other current assets reflected on the entity's balance sheets 
Other current assets reflected in our consolidated balance sheets consisted of the following:
 
Other Current Assets
 
December 31, 2013
 
December 31, 2012
 
(Dollars in millions)
Prepaid expenses
$
47

 
64

Other
79

 
50

Total other current assets
$
126

 
114

Schedule of accounts payable 
Current liabilities reflected in our consolidated balance sheets include accounts payable as follows:
 
 
 
December 31, 2013
 
December 31, 2012
 
(Dollars in millions)
Accounts payable
$
440

 
456

Basis of Presentation and Summary of Significant Accounting Policies (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended 12 Months Ended 3 Months Ended 12 Months Ended
Dec. 31, 2013
state
Sep. 30, 2013
Jun. 30, 2013
Mar. 31, 2013
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Dec. 31, 2013
state
Dec. 31, 2012
Mar. 31, 2011
Predecessor
Dec. 31, 2013
Error Correction
Dec. 31, 2013
Deferred Tax Asset
Error Correction
Dec. 31, 2013
Other Noncurrent Liabilities
Error Correction
Basis of presentation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of states in which service is provided (states)
14 
 
 
 
 
 
 
 
 
14 
 
 
 
 
 
Increase (decrease) in deferred income taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 17 
$ 2 
Goodwill
 
 
 
 
 
 
 
 
 
 
 
 
(15)
 
 
Net Income (Loss) Attributable to Parent
236 
218 
246 
264 
241 
212 
178 
218 
543 
964 
849 
299 
 
 
 
Tax benefit associated with deduction for pension funding recognized in equity contribution
 
 
 
 
 
 
 
$ 100 
 
 
$ 100 
 
 
 
 
Basis of Presentation and Summary of Significant Accounting Policies (Details 2) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended 12 Months Ended 0 Months Ended 12 Months Ended 0 Months Ended 12 Months Ended 1 Months Ended
Dec. 31, 2013
Sep. 30, 2013
Jun. 30, 2013
Mar. 31, 2013
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Jan. 2, 2012
Change in estimates of capitalized labor
Minimum
Dec. 31, 2013
Change in estimates of capitalized labor
Minimum
Jan. 2, 2012
Change in estimates of capitalized labor
Maximum
Dec. 31, 2013
Change in estimates of capitalized labor
Maximum
Dec. 31, 2012
Change in estimates of economic lives and net salvage value
Jan. 30, 2014
Subsequent Event
Change in estimates of economic lives and net salvage value
Change in accounting estimates
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Labor capitalized as an asset
 
 
 
 
 
 
 
 
 
 
 
$ 40 
 
$ 55 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
(5,436)
(6,675)
(6,943)
40 
 
55 
 
 
 
Net Income (Loss) Attributable to Parent
236 
218 
246 
264 
241 
212 
178 
218 
543 
964 
849 
 
25 
 
34 
32 
 
Depreciation expense
 
 
 
 
 
 
 
 
$ (914)
$ (1,099)
$ (1,175)
 
 
 
 
$ (52)
$ (19)
Basis of Presentation and Summary of Significant Accounting Policies (Details 3) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended 3 Months Ended
Dec. 31, 2011
Dec. 31, 2013
segment
Dec. 31, 2012
Dec. 31, 2013
Minimum
Dec. 31, 2013
Maximum
Dec. 31, 2013
Customer relationships
Dec. 31, 2013
Capitalized software
Maximum
Mar. 31, 2011
Predecessor
Revenue Recognition
 
 
 
 
 
 
 
 
Customer relationship period over which revenue is recognized
 
 
 
18 months 
10 years 
 
 
 
Term of IRUs
 
20 years 
 
 
 
 
 
 
Affiliates Transactions
 
 
 
 
 
 
 
 
Noncash dividends recognized
$ 28 
$ 0 
$ 0 
 
 
 
 
$ 0 
Advertising Costs
 
 
 
 
 
 
 
 
Advertising expense
$ 174 
$ 88 
$ 90 
 
 
 
 
$ 65 
Accounts Receivable and Allowance for Doubtful Accounts
 
 
 
 
 
 
 
 
Period of accounts past due
 
 
 
30 days 
 
 
 
 
Goodwill, Customer Relationships and Other Intangible Assets
 
 
 
 
 
 
 
 
Weighted Average of Remaining Lives
 
 
 
 
 
10 years 
7 years 
 
Number of reporting units (segment)
 
1 
 
 
 
 
 
 
Acquisition of QCII by CenturyLink (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended 12 Months Ended
Mar. 31, 2011
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Apr. 2, 2011
Assignment of the aggregate consideration
 
 
 
 
 
 
Goodwill
 
 
$ 9,354 
$ 9,354 
 
 
Acquisition of QCII, amounts attributable to Qwest |
CenturyLink, Inc. |
QCII
 
 
 
 
 
 
Assignment of the aggregate consideration
 
 
 
 
 
 
Cash, accounts receivable and other current assets
 
 
 
 
 
1,108 1
Property, plant and equipment
 
 
 
 
 
7,460 
Current liabilities, excluding current maturities of long-term debt
 
 
 
 
 
(209)
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities Excluding Long-term Debt
 
 
 
 
 
2,446 
Long-term debt
 
 
 
 
 
(2,378)
Deferred credits and other liabilities
 
 
 
 
 
(6,310)
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Noncurrent Liabilities, Other
 
 
 
 
 
4,447 
Goodwill
 
 
 
 
 
9,354 
Fair value assigned to accounts receivable
 
 
 
 
 
674 
Accounts receivable gross contractual value
 
 
 
 
 
722 
Best estimate of contractual cash flows that would not be collected
 
 
 
 
 
48 
Acquisition related expenses
2 
146 
24 
39 
148 
 
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net
 
 
 
 
 
9,951 
Acquisition of QCII, amounts attributable to Qwest |
CenturyLink, Inc. |
QCII |
Customer relationships
 
 
 
 
 
 
Assignment of the aggregate consideration
 
 
 
 
 
 
Identifiable intangible assets
 
 
 
 
 
5,699 
Acquisition of QCII, amounts attributable to Qwest |
CenturyLink, Inc. |
QCII |
Capitalized software
 
 
 
 
 
 
Assignment of the aggregate consideration
 
 
 
 
 
 
Identifiable intangible assets
 
 
 
 
 
$ 1,702 
Goodwill, Customer Relationships and Other Intangible Assets (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended 12 Months Ended 12 Months Ended 3 Months Ended
Dec. 31, 2011
Dec. 31, 2013
segment
Dec. 31, 2012
Dec. 31, 2013
Maximum
Dec. 31, 2013
Customer relationships
Dec. 31, 2012
Customer relationships
Dec. 31, 2013
Customer relationships
Weighted Average
Dec. 31, 2013
Capitalized software
Dec. 31, 2012
Capitalized software
Dec. 31, 2013
Capitalized software
Weighted Average
Dec. 31, 2013
Capitalized software
Maximum
Mar. 31, 2011
Predecessor
Apr. 2, 2011
QCII
Acquisition of QCII, amounts attributable to Qwest
CenturyLink, Inc.
Customer relationships and other intangible assets subject to amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
$ 9,354 
$ 9,354 
 
 
 
 
 
 
 
 
 
$ 9,354 
Weighted Average of Remaining Lives
 
 
 
 
10 years 
 
7 years 3 months 18 days 
 
 
3 years 
7 years 
 
 
Customer relationships, less accumulated amortization of $2,012 and $1,320
 
 
 
 
3,687 
4,379 
 
1,008 
1,212 
 
 
 
 
Accumulated amortization
 
 
 
 
2,012 
1,302 
 
994 
704 
 
 
 
 
Gross carrying amounts of goodwill, customer relationships and other intangible assets
 
17,055 
 
 
 
 
 
 
 
 
 
 
 
Estimated amortization expense for intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
 
2014
 
894 
 
 
 
 
 
 
 
 
 
 
 
2015
 
821 
 
 
 
 
 
 
 
 
 
 
 
2016
 
743 
 
 
 
 
 
 
 
 
 
 
 
2017
 
667 
 
 
 
 
 
 
 
 
 
 
 
2018
 
581 
 
 
 
 
 
 
 
 
 
 
 
2019 and thereafter
 
989 
 
 
 
 
 
 
 
 
 
 
 
Amortization expense for intangible assets
$ 952 
$ 1,029 
$ 1,115 
 
 
 
 
 
 
 
 
$ 58 
 
Number of reporting units (segment)
 
1 
 
 
 
 
 
 
 
 
 
 
 
Weighted average cost of capital to calculate discount rate as of the measurement date (as a percent)
 
6.00% 
 
9.50% 
 
 
 
 
 
 
 
 
 
Weighted average cost of capital, after-tax cost of debt (as a percent)
 
3.40% 
 
 
 
 
 
 
 
 
 
 
 
Weighted average cost of capital, cost of equity (as a percent)
 
8.30% 
 
 
 
 
 
 
 
 
 
 
 
Long-Term Debt and Revolving Promissory Note (Details) (USD $)
9 Months Ended 12 Months Ended 3 Months Ended 0 Months Ended
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Mar. 31, 2011
Predecessor
Dec. 31, 2013
Senior notes
Dec. 31, 2012
Senior notes
Dec. 31, 2013
Senior notes
Minimum
Dec. 31, 2013
Senior notes
Maximum
Dec. 31, 2013
Capital lease and other obligations
Dec. 31, 2012
Capital lease and other obligations
May 23, 2013
Notes 6.125% due 2053
Qwest Corporation
Jun. 25, 2012
7.0% Notes due July 2052
Qwest Corporation
Apr. 18, 2012
7.625% Noted due 2015 and 8.375% Notes due 2016
Apr. 2, 2012
7.0% Notes due April 2052
Qwest Corporation
Jul. 17, 2013
Floating rate notes due 2013
Jul. 20, 2012
7.5% Notes due 2023
Apr. 18, 2012
8.375% Notes due 2016
Apr. 18, 2012
7.625% Notes due 2015
Apr. 18, 2012
Revolving promissory note
CenturyLink, Inc. affiliate
Dec. 31, 2013
Revolving promissory note
CenturyLink, Inc. affiliate
Dec. 31, 2012
Revolving promissory note
CenturyLink, Inc. affiliate
Long-term debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate (as a percent)
 
 
 
 
 
 
6.125% 
8.375% 
 
 
6.125% 
7.00% 
 
7.00% 
 
7.50% 
8.375% 
7.625% 
 
6.765% 
 
Notes Payable, Related Parties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ 754,000,000 
$ 701,000,000 
Face amount of debt instrument
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
811,000,000 
400,000,000 
 
1,000,000,000 
 
Unamortized premiums, net
 
75,000,000 
(127,000,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total long-term debt
 
7,558,000,000 
7,625,000,000 
 
7,411,000,000 
7,386,000,000 
 
 
72,000,000 
112,000,000 
 
 
 
 
 
 
 
 
 
 
 
Less current maturities
 
(637,000,000)
(804,000,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities
 
6,921,000,000 
6,821,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal amount of notes issued
 
 
 
 
 
 
 
 
 
 
775,000,000 
400,000,000 
 
525,000,000 
 
 
 
 
580,000,000 
 
 
Principal amount sold pursuant to an over-allotment option granted to the underwriters
 
 
 
 
 
 
 
 
 
 
25,000,000 
 
 
 
 
 
 
 
 
 
 
Net proceeds from issuance of debt
 
 
 
 
 
 
 
 
 
 
752,000,000 
387,000,000 
 
508,000,000 
 
 
 
 
 
 
 
Redemption price as a percentage of principal amount of notes plus accrued interest
 
 
 
 
 
 
 
 
 
 
100.00% 
100.00% 
 
100.00% 
 
 
 
 
 
 
 
Repayments of Long-term Debt
2,368,000,000 
806,000,000 
1,430,000,000 
14,000,000 
 
 
 
 
 
 
 
 
 
 
750,000,000 
 
 
 
 
 
 
Amount of notes redeemed
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
484,000,000 
722,000,000 
369,000,000 
 
 
 
Principal amount of notes for which tender offers are received and accepted
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
575,000,000 
308,000,000 
 
 
 
Percentage of principal amount of notes for which tender offer was received and accepted
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
71.00% 
77.00% 
 
 
 
Net loss on early retirement of debt
8,000,000 
   
47,000,000 
0 
 
 
 
 
 
 
 
 
46,000,000 
 
 
 
 
 
 
 
 
Maturities of long-term debt (excluding unamortized premiums, discounts, and other)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014
 
637,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
122,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
237,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
500,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 and thereafter
 
5,987,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total long-term debt
 
7,483,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of gross interest expense, net of capitalized interest and interest expense ( income) -affiliates
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross interest expense
305,000,000 
467,000,000 
461,000,000 
153,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capitalized interest
(5,000,000)
(17,000,000)
(18,000,000)
(3,000,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense (income)-affiliates
(1,000,000)
64,000,000 
24,000,000 
0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total interest expense
$ 300,000,000 
$ 450,000,000 
$ 443,000,000 
$ 150,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts Receivable (Details) (USD $)
9 Months Ended 12 Months Ended 0 Months Ended 3 Months Ended
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Apr. 2, 2011
Apr. 2, 2012
Predecessor
Mar. 31, 2011
Predecessor
Apr. 2, 2011
Acquisition of QCII, amounts attributable to Qwest
CenturyLink, Inc.
Mar. 31, 2011
Acquisition of QCII, amounts attributable to Qwest
CenturyLink, Inc.
Accounts receivable
 
 
 
 
 
 
 
 
Trade and purchased receivables
 
$ 697,000,000 
$ 661,000,000 
 
 
 
 
 
Earned and unbilled receivables
 
73,000,000 
82,000,000 
 
 
 
 
 
Other Receivables, Gross, Current
 
11,000,000 
12,000,000 
 
 
 
 
 
Total accounts receivable
 
781,000,000 
755,000,000 
 
 
 
 
 
Accounts receivable, allowance (in dollars)
(42,000,000)
(43,000,000)
(46,000,000)
 
 
 
 
 
Accounts receivable, less allowance
 
738,000,000 
709,000,000 
 
 
 
 
 
Changes in allowance for doubtful accounts
 
 
 
 
 
 
 
 
Balance at the beginning of the period
 
 
 
0 
 
48,000,000 
0 
47,000,000 
Charged to expense-net
44,000,000 
65,000,000 
74,000,000 
 
 
17,000,000 
 
 
Deductions
(2,000,000)
(68,000,000)
(70,000,000)
 
 
(18,000,000)
 
 
Fair value adjustment
 
 
 
 
(47,000,000)
 
 
 
Balance at the end of the period
 
$ 43,000,000 
 
$ 0 
 
$ 47,000,000 
$ 0 
$ 47,000,000 
Property, Plant and Equipment (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended 12 Months Ended 12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2013
Land
Dec. 31, 2012
Land
Dec. 31, 2013
Fiber, conduit and other outside plant
Dec. 31, 2012
Fiber, conduit and other outside plant
Dec. 31, 2013
Fiber, conduit and other outside plant
Minimum
Dec. 31, 2013
Fiber, conduit and other outside plant
Maximum
Dec. 31, 2013
Central office and other network electronics
Dec. 31, 2012
Central office and other network electronics
Dec. 31, 2013
Central office and other network electronics
Minimum
Dec. 31, 2013
Central office and other network electronics
Maximum
Dec. 31, 2013
Support assets
Dec. 31, 2012
Support assets
Dec. 31, 2013
Support assets
Minimum
Dec. 31, 2013
Support assets
Maximum
Dec. 31, 2013
Construction in progress
Dec. 31, 2012
Construction in progress
Property, plant and equipment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment
$ 10,193 
$ 9,242 
$ 356 
$ 356 
$ 4,033 
$ 3,475 
 
 
$ 3,026 
$ 2,611 
 
 
$ 2,470 
$ 2,428 
 
 
$ 308 
$ 372 
Accumulated depreciation
(2,985)
(2,011)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net property, plant and equipment
$ 7,208 
$ 7,231 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciable Lives
 
 
 
 
 
 
15 years 
45 years 
 
 
4 years 
10 years 
 
 
5 years 
30 years 
 
 
Property, Plant and Equipment (Details 2) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended 3 Months Ended 0 Months Ended
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Mar. 31, 2012
Predecessor
Apr. 2, 2012
Office Building
Apr. 2, 2013
Office Building
Property, plant and equipment
 
 
 
 
 
 
Depreciation expense
$ 914 
$ 1,099 
$ 1,175 
$ 393 
 
 
Proceeds from sale of office building
 
 
 
 
133 
 
Deferred Gain on Sale of Property
 
 
 
 
 
$ (16)
Deferred Gain on Sale of Property, Recognition Period
 
 
 
 
10 years 
 
Severance (Details) (USD $)
In Millions, unless otherwise specified
0 Months Ended 9 Months Ended 12 Months Ended 9 Months Ended 3 Months Ended
Apr. 2, 2011
Predecessor
Dec. 31, 2011
Employee severance
Dec. 31, 2013
Employee severance
Dec. 31, 2012
Employee severance
Apr. 2, 2011
Employee severance
Dec. 31, 2011
Employee severance
Acquisition of Qwest
CenturyLink, Inc.
Mar. 31, 2011
Employee severance
Predecessor
Restructuring reserve
 
 
 
 
 
 
 
Balance at the beginning of the period
 
 
$ 7 
$ 29 
$ 17 
 
$ 28 
Accrued to expense
 
118 
10 
64 
 
12 
3 
Payments, net
 
(97)
(12)
(85)
 
 
(11)
Reversals and adjustments
 
(9)
0 
(1)
 
 
(1)
Fair value adjustment
(2)
 
 
 
 
 
 
Balance at the end of the period
 
$ 29 
$ 5 
$ 7 
$ 17 
 
$ 19 
Employee Benefits (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended 9 Months Ended 12 Months Ended 9 Months Ended 12 Months Ended 3 Months Ended 12 Months Ended
Dec. 31, 2011
CenturyLink, Inc. and Qwest Communications International Inc. [Domain]
Dec. 31, 2013
CenturyLink, Inc. and Qwest Communications International Inc. [Domain]
Dec. 31, 2012
CenturyLink, Inc. and Qwest Communications International Inc. [Domain]
Dec. 31, 2011
Pension Plan
QCII
Dec. 31, 2013
Pension Plan
QCII
Dec. 31, 2012
Pension Plan
QCII
Dec. 31, 2011
Post-Retirement Benefit Plan
CenturyLink, Inc.
Dec. 31, 2013
Post-Retirement Benefit Plan
CenturyLink, Inc.
Dec. 31, 2012
Post-Retirement Benefit Plan
CenturyLink, Inc.
Mar. 31, 2011
Predecessor
QCII
Mar. 31, 2011
Predecessor
Pension Plan
QCII
Mar. 31, 2011
Predecessor
Post-Retirement Benefit Plan
QCII
Dec. 31, 2013
Employees covered under collective bargaining agreements
Employee
Employee Benefits
 
 
 
 
 
 
 
 
 
 
 
 
 
Unfunded status
 
 
 
 
$ (159)
$ 948 
 
$ 3,153 
$ (3,448)
 
 
 
 
Pension (income) expense
 
 
 
(51)
(178)
(117)
 
 
 
 
11 
 
 
Other postretirement benefit expense
 
 
 
 
 
 
$ 84 
$ 88 
$ 106 
 
 
$ 16 
 
Percentage of allocated portion of QCII's total pension and post-retirement benefit expenses (as a percent)
96.00% 
91.00% 
91.00% 
 
 
 
 
 
 
102.00% 
 
 
 
Collective bargaining agreements, term
 
 
 
 
 
 
 
 
 
 
 
 
4 years 
Collective Bargaining Arrangement, Number of Participating Employees
 
 
 
 
 
 
 
 
 
 
 
 
12,000 
Employee Benefits (Details 2) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended 3 Months Ended
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Mar. 31, 2011
Predecessor
Health Care and Life Insurance
 
 
 
 
Health care benefit expenses
$ 167 
$ 223 
$ 221 
$ 57 
Employee Benefits (Details 3) (401(k) Plan, USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended 3 Months Ended
Dec. 31, 2011
CenturyLink, Inc.
Dec. 31, 2013
CenturyLink, Inc.
Dec. 31, 2012
CenturyLink, Inc.
Mar. 31, 2011
Predecessor
QCII
401(k) Plan
 
 
 
 
Expenses related to the 401(k) Plan
$ 36 
$ 49 
$ 46 
$ 12 
Stock-Based Compensation (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended 9 Months Ended 12 Months Ended 3 Months Ended
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
CenturyLink
Dec. 31, 2013
CenturyLink
Dec. 31, 2012
CenturyLink
Mar. 31, 2012
Predecessor
Mar. 31, 2012
Predecessor
QCII
Stock-based compensation
 
 
 
 
 
 
 
 
Stock based compensation expense
 
 
 
$ 19 
$ 17 
$ 18 
 
$ 3 
Income tax benefit recognized, associated with stock compensation expense
$ 7 
$ 7 
$ 7 
 
 
 
$ 1 
 
Products and Services Revenues (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended 12 Months Ended 9 Months Ended 12 Months Ended 9 Months Ended 12 Months Ended 9 Months Ended 12 Months Ended 3 Months Ended
Dec. 31, 2013
Sep. 30, 2013
Jun. 30, 2013
Mar. 31, 2013
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Dec. 31, 2013
category
Dec. 31, 2012
Dec. 31, 2011
Strategic services
Dec. 31, 2013
Strategic services
Dec. 31, 2012
Strategic services
Dec. 31, 2011
Legacy services
Dec. 31, 2013
Legacy services
Dec. 31, 2012
Legacy services
Dec. 31, 2011
Affiliates and other services
Dec. 31, 2013
Affiliates and other services
Dec. 31, 2012
Affiliates and other services
Mar. 31, 2011
Predecessor
Mar. 31, 2011
Predecessor
Strategic services
Mar. 31, 2011
Predecessor
Legacy services
Mar. 31, 2011
Predecessor
Affiliates and other services
Products and Services Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of categories of products and services (categories)
 
 
 
 
 
 
 
 
 
3 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
$ 2,207 
$ 2,188 
$ 2,199 
$ 2,159 
$ 2,210 
$ 2,183 
$ 2,195 
$ 2,260 
$ 6,635 
$ 8,753 
$ 8,848 
$ 2,406 
$ 3,342 
$ 3,265 
$ 2,796 
$ 3,208 
$ 3,471 
$ 1,433 
$ 2,203 
$ 2,112 
$ 2,268 
$ 792 
$ 1,003 
$ 473 
Taxes and surcharges included in operating revenues and expenses
 
 
 
 
 
 
 
 
$ 122 
$ 154 
$ 171 
 
 
 
 
 
 
 
 
 
$ 43 
 
 
 
Income Taxes (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended 12 Months Ended 3 Months Ended
Dec. 31, 2013
Sep. 30, 2013
Jun. 30, 2013
Mar. 31, 2013
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Mar. 31, 2011
Predecessor
Income Tax Contingency [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities recorded for interest related to uncertain tax positions
 
 
 
 
$ 5 
 
 
 
 
 
$ 5 
 
Current tax provision:
 
 
 
 
 
 
 
 
 
 
 
 
Federal and foreign
 
 
 
 
 
 
 
 
173 
653 
638 
104 
State and local
 
 
 
 
 
 
 
 
26 
101 
105 
11 
Total current tax provision
 
 
 
 
 
 
 
 
199 
754 
743 
115 
Deferred tax expense (benefit):
 
 
 
 
 
 
 
 
 
 
 
 
Federal and foreign
 
 
 
 
 
 
 
 
128 
(125)
(175)
61 
State and local
 
 
 
 
 
 
 
 
22 
(27)
(26)
15 
Total deferred tax expense (benefit)
 
 
 
 
 
 
 
 
150 
(152)
(201)
76 
Income tax expense
142 
139 
155 
166 
160 
133 
113 
136 
349 
602 
542 
191 
Effective income tax rate:
 
 
 
 
 
 
 
 
 
 
 
 
Federal statutory income tax rate (as a percent)
 
 
 
 
 
 
 
 
35.00% 
35.00% 
35.00% 
35.00% 
State income taxes-net of federal effect (as a percent)
 
 
 
 
 
 
 
 
3.50% 
3.10% 
3.70% 
3.40% 
Other (as a percent)
 
 
 
 
 
 
 
 
0.60% 
0.30% 
0.30% 
0.60% 
Effective income tax rate (as a percent)
 
 
 
 
 
 
 
 
39.10% 
38.40% 
39.00% 
39.00% 
Deferred tax liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment
(1,281)
 
 
 
(1,179)
 
 
 
 
(1,281)
(1,179)
 
Intangibles assets
(1,772)
 
 
 
(2,118)
 
 
 
 
(1,772)
(2,118)
 
Receivable from an affiliate due to pension plan participation
(462)
 
 
 
(397)
 
 
 
 
(462)
(397)
 
Other
(52)
 
 
 
(61)
 
 
 
 
(52)
(61)
 
Total deferred tax liabilities
(3,567)
 
 
 
(3,755)
 
 
 
 
(3,567)
(3,755)
 
Deferred tax assets:
 
 
 
 
 
 
 
 
 
 
 
 
Payable to affiliate due to post-retirement benefit plan participation
983 
 
 
 
982 
 
 
 
 
983 
982 
 
Debt premiums
55 
 
 
 
67 
 
 
 
 
55 
67 
 
Other
229 
 
 
 
253 
 
 
 
 
229 
253 
 
Total deferred tax assets
1,267 
 
 
 
1,302 
 
 
 
 
1,267 
1,302 
 
Valuation allowance on deferred tax assets
(12)
 
 
 
(12)
 
 
 
 
(12)
(12)
 
Net deferred tax assets
1,255 
 
 
 
1,290 
 
 
 
 
1,255 
1,290 
 
Net deferred tax liabilities
$ (2,312)
 
 
 
$ (2,465)
 
 
 
 
$ (2,312)
$ (2,465)
 
Income Taxes (Details 2) (QSC, USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
QSC
 
 
 
Income taxes
 
 
 
Amount paid to QSC
$ 750 
$ 607 
$ (211)
Fair Value Disclosure (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2013
Minimum
Dec. 31, 2013
Maximum
Dec. 31, 2013
Carrying Amount
Input Level 2, Fair Value
Dec. 31, 2012
Carrying Amount
Input Level 2, Fair Value
Dec. 31, 2013
Fair Value
Input Level 2, Fair Value
Dec. 31, 2012
Fair Value
Input Level 2, Fair Value
Liabilities
 
 
 
 
 
 
 
Liabilities-Long-term debt excluding capital lease obligations
 
 
 
$ 7,486 
$ 7,513 
$ 7,226 
$ 8,019 
Fair value related additional information
 
 
 
 
 
 
 
Discount rates used in valuations (as a percent)
6.00% 
7.50% 
9.50% 
 
 
 
 
Stockholder's Equity (Details) (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended 9 Months Ended 12 Months Ended 3 Months Ended
Mar. 31, 2012
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Mar. 31, 2011
Predecessor
Stockholder's Equity (Deficit)
 
 
 
 
 
Common stock, shares issued (shares)
 
 
1 
 
 
Common stock, shares outstanding (shares)
 
 
1 
1 
 
Tax benefit associated with deduction for pension funding recognized in equity contribution
$ 100 
 
 
$ 100 
 
Dividends
 
 
 
 
 
Non-cash dividend to QSC
 
28 
0 
0 
0 
Cash dividend declared to QSC
 
600 
1,325 
840 
1,000 
Cash dividend paid to QSC
 
$ 900 
$ 1,325 
$ 1,150 
$ 530 
Quarterly Financial Data (Unaudited) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended 12 Months Ended
Dec. 31, 2013
Sep. 30, 2013
Jun. 30, 2013
Mar. 31, 2013
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Quarterly Financial Information Disclosure [Abstract]
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
$ 2,207 
$ 2,188 
$ 2,199 
$ 2,159 
$ 2,210 
$ 2,183 
$ 2,195 
$ 2,260 
$ 6,635 
$ 8,753 
$ 8,848 
Operating income
507 
493 
525 
553 
525 
459 
455 
466 
1,199 
2,078 
1,905 
Income tax expense
142 
139 
155 
166 
160 
133 
113 
136 
349 
602 
542 
Net Income (Loss) Attributable to Parent
$ 236 
$ 218 
$ 246 
$ 264 
$ 241 
$ 212 
$ 178 
$ 218 
$ 543 
$ 964 
$ 849 
Commitments and Contingencies (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended 3 Months Ended
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Mar. 31, 2011
Predecessor
Capital Leases
 
 
 
 
Assets acquired through capital leases
$ 2 
$ 0 
$ 0 
$ 16 
Depreciation expense
41 
42 
50 
11 
Cash payments towards capital leases
 
40 
41 
 
Assets included in property, plant and equipment
 
168 
188 
 
Accumulated depreciation
 
109 
85 
 
Capital lease obligations:
 
 
 
 
2014
 
33 
 
 
2015
 
23 
 
 
2016
 
2 
 
 
2017
 
1 
 
 
2018
 
1 
 
 
2019 and thereafter
 
5 
 
 
Total minimum payments
 
65 
 
 
Less: amount representing interest and executory costs
 
(10)
 
 
Present value of minimum payments
 
55 
 
 
Less: current portion
 
(31)
 
 
Long-term portion
 
$ 24 
 
 
Commitments and Contingencies (Details 2) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended 3 Months Ended
Dec. 31, 2011
Dec. 31, 2013
Dec. 31, 2012
Mar. 31, 2011
Predecessor
Operating Leases
 
 
 
 
Operating Leases, Rent Expense
$ 125 
$ 83 
$ 93 
$ 58 
Sublease rental income received
10 
4 
8 
4 
Operating leases:
 
 
 
 
2014
 
59 
 
 
2015
 
51 
 
 
2016
 
46 
 
 
2017
 
41 
 
 
2018
 
34 
 
 
2019 and thereafter
 
61 
 
 
Total future minimum payments
 
292 1
 
 
Minimum sublease rentals due in the future under non-cancelable subleases
 
32 
 
 
Purchase Obligations
 
 
 
 
Total purchase commitments
 
284 
 
 
2014
 
100 
 
 
2015 through 2016
 
134 
 
 
2016 through 2017
 
46 
 
 
2018 and thereafter
 
$ 4 
 
 
Other Financial Information (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Prepaid Expense and Other Assets, Current [Abstract]
 
 
Prepaid expenses
$ 47 
$ 64 
Other
79 
50 
Total other current assets
126 
114 
Accounts payable
440 
456 
Capital expenditures incurred but not yet paid
$ 11 
$ 27 
Labor Union Contracts (Details) (Employees covered under collective bargaining agreements)
12 Months Ended
Dec. 31, 2013
Employee
Employees covered under collective bargaining agreements
 
Labor Union Contracts
 
Approximate percentage of employees who are members of bargaining units (as a percent)
53.00% 
Collective bargaining agreements, term
4 years 
Collective Bargaining Arrangement, Number of Participating Employees
12,000