Document and Entity Information

9 Months Ended

Sep. 30, 2015

Nov. 12, 2015

Document and Entity Information

Entity Registrant Name

QWEST CORP

Entity Central Index Key

0000068622

Current Fiscal Year End Date

--12-31

Entity Filer Category

Non-accelerated Filer

Entity Current Reporting Status

Yes

Document Type

10-Q

Document Period End Date

Sep. 30, 2015

Document Fiscal Year Focus

2015

Document Fiscal Period Focus

Q3

Amendment Flag

false

Entity Common Stock, Shares Outstanding

1

CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)

In Millions, unless otherwise specified

3 Months Ended

9 Months Ended

Sep. 30, 2015

Sep. 30, 2014

Sep. 30, 2015

Sep. 30, 2014

OPERATING REVENUES

Operating revenues

$ 1,670

$ 1,665

$ 4,924

$ 5,037

Operating revenues - affiliates

617

533

1,802

1,578

Total operating revenues

2,287

2,198

6,726

6,615

OPERATING EXPENSES

Cost of services and products (exclusive of depreciation and amortization)

734

701

2,169

2,097

Selling, general and administrative

266

271

792

830

Operating expenses - affiliates

249

197

735

573

Depreciation and amortization

466

501

1,392

1,499

Total operating expenses

1,715

1,670

5,088

4,999

OPERATING INCOME

572

528

1,638

1,616

OTHER (EXPENSE) INCOME

Interest expense

(119)

(115)

(356)

(347)

Interest expense - affiliates, net

(13)

(39)

(38)

Other (expense) income

(1)

1

0

1

Total other expense, net

(133)

(127)

(395)

(384)

Income before income tax expense

439

401

1,243

1,232

Income tax expense

171

156

490

478

NET INCOME

$ 268

$ 245

$ 753

$ 754

CONSOLIDATED BALANCE SHEETS (USD $)

In Millions, unless otherwise specified

Sep. 30, 2015

Dec. 31, 2014

CURRENT ASSETS

Cash and cash equivalents

$ 9

$ 6

Accounts receivable, less allowance of $49 and $38

706

740

Advances to affiliates

1,383

812

Deferred income taxes, net

161

163

Other

129

125

Total current assets

2,388

1,846

NET PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment

11,918

11,157

Accumulated depreciation

(4,624)

(3,956)

Net property, plant and equipment

7,294

7,201

GOODWILL AND OTHER ASSETS

Goodwill

9,354

Other intangible assets, less accumulated amortization of $1,384 and $1,247

663

808

Other, net

215

209

Total goodwill and other assets

12,814

13,410

TOTAL ASSETS

22,496

22,457

CURRENT LIABILITIES

Current maturities of long-term debt

644

117

Accounts payable

491

464

Note payable - affiliate

827

796

Accrued expenses and other liabilities

Salaries and benefits

249

220

Income and other taxes

210

197

Other

178

140

Advance billings and customer deposits

321

327

Total current liabilities

2,920

2,261

LONG-TERM DEBT

7,120

7,262

DEFERRED CREDITS AND OTHER LIABILITIES

Deferred revenues

140

153

Deferred income taxes, net

2,003

2,247

Affiliate obligations, net

1,266

1,271

Other

61

80

Total deferred credits and other liabilities

3,470

3,751

COMMITMENTS AND CONTINGENCIES (Note 5)

STOCKHOLDER'S EQUITY

Common stock - one share without par value, owned by Qwest Services Corporation

10,050

Accumulated deficit

(1,064)

(867)

Total stockholder's equity

8,986

9,183

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY

22,496

22,457

Customer Relationships

Customer relationships, less accumulated amortization of $3,117 and $2,660

$ 2,582

$ 3,039

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)

In Millions, except Share data, unless otherwise specified

Sep. 30, 2015

Dec. 31, 2014

Other intangible assets, accumulated amortization

$ 1,384

$ 1,247

Accounts receivable, allowance (dollars)

49

38

Common stock, shares, issued (in shares)

1

Common stock, share outstanding (in shares)

1

Customer Relationships

Accumulated amortization

$ 3,117

$ 2,660

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)

In Millions, unless otherwise specified

9 Months Ended

Sep. 30, 2015

Sep. 30, 2014

OPERATING ACTIVITIES

Net income

$ 753

$ 754

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

1,392

1,499

Deferred income taxes

(242)

(260)

Provision for uncollectible accounts

59

44

Net long-term debt premium amortization

(15)

(34)

Accrued interest on affiliate note

31

21

Impairment of assets

0

16

Changes in current assets and liabilities:

Accounts receivable

(25)

(52)

Accounts payable

34

(31)

Accrued income and other taxes

13

0

Other current assets and liabilities, net

57

79

Other current assets and liabilities - affiliates, net

9

17

Changes in other noncurrent assets and liabilities, net

(26)

1

Change in affiliates obligations, net

(5)

(54)

Other, net

5

8

Net cash provided by operating activities

2,040

2,008

INVESTING ACTIVITIES

Payments for property, plant and equipment and capitalized software

(899)

(799)

Changes in advances to affiliates

(571)

(567)

Net cash used in investing activities

(1,470)

(1,366)

FINANCING ACTIVITIES

Net proceeds from issuance of long-term debt

495

483

Payments of long-term debt

(112)

(33)

Dividends paid to Qwest Services Corporation

(950)

(1,100)

Net cash used in financing activities

(567)

(650)

Net increase (decrease) in cash and cash equivalents

3

(8)

Cash and cash equivalents at beginning of period

6

14

Cash and cash equivalents at end of period

9

6

Supplemental cash flow information:

Income taxes paid, net

(732)

(738)

Interest paid (net of capitalized interest of $14 and $13)

$ (347)

$ (343)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $)

In Millions, unless otherwise specified

9 Months Ended

Sep. 30, 2015

Sep. 30, 2014

Statement of Cash Flows [Abstract]

Interest paid, capitalized interest

$ 14

$ 13

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (USD $)

In Millions, unless otherwise specified

Total

COMMON STOCK

ACCUMULATED DEFICIT

Balance at beginning of period at Dec. 31, 2013

$ 10,050

$ (437)

Increase (Decrease) in Stockholder's Equity

Net income

754

Dividends declared to Qwest Services Corporation

(1,100)

Balance at end of period at Sep. 30, 2014

9,267

10,050

(783)

Balance at beginning of period at Dec. 31, 2014

9,183

10,050

(867)

Increase (Decrease) in Stockholder's Equity

Net income

753

Dividends declared to Qwest Services Corporation

(950)

Balance at end of period at Sep. 30, 2015

$ 8,986

$ 10,050

$ (1,064)

Basis of Presentation

General

We are an integrated communications company engaged primarily in providing an array of communications services to our residential and business customers. Our communications services include local, high-speed Internet, private line (including special access), network access, Ethernet, information technology, wireless, video and other ancillary services. In certain local and regional markets, we also provide local access and fiber transport services to competitive local exchange carriers.

We generate the majority of our 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.

Our consolidated balance sheet as of December 31, 2014, which was derived from our audited consolidated financial statements, and our unaudited interim consolidated financial statements provided herein have been prepared in accordance with the instructions for Form 10-Q. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission ("SEC"); however, in our opinion, the disclosures made are adequate to make the information presented not misleading. We believe that these consolidated financial statements include all normal recurring adjustments necessary to fairly present the results for the interim periods. The consolidated results of operations for the first nine months of the year are not necessarily indicative of the consolidated results of operations that might be expected for the entire year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014.

The accompanying consolidated financial statements include our accounts and the accounts of our subsidiaries. Intercompany amounts and transactions with our consolidated subsidiaries have been eliminated. Transactions with our non-consolidated affiliates (referred to herein as affiliates) have not been eliminated.

In the first quarter of 2015, our ultimate parent company, CenturyLink, Inc. ("CenturyLink"), changed their allocation methodology with respect to their now centrally managed pension and post-retirement plans. Specifically, under this new methodology, CenturyLink will allocate current service costs to subsidiaries relative to employees which are currently earning benefits under the pension and post-retirement benefit plans. The net periodic benefit cost allocated to us is now paid on a monthly basis through CenturyLink’s intercompany cash management process. The change in methodology resulted in an increase of less than $1 million and $3 million to our net periodic benefit cost for the three and nine months ended September 30, 2015, respectively.

Connect America Fund

On August 27, 2015, CenturyLink agreed to accept funding from the Federal Communications Commission's ("FCC") Connect America Fund ("CAF") of approximately $500 million per year for six years to fund the deployment of voice and high-speed Internet capable infrastructure for approximately 1.2 million rural households and businesses in 33 states under the CAF Phase 2 high-cost support ("CAF Phase 2 Support") program. The funding from the CAF Phase 2 Support program in these 33 states will substantially supplant funding from the legacy Universal Service Fund ("USF") high-cost support program that we previously utilized to provide support for voice services in high cost rural markets (collectively, the "Legacy USF Support"). Of these amounts, approximately $150 million is attributable to our service area, to provide service to approximately 0.3 million rural households and businesses in 13 states. In September of 2015, we began receiving payments from the FCC under the new CAF Phase 2 Support program, which included (i) monthly payments at a higher rate than the Legacy USF Support and (ii) a one-time cumulative catch-up payment representing the incrementally higher funding under the CAF Phase 2 Support program over the Legacy USF Support program for the first seven months of 2015. During the third quarter of 2015, we recorded $64 million more revenue than we would have otherwise recorded during the quarter under the Legacy USF Support program, most of which was attributable to the one-time cumulative catch-up payment. During the fourth quarter of 2015, we expect to record revenue from the FCC, under the CAF Phase 2 Support program, approximately $23 million higher than amounts we would have otherwise recorded during the quarter under the Legacy USF Support program.

Recent Accounting Pronouncements

Debt Issuance Costs

On April 7, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, “Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 is effective for annual and interim periods beginning after December 15, 2015, and must be adopted by retrospectively applying the new standard to all periods presented in the financial statements. ASU 2015-03 may be adopted early for any financial statements that have not been issued.

ASU 2015-03 requires that the deferred costs associated with a debt issuance be recognized as a reduction in the carrying amount of the related debt rather than presented as a deferred charge included in other assets in our financial statements. ASU 2015-03 does not change the standards for recognizing deferred debt issuance costs. As of September 30, 2015, we had approximately $124 million of unamortized debt issuance costs that upon adoption of ASU 2015-03 will be reclassified from other assets and recognized as a reduction in the carrying value of our long-term debt. We plan to adopt the new standard effective December 31, 2015.

Revenue Recognition

On May 28, 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09” or “new standard”). The new standard replaces virtually all existing generally accepted accounting principles (“GAAP”) on revenue recognition and replaces them with a principles-based approach for determining revenue recognition using a new five step model. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also includes new accounting principles related to the deferral and amortization of contract acquisition and fulfillment costs. We currently do not defer any contract acquisition costs and defer contract fulfillment costs only up to the extent of any revenue deferred.

On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year until January 1, 2018. Early adoption is permitted as of January 1, 2017. ASU 2014-09 may be adopted by applying the provisions of the new standard on a retrospective basis to the periods included in the financial statements or on a modified retrospective basis which would result in the recognition of a cumulative effect of adopting ASU 2014-09 in the first quarter of 2017, if adopting early, otherwise in the first quarter of 2018. We have not yet decided which implementation method we will adopt. We are studying the new standard and are in the early stages of assessing the impact the new standard will have on us and our consolidated financial statements. We cannot at this time, however, provide any estimate of the impact of adopting the new standard.

Long-Term Debt and Revolving Promissory Note

Long-term debt, including unamortized discounts and premiums and note payable - affiliate, is summarized as follows:



	Interest Rates	Maturities	As of September 30, 2015			As of December 31, 2014
			(Dollars in millions)
Senior notes	6.125% - 8.375%	2016 - 2055	$	7,629		7,311
Term loan	1.950%	2025	100			—
Capital lease and other obligations	Various	Various	14			32
Unamortized premiums, net			21			36
Total long-term debt			7,764			7,379
Less current maturities			(644		)	(117	)
Long-term debt, excluding current maturities			$	7,120		7,262
Note payable - affiliate	6.658%	2022	$	827		796

New Issuance

On September 21, 2015, we issued $400 million aggregate principal amount of 6.625% Notes due 2055, in exchange for net proceeds, after deducting underwriting discounts and other expenses, of approximately $386 million. The underwriting agreement included an over-allotment option granting the underwriters for the offering an opportunity to purchase additional 6.625% Notes due 2055. On September 30, 2015, we issued an additional $10 million aggregate principal amount of the 6.625% Notes under this over-allotment option. All of the 6.625% Notes are unsecured obligations and may be redeemed by us, in whole or in part, on or after September 15, 2020, at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date.

Repayment

On June 15, 2015, we paid at maturity the $92 million principal amount of our 7.625% Notes.

Term Loan

On February 20, 2015, we entered into a term loan in the amount of $100 million with CoBank, ACB. The outstanding unpaid principal amount of this term loan plus any accrued and unpaid interest is due on February 20, 2025. Interest is paid monthly based upon either the London Interbank Offered Rate (“LIBOR”) or the base rate (as defined in the credit agreement) plus an applicable margin between 1.50% to 2.50% per annum for LIBOR loans and 0.50% to 1.50% per annum for base rate loans depending on our then current senior unsecured long-term debt rating. As of September 30, 2015, the outstanding principal balance on this term loan was $100 million.

Revolving Promissory Note

We are currently indebted to an affiliate of our ultimate parent company, CenturyLink, under a revolving promissory note that provides us with a funding commitment of up to $1.0 billion aggregate principal amount through June 30, 2022, of which $827 million was outstanding as of September 30, 2015. As of September 30, 2015, the weighted average interest rate was 6.658%. As of September 30, 2015 and December 31, 2014, this revolving promissory note is reflected on our consolidated balance sheets as a current liability under note payable - affiliate. As of September 30, 2015, $18 million of accrued interest is reflected in other current liabilities on our consolidated balance sheet. In accordance with the note agreement, all accrued interest and unpaid interest is capitalized to the unpaid principal balance on June 1 and December 1 of each year.

Covenants

The indentures governing our notes contain certain covenants including, but not limited to: (i) a prohibition on certain liens on our assets; and (ii) a limitation on mergers or sales of all, or substantially all, of our assets, which limitation requires that a successor assume the obligation with regard to these notes. These indentures do not contain any cross-default provisions.

Our senior notes were issued under indentures dated April 15, 1990 and October 15, 1999. These indentures do not contain any financial covenants, but do include restrictions that limit our ability to (i) incur, issue or create liens upon our property and (ii) consolidate with or merge into, transfer or lease all or substantially all of our assets to any other party.

As of September 30, 2015, we believe we were in compliance with the provisions and covenants of our debt agreements.

Subsequent Events

On October 13, 2015, we redeemed all $250 million of our 7.200% Notes due 2026, which resulted in an immaterial gain.

On October 13, 2015, we redeemed $150 million of our 6.875% Notes due 2033, which resulted in an immaterial loss.

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 and other obligations. Due to their short-term nature, the carrying amounts of our cash and cash equivalents, accounts receivable, advances to affiliates, accounts payable, and note payable - affiliate approximate their fair values.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent and knowledgeable parties who are willing and able to transact for an asset or liability at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the inputs used following the fair value hierarchy set forth by the FASB. We determined the fair values of our long-term debt, including the current portion, based on quoted market prices where available or, if not available, based on discounted future cash flows using current market interest rates.

The three input levels in the hierarchy of fair value measurements are defined by the FASB generally as follows:



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 and other obligations, as well as the input level used to determine the fair values indicated below:



		As of September 30, 2015			As of December 31, 2014
	Input Level	Carrying Amount		Fair Value	Carrying Amount	Fair Value
		(Dollars in millions)
Liabilities—Long-term debt, excluding capital lease and other obligations	2	$	7,750	7,856	7,347	7,702

Products and Services Revenues

We are an integrated communications company engaged primarily in providing an array of communications services, including local voice, high-speed Internet, private line (including special access), network access, Ethernet, information technology, wireless, video and other ancillary services. We strive to maintain our customer relationships by, among other things, bundling our service offerings to provide our customers with a complete offering of integrated communications services. We currently categorize our products, services and revenues among the following three categories:


•	Strategic services, which include primarily high-speed Internet, private line (including special access), Ethernet, Verizon Wireless and other ancillary services;


•	Legacy services, which include primarily local voice, Integrated Services Digital Network ("ISDN") (which uses regular telephone lines to support voice, video and data applications), switched access and traditional wide area network ("WAN") services (which allow a local communications network to link to networks in remote locations); and

•

Affiliates and other services, which consist primarily of CAF support, USF support, USF surcharges and services we provide to our affiliates. We receive federal support from both CAF Phase 1 and CAF Phase 2 programs, and support from both federal and state USF programs, which are government subsidies designed to reimburse us for various costs related to certain telecommunications services, including the costs of voice and high-speed internet capable infrastructure and the costs of network deployment, maintenance and operations in high-cost rural areas where we are not able to recover our costs from our customers. USF surcharges are the amounts we collect based on specific items we list on our customers' invoices to fund the FCC's universal service programs. We provide to our affiliates, telecommunication services that we also provide to external customers. In addition, we provide to our affiliates, computer system development and support services, network support and technical services.

Our operating revenues for our products and services consisted of the following categories:



	Three Months Ended September 30,			Nine Months Ended September 30,
	2015		2014	2015	2014
	(Dollars in millions)
Strategic services	$	852	858	2,569	2,574
Legacy services	689		740	2,096	2,264
Affiliates and other services	746		600	2,061	1,777
Total operating revenues	$	2,287	2,198	6,726	6,615

We do not have any single external customer that provides more than 10% of our total consolidated operating revenues. Substantially all of our consolidated revenues come from customers located in the United States.

We recognize revenues in our consolidated statements of operations for certain USF surcharges and transaction taxes that we bill to our customers. Our consolidated statements of operations also reflect the related expense for the amounts we remit to the government agencies. The total amount of such surcharges that we included in revenues aggregated approximately $37 million for both the three months ended September 30, 2015 and 2014, and approximately $111 million and $114 million for the nine months ended September 30, 2015 and 2014, respectively. Those USF surcharges, where we record revenue, are included in "other" operating revenues and transaction tax surcharges are included in "legacy services" revenues. We also act as a collection agent for certain other USF and transaction taxes that we are required by government agencies to include in our bills to customers, for which we do not record any revenue or expense because we only act as a pass-through agent.

Our operations are integrated into and reported as part of the consolidated segment data of CenturyLink. CenturyLink's chief operating decision maker ("CODM") is our CODM, but reviews our financial information on an aggregate basis only in connection with our quarterly and annual reports that we file with the Securities and Exchange Commission. Consequently, we do not provide our discrete financial information to the CODM on a regular basis. As such, we believe we have one reportable segment.

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 our rates or services, actions relating to employee claims, various tax issues, environmental law issues, grievance hearings before labor regulatory agencies and miscellaneous third party tort actions. The outcome of these other proceedings is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of these other proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on our financial position, results of operations or cash flows.

We are currently defending several patent infringement lawsuits asserted against us by non-practicing entities. These cases have progressed to various stages and one or more may go to trial in the coming 24 months if they are not otherwise resolved. Where applicable, we are seeking full or partial indemnification from our vendors and suppliers. As with all litigation, we are vigorously defending these actions and, as a matter of course, are prepared to litigate the matters to judgment, as well as to evaluate and consider all reasonable settlement opportunities.

We are among hundreds of defendants nationwide in dozens of lawsuits filed over the past year by Sprint Communications Company and affiliates of Verizon Communications Inc. The plaintiffs in these suits have challenged the right of local exchange carriers to bill interexchange carriers for switched access charges for certain calls between mobile and wireline devices that are routed through an interexchange carrier. In the lawsuits, the plaintiffs are seeking refunds of access charges previously paid and relief from future access charges. In addition, these and some other interexchange carriers have ceased paying switched access charges on these calls. These lawsuits involving us and many other carriers have been consolidated for pretrial purposes in the United States District Court for the District of Northern Texas. Some of the defendants, including us, have petitioned the Federal Communications Commission to address these issues on an industry-wide basis.

The outcome of these disputes and suits, as well as any related regulatory proceedings that could ensue, are currently not predictable. If we are required to stop assessing these charges or to pay refunds of any such charges, our financial results could be negatively affected.

CenturyLink and its affiliates are involved in several legal proceedings to which we are not a party that, if resolved against them, could have a material adverse effect on their business and financial condition. As an indirect wholly-owned subsidiary of CenturyLink, our business and financial condition could be similarly affected. You can find descriptions of these legal proceedings in CenturyLink's quarterly and annual reports filed with the SEC. Because we are not a party to any of the matters, we have not accrued any liabilities for the matters.

Dividends

During the nine months ended September 30, 2015, we declared and paid dividends of $950 million to our direct parent company, Qwest Services Corporation ("QSC"). Dividends paid are reflected on our consolidated statements of cash flows as financing activities.

Other Financial Information

Other Current Assets

The following table presents details of other current assets in our consolidated balance sheets:



	As of September 30, 2015		As of December 31, 2014
	(Dollars in millions)
Prepaid expenses	$	57	45
Other	72		80
Total other current assets	$	129	125

Selected Current Liabilities

The following table presents selected current liabilities reflected in our consolidated balance sheets, which include accounts payable:

Included in accounts payable at September 30, 2015 and December 31, 2014, were $38 million and $44 million, respectively, associated with capital expenditures.

Basis of Presentation Basis of Presentation (Policies)

Recent Accounting Pronouncements

Debt Issuance Costs

On April 7, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, “Interest - Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 is effective for annual and interim periods beginning after December 15, 2015, and must be adopted by retrospectively applying the new standard to all periods presented in the financial statements. ASU 2015-03 may be adopted early for any financial statements that have not been issued.

ASU 2015-03 requires that the deferred costs associated with a debt issuance be recognized as a reduction in the carrying amount of the related debt rather than presented as a deferred charge included in other assets in our financial statements. ASU 2015-03 does not change the standards for recognizing deferred debt issuance costs. As of September 30, 2015, we had approximately $124 million of unamortized debt issuance costs that upon adoption of ASU 2015-03 will be reclassified from other assets and recognized as a reduction in the carrying value of our long-term debt. We plan to adopt the new standard effective December 31, 2015.

Revenue Recognition

On May 28, 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09” or “new standard”). The new standard replaces virtually all existing generally accepted accounting principles (“GAAP”) on revenue recognition and replaces them with a principles-based approach for determining revenue recognition using a new five step model. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also includes new accounting principles related to the deferral and amortization of contract acquisition and fulfillment costs. We currently do not defer any contract acquisition costs and defer contract fulfillment costs only up to the extent of any revenue deferred.

On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year until January 1, 2018. Early adoption is permitted as of January 1, 2017. ASU 2014-09 may be adopted by applying the provisions of the new standard on a retrospective basis to the periods included in the financial statements or on a modified retrospective basis which would result in the recognition of a cumulative effect of adopting ASU 2014-09 in the first quarter of 2017, if adopting early, otherwise in the first quarter of 2018. We have not yet decided which implementation method we will adopt. We are studying the new standard and are in the early stages of assessing the impact the new standard will have on us and our consolidated financial statements. We cannot at this time, however, provide any estimate of the impact of adopting the new standard.

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 summarized as follows:



	Interest Rates	Maturities	As of September 30, 2015			As of December 31, 2014
			(Dollars in millions)
Senior notes	6.125% - 8.375%	2016 - 2055	$	7,629		7,311
Term loan	1.950%	2025	100			—
Capital lease and other obligations	Various	Various	14			32
Unamortized premiums, net			21			36
Total long-term debt			7,764			7,379
Less current maturities			(644		)	(117	)
Long-term debt, excluding current maturities			$	7,120		7,262
Note payable - affiliate	6.658%	2022	$	827		796

Fair Value Disclosure (Tables)

Schedule of the three input levels in the hierarchy of fair value measurements

The three input levels in the hierarchy of fair value measurements are defined by the FASB generally as follows:



Input Level		Description of Input

Level 1		Observable inputs such as quoted market prices in active markets.
Level 2		Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3		Unobservable inputs in which little or no market data exists.

Schedule of carrying amounts and estimated fair values of long-term debt, excluding capital lease obligations, and input level to determine fair values

The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding capital lease and other obligations, as well as the input level used to determine the fair values indicated below:



		As of September 30, 2015			As of December 31, 2014
	Input Level	Carrying Amount		Fair Value	Carrying Amount	Fair Value
		(Dollars in millions)
Liabilities—Long-term debt, excluding capital lease and other obligations	2	$	7,750	7,856	7,347	7,702

Products and Services Revenues (Tables)

Schedule of operating revenues by products and services

Our operating revenues for our products and services consisted of the following categories:



	Three Months Ended September 30,			Nine Months Ended September 30,
	2015		2014	2015	2014
	(Dollars in millions)
Strategic services	$	852	858	2,569	2,574
Legacy services	689		740	2,096	2,264
Affiliates and other services	746		600	2,061	1,777
Total operating revenues	$	2,287	2,198	6,726	6,615

Other Financial Information (Tables)

Schedule of other current assets reflected in the entity's balance sheets

The following table presents details of other current assets in our consolidated balance sheets:



	As of September 30, 2015		As of December 31, 2014
	(Dollars in millions)
Prepaid expenses	$	57	45
Other	72		80
Total other current assets	$	129	125

Schedule of selected current liabilities reflected in the entity's balance sheets

The following table presents selected current liabilities reflected in our consolidated balance sheets, which include accounts payable:

Basis of Presentation (Details) (USD $)

In Millions, unless otherwise specified

3 Months Ended

9 Months Ended

Sep. 30, 2015

Deferred Finance Costs, Noncurrent, Net [Abstract]

Unamortized debt issuance expense

$ 124

Geographic Areas, Revenues from External Customers [Abstract]

Number of states in which entity operates (states)

14

Change in Accounting Method Accounted for as Change in Estimate |
Other Pension Plan, Postretirement or Supplemental Plans

Change in Accounting Estimate [Line Items]

Increase in defined benefit plans net periodic benefit cost (less than for the three month period ended)

$ 1

$ 3

Increase in defined benefit plans net periodic benefit cost (financial effect)

The change in methodology resulted in an increase of less than $1 million and $3 million to our net periodic benefit cost for the three and nine months ended September 30, 2015, respectively.

Basis of Presentation Basis of Presentation (Details 2) (USD $)

In Millions, unless otherwise specified

3 Months Ended

9 Months Ended

0 Months Ended

3 Months Ended

0 Months Ended

Sep. 30, 2015

Sep. 30, 2014

Sep. 30, 2015

Sep. 30, 2014

Aug. 27, 2015

CAF Phase 2 Support

Sep. 30, 2015

CAF Phase 2 Support

Dec. 31, 2015

CAF Phase 2 Support

Scenario, Forecast

Aug. 27, 2015

CAF Phase 2 Support

CenturyLink, Inc.

Products and Services Revenues

Federal support, total amount per agreement

$ 150

$ 500

Contract or agreement term (in years)

6

Number of rural households and businesses

300,000

1,200,000

Number of states in which entity operates (states)

14

13

33

Revenues

$ 2,287

$ 2,198

$ 6,726

$ 6,615

$ 64

$ 23

Long-Term Debt and Revolving Promissory Note (Details) (USD $)

In Millions, unless otherwise specified

Sep. 30, 2015

Dec. 31, 2014

Long-term debt

Capital lease and other obligations

$ 14

$ 32

Total long-term debt

7,764

7,379

Less current maturities

(644)

(117)

Long-term debt, excluding current maturities

7,120

7,262

Senior notes

Long-term debt

Long-term debt, gross

7,629

7,311

Unamortized premiums, net

21

36

Senior notes |
Minimum

Long-term debt

Interest rate (as a percent)

6.125%

Senior notes |
Maximum

Long-term debt

Interest rate (as a percent)

8.375%

Medium-term loan

Long-term debt

Long-term debt, gross

100

0

Interest rate at end of period - Term loan (percent)

1.95%

Note payable - affiliate |
Loans payable |
CenturyLink, Inc. affiliate

Long-term debt

Note payable - affiliate

$ 827

$ 796

Weighted average interest rate (as a percent)

6.658%

Long-Term Debt and Revolving Promissory Note Long-Term Debt and Revolving Promissory Note (Details 2) (USD $)

9 Months Ended

0 Months Ended

Sep. 30, 2015

Sep. 30, 2014

Sep. 30, 2015

Senior notes

Dec. 31, 2014

Senior notes

Sep. 30, 2015

Medium-term loan

Dec. 31, 2014

Medium-term loan

Sep. 21, 2015

Qwest Corporation

Senior notes

6.625% Notes due 2055

Sep. 30, 2015

Qwest Corporation

Senior notes

6.625% Notes due 2055

Sep. 21, 2015

Qwest Corporation

Senior notes

6.625% Notes due 2055

Jun. 15, 2015

Qwest Corporation

Senior notes

7.625% Notes due 2015

Sep. 30, 2015

Qwest Corporation

Medium-term loan

Term loan

Feb. 20, 2015

Qwest Corporation

Medium-term loan

Term loan

Sep. 30, 2015

Minimum

Senior notes

Feb. 20, 2015

Minimum

Qwest Corporation

Medium-term loan

Term loan

London Interbank Offered Rate (LIBOR)

Feb. 20, 2015

Minimum

Qwest Corporation

Medium-term loan

Term loan

Base Rate

Sep. 30, 2015

Maximum

Senior notes

Feb. 20, 2015

Maximum

Qwest Corporation

Medium-term loan

Term loan

London Interbank Offered Rate (LIBOR)

Feb. 20, 2015

Maximum

Qwest Corporation

Medium-term loan

Term loan

Base Rate

Sep. 30, 2015

CenturyLink, Inc. affiliate

Loans payable

Note payable - affiliate

Dec. 31, 2014

CenturyLink, Inc. affiliate

Loans payable

Note payable - affiliate

Sep. 30, 2015

CenturyLink, Inc. affiliate

Qwest Corporation

Loans payable

Note payable - affiliate

Sep. 21, 2015

Debt Instrument, Redemption, Period One

Qwest Corporation

Senior notes

6.625% Notes due 2055

Oct. 13, 2015

Subsequent Event

Qwest Corporation

Senior notes

7.200% Notes due 2026

Oct. 13, 2015

Subsequent Event

Qwest Corporation

Senior notes

7.200% Notes due 2026

Oct. 13, 2015

Subsequent Event

Qwest Corporation

Senior notes

6.875% Notes due 2033

Oct. 13, 2015

Subsequent Event

Qwest Corporation

Senior notes

6.875% Notes due 2033

Long-term debt

Repayments of long-term debt

$ 112,000,000

$ 33,000,000

$ 92,000,000

$ 250,000,000

$ 150,000,000

Interest rate (as a percent)

6.625%

7.625%

6.125%

8.375%

7.20%

6.875%

Debt instrument, redemption price, percentage

100.00%

Proceeds from debt, net of issuance costs

386,000,000

Debt instrument face amount

10,000,000

400,000,000

100,000,000

Basis spread on variable rate (as a percent)

1.50%

0.50%

2.50%

1.50%

Long-term debt, gross

7,629,000,000

7,311,000,000

100,000,000

0

100,000,000

Maximum borrowing capacity

1,000,000,000

Note payable - affiliate

827,000,000

796,000,000

827,000,000

Weighted average interest rate (as a percent)

6.658%

Accrued interest payable on related party note payable

$ 18,000,000

Fair Value Disclosure (Details) (Fair value measurements, recurring, Fair value inputs, Level 2, USD $)

In Millions, unless otherwise specified

Sep. 30, 2015

Dec. 31, 2014

Carrying Amount

Liabilities

Liabilities—Long-term debt, excluding capital lease and other obligations

$ 7,750

$ 7,347

Fair Value

Liabilities

Liabilities—Long-term debt, excluding capital lease and other obligations

$ 7,856

$ 7,702

Products and Services Revenues (Details) (USD $)

In Millions, unless otherwise specified

3 Months Ended

9 Months Ended

Sep. 30, 2015

Sep. 30, 2014

Sep. 30, 2015

segment

As of September 30, 2015

As of December 31, 2014

(Dollars in millions)

Accounts payable