Products and Services Revenues

12 Months Ended

Dec. 31, 2018

Revenue from Contract with Customer [Abstract]

Comparative Results

The following tables present our reported results under ASC 606 and a reconciliation to results using the historical accounting method:



	Successor
	Reported Balances as of December 31, 2018		Impact of ASC 606		ASC 605 Historical Adjusted Balances
	(Dollars in millions)
Operating revenue	$	8,220	(5	)	8,215
Cost of services and products (exclusive of depreciation and amortization)	3,937		—		3,937
Selling, general and administrative	1,354		52		1,406
Interest expense	509		(9	)	500
Income tax expense	196		(12	)	184
Net income	341		(36	)	305

The following table presents a reconciliation of certain consolidated balance sheet captions under ASC 606 to the balance sheet results using the historical accounting method:



	Successor
	Reported Balances as of December 31, 2018		Impact of ASC 606		ASC 605 Historical Adjusted Balances
	(Dollars in millions)
Other current assets	$	234	(33	)	201
Other long-term assets, net	191		(31	)	160
Deferred revenue	1,491		(4	)	1,487
Deferred income tax assets, net	306		15		321
Member's equity	17,877		(45	)	17,832

Disaggregated Revenue by Service Offering

The following table provides disaggregation of revenue from contracts with customers based on service offering for the year ended December 31, 2018. It also shows the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards.



	Successor
	Year Ended December 31, 2018
	(Dollars in millions)
	Total Revenue		Adjustments⁽⁶⁾		Total Revenue from Contracts with Customers
IP and Data Services ⁽¹⁾	$	3,945	—		3,945
Transport and Infrastructure ⁽²⁾	2,699		(189	)	2,510
Voice and Collaboration ⁽³⁾	1,464		—		1,464
Other Revenue ⁽⁴⁾	5		(3	)	2
Affiliate Revenue ⁽⁵⁾	107		(107	)	—
Total Revenue	$	8,220	(299	)	7,921

Timing of revenue
Goods transferred at a point in time					$	—
Services performed over time					7,921
Total revenue from contracts with customers					$	7,921

_______________________________________________________________________________



(1)	Includes primarily VPN data network, IP, Ethernet, video and ancillary revenue.
(2)	Includes primarily wavelength, colocation and data center services, dark fiber, private line and professional services revenue.
(3)	Includes voice, Voice Over IP ("VoIP"), Collaboration.
(4)	Includes sublease rental income and IT services and managed services revenue.
(5)	Includes telecommunications and data services we bill to our affiliates.
(6)	Includes sublease rental income and revenue from fiber capacity lease arrangements which are not within the scope of ASC 606.

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities as of December 31, 2018 and January 1, 2018:



	Successor
	December 31, 2018		January 1, 2018
	(Dollars in millions)
Customer receivables ⁽¹⁾	$	712	748
Contract assets	19		22
Contract liabilities	393		353

_______________________________________________________________________________



(1)	Gross customer receivables of $723 million and $751 million, net of allowance for doubtful accounts of $11 million and $3 million, at December 31, 2018 and January 1, 2018, respectively

Contract liabilities are consideration we have received from our customers in advance of providing the goods or services promised in the future. We defer recognizing this consideration until we have satisfied the related performance obligation to the customer. Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which ranges from one to seven years depending on the service. Contract liabilities are included within deferred revenue in our consolidated balance sheets.

The following table provides information about revenue recognized for the year ended December 31, 2018:



	Successor
	(Dollars in millions)
Revenue recognized in the current period from:
Amounts included in contract liability at the beginning of the period (January 1, 2018)	$	158
Performance obligations satisfied in previous periods	—

Performance Obligations

As of December 31, 2018, our estimated revenue expected to be recognized in the future related to performance obligations associated with customer contracts that are unsatisfied (or partially satisfied) is approximately $5.2 billion. We expect to recognize approximately 77% of this revenue through 2021, with the balance recognized thereafter.

We do not disclose the amount of unsatisfied performance obligations for contracts under which we are contractually entitled to bill pre-determined amounts for future services (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), or contracts that are classified as leasing arrangements that are not subject to ASC 606.

Contract Costs

The following table provides changes in our contract acquisition costs and fulfillment costs for the year ended December 31, 2018:



	Successor
	December 31, 2018
	Acquisition Costs			Fulfillment Costs
	(Dollars in millions)
Beginning of period balance	$	13		14
Costs incurred	68			99
Amortization	(17		)	(29	)
End of period balance	$	64		84

Acquisition costs include commission fees paid to employees as a result of obtaining contracts. Fulfillment costs include third party and internal costs associated with the provision, installation and activation of telecommunications services to customers, including labor and materials consumed for these activities.

Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average expected contract term of 12 to 60 months for our business customers and amortized fulfillment costs are included in cost of services and products and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statement of operations. The amount of these deferred costs that are anticipated to be amortized in the next twelve months are included in other current assets on our consolidated balance sheets. The amount of deferred costs expected to be amortized beyond twelve months is included in other non-current assets on our consolidated balance sheets. Deferred acquisition and fulfillment costs are assessed for impairment on an annual basis.

Products and Services Revenue

We categorize our products, services and revenue among the following five categories:


•	IP and Data Services, which include primarily VPN data networks, Ethernet, IP, video (including our facilities-based video services, CDN services and Vyvx broadcast services) and other ancillary services;


•	Transport and Infrastructure, which includes private line (including business data services), wavelength, colocation and data center services, including cloud, hosting and application management solutions, professional services, network security services, dark fiber services and other ancillary services;


•	Voice and Collaboration, which includes primarily TDM voice services, VoIP and other ancillary services;


•	Other, which includes sublease rental income and information technology services and managed services, which may be purchased in conjunction with our other network services; and


•	Affiliate services, we provide to our affiliates telecommunication services that we also provide to external customers.

From time to time, we may change the categorization of our products and services.

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



	Successor			Predecessor
	Year Ended December 31, 2018		Period Ended December 31, 2017	Period Ended October 31, 2017	Year Ended December 31, 2016
	(Dollars in millions)
IP and Data Services	$	3,945	668	3,284	3,862
Transport and Infrastructure	2,699		464	2,272	2,703
Voice and Collaboration	1,464		258	1,308	1,600
Other revenue	5		1	6	8
Affiliate revenue	107		16	—	—
Total revenue	$	8,220	1,407	6,870	8,173

We recognize revenue 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 offsetting expense for the amounts we remit to the government agencies. The total amount of such surcharges and transaction taxes that we included in revenue aggregated $415 million, $71 million, $331 million and $414 million for the successor year ended December 31, 2018 and period ended December 31, 2017 and the predecessor period ended October 31, 2017 and year ended December 31, 2016, respectively. These USF surcharges, where we record revenue and transaction taxes, are assigned to the products and services categories based on the underlying revenue. We also act as a collection agent for certain other USF and transaction taxes that we are required by government agencies to bill our customers, for which we do not record any revenue or expense because we only act as a pass-through agent.

The following table presents total assets as of the successor date of December 31, 2018 and December 31, 2017 as well as operating revenue for the predecessor period ended October 31, 2017 and the successor year ended December 31, 2016 by geographic region:



	Total Assets
	Successor
	December 31, 2018		December 31, 2017
	(Dollars in millions)
North America	$	27,520	27,776
EMEA	2,765		1,192
Latin America	2,006		4,167
Total	$	32,291	33,135



	Revenue
	Successor			Predecessor
	Year Ended December 31, 2018		Period Ended December 31, 2017	Period Ended October 31, 2017	Year Ended December 31, 2016
	(Dollars in millions)
North America	$	6,739	1,155	5,651	6,748
EMEA	744		128	607	755
Latin America	737		124	612	670
Total	$	8,220	1,407	6,870	8,173

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.

A relatively small number of customers account for a significant percentage of our revenue. Our top ten customers accounted for approximately 20% and 19% for the successor year ended December 31, 2018 and period ended December 31, 2017, and 18% and 16% for the predecessor period ended October 31, 2017 and for the predecessor year ended December 31, 2016, respectively.