Tab 35 - Uncollectible True-Up Process Table of Contents

Transcription

1 Tab 35 - Uncollectible True-Up Process Table of Contents Overview...2 Uncollectible Bad Debt Allowance...2 Uncollectible True-Ups...3 Detailed Process...3 Quarterly Factors...4 Cash True-Ups...5 Two-Month Reserve Requirements...5 Cash Reserve Funding...6 Adjustment Reserves...6 True-Up Settlements...6 Reports...7 Balancing True-Up Reports to Settlement Discount s...7 Attachment A...8 Quarterly True-Up Report...8 Attachment B...13 IRREVOCABLE LETTER OF CREDIT...13

2 Uncollectible True-Up Process Page 2 of 14 CA, NV January 2006 Overview UNCOLLECTIBLE TRUE-UP PROCESS AT&T Telco s B&C contracts allow for a process which will "true-up" the revenues that have become uncollectibles as a result of messages billed to end-users who have not made payment and have been written-off. These end-users are no longer live accounts in AT&T Telco s billing system. It also trues-up current two month Uncollectible reserves and Adjustment reserves. AT&T Telco deducts an uncollectible bad debt allowance (discount) from each settlement due the B&C Customer to compensate for anticipated uncollectibles experienced on end-users the customer has billed. Effective with the July, 1998, B&C Contracts, the true-up process consists of three parts: 1. Comparing the amount of revenue that has been withheld from the B&C Customer's settlement to the actual revenues that have become uncollectible as determined by AT&T Telco s billing system. 2. Comparing the current period's two-month reserve and the prior period's two-month reserve. (Based on 2/3 of the quarter s actual write-off s.) 3. If the customer is exceeding certain adjustment levels per the contract, compare the current period (3 month) adjustment level and the prior period adjustment level. Uncollectible Bad Debt Allowance AT&T Telco deducts an uncollectible bad debt allowance (discount) from each settlement due the Customer to compensate for uncollectibles experienced on end-users the customer has billed. This discount percentage is known as an uncollectible "factor". Until AT&T Telco can accumulate valid uncollectible data on the customer, the customer is established at a 25% factor for the first two full months of billing. At the end of that period the results are evaluated and could be adjusted to an industry average factor or another surrogate factor acceptable to AT&T Telco that will be calculated and applied to the B&C Customer s accounts receivables. The time frame for deriving a unique factor for a customer is either the past 12 months or the latest 3 months (whichever calculates to the highest factor). The time required is affected by how long it takes the B&C Customer to begin full billing.

3 Uncollectible True-Up Process Page 3 of 14 CA, NV January 2006 The industry average factor is derived by using billed revenues and uncollectibles for Interstate and Intrastate for all states for all customers excluding those whose percentages are out of a normal range due to customer size, product mix, etc. Uncollectible True-Ups After AT&T Telco has determined that enough history is available on a specific Customer's uncollectibles or the customer has realized uncollectibles, an uncollectible true-up process will take place. At the end of a study period, the realized uncollectibles for the study period are divided by the billed revenues (excluding taxes for the same time period), to develop Bad Debt percentages (factors), which will be used on the Purchase of Accounts Receivables Settlements for the next quarter. In addition, the realized uncollectibles are compared to the uncollectibles deducted (accruals) from the Purchase of Accounts Receivable for the same time period. Overages are returned to the B&C Customer and shortages are netted to the customer's Account Receivables Settlements. Detailed Process The Uncollectible True-up process is conducted based upon a period of time defined as a study period. Currently the study period is based upon an eightmonth interval of time and is referred to as a quarterly true-up. Traditional yearly quarters are the source for revenues/accruals and a three month lag is used for the uncollectibles/write-offs. For example, January accruals would be trued-up against April uncollectibles/write-offs, February versus May and March versus June. AT&T Telco has developed the PARS Uncollectible PROCESS (PUP) to perform the true-up. A true-up summary sheet will be included with the reports to the carrier that will reflect all components of the true-up: Uncollectible True-Up Two Month Reserve Requirement Adjustment Reserve Requirement Manual True-Up Adjustment Net Owed Customer or Due AT&T Telco Total Reserve Requirement AT&T is the only carrier that is processed outside of (PUP). AT&T s settlements and true-ups are processed via the Local Exchange Carrier (LEC) system.

4 Uncollectible True-Up Process Page 4 of 14 CA, NV January 2006 Quarterly Factors The quarterly factors are developed by jurisdictions. These jurisdictions are interstate and intrastate. Only AT&T has a third jurisdiction which is international. All factors are calculated in a similar manner. All interstate and intrastate factor calculations are calculated by dividing the summation of the realized uncollectibles by the billed revenues. Currently, the months used in the quarterly development and effective dates of the quarterly factors are: True Up Qtr Revenue Period Uncollectible Period First Quarter June of the Prior September of the (performed Year through May Prior Year through in Current Year August Current Septembercurrent Year year) Second Quarter (performed in December - current year) Third Quarter (performed in Marchfollowing year) Fourth Quarter (performed in Junefollowing year) September of the Prior Year through August Current Year December of 2 Years Prior through November Prior Year March of the Prior Year through February Current Year December of the Prior Year through November Current Year March of the Prior Year through February Current Year June of the Prior Year through May Current Year Effective Date 4 th Quarter Purchases October 1 - Current Year 1 st Quarter Purchases January 1 - Following Year 2 nd Quarter Purchases April 1 - Following Year 3 rd Quarter Purchases July 1 - Following Year AT&T s factors are developed with a slight variation in methodology. Instead of displaying 12 rolling months, the computation is lumped into three-month totals after appropriate adjustments. For example, 1 st quarter accruals would consist of the total discounts for March, April, and May. The uncollectibles would be the total of the realized write-offs for June, July, and August. In the event a negative or zero uncollectible factor occurs, AT&T Telco may utilize either an industry average factor, the customer's prior quarter factor, or another surrogate factor which represents the customer's prior uncollectible history.

5 Uncollectible True-Up Process Page 5 of 14 CA, NV January 2006 Cash True-Ups The quarterly cash true-ups are calculated for all jurisdictions. The cash true-ups are performed for the realized uncollectibles, adjustments twomonth reserve and minimum billing requirements: All realized uncollectibles cash true-ups are calculated by determining the difference between the summation of the discounted amounts and the summation of the realized uncollectibles. The two-month reserve cash true-ups are calculated by determining the difference between the current period s two-month reserve and the prior period s two-month reserve. If an adjustment reserve is required, it is calculated by comparing current adjustment levels to the prior adjustment reserve. If any manual true-up adjustments are required due to system errors involving write-offs or accruals, the total of the manual adjustments will be displayed on the summary report with the details provided on a separate sheet. The above individual cash true-ups are then totaled to determine the quarterly cash true-up total either due to or due from AT&T Telco. Negative total on cash true-ups represents an amount due from AT&T Telco and a positive total on cash true-ups represents an amount due to AT&T Telco. Two-Month Reserve Requirements The two-month reserve requirements are calculated by multiplying the summation of the quarters realized uncollectibles by.667. The.667 represents two-thirds of the quarter, i.e., two months. The two-month reserves are calculated, based on the most recent three months of realized uncollectibles for the current quarter's reserves and the prior three months of realized uncollectibles for the prior quarter's reserve. For example, the three months used in the calculation of the current quarter's reserves for the 2nd quarter would be September, October and November. The three months used in the calculation of the prior quarter's reserves for the 1st quarter would be June, July and August. AT&T Telco s B&C Agreements specify that a two-month uncollectible reserve will be established and maintained by AT&T Telco for each B&C Customer. If approved by AT&T Telco, the two-month reserve requirement may be satisfied with a letter of credit acceptable to AT&T Telco to guarantee the reserve amount. Letters of credit will only be approved for established customers with a stable history of billings with AT&T Telco. The minimum letter of credit level is $250, After the initial establishment of the letter of credit any current cash reserves held may not be returned for a minimum of 90 days. Should the most recent two-month reserve requirement exceed the letter of credit amount the customer must submit a revised letter of credit to the new level within 30 days. In addition, the

6 Uncollectible True-Up Process Page 6 of 14 CA, NV January 2006 difference can be included in the true-up calculation. An example of AT&T Telco requirements for a letter of credit is included at the end of this section as Attachment B. The two-month reserve requirement is established by using the average length of time that it takes for an end-user's account to be written-off. The average range of the length of time, which it takes for an end-user's account to be written-off, is between 45 and 75 days. Therefore, the two-month period of time represents the average of the range. The two-month reserve for all B&C Customers is necessary for AT&T Telco to maintain adequate coverage for future realized uncollectibles. In addition, Generally Accepted Accounting Principles (GAAP) require that assets be valued at net realized value. In order to meet this requirement, the two-month reserve is necessary for AT&T Telco to fairly state those accounts receivables purchased from an interexchange carrier at the net realized value. Cash Reserve Funding The total cash reserve requirement is normally funded by netting against the settlement payments as needed during a quarterly true-up. However, in some cases, it could be satisfied with a letter of credit acceptable to AT&T Telco to guarantee the reserve amount. Should the most recent cash reserve requirement exceed the letter of credit amount, the letter of credit would have to be increased to cover the new level. An example of AT&T Telco requirements for a letter of credit is included at the end of this section as Attachment B. Adjustment Reserves An adjustment reserve is established when a carrier exceeds a predetermined ratio of dollars adjusted to dollars billed. The B&C Product Team will do the calculations and provide Revenue Services with the amount that needs to be on reserve. The current adjustment reserve will be compared against realized adjustments. True-Up Settlements Currently the true-up settlements are produced by AT&T Revenue Services and provided to the Area Manager Finance in ILEC Operations. The Area Manager distributes the true-up settlement reports to the B&C Customer. In addition, these reports are sent to the Sales Managers and to Product Management. True-up amounts that are owed to AT&T are netted on the next available purchase on or after the due date indicated on the reports.

7 Uncollectible True-Up Process Page 7 of 14 CA, NV January 2006 Reports With each quarter close, AT&T Telco produces, via (PUP), a settlement report with supporting reports for each carrier to reflect the true-up. Examples of these reports are in the attachment. The summary report and supporting reports are as follows: Uncollectible True-Up Summary (PUP8000) Interstate Uncollectible Accrual True-Up Worksheet (PUP300W) Reflects Actualized Uncollectibles and Accrual s for Interstate Activity Intrastate Uncollectible Accrual True-Up Worksheet (PUP300W) Reflects Actualized Uncollectibles and Accrual s for Intrastate Activity Interstate Uncollectible Factor Development Report (PUP5350) Reflects the Revenue (Net Billed) and the Realized Uncollectibles/s for the Study Period Intrastate Uncollectible Factor Development Report (PUP5350) Reflects the Revenue (Net Billed) and the Realized Uncollectibles/s for the Study Period Uncollectible True-Up Manual Adjustment Summary (PUP8000M) Reflects the detail of any manual adjustments that were included in the true-up. AT&T True-Up also include a Calculation of Interest Table for IDB as per that B&C Contract Balancing True-Up Reports to Settlement Discount s In order for the B&C Customer to balance the amount of money discounted on each settlement (Bad Debt-Rev) the customer should use the settlement reports with the "Run Dates" corresponding to the months in the true-up period. For example, to balance the fourth quarter true-up, settlements should be used with run dates of December, January and February.

8 Uncollectible True-Up Process Page 8 of 14 CA, NV September 2007 Attachment A Quarterly True-Up Report AT&T Califonia Third Quarter 2005 Uncollectible True-Up Summary For ABC Telephone (12345) - Message Ready PUP8000 QTU Summary 3/24/ :46:03 AM Uncollectible True-Up Interstate true-up amount Intrastate true-up amount $17, ($1,789.06) $15, $15, Two Month Reserve Requirement Current Two Month Reserve Requirement: Qtr Net WOs: $150, x 2/3 Less: Previous Qtr s Reserve Requirement Net Change in Requirement $100, $75, $24, $ Adjustment Reserve Requirement Current Two Month Reserve Requirement: (Reserve required if adjustment amount exceeds 10% Of revenue) Less: Previous Qtr s Reserve Requirement Net Change in Requirement $498, $352, $146, $146, Total Due / Owed on 5/5/2006 $186, Your total current reserve requirement is $599, Positive amounts = Due to AT&T California: Negative s = Due To ABC Telephone

9 Uncollectible True-Up Process Page 9 of 14 CA, NV September 2007 Attachment A-cont. AT&T Califonia Third Quarter 2005 Interstate Uncollectible Accrual True-Up Worksheet For ABC Telephone (12345) - Message Ready PUP300W True_up Worksheet 3/24/ :45:01 AM Revenue Purchase Month Accrual Month $39, $31, $33, $47, $46, $58, Total Accrual for the Quarter: $ Less Accociated Net s: $137, Difference: ($17,025.96) Net interstate s for your company associated with the accounts receivables purchased by AT&T California for the Third Quarter 2005 were greater than the Net Bad Debt discount applied to the accounts receivables for the quarter. As a result, there is an understatement in our Interstate uncollectible reserve for your company. Please see the Summary page for the net amount to be billed or remitted.

10 Uncollectible True-Up Process Page 10 of 14 CA, NV September 2007 Attachment A-cont. AT&T Califonia Third Quarter 2005 Intrastate Uncollectible Accrual True-Up Worksheet For ABC Telephone (12345) - Message Ready PUP300W True_up Worksheet 3/24/ :45:01 AM Revenue Purchase Month Accrual Month $6, $3, $3, $4, $4, $4, Total Accrual for the Quarter: $14, Less Accociated Net s: $12, Difference: $1, Net intrastate s for your company associated with the accounts receivables purchased by AT&T California for the Third Quarter 2005 were less than the Net Bad Debt discount applied to the accounts receivables for the quarter. As a result, there is an overstatement in our Intrastate uncollectible reserve for your company. Please see the Summary page for the net amount to be billed or remitted.

11 Uncollectible True-Up Process Page 11 of 14 CA, NV September 2007 Attachment A-cont AT&T Califonia Second Quarter 2006 Interstate Uncollectible Factor Development Report For ABC Telephone (12345) - Message Ready PUP5350 Factor Development 3/24/ :45:43 AM Revenue Purchase Month Revenue Month Monthly Uncoll. Percent $586, $22, % $680, $22, % $685, $21, % $640, $32, % $362, $23, % $207, $30, % $231, $31, % $260, $31, % $407, $33, % $555, $31, % $454, $47, % $631, $58, % 3 Month Factor Computation ( Months through ): Net Billed Revenue s: 3 Month Factor $1,642, $137, % 12 Month factor Computation ( Months through ) Net Billed Revenue s: 3 Month Factor $5,703, $385, % Uncollectible Factor to be used for Second Quarter 2006: % Factor to be used is the greater of the computed 3 Month Factor or the computed 12 Month Factor

12 Uncollectible True-Up Process Page 12 of 14 CA, NV September 2007 Attachment A-cont. AT&T Califonia Second Quarter 2006 Intrastate Uncollectible Factor Development Report For ABC Telephone (12345) - Message Ready PUP5350 Factor Development 3/24/ :45:43 AM Revenue Purchase Month Revenue Month Monthly Uncoll. Percent $100, $6, % $59, $9, % $58, $7, % $58, $5, % $72, $4, % $93, $4, % $85, $5, % $72, $6, % $72, $5, % $65, $3, % $55, $4, % $64, $4, % 3 Month Factor Computation ( Months through ): Net Billed Revenue s: 3 Month Factor $186, $12, % 12 Month factor Computation ( Months through ) Net Billed Revenue s: 3 Month Factor $860, $68, % Uncollectible Factor to be used for Second Quarter 2006: % Factor to be used is the greater of the computed 3 Month Factor or the computed 12 Month Factor

13 Uncollectible True-Up Process Page 13 of 14 CA, NV September 2007 Attachment B IRREVOCABLE LETTER OF CREDIT NOTE TO BANK: DO NOT USE THIS SHEET FOR THE IRREVOCABLE LETTER OF CREDIT. PLEASE UTILIZE YOUR BANK LETTERHEAD STATIONERY AND FOLLOW THE FORMAT BELOW, INSERTING THE APPROPRIATE INFORMATION. TO: SBC Date: Four SBC Plaza Floor 18 Dallas, TX RE: (Customer's Name) :$ U.S. Dollars Expiration Date: Letter of Credit Number: Gentlemen: At the request and on the behalf of (CUSTOMER NAME), we hereby establish our irrevocable letter of credit in your favor for the sum or sums not exceeding a total of USD $ available by your drafts at sight on Bank, indicating this Letter of Credit number and accompanied by the following documents: 1. Beneficiary s signed statement reading as follows: We certify the (CUSTOMER NAME) is in default of that certain Agreement For the Provision of Billing and Collection Services contract between (CUSTOMER NAME) and Pacific Bell. We further describe the default as follows: (specify) This letter of credit covers all rates and charges previously incurred and to be incurred for services provided by Pacific Bell to the above indicated customer under the Agreement For the Provision of Billing and Collection Services contract. The rates and charges include, but not limited to, true-up balances, uncollectibles and reserves.

14 Uncollectible True-Up Process Page 14 of 14 CA, NV September 2007 Attachment B-cont. (CUSTOMER NAME) and Beneficiary further agree that Beneficiary can draw on the Letter of Credit to pay down adjustments, unbillables, and/or uncollectibles from (CUSTOMER NAME S) billings, that Beneficiary cannot or will be unable to offset against the Purchase of (CUSTOMER NAME S) Accounts Receivables, upon Beneficiary providing a signed statement describing such condition. 2. The original of this Letter of Credit. It is a condition of this, Letter of Credit, that it shall be automatically extended for additional periods, of one year, unless at one hundred twenty (120) days prior to the relevant expiration date we shall notify you in writing by certified mail or express courier that we elect to not consider this Letter of Credit extended for any such additional period. In that event, you may draw hereunder on or prior to the then relevant expiration date, up to the full amount then available hereunder, against your sight draft(s) on us, bearing the number of this letter of credit. We hereby agree with you that all drafts drawn under and in compliance with the terms of this credit will be duly honored upon presentation and delivery of documents as specified to us. We hereby agree to honor at sight each draft drawn under and in compliance with the terms of this irrevocable letter of credit, if duly presented (together with the documents herein specified) within the year(s) covered by the agreement and, additionally, within 45 days following its expiration date, but only for charges incurred prior to the expiration date. Notwithstanding of the expiration date, if you receive payment from (CUSTOMER S NAME) before the expiration date and within 90 days immediately preceding the filing of a petition under the bankruptcy code by or against (CUSTOMER S NAME) or by (CUSTOMER S NAME) making a general assignment for the benefit of creditors, then in that event the expiration date shall be extended for a period of 120 days beyond the date of such filing or the making of such assignment. Our obligations to you hereunder shall be reinstated and remain in full force and effect during such additional period. This credit is subject to the uniform Customs and practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication no Very Truly Yours, By (President or Authorized Officer)