Segment Information

12 Months Ended

Dec. 31, 2014

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. The Company's CODM is Jeff K. Storey, President and Chief Executive Officer. Historically, Mr. Storey has monitored performance and allocated resources based on the three separate geographic regions in which the Company operates. Accordingly, the Company's reportable segments have consisted of 1) North America, 2) Europe, the Middle East and Africa (EMEA), 3) and Latin America. As a result of the Merger (see Note 2 - Events Associated with the Merger of tw telecom), Mr. Storey also monitors performance of the former tw telecom business. Therefore, the Company is now comprised of the following four reportable segments for financial reporting purposes until the tw telecom segment can be fully integrated into North America, 1) North America, 2) EMEA, 3) Latin America, 4) and tw telecom, which represents the standalone operations of the former tw telecom business. 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 and network related expenses, (4) depreciation and amortization expense, and (5) non-cash stock-based compensation expense included within selling, general and administrative expenses and network related 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-based 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-based 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 revenue. 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 (managed modem was discontinued after 2012).

Core Network Services revenue represents higher profit services and Wholesale Voice Services and Other revenue represents lower profit 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 the profitability of 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 revenue by segment for each of the years ended December 31,

(dollars in millions)	2014		2013		2012
Core Network Services Revenue:
North America	$	4,240	$	3,949	$	3,840
EMEA	891		888		911
Latin America	779		754		712
tw telecom	285		—		—
Total Core Network Services Revenue	$	6,195	$	5,591	$	5,463
Wholesale Voice Services and Other Revenue:
North America	$	530	$	681	$	863
EMEA	19		31		40
Latin America	33		10		10
Total Wholesale Voice Services and Other Revenue	$	582	$	722	$	913
Total Consolidated Revenue	$	6,777	$	6,313	$	6,376

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

(dollars in millions)	2014			2013			2012
Adjusted EBITDA:
North America	$	1,960		$	1,799		$	1,708
EMEA	214			226			195
Latin America	348			313			278
tw telecom	105			—			—
Unallocated Corporate Expenses	(732		)	(714		)	(722		)
Consolidated Adjusted EBITDA	$	1,895		$	1,624		$	1,459
Income Tax Benefit (Expense)	76			(38		)	(48		)
Total Other Expense	(775		)	(737		)	(949		)
Depreciation and Amortization	(808		)	(800		)	(749		)
Non-Cash Stock Compensation	(73		)	(151		)	(135		)
Non-Cash Impairment	(1		)	(7		)	—
Total Consolidated Net Income (Loss)	$	314		$	(109	)	$	(422	)

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)	2014		2013		2012
Capital Expenditures:
North America	$	432	$	398	$	407
EMEA	117		128		115
Latin America	153		134		122
tw telecom	63		—		—
Unallocated Corporate Capital Expenditures	145		100		99
Consolidated Capital Expenditures	$	910	$	760	$	743

The following table presents total assets by segment:

	As of December 31,
(dollars in millions)	2014		2013
Assets:
North America	$	8,082	$	8,133
EMEA	1,970		2,030
Latin America	2,451		2,445
tw telecom	8,160		—
Other	284		266
Total Consolidated Assets	$	20,947	$	12,874