Segment Information

12 Months Ended

Dec. 31, 2013

Segment Reporting [Abstract]

Segment Information

Segment Information

Operating segments are defined under GAAP as components of an enterprise for which separate financial information is available and evaluated regularly by the Company's chief operating decision maker ("CODM") in deciding how to allocate resources and assess performance. Through the end of the third quarter of 2013, the Company was comprised of one reportable segment representing its communications services business, which was consistent with how the Company’s previous CODM, James Q. Crowe, evaluated results and allocated resources. Effective April 11, 2013, the Company announced that Jeff K. Storey had been appointed by the Board of Directors to be the Company's president and Chief Executive Officer. As a result, the Company has realigned its segment reporting structure to reflect how its new CODM, Mr. Storey, monitors performance and allocates resources based on the three separate geographic regions in which the Company operates. Accordingly, the Company's reportable segments consist of 1) North America, 2) Europe, the Middle East and Africa (EMEA), 3) and Latin America. Other separate business interests that are not segments include interest, certain corporate assets and overhead costs, and certain other general and administrative costs that are not allocated to any of the operating segments. Historical presentation of segment information has been retrospectively reclassified to conform to the new geographical presentation.

The CODM measures and evaluates segment performance primarily based upon revenue, revenue growth and Adjusted EBITDA. Adjusted EBITDA, as defined by the Company, is equal to net income (loss) from the consolidated statements of operations before (1) income tax benefit (expense), (2) total other income (expense), (3) non-cash impairment charges included within selling, general and administrative expenses, (4) depreciation and amortization expense, and (5) non-cash stock compensation expense included within selling, general and administrative expenses.

Adjusted EBITDA is not a measurement under GAAP and may not be used in the same way by other companies. Management believes that Adjusted EBITDA is an important part of the Company's internal reporting and is a key measure used by management to evaluate profitability and operating performance of the Company and to make resource allocation decisions. Management believes such measurement is especially important in a capital-intensive industry such as telecommunications. Management also uses Adjusted EBITDA to compare the Company's performance to that of its competitors and to eliminate certain non-cash and non-operating items in order to consistently measure from period to period its ability to fund capital expenditures, fund growth, service debt and determine bonuses.

Adjusted EBITDA excludes non-cash impairment charges and non-cash stock compensation expense because of the non-cash nature of these items. Adjusted EBITDA also excludes interest income, interest expense and income tax benefit (expense) because these items are associated with the Company's capitalization and tax structures. Adjusted EBITDA also excludes depreciation and amortization expense because these non-cash expenses reflect the effect of capital investments which management believes are better evaluated through cash flow measures. Adjusted EBITDA excludes net other income (expense) because these items are not related to the primary operations of the Company.

There are limitations to using non-GAAP financial measures such as Adjusted EBITDA, including the difficulty associated with comparing companies that use similar performance measures whose calculations may differ from the Company's calculations. Additionally, this financial measure does not include certain significant items such as interest income, interest expense, income tax benefit (expense), depreciation and amortization expense, non-cash impairment charges, non-cash stock compensation expense, and net other income (expense). Adjusted EBITDA should not be considered a substitute for other measures of financial performance reported in accordance with GAAP.

Revenue and the related expenses are attributed to regions based on where services are provided. Revenue and costs for services provided in more than one region are allocated equally between the regions, and the Company does not otherwise charge for services between reportable segments. Therefore, segment results do not include any intercompany revenues. The operating activities of the separate regions along with the activities that are not attributable to a segment are interdependent, and the regional results in the tables below do not include all intercompany charges and allocations that would be necessary to report the regional results on a standalone basis.

Total revenue consists of:

• Core Network Services revenue from colocation and data center services; transport and fiber; IP and data services; and local and enterprise voice services.

• Wholesale Voice Services and Other revenue from sales to other carriers of long distance voice services, revenue from managed modem and its related intercarrier compensation services and revenue from the SBC Master Services Agreement, which was obtained through an acquisition in 2005.

Core Network Services revenue represents higher margin services and Wholesale Voice Services and Other revenue represents lower margin services. Core Network Services revenue requires different levels of investment and focus and provides different contributions to the Company's operating results than Wholesale Voice Services and Other revenue. Management of the Company believes that growth in revenue from its Core Network Services is critical to the long-term success of its business. The Company also believes it must continue to effectively manage gross margin contribution from the Wholesale Voice Services component and the positive cash flows from the Other revenue component. The Company believes that trends in its communications business are best gauged by analyzing revenue changes in Core Network Services.

The following table presents revenues by segment for each of the years ended December 31,

(dollars in millions)	2013		2012		2011
Core Network Services Revenue:
North America	$	3,949	$	3,840	$	2,915
EMEA	888		911		475
Latin America	754		712		176
Total Core Network Services Revenue	$	5,591	$	5,463	$	3,566
Wholesale Voice Services and Other Revenue:
North America	$	681	$	863	$	731
EMEA	31		40		34
Latin America	10		10		2
Total Wholesale Voice Services and Other Revenue	$	722	$	913	$	767
Total Consolidated Revenue	$	6,313	$	6,376	$	4,333

The following table presents Adjusted EBITDA by segment and reconciles Adjusted EBITDA to net loss for each of the years ended December 31,

(dollars in millions)	2013			2012			2011
Adjusted EBITDA:
North America	$	1,799		$	1,708		$	1,325
EMEA	226			195			104
Latin America	313			278			70
Unallocated Corporate Expenses	(714		)	(722		)	(541		)
Consolidated Adjusted EBITDA	$	1,624		$	1,459		$	958
Income Tax Expense	(38		)	(48		)	(41		)
Total Other Expense	(737		)	(949		)	(838		)
Depreciation and Amortization	(800		)	(749		)	(805		)
Non-Cash Stock Compensation	(151		)	(135		)	(101		)
Non-Cash Impairment	(7		)	—			—
Income from Discontinued Operations	—			—			71
Total Consolidated Net Loss	$	(109	)	$	(422	)	$	(756	)

The following table presents capital expenditures by segment and reconciles capital expenditures to consolidated capital expenditures for each of the years ended December 31,

(dollars in millions)	2013		2012		2011
Capital Expenditures:
North America	$	398	$	407	$	353
EMEA	128		115		66
Latin America	134		122		27
Unallocated Corporate Capital Expenditures	100		99		48
Consolidated Capital Expenditures	$	760	$	743	$	494

The following table presents total assets by segment:

	As of December 31,
(dollars in millions)	2013		2012
Assets:
North America	$	8,133	$	8,495
EMEA	2,030		2,015
Latin America	2,445		2,513
Other	266		284
Total Consolidated Assets	$	12,874	$	13,307