What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-20 compared with 2025-02-20 · 397 added, 256 removed, 89 unchanged (88% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All references to "Notes" in this Item 7 of Part II refer to the Notes to Consolidated Financial Statements included in Item 8 of Part II of this report.

Certain statements in this report constitute forward-looking statements.

See "Special Note Regarding Forward-Looking Statements" immediately prior to Item 1 of Part I of this report for factors relating to these statements and "Risk Factors" in Item 1A of Part I of this report for a discussion of certain risk factors applicable to our business, financial condition, results of operations, liquidity and prospects.

We are a networking company with the goal of connecting people, data, and applications quickly, securely and effortlessly.

We are unleashing the world's digital potential by providing a broad array of integrated products and services to our domestic and global Business customers and our domestic Mass Markets customers.

Our specific products and services are detailed in Note 3—Revenue Recognition and below under the heading "Operations - Products and Services" in Item 1 of Part I of this report.

Our ultimate parent company, Lumen Technologies, Inc., has cash management arrangements or loan arrangements with a majority of its subsidiaries that include lines of credit, affiliate obligations, capital contributions and dividends.

As part of these cash management or loan arrangements, affiliates provide lines of credit to certain other affiliates.

Amounts outstanding under these lines of credit and intercompany obligations vary from time to time.

Under these arrangements, the majority of our cash balance is advanced on a daily basis for centralized management by Lumen's service company affiliate.

From time to time we may declare and pay dividends to Qwest Services Corporation ("QSC"), our direct parent, using cash owed to us under these advances, which has the net effect of reducing the amount of these advances.

We report the balance of these transfers on our consolidated balance sheet as advances to affiliates.

At December 31, 2024, we served approximately 1.6 million broadband subscribers.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides an overview of our financial performance, liquidity, and the business environment in which we operate.

This discussion is intended to help readers understand our results and key factors influencing our operations.

The MD&A should be read together with our audited consolidated financial statements and accompanying notes included in Item 8.

All references to “Notes” in this section refer to the Notes to Consolidated Financial Statements in Item 8.

This section includes forward-looking statements that involve risks and uncertainties.

Actual results may differ materially from those expressed or implied.

For a discussion of these risks, see “Special Note Regarding Forward-Looking Statements” immediately prior to Item 1 and “Risk Factors” in Item 1A.

The MD&A generally discusses results for the years ended December 31, 2025 and 2024, including year-over-year comparisons between these periods.

For discussions of 2023 results and comparisons between 2024 and 2023 that are not in this document, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2024.

We reclassified certain prior period amounts to conform to the current period presentation, including our revenue by product and service categories.

We are a leading digital networking services company, empowering enterprise businesses to fuel growth in a multi-cloud, AI-first marketplace by connecting people, data, and applications quickly, securely, and effortlessly.

We operate in a rapidly evolving landscape with growing demand for secure, high-speed connectivity.

Our strategy focuses on growing and transforming our network and business to deliver next-generation solutions that meet these needs and build the backbone of the AI economy.

As of December 31, 2025, we served approximately 1.2 million broadband subscribers.

Our methodology for counting broadband subscribers may be different than the methodologies used by other companies.

Reporting Segment

For the reasons noted in Note 1—Background and Summary of Significant Accounting Policies, we have determined that we have one reportable segment.

Products, Services and Revenue

We reported our revenue derived from our operations serving our Mass Markets customers, primarily within the first three categories listed below, and our revenue derived from our operations servicing our Business customers, primarily in the 'Harvest', 'Nurture' and 'Grow' categories listed below:

• Other Broadband , under which we provide primarily lower speed broadband services to residential and small business customers utilizing our copper-based network infrastructure;

• Voice and Other, under which we derive revenues from (i) providing local and long-distance services, professional services, and other ancillary services, (ii) federal broadband and state support payments, and (iii) equipment, IT solutions and other services;

• Fiber Broadband , under which we provide high speed broadband services to residential and small business customers utilizing our fiber-based network infrastructure;

• Harvest , which includes our legacy services managed for cash flow, including Time Division Multiplexing voice and private line services;

• Nurture , which includes our more mature offerings, including primarily ethernet;

• Grow , which includes existing and emerging products and services in which we are significantly investing, including our dark fiber and wavelengths services;

• Affiliate Services , which are (i) communications services that we provide to our affiliates and also provide to external customers and (ii) application development and support services that we provide to our affiliates, as described further in Note 14—Affiliate Transactions.

2026 Divestiture

On May 21, 2025, we and certain of our affiliates entered into a definitive agreement to sell our Mass Markets Fiber-to-the-Home business in the Territory to AT&T (the "Mass Markets Fiber-to-the-Home divestiture").

On February 2, 2026, we completed the Mass Markets Fiber-to-the-Home divestiture in exchange for pre-tax cash proceeds of $5.75 billion, subject to post-closing adjustments.

In connection with the sale, we have entered into a transition services agreement under which we will provide to AT&T various support services and certain long-term agreements under which we and AT&T will provide to each other various network and other commercial services.

Products and Services

As of December 31, 2025, our products and services are categorized according to the core technologies that drive them and customer focus.

• Mass Markets category :

Revenue is reported under three product categories:

Other Broadband, Voice and Other, and Fiber Broadband.

• Business category :

Revenue is reported under three product categories:

Grow, Nurture, and Harvest.

• Affiliates category :

Revenue is reported under Affiliate Services.

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

Macroeconomic Changes

Over the past few years, macroeconomic changes have impacted us and our customers in several ways.

We believe macroeconomic changes over the past few years have resulted in (i) increases in certain revenue streams and decreases in others, (ii) operational challenges resulting from inflation and shortages of certain components and other supplies that we use in our business, (iii) delays in our cost transformation initiatives and (iv) delayed decision-making by certain of our customers.

None of these effects, individually or in the aggregate, have to date materially impacted our financial performance or financial position.

Industry developments over the past few years have increased fiber construction demand from customers.

The resulting increase in construction labor rates increased the cost of enabling units to be capable of receiving our Quantum Fiber broadband services.

We believe these factors also occasionally contributed to a delay in attaining our Quantum Fiber buildout targets.

Continued business uncertainty, supply constraints or inflationary pressures could materially impact our financial results in a variety of ways, including by increasing our expenses, decreasing our revenues, further delaying our network expansion plans or otherwise interfering with our ability to deliver products and services.

Our specific products and services are detailed in Note 4—Revenue Recognition.

Cash Management and Intercompany Arrangements

Our ultimate parent company, Lumen Technologies, Inc., maintains cash management and financing arrangements with many of its subsidiaries, including us.

These arrangements include lines of credit, affiliate obligations, capital contributions, and dividends, and allow affiliates to extend lines of credit to other affiliates.

Under these arrangements, most of our cash is advanced daily to Lumen's service company affiliate for centralized management.

We report the resulting balances as advances to affiliates on our consolidated balance sheet.

We may also declare and pay dividends to our direct parent, Qwest Services Corporation (“QSC”), using cash owed to us under these advances, which reduces the outstanding balance of these advances.

Current Business Environment and Macroeconomic Factors

The macroeconomic environment in which we operate remains dynamic and continues to affect our business.

Key factors that have impacted us and our customers include:

• Revenue mix :

Shifts in technology and economic conditions have driven us to continuously review our strategy and as such, we expect to see continued reduction in legacy voice, broadband, and other legacy services, while fueling growth in our strategic products.

• Inflationary pressures :

Rising costs for labor, materials, and energy have increased operating expenses and capital expenditures, particularly for other network transformations.

• Supply constraints :

Shortages of critical components and other materials have slowed certain network expansion efforts.

• Customer behavior :

Certain customers have delayed purchasing decisions, which has occasionally impacted sales cycles.

To date, we do not believe these factors have materially impacted our financial performance or position.

However, ongoing economic and geopolitical uncertainty, tariffs, inflation, and supply constraints could increase costs, reduce revenues, delay network expansion, or disrupt service delivery, which could materially impact our results.

If these conditions persist, our projected cash flows and market capitalization could decline.

For further information relating to these matters, see “— Trends Impacting Our Operations” below and "Risk Factors" in Item 1A.

We are actively managing these challenges through disciplined capital allocation, cost optimization, and strategic investments in network infrastructure.

We believe these actions position us to navigate current macroeconomic conditions while pursuing long-term growth opportunities.

We expect continued demand for high-capacity, low-latency connectivity solutions, supported by enterprise digital transformation and government broadband programs.

While macroeconomic uncertainty and competitive pressures present risks, we believe our transformation initiatives position us to deliver long-term value.

Trends Impacting Our Operations

In addition to the above-described impact of macroeconomic and industry pressures, our consolidated operations have been, and will continue to be, impacted by the following trends:

• Customers' demand for automated products and services and competitive pressures will require that we continue to invest in new technologies and automated processes to improve our customers' experience and reduce our operating expenses.

• The increased use of digital applications, video streaming, gaming, robotics, quantum computing and artificial intelligence has substantially increased demand for robust, scalable network services.

We are continuing to enhance our product and service offerings and taking other steps to enable customers to have access to greater bandwidth and capacity.

• Businesses continue to adopt distributed, global operating models.

We are expanding and enhancing our fiber network, connecting more buildings to our network to generate revenue opportunities and reducing our reliance upon other carriers.

• Changes in customer preferences and in the regulatory, technological and competitive environment are (i) significantly reducing demand for our more mature service offerings, commoditizing certain offerings, or resulting in volume or rate reductions for other offerings and (ii) also creating certain opportunities for us arising out of increased demand for advanced networking services and high-speed, low-latency secure data transmissions.

• The operating margins of several of our newer, more technologically advanced services, some of which may connect to customers through other carriers, are lower than the operating margins on our traditional, on-net wireline services.

• Uncertainties regarding our financial performance and overall leverage of us and our affiliates have caused, and may continue to cause, certain customers and other third parties to avoid transacting business with us.

• Declines in our traditional wireline services and other more mature offerings have necessitated right-sizing our cost structure to remain competitive.

These and other developments and trends impacting our operations are discussed elsewhere in Item 1A and this Item 7.

Our operations are shaped by evolving technology, customer expectations, and market dynamics.

Key trends that impact us, and will continue to impact us, include:

• Automation and digital innovation :

Growing demand for automated experiences and advanced technologies like AI requires ongoing investment in technology and infrastructure to enhance service quality and reduce costs.

• Legacy decline and margin pressure :

Legacy wireline services continue to shrink, while newer offerings often deliver lower margins — especially those involving third-party connectivity — necessitating cost optimization and pricing discipline.

• Globalization and network expansion amid cost pressures :

Distributed business models drive demand for high-capacity, low-latency networks.

We are expanding our network capacity to capture growth, while managing vendor cost increases and dis-synergies from our recently completed divestiture.

• Monetizing network assets with execution risk :

We aim to generate revenue through custom connectivity solutions, by leveraging excess conduit and fiber assets.

These opportunities can be significant but depend on market demand, regulatory conditions, and timely execution.

These and other developments and trends impacting our operations are discussed in "Risk Factors" in Item 1A and elsewhere throughout MD&A.

RESULTS OF OPERATIONS

4 unchanged sentences

Operating expenses 5,757 3,457

Operating income (loss)

Total other expense, net (37) (75)

Income (loss) before income taxes

Operating (loss) income

(1,009) 2,051

Total other income (expense), net

(Loss) income before income taxes

Income tax expense 352 527

Net income (loss)

Net (loss) income

$ (1,327) 1,487

Operating Revenue

The following table summarizes our consolidated operating revenue recorded under our revenue categories described in Note 3—Revenue Recognition:

The following table summarizes our consolidated operating revenue recorded under our revenue categories as described in Note 4—Revenue Recognition in Item 8:

Years Ended December 31, % Change

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Total operating revenue $ 4,748 5,508 (14) %

Total operating revenue decreased by $407 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

Within each revenue category, this decrease was primarily due to:

• Decreases in Other Broadband of $179 million primarily due to fewer customers for our low speed broadband services;

• Decreases in Voice and Other of $68 million due almost entirely to the continued loss of copper-based voice customers;

• Decreases in Fiber Broadband by $96 million driven by fewer subscribers for our fiber services, primarily as a result of migrations to the Quantum Fiber services offered by Lumen (which bills customers for such services and pays us for use of our network in providing such services, as further described below);

• Decreases in Harvest of $108 million primarily attributable to (i) declines in legacy voice services for Business customers of $57 million, (ii) lower unbundled network elements revenue of $21 million and (iii) a decrease in private line services of $12 million;

• Decreases in Nurture of $36 million primarily due to declines in Ethernet services for Business customers;

• Decreases in Grow of $10 million primarily due to declines in wavelengths services for Business customers;

• Increases in Affiliate Services of $90 million primarily due to a $43 million increase in fiber broadband and other direct telecommunication services provided to our affiliates, and $47 million of additional employee shared services expense allocated to our affiliates.

Operating revenue decreased $760 million in 2025 compared to 2024.

The following were the primary drivers within each revenue category:

• Other Broadband decreased $170 million in 2025.

This was primarily as a result of:

◦ fewer Mass Market customers for our low speed copper-based broadband services.

• Voice and Other decreased $74 million in 2025.

This was primarily as a result of:

◦ the continued loss of copper-based Mass Market voice customers;

◦ a decrease of $11 million due to the voluntary relinquishment of our funding received under the FCC's Rural Digital Opportunity Fund (“RDOF”) in the second quarter of 2025.

See the "Liquidity and Capital Resources—Federal Broadband Support Programs" below for more information.

• Fiber Broadband decreased $63 million in 2025.

This was primarily as a result of:

◦ fewer Mass Market subscribers for our fiber services, primarily resulting from customers migrating to the Quantum Fiber services offered by Lumen (which bills customers for such services and pays us for use of our network in providing such services, as further described below).

• Harvest decreased $108 million in 2025.

This was primarily as a result of:

◦ a decrease of $64 million in legacy voice services for Business customers;

◦ a decrease of $39 million in legacy private line services.

• Nurture decreased $27 million in 2025.

This was primarily as a result of:

◦ a decrease of $30 million in Ethernet services.

• Grow decreased $4 million in 2025, which was relatively flat period over period.

• Affiliate Services decreased $314 million in 2025.

This was primarily as a result of:

◦ a decrease of $303 million in wavelengths services provided to our affiliates;

◦ a decrease of $77 million in Ethernet services and other direct legacy telecommunication services provided to our affiliates;

◦ an offsetting increase of $67 million in fiber broadband services provided to our affiliates.

Operating Expenses

The following table summarizes our consolidated operating expenses;

however, these expense categories may not be comparable to those of other companies::

Years Ended December 31, % Change

3 unchanged sentences

Selling, general and administrative

438 478 (8) %

Net loss on disposal group held for sale 235 — nm

Operating expenses-affiliates

761 796 (4) %

Depreciation and amortization

4 unchanged sentences

nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful.

These expense classifications may not be comparable to those of other companies.

Cost of Services and Products (exclusive of depreciation and amortization)

Cost of services and products (exclusive of depreciation and amortization) are expenses incurred in providing products and services to our customers.

These expenses include employee-related expenses directly attributable to operating and maintaining our network (such as salaries, wages, benefits and professional fees);

facilities expenses (which include third-party telecommunications expenses we incur for using other carriers' networks to provide services to our customers);

rents and utilities expenses;

equipment expenses (such as modem expenses);

costs incurred in connection with our participation in universal service funds (which are state funds that are established to promote the availability of telecommunications services to all consumers at reasonable and affordable rates);

and certain legal and other expenses directly related to our operations.

Cost of services and products (exclusive of depreciation and amortization) decreased by $103 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023 primarily due to lower employee-related expenses of $71 million and lower facilities costs of $35 million.

Cost of services and products (exclusive of depreciation and amortization) decreased $56 million in 2025 compared to 2024.

This was primarily as a result of:

• a decrease of $78 million in employee-related expenses;

• an offsetting increase of $24 million in network expenses.

Selling, General and Administrative

Selling, general and administrative expenses are expenses incurred in selling products and services to our customers, corporate overhead and other operating expenses.

These expenses include:

employee-related expenses (such as salaries, wages, internal commissions, benefits and professional fees) directly attributable to selling products or services and employee-related expenses for administrative functions;

marketing and advertising expenses;

property and other operating taxes and fees;

external commissions;

legal expenses associated with general matters;

bad debt expense;

and other selling, general and administrative expenses.

Selling, general and administrative expenses decreased by $40 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023 primarily due to (i) a decrease of $18 million in marketing and advertising expense, (ii) a decrease of $17 million in bad debt expense, (iii) a decrease of $17 million in external commissions and (iv) a decrease of $11 million related to gains on various real estate and other operating asset sales during the year.

These decreases were partially offset by an increase of $31 million in employee related expenses, inclusive of severance costs.

Selling, general and administrative expenses increased $18 million in 2025 compared to 2024.

This was primarily as a result of:

• an increase of $21 million from the sale of operating assets and associated gain recognized in the fourth quarter of 2024;

• an increase of $13 million in professional fees;

• an increase of $12 million in fees related to our voluntary relinquishment of FCC Rural Digital Opportunity Fund (“RDOF”) funding in the second quarter of 2025;

• an offsetting decrease of $11 million in bad debt expense.

Net Loss on Disposal Group Held for Sale

For a discussion of the loss on the disposal group held for sale that we recognized for the year ended December 31, 2025, see Note 2—Divestiture in Item 8.

Operating Expenses-Affiliates

Operating expenses-affiliates decreased by $35 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The decrease was primarily due to a decrease of $18 million in direct telecommunication services charged to us by affiliates and a decrease of $17 million of lower allocated employee and professional services provided to us by our affiliates.

Operating expenses - affiliates increased $159 million in 2025 compared to 2024.

This was primarily as a result of:

• an increase of $166 million in allocated employee and corporate expense provided to us by our affiliates which includes the impact of (i) higher overall professional fees related to our recently completed divestiture and ongoing modernization and simplification strategies (ii) increased employee-related expenses and (iii) the impact of ongoing adjustments to the basis for allocations of cost shared amongst affiliates in normal course of business;

• an offsetting decrease of $9 million in direct telecommunication services provided to us by affiliates

Depreciation and Amortization

5 unchanged sentences

Total depreciation and amortization $ 685 753 (9) %

$ 753 823 (9) %

Depreciation expense decreased by $44 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to a decrease of $77 million resulting from changes in the method of depreciation from the group method of depreciation to the straight line by individual asset method and a decrease of $24 million due to changes in depreciation lives of fiber assets as discussed in Note 1—Background and Summary of Significant Accounting Policies.

These decreases were partially offset by an increase of $57 million due to net growth in depreciable assets.

Amortization expense decreased by $26 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to a decrease of $24 million associated with changes in the method of amortization from the group method to straight line by individual asset method.

Goodwill Impairment

Depreciation decreased $60 million in 2025 compared to 2024.

This was primarily as a result of:

• a decrease of $69 million due to the discontinuation of the depreciation of the tangible assets of the Lumen Mass Markets Fiber-to-the-Home business held for sale during the second quarter of 2025;

• an offsetting increase of $9 million in net growth in depreciable assets;

Amortization decreased $8 million in 2025 compared to 2024.

This was primarily as a result of:

• a decrease in the net amount of amortizable assets.

Goodwill Impairments

We are required to perform impairment tests related to our goodwill annually, which we perform as of October 31, or sooner if an indicator of impairment occurs.

When we performed a qualitative impairment test during the fourth quarter of 2024, we concluded it was more likely than not that the estimated fair value of our reporting unit was greater than our carrying value of equity as of our testing date.

Therefore, we concluded no impairment existed as of our annual assessment date in the fourth quarter of 2024.

During the second quarter of 2023, the Company determined circumstances existed indicating it was more likely than not that the carrying value of our reporting unit exceeded its fair value.

Given the continued erosion in Lumen's market capitalization, we determined our quantitative impairment analysis would estimate the fair value of our reporting unit using only the market approach.

When we performed the impairment test during the second quarter of 2023, we concluded the estimated fair value of our reporting unit was greater than the carrying value of equity as of our testing date.

Therefore, we concluded that goodwill was not impaired as of June 30, 2023.

When we performed an impairment test during the fourth quarter of 2023, we concluded the estimated fair value of our reporting unit was less than the carrying value of equity as of our testing date.

As a result, we recorded a non-cash, non-tax-deductible goodwill impairment charge aggregating to $2.4 billion for the year ended December 31, 2023.

When we performed our impairment test during the fourth quarter of 2022, we concluded the estimated fair value of our reporting unit was greater than our carrying value of equity as of our testing date.

Therefore, we concluded no impairment existed as of our annual assessment date in the fourth quarter of 2022.

These above-mentioned macroeconomic factors, coupled with dis-synergies resulting from our affiliates' 2022 and 2023 divestitures, changes in customer preferences and negotiations with our creditors throughout 2024, placed additional pressures on our financial performance.

These developments contributed to us recognizing $2.4 billion in goodwill impairment charges in the fourth quarter of 2023.

Some of these pressures continue to impact us.

To the extent these pressures continue, we could experience additional deterioration in our projected cash flows, or make significant changes to the assumed discount rates or market multiples that we use to determine the fair value of our reporting unit.

Any of these could result in additional future impairments of our approximately $7.0 billion of remaining goodwill.

See Note 2—Goodwill and Other Intangible Assets to our consolidated financial statements in Item 8 of Part II of this report for further details on these tests and impairment charges.

When we performed a qualitative impairment test during the fourth quarter of 2025, and concluded the estimated fair value of our equity was less than our carrying value of equity at October 31, 2025.

As a result, we recorded a non-cash, non-tax-deductible goodwill impairment charge of $2.0 billion on October 31, 2025.

During the second quarter of 2025, we determined that the classification of the Lumen Mass Markets Fiber-to-the-Home business in the Territory as held for sale, as described in Note 2—Divestiture, was considered an event or change in circumstance which required an assessment of our goodwill for impairment as of April 30, 2025.

Based on our assessments performed, the estimated fair value of our equity exceeded our carrying value of equity and therefore concluded that we had no impairment as of our April 30, 2025 assessment date.

For a discussion of the goodwill impairment we recognized in 2025, see Note 3—Goodwill and Intangible Assets in Item 8.

Other Consolidated Results

5 unchanged sentences

Other income, net

Total other expense, net

$ (37) (75) (51) %

Total other income (expense), net

Income tax expense $ 352 527 (33) %

_______________________________________________________________________________

nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful.

Interest Expense

Interest expense decreased by $33 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The decline was primarily due to (i) a decrease of approximately $114 million in average net outstanding debt and (ii) an increase of capitalized interest of $21 million.

See Note 6—Long-Term Debt and Note Payable - Affiliate and Liquidity and Capital Resources below for additional information about our debt.

Interest expense increased $29 million in 2025 compared to 2024.

This was primarily as a result of:

• a decrease of $40 million decrease in capitalized interest;

• an offsetting decrease in average interest rate from 6.75% to 6.70%;

• an offsetting decrease in average outstanding long-term debt of $150 million.

Interest Income - Affiliate, Net

Interest income - affiliate, net increased by $9 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The increase in interest income - affiliate, net was primarily due to a higher average receivable from affiliate.

Additionally, the average interest rate increased from 5.07% for the year ended December 31, 2023 to 5.36% to the year ended December 31, 2024.

Interest income - affiliate increased $65 million in 2025 compared to 2024.

This was primarily as a result of:

• a higher average receivable from affiliate, inclusive of our note-receivable - affiliates.

See Note 14—Affiliate Transactions in Item 8 for more information on these facilities.

Income Tax Expense

For the years ended December 31, 2024 and 2023, our effective income tax rate was 26.2% and (207.8)%, respectively.

The effective tax rate for the year ended December 31, 2023 includes a $505 million unfavorable aggregate impact of non-deductible goodwill impairment.

See Note 12—Income Taxes to our consolidated financial statements in Item 8 of Part II of this report and "Critical Accounting Policies and Estimates—Income Taxes" below for additional information.

For additional information on income taxes, see Note 12—Income Taxes.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles that are generally accepted in the United States.

The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenue and expenses.

We have identified certain policies and estimates as critical to our business operations and the understanding of our past or present results of operations related to (i) goodwill and other intangible assets, (ii) affiliate transactions and (iii) income taxes.

These policies and estimates are considered critical because they had a material impact, or they have the potential to have a material impact, on our consolidated financial statements and because they require us to make significant judgments, assumptions or estimates.

We believe that our estimates, judgments and assumptions made when accounting for the items described below were reasonable, based on information available at the time they were made.

However, actual results may differ from those estimates, and these differences may be material.

Goodwill and Other Intangible Assets

We have a significant amount of goodwill that is assessed at least annually for impairment.

At December 31, 2024, goodwill and intangible assets totaled $7.0 billion, or 41%, of our total assets.

The impairment analyses of these assets are considered critical because of their significance to us and our segments and the subjective nature of certain assumptions used to estimate fair value.

Intangible assets arising from business combinations, such as goodwill and capitalized software are initially recorded at estimated fair value.

We amortize capitalized software using the straight-line method primarily over estimated lives ranging up to seven years.

We annually review the estimated lives and methods used to amortize our other intangible assets.

The amount of future amortization expense may differ materially from current amounts, depending on the results of our annual reviews.

Our goodwill was derived from Lumen's acquisition of us where the purchase price exceeded the fair value of the net assets acquired.

We are required to assess our goodwill for impairment annually, or more frequently if an event occurs or circumstances change that indicates it is more likely than not the fair values of any of our reporting units were less than their carrying values.

In assessing goodwill for impairment, we may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

Our annual impairment assessment date for goodwill was October 31, at which date we compared our estimated fair value of equity of our reporting unit to the carrying value of equity.

If the estimated fair value was greater than the carrying value, we concluded no impairment exists.

If the estimated fair value was less than the carrying value, we recorded a non-cash impairment charge equal to the excess amount.

Depending on the facts and circumstances, we typically estimated the fair value by considering either or both of (i) a discounted cash flow method, which was based on the present value of projected cash flows over a discrete projection period and a terminal value, which was based on the expected normalized cash flows following the discrete projection period, and (ii) a market approach, which included the use of multiples of publicly-traded companies whose services were comparable to ours.

With respect to our analysis using the discounted cash flow method, the timing and amount of projected cash flows under these forecasts required estimates developed from our long-range plan, which is informed by wireline industry trends, the competitive landscape, product lifecycles, operational initiatives, capital allocation plans and other company-specific and external factors that influence our business.

These projected cash flows considered recent historical results and are consistent with the Company's short-term financial forecasts and long-term business strategies.

Due to inherent uncertainties, actual cash flows could vary significantly from our projected cash flows.

Our determination of the discount rate was based on a weighted average cost of capital approach, which used a market participant’s cost of equity and after-tax cost of debt and reflects certain risks inherent in the projected cash flows.

With respect to our analysis using the market approach, the fair value was estimated based upon a market multiple applied to revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted for an appropriate control premium based on recent market transactions.

The fair value of our reporting unit was estimated under the market approach, using these revenue and EBITDA market multiples weighted depending on the characteristics of our reporting unit.

We performed sensitivity analyses that considered a range of discount rates and a range of EBITDA market multiples and we believe the estimates, judgments, assumptions and allocation methods used by us were reasonable.

Nonetheless, changes in any of them can significantly affect whether we must incur impairment charges, as well as the size of such charges.

For additional information on our goodwill balances and results of our impairment analyses, see Note 2—Goodwill and Other Intangible Assets for additional information.

Affiliate Transactions

We recognize intercompany charges for the amounts billed to us by our affiliates and we recognize intercompany revenue for services we bill to our affiliates.

Because of the significance of the services we provide to our affiliates and our other affiliate transactions, the results of operations, financial position and cash flows presented herein are not necessarily indicative of the results of operations, financial position and cash flows we would have achieved had we operated as a stand-alone entity during the periods presented.

As it relates to telecommunications services provided to our affiliates, we expect a significant reduction to affiliate revenue for the fiscal year ended December 31, 2025.

This is primarily due to the repricing of certain services to align with lower market rates including certain transport services, along with the termination of certain affiliate circuits that are no longer required to support services provided to our external customers.

See Note 13—Affiliate Transactions for additional information.

We are included in the consolidated federal income tax return of Lumen Technologies.

Lumen Technologies treats our consolidated results as if we were a separate taxpayer.

We are required to pay our tax liabilities to Lumen Technologies based upon our separate return taxable income.

We are also included in the combined state tax returns filed by Lumen Technologies.

Our provision for income taxes includes amounts for tax consequences deferred to future periods.

We record deferred income tax assets and liabilities reflecting future tax consequences attributable to tax credit carryforwards and differences between the financial statement carrying value of assets and liabilities and the tax bases of those assets and liabilities.

Deferred taxes are computed using enacted tax rates expected to apply in the year in which the differences are expected to affect taxable income.

The effect on deferred income tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date.

The measurement of deferred taxes often involves the exercise of considerable judgment related to the realization of tax basis.

Our deferred tax assets and liabilities reflect our assessment that tax positions taken in filed tax returns and the resulting tax basis are more likely than not to be sustained if they are audited by taxing authorities.

Assessing tax rates that we expect to apply and determining the years when the temporary differences are expected to affect taxable income requires judgment about the future apportionment of our income among the states in which we operate.

Any changes in our practices or judgments involved in the measurement of deferred tax assets and liabilities could materially impact our financial condition or results of operations.

See Note 12—Income Taxes for additional information.

For 2025 and 2024, our effective income tax rate was (36.1)% and 26.2%, respectively.

The effective tax rate for 2025 includes $421 million of unfavorable impact due to a non-deductible goodwill impairment.

For additional information, see Note 13—Income Taxes in Item 8 and "Critical Accounting Estimates — Income Taxes" below.

LIQUIDITY AND CAPITAL RESOURCES

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As such, factors relating to, or affecting, Lumen's liquidity and capital resources could have material impacts on us, including impacts on our credit ratings, our access to capital markets and changes in the financial market's perception of us.

As part of these cash management or loan arrangements, affiliates provide lines of credit to certain other affiliates.

Amounts outstanding under these lines of credit and intercompany obligations vary from time to time.

Under these arrangements, the majority of our cash balance is advanced on a daily basis for centralized management by Lumen's service company affiliate.

From time to time we may declare and pay dividends to QSC, our direct parent, sometimes in excess of our earnings to the extent permitted by applicable law, using cash owed to us under these advances, which has the net effect of reducing the amount of these advances.

Our debt covenants do not currently limit the amount of dividends we can pay to QSC.

Given our cash management arrangement with our ultimate parent, Lumen Technologies, Inc., and the resulting amounts due to us from Lumen Technologies, Inc., a significant component of our liquidity is dependent upon Lumen's ability to repay its obligation to us.

We anticipate that our future liquidity needs will be met through (i) our cash provided by our operating activities, (ii) amounts due to us from Lumen Technologies, (iii) our ability to refinance QC's debt securities to the extent permitted under applicable debt covenants, and (iv) capital contributions, advances or loans from Lumen Technologies or its affiliates if and to the extent they have available funds or access to available funds that they are willing and able to contribute, advance or loan.

See note under "Results of Operations—Goodwill Impairment" for consideration of the potential for additional goodwill impairments in future quarters.

The Inflation Reduction Act, enacted in 2022, among other things, implemented a new federal corporate alternative minimum tax (“CAMT”) on adjusted financial statement income effective for tax periods occurring after December 31, 2022.

The CAMT had no material impact on our financial results as of December 31, 2024.

In addition, in 2021 the Organization for Economic Co-operation and Development ("OECD") has issued Pillar Two model rules introducing a new global minimum corporate tax of 15% and the OECD and the majority of its participating countries continue to work toward the enactment of such tax.

While the U.S.

has not adopted Pillar Two legislation, various other governments around the world have enacted such legislation that is effective for tax periods after December 31, 2023.

These global minimum tax rules have increased our administrative and compliance burdens, but the impact to our financial statements for the year ended December 31, 2024 was immaterial.

We anticipate further legislative activity and administrative guidance throughout 2025 and continue to monitor evolving global tax legislation.

Our primary sources of liquidity are:

• cash from operating activities;

• amounts due to us from Lumen Technologies,

• our ability to refinance our debt obligations;

• capital contributions, advances, or loans from Lumen Technologies or its affiliates.

Key balances as of December 31, 2025 included:

• Cash and cash equivalents :

• Note receivable-affiliate :

• Total consolidated indebtedness :

As of December 31, 2025, $35 million of our cash and cash equivalents were held in foreign bank accounts for funding our foreign operations.

Due to various factors, our access to foreign cash is generally more restricted than our access to domestic cash.

We regularly review liquidity and capital allocation strategies with senior management and the Board of Directors, adjusting as strategies and conditions change.

Based on current assumptions, we believe our liquidity sources — operating cash flows, available cash, and credit capacity — will be sufficient to fund near-term requirements and strategic investments.

For additional information on risks that could affect liquidity, see “Risk Factors — Financial Risks” in Item 1A.

Cash Management and Intercompany Arrangements

We participate in Lumen Technologies, Inc.’s centralized cash‑management and intercompany financing arrangements, under which most of our cash held in U.S.

banks is advanced daily to a Lumen service company affiliate for cash management.

Under these arrangements affiliates may extend lines of credit to other affiliates.

Intercompany lines of credit and other affiliate obligations cause our balances with Lumen and its affiliates to fluctuate.

From time to time, we may declare and pay dividends to QSC, including amounts in excess of current earnings when permitted by law, using cash owed to us under these advances, which reduces the outstanding balance.

Our debt covenants do not currently restrict the amount of dividends we can pay to QSC.

A significant component of our liquidity consists of amounts due from Lumen under these arrangements;

accordingly, our liquidity depends on Lumen’s ability to repay its obligations to us.

Cash Flow Activities

The following table summarizes our consolidated cash flow activities:

Years Ended December 31, $ Change

(Dollars in millions)

Net cash provided by operating activities

$ 1,762 2,194 (432)

Net cash used in investing activities (1,512) (1,891) (379)

Net cash used in financing activities

(238) (287) (49)

Operating Activities

Net cash provided by operating activities decreased $432 million in 2025 compared to 2024.

This was primarily as a result of:

• lower net income adjusted for non-cash income and expenses

Cash provided by operating activities is subject to variability period over period as a result of timing differences, including with respect to collection of receivables and payments of interest expense, accounts payable and bonuses.

For additional information about our operating results, see "Results of Operations" above.

Investing Activities

Net cash used in investing activities decreased $379 million in 2025 compared to 2024.

This was primarily as a result of:

• a decrease in advances to affiliates;

• a decrease in capital expenditures;

• an offsetting increase due to the issuance of a note receivable - affiliate.

Financing Activities

Net cash used in financing activities decreased $49 million in 2025 compared to 2024 .

This was primarily as a result of:

• a decrease resulting from the timing of repayments of advances from affiliates;

• an offsetting increase due to higher repayments of debt in 2025 as compared to 2024.

Short-term Liquidity Needs

As of December 31, 2025, we held cash and cash equivalents of $39 million, which together with cash generated from operating activities.

This, along with Lumen’s outstanding obligations to us as described above, represent our primary sources of liquidity for the next 12 months.

Additionally, we anticipate being assigned a portion of the proceeds from the recently completed Mass Markets Fiber-to-the-Home divestiture from Lumen through our cash management and intercompany arrangements previously described.

Based on our current capital allocation objectives, we project expenditures for the next 12 months to include, among others, the following:

• RDOF relinquishment :

$26 million for remittance of awards and associated fees — see "Federal Broadband Support Programs" below for further details.

We expect to fund these expenditures primarily through operating cash flows, supplemented by available cash and borrowing capacity as needed.

Based on current assumptions, we believe our liquidity sources will be sufficient to fund near-term requirements and strategic investments.

For additional information on short-term liquidity needs, see “Future Contractual Obligations” below.

Long-term Liquidity Needs

Beyond the next 12 months, we plan to refinance a substantial portion of maturing debt through future debt issuances, subject to market conditions and covenant restrictions.

Our ability to access capital markets depends on credit ratings and prevailing interest rates, and we cannot assure favorable terms for future borrowings.

We may also consider other sources of liquidity, such as equity offerings or asset dispositions, depending on market conditions.

For additional information on our credit ratings and factors that may affect our access to capital markets, see “— Future Debt Transactions” below.

For additional information on long-term liquidity needs, see “Future Contractual Obligations” below.

Impact of Strategic Transactions on Liquidity

Our liquidity and capital resources have been influenced by several strategic actions aimed at optimizing our financial position, enhancing flexibility, and supporting long-term transformation initiatives.

Key actions include:

• Recent divestiture :

The 2026 Mass Markets Fiber-to-the-Home divestiture generated significant cash proceeds but reduced recurring operating cash flows.

The Mass Markets Fiber-to-the-Home divestiture is also expected to reduce Lumen's Mass Markets fiber-related capital expenditures by approximately $1 billion annually.

While this transaction is expected to reduce recurring revenue and operating cash flows, we believe it will sharpen our focus on enterprise and fiber growth and deliver significant cash proceeds to strengthen our financial position.

We expect these and future transactions to influence cash flows, leverage, and investment capacity.

While divestitures provide immediate liquidity and support network expansion, they also introduce variability in operating cash flows.

We will continue to pursue opportunities aligned with our capital allocation priorities and market conditions.

Capital Expenditures

We incur capital expenditures on an ongoing basis in order to expand and improve our service offerings, enhance and modernize our networks, and compete effectively in our markets.

Lumen Technologies and we evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and the expected return on investment.

The amount of Lumen’s consolidated capital investment, and our portion thereof, is influenced by, among other things, demand for Lumen’s services and products, our network requirements, cash flow generated by operating activities, cash required for debt services and other purposes, regulatory considerations (such governmentally mandated infrastructure buildout requirements), and the availability of requisite supplies, labor and permits.

Our capital expenditures continue to be focused on enhancing network operating efficiencies, supporting new service developments, and expanding our fiber network, including our Quantum Fiber buildout plan.

For more information on our capital spending, see "Business" and "Risk Factors" in Items 1 and 1A, respectively, of Part I of this report.

Debt and Other Financing Arrangements

On March 22, 2024, Lumen completed debt modification transactions with a group of consenting debtholders representing over $15.0 billion of Lumen's outstanding consolidated long-term debt to, among other things, (i) extend maturities of the debt instruments of Lumen and Level 3 Financing, (ii) fund the repayment of all amounts owed under our term loan maturing in 2027 and (iii) provide for us and certain of our subsidiaries to guarantee Lumen’s obligations under its newly-established credit agreements and newly-issued superpriority senior notes.

We regularly invest in capital projects to expand and improve services, enhance and modernize networks, and strengthen our competitive position.

Discretionary projects are evaluated by us and Lumen Technologies based on strategic impact such as revenue growth, productivity, service levels, customer retention, and expected return on investment.

Lumen's consolidated capital spending is influenced by demand, contractual and regulatory requirements, cash flow, and resource availability.

We expect capital spending to be focused on:

• expanding our fiber network, including our other network capacity buildout plan;

• modernizing and enhancing network efficiency and reliability;

• developing new services;

• replacing aging network assets.

These investments aim to improve service quality, drive innovation, and position us to meet future demand.

For additional details on our capital spending, see “Cash Flow Activities — Investing Activities ” above, "Business" in Item 1, and "Risk Factors" in Item 1A.

Debt Instruments and Financing Arrangements

Debt Instruments

As of December 31, 2025, we had approximately $1.7 billion aggregate outstanding indebtedness (excluding finance leases, unamortized premiums, net, unamortized debt issuance costs, and Note Payable - Affiliate).

$237 million of our outstanding debt is due in the next 12 months (excluding finance lease obligations).

None of our outstanding debt is due in the next 12 months (excluding finance lease obligations).

See the details of our outstanding indebtedness as of December 31, 2025 in Note 7—Long-Term Debt and Note Payable - Affiliate of Item 8.

Future Debt Transactions

Subject to market conditions, and to the extent permitted under applicable debt covenants, Qwest Corporation may issue debt securities from time to time primarily to refinance a portion of our maturing debt.

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Agency Credit Ratings

Standard & Poor's B-

Moody's Investors Service, Inc.

Fitch Ratings B+

Lumen's and Qwest Corporation's credit ratings are reviewed and adjusted from time to time by the rating agencies.

Any future changes in the senior unsecured or secured debt ratings of us or our subsidiaries could impact our access to capital or borrowing costs.

We cannot provide any assurances that we will be able to borrow additional funds on favorable terms, or at all.

See "Risk Factors—Financial Risks" in Item 1A of Part I of this report.

From time to time over the past couple of years, we have engaged in various debt refinancings, redemptions, tender offers, exchange offers, open market purchases and other transactions designed principally to reduce our consolidated indebtedness, extend our debt maturities, improve our financial flexibility or otherwise enhance our debt profile.

Subject to market conditions, restrictions under our debt covenants, and other limitations, we expect to opportunistically pursue similar transactions in the future to the extent feasible.

See Note 6—Long-Term Debt and Note Payable - Affiliate to our consolidated financial statements in Item 8 of Part II of this report for additional information.

Standard & Poor's B

Fitch Ratings (1)

_______________________________________________________________________________

(1) In February 2026, Moody's and Fitch upgraded our issuer default rating.

Future changes in these ratings — or Lumen's ratings — could impact our access to capital and borrowing costs.

We cannot be certain that we will be able to borrow additional funds on favorable terms, or at all.

See "Risk Factors—Financial Risks" in Item 1A.

Note Receivable - Affiliate

On March 31, 2025, we entered into an unsecured revolving promissory note with our ultimate parent company, Lumen Technologies.

The note allows Lumen to borrow up to $3.0 billion from us at an annual interest rate of 8.3%.

Borrowings are payable on demand and may be prepaid at any time, but no later than March 31, 2030.

The note will automatically renew on the maturity date for successive 12-month periods unless we elect otherwise.

The facility includes covenants and other limitations.

As of December 31, 2025, we had $937 million owed to us under this promissory note.

For more information, see Note 14—Affiliate Transactions.

Note Payable - Affiliate

We are permitted to borrow up to $2.0 billion from our parent Lumen Technologies under a revolving promissory note.

On September 30, 2022, we repaid all amounts owed to Lumen Technologies under this promissory note.

Since that time, we have not owed any amounts to Lumen Technologies under this promissory note.

For more information, see "Note Payable—Affiliate" in Note 6—Long-Term Debt and Note Payable - Affiliate — to the financial statements appearing elsewhere herein.

Future Contractual Obligations

Our estimated future obligations as of December 31, 2024 include both current and long term obligations.

Related to debt, as noted in Note 6—Long-Term Debt and Note Payable - Affiliate, we have long-term obligations of $1.7 billion, with $239 million of current maturities and no obligations related to note payable - affiliate, as discussed above.

Under our operating leases as noted in Note 4—Leases, we have a current obligation, including interest, of $20 million and a long-term obligation of $64 million.

As noted in Note 14—Commitments, Contingencies and Other Items, we have a current obligation related to right-of-way agreements and purchase commitments of $38 million and a long-term obligation of $143 million.

Additionally, we have a current obligation for asset retirement obligations of $5 million and a long-term obligation of $24 million.

We periodically pay dividends to QSC, our direct parent company, which reduce our capital resources for debt repayments and other purposes.

For additional information, see (i) our consolidated statements of cash flows and stockholder's equity and (ii) Note 17—Stockholder's Equity.

We are permitted to borrow up to $2.0 billion from our ultimate parent Lumen Technologies under a revolving promissory note.

As of December 31, 2025, nothing was due under this promissory note.

For more information, see Note 7—Long-Term Debt and Note Payable - Affiliate in Item 8.

Pension and Post-Retirement Benefit Obligations

Lumen Technologies is subject to material obligations under its existing defined benefit pension plans and post-retirement benefit plans.

At December 31, 2024, the accounting unfunded status of Lumen's qualified and non-qualified defined benefit pension plans and qualified post-retirement benefit plans was approximately $645 million and $1.7 billion, respectively.

See Note 10—Employee Benefits to the consolidated financial statements in Item 8 of Part II of this report and Note 11—Employee Benefits to the consolidated financial statements in Item 8 of Part II of Lumen's annual report on Form 10-K for the year ended December 31, 2024 for additional information about our and Lumen's pension and post-retirement benefit arrangements.

Lumen Technologies maintains significant pension and post-retirement benefit plans that require ongoing cash outflows and could affect our liquidity and financial flexibility.

These obligations are sensitive to market conditions and actuarial assumptions, and adverse changes could increase funding requirements and reduce cash available for other uses.

A substantial portion of our active and retired employees participate in Lumen's qualified pension plan and post-retirement benefit plans.

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Prior to the pension plan merger, the above-noted employees participated in the QCII pension plan.

Benefits paid by Lumen's qualified pension plan are paid through a trust that holds all of the plan's assets.

Based on current laws and circumstances, Lumen Technologies does not expect any contributions to be required for their qualified pension plan during 2025.

The amount of required contributions to Lumen's qualified pension plan in 2026 and beyond will depend on a variety of factors, most of which are beyond their control, including earnings on plan investments, prevailing interest rates, demographic experience, changes in plan benefits and changes in funding laws and regulations.

Lumen Technologies occasionally makes voluntary contributions in addition to required contributions and reserves the right to do so in the future.

Lumen made a voluntary contribution of $170 million to the trust for the Combined Pension Plan in 2024.

Lumen Technologies has advised that it does not expect to make a voluntary contribution to the trust of the qualified pension plan in 2025.

Substantially all of Lumen's post-retirement health care and life insurance benefits plans are unfunded and are paid by Lumen Technologies with available cash.

The affiliate obligations, net in other within current liabilities and noncurrent liabilities on our consolidated balance sheets primarily represents the cumulative allocation of expenses, net of payments, associated with QCII's pension plans and post-retirement benefits plans prior to the plan mergers.

In 2015, we agreed to a plan to settle the outstanding pension and post-retirement affiliate obligations, net balance with QCII over a 30 year term.

Current Status

As of December 31, 2025, Lumen's unfunded obligations were:

• Pension plans :

• Post-retirement plans :

The expected long-term rate of return on pension assets, net of administrative expenses, was 6.5% for 2025 and is 6.5% for 2026.

Actual investment performance may differ substantially from these assumptions, which could influence future funding needs.

Lower asset returns or interest rates could increase our obligations and may require

additional contributions, reducing cash available for other uses.

For additional details, see “CRITICAL ACCOUNTING ESTIMATES — Pension and Post-retirement Benefits” in Item 7 and Note 11—Employee Benefits in Item 8 and the corresponding note in Lumen’s 2025 Form 10‑K.

Funding and Contributions

Benefits paid by Lumen's qualified pension plan are paid through a trust which holds all of the plan's assets.

Based on current laws and circumstances, Lumen does not expect required contributions to their qualified pension plan during 2026.

Future contribution requirements will depend on factors such as investment performance, interest rates, demographics, plan changes, and funding regulations.

Lumen makes voluntary contributions;

none were made in 2025.

Lumen made a voluntary contribution to the trust for the Combined Pension Plan of $101 million in January 2026 and $170 million in 2024.

Any required or voluntary contributions could reduce available cash and impact liquidity.

Our affiliate obligations primarily represent the cumulative allocation of pension and post‑retirement expenses, net of payments, associated with the former QCII plans prior to their merger into the Lumen Combined Pension Plan in 2014.

In 2015, we agreed to settle these obligations over a 30 year term through monthly payments.

Under the plan, payments are scheduled to be made on a monthly basis.

For the year ended December 31, 2025, we made net settlement payments of $48 million to QCII in accordance with the plan.

Changes in the affiliate obligations, net are reflected in operating activities on our consolidated statements of cash flows.

For the year ended 2026, we expect to make aggregate settlement payments of $44 million to QCII under the plan.

For 2024, Lumen's expected annual long-term rate of return on pension plan assets, net of administrative expenses was 6.5%.

For 2025, Lumen's expected annual long-term rate of return on these assets, net of administrative expenses, is 6.5%.

However, actual returns could be substantially different.

For additional information, see "Risk Factors—Financial Risks in Item 1A of Part I of this report.

Federal Broadband Support Programs

In January 2020, the FCC created the Rural Digital Opportunity Fund ("RDOF"), which is a federal support program designed to fund broadband development in rural America.

For the first phase of this program, RDOF Phase I, the FCC awarded $6.4 billion in support payments to be paid in equal monthly installments over 10 years.

Lumen Technologies was awarded RDOF funding in several of the states in which we operate and began receiving monthly support payments during the second quarter of 2022, our share of which is not material.

In the third quarter of 2024, we relinquished rights to develop certain RDOF census blocks in four states, which resulted in (i) a reduction of our anticipated RDOF Phase I support payments and (ii) the expectation of payment to the federal government.

These impacts are expected to be immaterial.

For additional information on these programs, see (i) Note 3—Revenue Recognition to our consolidated financial statements in Item 8 of Part II of this report, (ii)"Business—Regulation" in Item 1 of Part I of this report and (iii) "Risk Factors—Financial Risks" in Item 1A of Part I of this report.

Federal officials have proposed changes to current programs and laws that could impact us, including proposals designed to increase broadband access, increase competition among broadband providers, lower broadband costs and increase broadband regulation.

In late 2021, the U.S.

Congress enacted legislation that appropriated $65 billion to improve broadband affordability and access, primarily through federally funded state grants.

As of the date of this report, various state and federal agencies are continuing to take steps to make this funding available to eligible applicants, including us.

We anticipate that the release of this funding would increase competition for broadband customers in newly-served areas.

Cash Flow Activities

The following table summarizes our consolidated cash flow activities:

Years Ended December 31, $ Change

Affiliate obligations, net are reflected in other within Current liabilities and Noncurrent liabilities on our consolidated balance sheets, while changes in the affiliate obligations are reflected in operating activities on our consolidated statements of cash flows.

Post-Retirement Benefits

Substantially all of Lumen's post-retirement health care and life insurance benefits plans are unfunded and are paid by Lumen Technologies with available cash.

Future Contractual Obligations

We maintain obligations related to debt, leases, purchase commitments, and asset retirement.

Our estimated future obligations as of December 31, 2025 include:

Item 8 Note Reference

(within next 12 months)

(beyond next 12 months)

(Dollars in millions)

Net cash provided by operating activities

$ 2,194 2,389 (195)

Net cash used in investing activities (1,891) (466) 1,425

Net cash used in financing activities

Long-term debt (excluding unamortized premiums, net and unamortized debt issuance costs) Note 7—Long-Term Debt and Note Payable - Affiliate $ — 1,738 1,738

Operating leases Note 5—Leases 19 65 84

Right-of-way agreements and purchase commitments Note 15—Commitments, Contingencies and Other Items 34 90 124

Asset retirement obligations N/A

Total $ 55 1,914 1,969

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Operating Activities

Net cash provided by operating activities decreased by $195 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023 primarily due to net income adjusted for non-cash items and partially offset by increases related to changes in working capital.

For additional information about our operating results, see "Results of Operations" above.

Investing Activities

Net cash used in investing activities increased by $1.4 billion for the year ended December 31, 2024 as compared to the year ended December 31, 2023 primarily due to an increase in advances to affiliates, partially offset by a decrease in capital expenditures.

Financing Activities

Net cash used in financing activities decreased by $1.6 billion for the year ended December 31, 2024 as compared to the year ended December 31, 2023 primarily due to a decrease in dividends paid to our parent.

N/A Item 8 Note Reference not applicable, as no additional disclosure is included.

We periodically pay dividends to QSC, our direct parent company, which reduce our capital resources for debt repayments and other purposes.

For additional information, see our consolidated statements of cash flows and stockholder's equity and Note 18—Stockholder's Equity in Item 8.

Federal Broadband Support Programs

The FCC's RDOF program aims to support broadband expansion in rural areas throughout America.

Although we initially agreed to participate in the program in certain areas, as previously disclosed, we voluntarily relinquished the entirety of our RDOF awards.

As a result, we will no longer receive funding through the RDOF program and recognized a reduction to revenue of $11 million in our consolidated statements of operations in the second quarter of 2025.

We also incurred fees totaling $12 million in connection therewith, which are reflected in our operating expenses within our consolidated statements of operations.

In January 2026, we paid the $23 million of revenue and fees summarized above, along with an additional $3 million relating to our 2024 relinquishment as repayment of funds previously received and remittance of the fees incurred.

Federal officials continue to advance broadband‑related proposals, and Congress has authorized a $65 billion program to expand broadband affordability and access.

State and federal agencies are in the process of implementing these initiatives, and we expect that the release of associated funding may increase competition in newly served markets.

For additional information on these programs, see Note 4—Revenue Recognition in Item 8, "Business—Regulation of Our Business" in Item 1, and "Risk Factors—Legal and Regulatory Risks" in Item 1A.

Other Matters

Legal Proceedings and Other Contingent Liabilities

We are subject to various legal proceedings and other contingent liabilities that individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows.

See Note 15—Commitments, Contingencies and Other Items for additional information.

Our network includes some residual lead-sheathed copper cables installed years ago that constitute a small portion of our network.

Recent media coverage of potential health and environmental risks associated with these cables has resulted in regulatory inquiries and lawsuits, and could subject us to legislative or regulatory actions, removal costs, compliance costs or penalties.

As of December 31, 2024, we have not accrued for any such potential costs and will only accrue when such costs are probable and reasonably estimable.

For additional information about related litigation and potential risks, see Note 14—Commitments, Contingencies and Other Items to our consolidated financial statements in Item 8 of Part II of this report, and the risk factor disclosures included herein under “Risk Factors” in Item 1A of Part I of this report.

Our network includes a limited number of legacy lead-sheathed copper cables.

Previous media reports regarding potential health and environmental risks associated with these cables have led to regulatory inquiries and lawsuits, and may result in legislative or regulatory actions, removal costs, compliance costs, or penalties.

As of December 31, 2025, we have not recorded any accruals for such costs and will only accrue such costs when they become probable and reasonably estimable.

For more information on related litigation and risks, see Note 15—Commitments, Contingencies and Other Items in Item 8 and “Risk Factors” in Item 1A.

Lumen Technologies is involved in several legal proceedings to which we are not a party that, if resolved against it, could have a material adverse effect on its business and financial condition.

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You can find descriptions of these legal proceedings in Lumen's quarterly and annual reports filed with the SEC.

Because we are not a party to any of the matters, we have not accrued any liabilities for these matters as of December 31, 2024.

Because we are not a party to any of the Lumen matters, we have not accrued any liabilities for these matters as of December 31, 2025.

Tax Law Changes

In July 2025, the U.S.

1, also known as the “One, Big Beautiful Bill Act” (the “OBBBA”), which permanently allows 100% bonus depreciation, immediate expensing for domestic R&D, and favorable changes to interest expense limitations.

These provisions did not have a material impact on our 2025 effective tax rate but are expected to significantly reduce our federal income tax liability.

The Organization for Economic Co-operation and Development ("OECD") has issued Pillar Two model rules introducing a new global minimum corporate tax of 15% for tax years effective after December 31, 2023.

While the U.S.

has not adopted Pillar Two legislation, certain countries in which we operate have already adopted legislation to implement Pillar Two.

On January 5, 2026, the OECD announced the Side-by-Side ("SbS") package, implemented as administrative guidance and modifying the operation of Pillar Two rules that would fully exempt U.S.-parented groups from the application of certain Pillar Two top-up taxes.

The SbS package also extends the current Transitional Country-by-Country Reporting ("CbCR") Safe Harbor by one year, through the end of fiscal year of 2027.The Pillar Two rules have increased our compliance requirements but did not materially impact our 2025 results.

We continue to monitor evolving global and domestic tax legislation and administrative guidance.

CRITICAL ACCOUNTING ESTIMATES

The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenue, and expenses.

Certain policies and estimates are considered critical because they involve significant judgments and assumptions and could materially impact our financial statements.

These include:

• goodwill and intangible assets;

• affiliate transactions;

• income taxes.

While we believe our estimates are reasonable based on information available at the time they were made, actual results may differ and could be material.

Goodwill and Intangible Assets

We have a significant amount of goodwill, which was derived from Lumen's acquisition of us where the purchase price exceeded the fair value of the net assets acquired.

Goodwill is assessed at least annually for impairment.

As of December 31, 2025, goodwill and intangible assets totaled $3.7 billion (excluding goodwill and intangible assets classified as held for sale), representing 24% of our total assets.

The impairment analyses of these assets are considered critical because of their significance to us, the subjective nature of certain assumptions used to estimate fair value, and because it can materially impact reported results and future expense.

Intangible assets acquired in business combinations — such as goodwill and capitalized software — are recorded at estimated fair value at acquisition.

Other intangible assets not arising from business combinations are initially recorded at cost and are subsequently amortized over their useful lives.

We amortize finite-lived intangible assets using the straight-line method over the following estimated lives:

• Capitalized software :

The amount of future amortization expense may differ materially from current amounts, depending on the results of our annual reviews.

Impairment Testing

Goodwill is tested annually as of October 31, or more frequently if events or changes in circumstances indicate potential impairment.

We first consider qualitative factors.

If necessary, we perform a quantitative test comparing the reporting unit’s estimated fair value to its carrying amount.

If fair value is lower, we record a non-cash impairment charge for the difference.

Fair Value Estimation

Depending on the facts and circumstances, we typically estimate the fair value of our reporting unit by considering either or both of (i) a discounted cash flow method and (ii) a market approach.

Under the discounted cash flow method, we estimate fair value by calculating the present value of projected cash flows over a discrete period plus a terminal value based on normalized future cash flows.

Discounted Cash Flow Method

• Cash flow projections :

Derived from estimates developed from our long-range plan, informed by industry trends — including wireline-specific factors — competitive landscape, product lifecycles, operational initiatives, and capital allocation strategies.

These projections consider recent historical results and are consistent with our short-term financial forecasts and long-term business strategies.

• Discount rate :

Determined using a weighted average cost of capital, reflecting market participant assumptions for cost of equity and after-tax cost of debt, and incorporating risks inherent in the projections.

• Terminal value :

Represents expected normalized cash flows beyond the discrete projection period.

• Uncertainty :

Actual cash flows may differ significantly from projections due to inherent uncertainties.

Market Approach

Under the market approach, we estimate fair value of a reporting unit based upon a market multiple applied to the reporting unit's revenue and EBITDA, adjusted for an appropriate control premium based on recent market transactions.

• Market multiples :

Derived using publicly traded companies whose services and operating characteristics are comparable to ours.

• Revenue and EBITDA :

Derived using actual results and estimates and assumptions related to the forecasted results for the remainder of the year, including revenues, expenses, and the achievement of certain strategic initiatives.

• Weighting :

Revenue and EBITDA multiples are weighted based on the characteristics of each reporting unit.

• Control premium :

Our implied control premium is a factor used to evaluate our fair value assessment and is evaluated for reasonableness, as described in the "Reconciliation" bullet below.

Our development of fair value estimates under both the discounted cash flow method and the market approach method are subject to inherent uncertainties and rely on assumptions about industry trends, competitive conditions, product lifecycles, and capital allocation.

Actual results could vary significantly from our estimates.

• Reconciliation :

Estimated fair values are reconciled to our market capitalization to ensure reasonableness compared to market transactions.

Sensitivity and Risk Factors

Changes in assumptions used in the discounted cash flow method or market approach — such as asset and liability allocations — can materially affect fair value estimates, and actual results could vary significantly from our estimates and assumptions.

We perform sensitivity analyses using a range of discount rates and EBITDA multiples and believe our methods and assumptions are reasonable.

However, any changes to these inputs can significantly impact whether impairment charges are required and the magnitude of those charges.

For additional information on our goodwill balances by segment and results of our impairment analyses, see Note 3—Goodwill and Intangible Assets in Item 8.

Affiliate Transactions

We recognized intercompany charges for the amounts billed to us by our affiliates and we recognized intercompany revenue for services we bill to our affiliates.

Because of the significance of these transactions, our results of operations, financial position, and cash flows are not necessarily indicative of the amounts we would have achieved had we operated as a stand-alone entity.

Regarding telecommunications services that we provide to our affiliates, we saw a reduction to affiliate revenue for the year ended December 31, 2025.

This was primarily due to the 2024 repricing of certain services provided to our affiliates to align with lower market rates including certain transport services, along with the termination of certain affiliate circuits that we no longer required to provide services to our external customers.

See Note 14—Affiliate Transactions in Item 8 for additional information.

Affiliate transactions are considered a critical accounting estimate because they involve significant judgment in determining pricing, allocation of costs, and the nature of services exchanged, all of which can materially impact reported results.

We are included in the consolidated federal income tax return of Lumen Technologies.

Lumen Technologies treats our consolidated results as if we were a separate taxpayer.

We are required to pay our tax liabilities to Lumen Technologies based upon our separate return taxable income.

We are also included in the combined state tax returns filed by Lumen Technologies.

Given the significant judgment, inherent complexity, uncertainty of outcomes, varying internal and external factors, and overall potential to materially impact our financial results, we consider the measurement of deferred taxes to be critical accounting estimates.

Deferred Taxes

Our provision for income taxes includes amounts for current and deferred tax consequences.

Deferred tax assets and liabilities reflect future tax effects of:

• tax credit carryforwards, and

• differences between financial statement carrying values of assets and liabilities and tax bases of those assets and liabilities.

Deferred taxes are computed using enacted tax rates expected to apply in the year in which the temporary differences are expected to affect taxable income.

Changes in tax rates impacting deferred income tax assets and liabilities are recognized in earnings in the period of enactment.

The measurement of deferred taxes requires significant judgment related to the realization of tax basis.

We evaluate whether tax positions taken in filed returns are more likely than not to be sustained upon audit.

Determining applicable tax rates and timing of reversals involves judgment about future income apportionment among jurisdictions.

Changes in our practices or these judgments could materially affect our financial condition and results of operations.

We evaluate tax matters on a quarterly basis;

see Note 13—Income Taxes in Item 8 for additional details.

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What changed 10-K

Item 7. Management’s Discussion and Analysis