lumn-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File No. 001-03040

QWEST CORPORATION

(Exact name of registrant as specified in its charter)

Colorado

84-0273800

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

100 CenturyLink Drive,

Monroe,

Louisiana

71203

(Address of principal executive offices)

(Zip Code)

(318) 388-9000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

6.5% Notes Due 2056

CTBB

New York Stock Exchange

6.75% Notes Due 2057

CTDD

New York Stock Exchange

THE REGISTRANT, A WHOLLY OWNED INDIRECT SUBSIDIARY OF LUMEN TECHNOLOGIES, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐



	Special Note Regarding Forward-Looking Statements	4
Part I.	Financial Information
Item 1.	Financial Statements
	Consolidated Statements of Operations (Unaudited)	7
	Consolidated Balance Sheets (Unaudited)	8
	Consolidated Statements of Cash Flows (Unaudited)	9
	Consolidated Statements of Stockholder's Equity (Unaudited)	10
	Notes to Consolidated Financial Statements (Unaudited) *	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
Part II.	Other Information
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 6.	Exhibits	37
Signature		38

* All references to "Notes" in this quarterly report refer to these Notes to Consolidated Financial Statements, unless otherwise specified.


	Three Months Ended June 30,			Six Months Ended June 30,
	2021		2020	2021	2020
	(Dollars in millions)
OPERATING REVENUE
Operating revenue	$	1,147	1,207	2,317	2,442
Operating revenue—affiliates	577		592	1,199	1,275
Total operating revenue	1,724		1,799	3,516	3,717
OPERATING EXPENSES
Cost of services and products (exclusive of depreciation and amortization)	440		490	879	963
Selling, general and administrative	106		139	213	282
Operating expenses—affiliates	190		164	384	359
Depreciation and amortization	231		327	548	655
Total operating expenses	967		1,120	2,024	2,259
OPERATING INCOME	757		679	1,492	1,458
OTHER (EXPENSE) INCOME
Interest expense	(47)		(75)	(95)	(150)
Interest expense—affiliate, net	(31)		(16)	(62)	(32)
Other income (expense), net	2		(5)	(4)	(13)
Total other expense, net	(76)		(96)	(161)	(195)
INCOME BEFORE INCOME TAX EXPENSE	681		583	1,331	1,263
Income tax expense	172		153	340	330
NET INCOME	$	509	430	991	933


	June 30, 2021 (Unaudited)		December 31, 2020
	(Dollars in millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	7	14
Accounts receivable, less allowance of $44 and $61	327		364
Other	137		122
Total current assets	471		500
Property, plant and equipment, net of accumulated depreciation of $8,719 and $8,347	8,200		8,309
GOODWILL AND OTHER ASSETS
Goodwill	9,360		9,360
Other intangible assets, net	231		343
Other, net	146		147
Total goodwill and other assets	9,737		9,850
TOTAL ASSETS	$	18,408	18,659
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt	$	949	948
Accounts payable	232		292
Advances from affiliates	203		592
Note payable - affiliate	1,158		1,130
Accrued expenses and other liabilities
Salaries and benefits	158		178
Income and other taxes	110		95
Other	193		186
Current portion of deferred revenue	182		183
Total current liabilities	3,185		3,604
LONG-TERM DEBT	2,156		2,386
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes, net	1,233		1,249
Affiliate obligations, net	628		637
Other	687		685
Total deferred credits and other liabilities	2,548		2,571
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDER'S EQUITY
Common stock - one share without par value, owned by Qwest Services Corporation	10,050		10,050
Retained earnings	469		48
Total stockholder's equity	10,519		10,098
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	18,408	18,659


	June 30, 2021		December 31, 2020
	(Dollars in millions)
Goodwill	$	9,360	9,360
Customer relationships, less accumulated amortization of $5,699 and $5,611	$	—	88
Other intangible assets, less accumulated amortization of $1,842 and $1,831	231		255
Total other intangible assets, net	$	231	343


	(Dollars in millions)
2021 (remaining six months)	$	43
2022	85
2023	60
2024	12
2025	10


	Three Months Ended June 30, 2021				Three Months Ended June 30, 2020
	Total Revenue		Adjustments for Non-ASC 606 Revenue (1)	Total Revenue from Contracts with Customers	Total Revenue	Adjustments for Non-ASC 606 Revenue (1)	Total Revenue from Contracts with Customers
	(Dollars in millions)
Voice and other	$	530	(83)	447	569	(87)	482
Fiber Infrastructure	501		(29)	472	509	(33)	476
IP and Data Services	116		—	116	129	—	129
Affiliate Services	577		(6)	571	592	(1)	591
Total revenue	$	1,724	(118)	1,606	1,799	(121)	1,678


	Six Months Ended June 30, 2021				Six Months Ended June 30, 2020
	Total Revenue		Adjustments for Non-ASC 606 Revenue (1)	Total Revenue from Contracts with Customers	Total Revenue	Adjustments for Non-ASC 606 Revenue (1)	Total Revenue from Contracts with Customers
	(Dollars in millions)
Voice and other	$	1,073	(168)	905	1,159	(176)	983
Fiber Infrastructure	1,005		(60)	945	1,022	(64)	958
IP and Data Services	239		—	239	261	—	261
Affiliate Services	1,199		(9)	1190	1,275	(2)	1,273
Total revenue	$	3,516	(237)	3,279	3,717	(242)	3,475


	Three Months Ended June 30, 2021			Three Months Ended June 30, 2020
	Acquisition Costs		Fulfillment Costs	Acquisition Costs	Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	69	52	84	61
Costs incurred	13		6	13	6
Amortization	(14)		(9)	(16)	(8)
End of period balance	$	68	49	81	59


	Business		Mass Markets	Total
	(Dollars in millions)
Beginning balance at January 1, 2021 (1)	$	25	36	61
Provision for expected losses	5		7	12
Write-offs charged against the allowance	(11)		(27)	(38)
Recoveries collected	1		8	9
Ending balance at June 30, 2021	$	20	24	44


	Interest Rates (1)	Maturities (1)	June 30, 2021		December 31, 2020
			(Dollars in millions)
Senior notes	6.500% - 7.750%	2021 - 2057	$	2,935	3,170
Term loan (2) (3)	LIBOR + 2.00%	2027	215		215
Finance lease and other obligations	Various	Various	3		6
Unamortized premiums, net			5		5
Unamortized debt issuance costs			(53)		(62)
Total long-term debt			3,105		3,334
Less current maturities			(949)		(948)
Long-term debt, excluding current maturities			$	2,156	2,386
Note payable - affiliate	4.883%	2022	$

SEC Form 10-Q filed by Qwest Corporation