Segment Information (Notes)

9 Months Ended

Sep. 30, 2017

Segment Reporting [Abstract]

Segment Information

(9) Segment Information

Prior to the CenturyLink Merger, our operating revenues were generated primarily from our former segments (North America; Europe, the Middle East and Africa ("EMEA"); and Latin America), and our Chief Operating Decision Maker (“CODM”) regularly reviewed information for each of our segments to evaluate performance and to allocate resources. The accounting principles used to determine segment results were the same as those used in our consolidated financial statements.

As of November 1, 2017, the effective date of the CenturyLink Merger, our operations will be integrated into and will be reported as part of the segments of CenturyLink. CenturyLink’s CODM has become our CODM, but will review our financial information on an aggregate basis only in connection with our quarterly and annual reports.

Operating segments are defined under GAAP as components of an enterprise for which separate financial information is available and evaluated regularly by our CODM in deciding how to allocate resources and assess performance. Our former reportable segments consisted of: 1) North America; 2) EMEA; and 3) 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 were not allocated to any of the operating segments.

The CODM measured and evaluated segment performance primarily based upon revenue, revenue growth and Adjusted EBITDA. Adjusted EBITDA, as defined by us, is equal to net income from the Consolidated Statements of Income 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 our internal reporting and is a key measure used by management to evaluate our profitability and operating performance 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 our performance to that of our competitors and to eliminate certain non-cash and non-operating items in order to consistently measure from period to period our 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 our 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 our primary operations.

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 our 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.

The following table presents revenue by segment:

	Three Months Ended				Nine Months Ended
(dollars in millions)	September 30, 2017		September 30, 2016(1)		September 30, 2017		September 30, 2016(1)
Core Network Services Revenue:
North America	$	1,597	$	1,573	$	4,798	$	4,779
EMEA	184		180		535		561
Latin America	182		176		541		491
Total Core Network Services Revenue	1,963		1,929		5,874		5,831
Wholesale Voice Services Revenue:
North America	90		98		279		292
EMEA	3		4		8		11
Latin America	3		2		7		6
Total Wholesale Voice Services Revenue	96		104		294		309
Total Revenue	$	2,059	$	2,033	$	6,168	$	6,140

⁽¹⁾ The 2016 results have been adjusted to reflect changes made to customer assignments between the wholesale and enterprise channels as of the beginning of 2017.

The following table presents Adjusted EBITDA by segment and reconciles Adjusted EBITDA to net income:

	Three Months Ended						Nine Months Ended
(dollars in millions)	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Adjusted EBITDA:
North America	$	817		$	784		$	2,441		$	2,415
EMEA	64			56			189			162
Latin America	78			80			235			218
Unallocated Corporate Expenses	(238		)	(204		)	(717		)	(654		)
Adjusted EBITDA	721			716			2,148			2,141
Income Tax Expense	(76		)	(74		)	(215		)	(198		)
Total Other Expense	(122		)	(137		)	(424		)	(465		)
Depreciation and Amortization	(333		)	(319		)	(983		)	(930		)
Non-Cash Stock Compensation	(33		)	(43		)	(120		)	(121		)
Net Income	$	157		$	143		$	406		$	427

The following table presents capital expenditures by segment and reconciles capital expenditures by segment to total capital expenditures:

	Three Months Ended				Nine Months Ended
(dollars in millions)	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016
Capital Expenditures:
North America	$	216	$	245	$	690	$	677
EMEA	25		38		83		117
Latin America	48		44		126		118
Unallocated Corporate Capital Expenditures	33		37		119		116
Total Capital Expenditures	$	322	$	364	$	1,018	$	1,028

The following table presents total assets by segment:

(dollars in millions)	September 30, 2017		December 31, 2016
Assets:
North America	$	21,094	$	20,818
EMEA	1,766		1,639
Latin America	2,387		2,304
Other	126		127
Total Assets	$	25,373	$	24,888

The changes in the carrying amount of goodwill by segment during the nine months endedSeptember 30, 2017 were as follows:

(dollars in millions)	North America		EMEA		Latin America		Total
Balance at December 31, 2016	$	7,024	$	109	$	596	$	7,729
Effect of foreign currency rate change	—		12		—		12
Balance at September 30, 2017	$	7,024	$	121	$	596	$	7,741

There were no events or changes in circumstances during the first three and nine months of 2017 that indicated the carrying value of goodwill may not be recoverable.