2001Restated Annual Report.pdf

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February 6, 2004
Jean Jewell
Secretary
Idaho Public Utilities Commission
PO Box 83720
Boise, ID 83720-0074
RE:Qwest 2001 Annual Report Form Ms- Restated
Enclosed are the restated Idaho-South and Idaho-North Annual Report Form Ms of
Qwest Corporation (Qwest) for the year ended December 2001. These reports
include the Summary Balance Sheet and Earnings and Expenses Reports along with the
FCC 43-02 B-5 Analysis of Entries in Accumulated Depreciation and B- 7, Bases of
Charges for Depreciation. The other more detailed reports are not available on a restated
basis.
In making this restatement, we have performed an internal analysis of our accounting
policies, practices , procedures and disclosures for the affected periods. We have
determined that, in certain cases, we misinterpreted or misapplied GAAP in our 2001
financial statements and, accordingly, we have restated our financial statements for 2001.
The aggregated total company impacts of restatement on the current 2001 ARMIS over
the prior 2001 ARMIS submission are as follows:
Total Company Operating Revenues: $143.1 million decrease
Total Company Operating Expenses: $146.9 million increase
Total Company End of Year Investment: $257.8 million decrease
Adjustments at the total company level included in the restatement are:
Termination fees
In 2000 and 2001 , QC recognized operating revenue related to contractual termination
fees that were assessed to customers. At or about the same time, we entered into new
arrangements with these customers to provide services in the future. In connection with
our internal analysis, we have determined that the revenues recognized in these instances
should have been deferred and recognized as revenue ratably over the term of the new
arrangements. As a result, the net reduction in previously reported 2001 operating
revenue is $74.8 million.
Installation fees
In 2001 we recognized revenue for certain up-front fees charged to customers in
connection with special plant construction or relocation. These fees were recognized as
revenue in full at the time the construction or relocation was completed. Under SAB
No. 101 , these fees should have been initially deferred and recognized over the estimated
life of the customer relationship. In our restated financial statements, we have decreased
previously reported operating revenues by $59.7 million and decreased previously
reported operating expenses by $15.3 million for the year ended December 31,2001.
Transactions with Affiliates
During our internal analysis, we determined that there were errors in certain affiliate
transactions. It was discovered that pricing and allocation of costs associated with data
processing services were not completely updated to reflect the impacts of restructuring
the Information Technologies operations. As a result, in our restated financial
statements, we have increased operating revenues by $32.6 million and reduced our
operating expenses by $14.3 million. Other miscellaneous corrections including the
update of the parent company allocations to reflect impacts of the restatement
adjustments resulted in an increase of $5.3 million to operating revenues and a decrease
of $0.8 million to operating expenses for the year ended December 31 2001.
Network Labor costs
In 2000 and 2001 , we capitalized certain labor costs that were associated with designing,
deploying and testing facilities. During our internal analysis, we determined that certain
of these costs should have been expensed as incurred. As a result, in our restated
financial statements we have recorded adjustments to increase operating expenses and
decrease property, plant and equipment by $96.6 million and $103.2 million for the years
ended December 31, 2001and 2000, respectively. As a result of the adjustments,
depreciation expense was reduced by $10.2 million for the year ended December 31
2001.
Compensated absences
During 2001, we recorded entries that reduced our liabilities for compensated absences
associated with non-management employees. We have since determined that these
adjustments were not in compliance with SFAS No. 43
, "
Accounting for Compensated
Absences." As a result, we have increased our previously reported operating expenses by
$72.6 million for the year ended December 31 2001.
Cost of removal
In 2001 , we recorded costs associated with the reconditioning of certain cable lines
against the cost of removal reserve. This reserve is a component of accumulated
depreciation that was established specifically for costs of removal related to portions of
our telecommunications network. During our internal analysis, we determined that these
reconditioning costs were not costs of removal and should not have been recorded against
the reserve in accumulated depreciation. As a result, in our restated financial statements
we have increased our previously reported operating expenses by $40 million for the year
ended December 31, 2001
Payment made for affiliate
In 2001 we made payments for minimum commitments under a take or pay purchase
agreement for an affiliate. We incorrectly expensed the payments. Restatement entries
were made to record the receivable from the affiliate, reducing our previously reported
operating expenses by $22.8 million for the year ended December 31,2001.
Merger and Restructure Reserves
During our internal analysis, it was discovered that the liabilities established for the
Qwest merger and the restructure reserves were charged to operating expense for
regulatory purposes. RAO Letter No. 24 requires carriers to record the liability for these
programs in accordance with GAAP but charge the expense "below-the-line" to other
nonoperating income. When the restructuring expenses are actually paid or otherwise
require Part 32 recognition, they should then be charged "above the line" to operating
expense with an offsetting credit to nonoperating income. Reclassification of the $91.1
million accrual in 2001 offset by cash payments of $80.1 million related to the 2000
accrual adjustment resulted in an $11.0 million reduction in previously reported 2001
operating expenses.
Balance sheet reconciliations
During our internal analysis, we were unable to support the balances of certain asset and
liability accounts through the reconciliation process that we performed. As a result, we
have adjusted certain balance sheet accounts resulting in an aggregate decrease in
previously reported operating revenue of $23.3 million and a decrease of previously
reported operating expense of $10.9 million for the year ended December 31,2001.
Investment in Owest Wireless LLC
Qwest Wireless LLC (QW) is a wholly owned subsidiary of Qc. As a result of
restatement adjustments to QW, adjustments were required to reduce QC's investment in
QW resulting in a reduction of $30.2 million in previously reported other nonoperating
income for the year ended December 31, 2001.
Other
We reduced our previously reported operating revenue by $23.2 million and increased
our previously reported operating expenses by $23.0 million for the year ended
December 31 2001 for other errors discovered as a result of our internal analysis. Other
impacts on end of year investment totaled a decrease of $58.0 million.
Because of its restatement of 2000 and 2001 financial statements, Qwest's parent
company will file amended income tax returns for 2000 2001 and 2002. Qwest will
record any changes to its current tax liability or deferred tax liability that result from
filing amended returns in the then current period and not to the period in which the
changes were realized. Once the amended returns have been filed and the effect of the
filing on Qwest's tax liability has been determined, Qwest will also review and, as
necessary, true-up the allocation of current and deferred income taxes among the various
state jurisdictions in which it does business. This true-up will also be recorded in the
then current period.
Cordially,
John Souba
Director Regulatory Affairs
Enclosures
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ANNUAL REPORT FORM M 2OU4 rES - 6 Ati 10: 40
UULiL,
JrlUTIES cmH'1iSSION
QWEST CORPORATION
DENVER, COLORADO
TO THE
PUBLIC UTILITY COMMISSION OF IDAHO (SO.
FOR THE
YEAR ENDING DECEMBER 31 , 2001
RESTATED
Office or other person to whom correspondence should be addressed concerning this report:
Name: James M. Schmit Title: Vice President
Address: 999 Main St, 11th Floor City: Boise State: Idaho Zip: 83702
ANNUAL REPORT FORM M
PUBLIC UTILITY COMMISSION OF IDAHO (SO)
TABLE OF CONTENTS
REPORT DESCRIPTION
MR 1, ID Restated Earnings and Expenses
Balance Sheet
ARMIS 43-02, ID Restated 5, Analysis of Entries in Accumulated Depreciation
ARMIS 43-02, ID Restated 7, Bases of Charges for Depreciation
MR 1, TOTAL COMPANY Restated Earnings and Expenses
Balance Sheet
RESTATED
IDAHO-SOUTH
Qwest Corporation
Summary of Reports
Period December - 2001
Earnings and Expenses
(Lines 1-33 in Thousands)
Restated
Year to Date
Revenue
Local Service
Access Service
Interstate
Intrastate
Long Distance Service
Miscellaneous
Total Revenue
188 690 726
106 919 319
777 215
901 512
731 131
342 019 902
Expenses
Cost of Services and Products
Maintenance
Engineering
Network Operations
Network Access
Access
Other
Total Cost of Services and Products
391 774
276 530
963 848
210 205
500 822
107,434
57,450 615
Selling, General and Administrative14 Customer Operations15 Corporate Operations16 Property and Other Operating Taxes17 Uncollectibles18 Total Selling, General and Administrative
19 Other Operating Income and Expense20 Depreciation and Amortization21 Total Operating Expenses22 Income from Operations Before Taxes23 Interest Expense24 Nonoperating Income and Expense
25 Income before Income Taxes
934 867
28,401 354
566,525
680 660
583,406
317
85,474 588
225 511 925
116 507 977
12,427 732
8,423 258
656 986
Income Taxes26 Federal27 State and Local28 Income Before Juris Diff and Extraord Items29 Juris Diff and Nonreg Net Income30 Extraordinary Items
31 Net Income
076 369
663,442
917 175
830 589
086 586
RESTATED
IDAHO-SOUTH
Qwest Corporation
Balance Sheet
(Thousands)
Period: December- 2001
Restated
Assets
Current
1 Cash and Short Term Investments
Receivable
Trade
Other
Total Receivable
Inventories
Prepaid Expenses and Other Current Assets
Total Current Assets
Property, Plant and Equipment
Telecommunications Plant in Service
Telecommunications Plant Under Construction
10 Prop Held for Future Use & Plant Adjustment
11 Non - Operating Plant12 Gross Property, Plant and Equipment
13 Less-Accumulated Deprec, and Amortization14 Total Telephone Plant Less Reserves
15 Investments and Other Assets
16 Total Assets
208 653)
145,731
145 731
1,423 088
714,479
074 644
121 201 583
001 834
(91 650)
146,111 767
607 787 222
538 324 546
272 885,226
864 284,416
Liabilities
Current
17 Short Term Borrowings
Accounts Payable and Accrued Liabilities18 Accounts Payable - Trade19 Accounts Payable - Other20 Employee Compensation21 Advance Billing and Payments22 Dividend Payable
23 Customers' Deposits24 Other Accrued Liabilities25 Total Acct Payable & Accured Liabilities26 Income Taxes Payable27 Current Portion long Term Borrowing/Lease
28 Total Current Liabilities
Other29 Long Term Borrowings
30 Accum Deferred Income Taxes (Non-Current)31 Unamortized Investment tax Credit32 Other33 Other Juris Liabilities & Deferred Credits - Net34 Total Other Liabilities
35 Total Liabilities
897 324
069 357
(251 846)
10,743,175
125 542
363,404
946 956
911 973
118 933
58,977 862
964 290
548 426
677,400
030 884
(14 285 180)
139 935 820
198 913 682
Shareholders' Equity36 Capital Stock & Additional Paid in Capital37 Retained Earnings37 Retained Earnings38 Total Capital Stock and Retained Earnings39 Total Liabilities and Capital
665,370 734
665 370 734
864 284 416
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A
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(
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ID

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2
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P
M
RESTATED
TOTAL COMPANY
Qwest Corporation
Balance Sheet
(Thousands)
Period: December- 2001
Restated
Assets
Current
1 Cash and Short Term Investments
Receivable
Trade
Other
Total Receivable
Inventories
Prepaid Expenses and Other Current Assets
Total Current Assets
Property, Plant and Equipment
Telecommunications Plant in Service
Telecommunications Plant Under Construction
10 Prop Held for Future Use & Plant Adjustment
11 Non - Operating Plant12 Gross Property, Plant and Equipment
13 Less-Accumulated Deprec. and Amortization14 Total Telephone Plant Less Reserves
15 Investments and Other Assets
16 Total Assets
154 214 267
899 887 634
401 745,805
301 633,440
181 391,047
208,408 014
845 646 768
703,629,573
687 870 817
745,906
46,887 827
42,441 134 123
530,591 951
20,910,542,172
611 428,988
367 617 928
Liabilities
Current
17 Short Term Borrowings
Accounts Payable and Accrued Liabilities18 Accounts Payable - Trade19 Accounts Payable - Other20 Employee Compensation21 Advance Billing and Payments22 Dividend Payable
23 Customers' Deposits24 Other Accrued Liabilities25 Total Acct Payable & Accured Liabilities26 Income Taxes Payable
27 Current Portion long Term Borrowing/Lease
28 Total Current Liabilities
Other
29 Long Term Borrowings
30 Accum Deferred Income Taxes (Non-Current)31 Unamortized Investment Tax Credit
32 Other33 Other Juris Liabilities & Deferred Credits - Net34 Total Other Liabilities
35 Total Liabilities
011 703,889
129,868 627
125 529,355
159 547 064
342,009 568
108 533,442
40,417 085
624,493,866
530 399,008
(87,159 763)
480 346,534
935,289,668
768,703 115
981 063,606
209 254 837
144 782 811
(71 145 763)
032 658,605
967 948,273
Shareholders ' Equity36 Capital Stock & Additional Paid in Capital37 Retained Earnings37 Retained Earnings38 Total Capital Stock and Retained Earnings
321,158,429
921,488,774)
399,669 655
ANNUAL REPORT FORM M
r~ECE!VED i1J
- : ~- ;- f;
ZOO!! rES - 6 At~ 10: ~ 0
.-
:- - ;:,; (')i:\ll,
UnL(rif~s Cor-H~lISSIOH
QWEST CORPORATION
DENVER, COLORADO
TO THE
PUBLIC UTILITY COMMISSION OF IDAHO (NO.
FOR THE
YEAR ENDING DECEMBER 31 , 2001
RESTATED
Office or other person to whom correspondence should be addressed concerning this report:
Name: James M. Schmit Title: Vice President
Address: 999 Main St, 11th Floor City: Boise State: Idaho Zip: 83702
ANNUAL REPORT FORM M
PUBLIC UTILITY COMMISSION OF IDAHO (NO)
TABLE OF CONTENTS
REPORT DESCRIPTION
MR 1, IP Restated Earnings and Expenses
Balance Sheet
ARMIS 43-, IP Restated 5, Analysis of Entries in Accumulated Depreciation
ARMIS 43-02, IP Restated 7, Bases of Charges for Depreciation
MR 1, TOTAL COMPANY Restated Earnings and Expenses
Balance Sheet
RESTATED
IDAHO-NORTH
Qwest Corporation
Summary of Reports
Period December - 2001
Earnings and Expenses
(Lines 1-33 in Thousands)
Restated
Year to Date
Revenue
Local Service
Access Service
Interstate
Intrastate
Long Distance Service
Miscellaneous
Total Revenue
812 156
6,430 829
577 510
571 236
880 919
272 649
Expenses
Cost of Services and Products
Maintenance
Engineering
Network Operations
Network Access
Access
Other
848 555
123 577
174 304
999
329,975
(23 036)
Selling, General and Administrative14 Customer Operations15 Corporate Operations16 Property and Other Operating Taxes17 Uncollectibles18 Total Selling, General and Administrative
19 Other Operating Income and Expense20 Depreciation and Amortization21 Total Operating Expenses22 Income from Operations Before Taxes23 Interest Expense24 Nonoperating Income and Expense
25 Income before Income Taxes
504 248
2,473 135
693,418
134 219
805 021
998 903
326 298
946 351
643 909
649,434
653 008
Income Taxes26 Federal27 State and Local28 Income Before Juris Diff and Extraord Items29 Juris Diff and Nonreg Net Income30 Extraordinary Items
31 Net Income
826 909
692
738 407
(341 499)
079 906
RESTATED
IDAHO-NORTH
Qwest Corporation
Balance Sheet
(Thousands)
Period: December- 2001
Restated
Assets
Current
1 Cash and Short Term Investments
Receivable
Trade
Other
Total Receivable
Inventories
Prepaid Expenses and Other Current Assets
Total Current Assets
Property, Plant and Equipment
Telecommunications Plant in Service
Telecommunications Plant Under Construction10 Prop Held for Future Use & Plant Adjustment
11 Non - Operating Plant12 Gross Property, Plant and Equipment
13 Less-Accumulated Deprec. and Amortization14 Total Telephone Plant Less Reserves
15 Investments and Other Assets
16 Total Assets
402 685
917 008
917 008
769
43,726
422 188
391 624
856
74,440 480
443 324
997 157
906 030
325 374
Liabilities
Current17 Short Term Borrowings
Accounts Payable and Accrued Liabilities18 Accounts Payable - Trade19 Accounts Payable - Other20 Employee Compensation21 Advance Billing and Payments22 Dividend Payable
23 Customers' Deposits24 Other Accrued Liabilities25 Total Acct Payable & Accured Liabilities26 Income Taxes Payable27 Current Portion long Term Borrowing/Lease
28 Total Current Liabilities
Other29 Long Term Borrowings
30 Accum Deferred Income Taxes (Non-Current)31 Unamortized Investment Tax Credit32 Other33 Other Juris Liabilities & Deferred Credits - Net34 Total Other Liabilities35 Total Liabilities
197 690
185 323
673)
678 318
097
356,461
452 216
(70 655)
38,845
1,420,405
486
122 718
881 841
384 774
932 623
359,442
779 847
Shareholders' Equity36 Capital Stock & Additional Paid in Capital37 Retained Earnings37 Retained Earnings38 Total Capital Stock and Retained Earnings39 Total Liabilities and Capital
545,527
545 527
325 374
FC
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e
97
6
20
8
71
4
2,
4
6
5
04
2
0

2
4
2
3

Bu
r
i
e
d

C
a
b
l
e
71
3
99
5
06
3
64
3
04
3
0

2
4
2
4

Su
b
m
a
r
i
n
e

C
a
b
l
e
11
6
12
1
04
4
0

2
4
2
5

D
e
e
p

Se
a

C
a
b
l
e
04
5
0

2
4
2
6

In
t
r
a
b
u
i
l
d
i
n
g

N
e
t
w
o
r
k

C
a
b
l
e
15
4
21
6
04
6
0

2
4
3
1

Ae
r
i
a
l

W
i
r
e
26
3
20
4
04
7
0

2
4
4
1

Co
n
d
u
i
t

S
y
s
t
e
m
s
73
1
27
0
49
1
04
8
0
Ca
b
l
e

a
n
d

W
i
r
e

F
a
c
i
l
i
t
i
e
s
58
4
54
2
15
5
2,
4
8
6
24
,
77
1
04
9
0
To
t
a
l

A
c
c
u
m
u
l
a
t
e
d

D
e
p
r
e
c
i
a
50
,
35
6
95
5
39
6
23
4
39
6