What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2026-02-20 compared with 2025-02-20 · 470 added, 316 removed, 866 unchanged (48% of the section changed)

23 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to those charged with governance and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to those charged with governance and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Testing of revenue

11 unchanged sentences

We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed, including the relevance and reliability of evidence obtained.

Sufficiency of audit evidence over the implementation of enterprise resource planning system

The Company implemented the first phase of a new enterprise resource planning system (the ERP implementation) during the fourth quarter of 2025.

The ERP implementation impacted a high volume of transactions, substantially all financial statement account balances, and certain disclosures.

We identified the evaluation of the sufficiency of audit evidence over the ERP implementation as a critical audit matter.

Complex auditor judgment and the involvement of information technology (IT) professionals with specialized skills and knowledge were required to evaluate general IT controls and IT application controls of certain IT applications.

The following are the primary procedures we performed to address this critical audit matter.

We applied auditor judgment to determine the nature and extent of procedures to be performed over the ERP implementation.

We involved IT professionals with specialized skills and knowledge, who assisted in:

• obtaining an understanding of the relevant IT applications

• evaluating the design and testing the operating effectiveness of certain general IT controls, including controls related to program development, change management, and logical access

• evaluating the design and testing the operating effectiveness of certain IT application controls, including inspecting and evaluating configurations and interfaces.

We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed, including the appropriateness of the nature and extent of the audit effort.

Goodwill Impairment

As discussed in Notes 2 and 3 to the consolidated financial statements, the goodwill balance at December 31, 2025, was $3.6 billion.

The Company assesses goodwill for impairment at least annually, or more frequently, if events or changes in circumstances indicate the carrying value of its reporting unit likely exceeds its fair value.

On the annual goodwill impairment assessment date, the Company estimated the fair value of its reporting unit by considering both a discounted cash flow method and a market approach.

The annual impairment test determined the carrying value of the Company’s reporting unit exceeded its estimated fair value.

As a result, the Company recorded an impairment charge of $2.0 billion.

We identified the assessment of the Company’s annual impairment testing related to the carrying value of goodwill as a critical audit matter.

Subjective auditor judgment was required in evaluating certain assumptions used to estimate the fair value of the reporting unit.

Those assumptions included:

projected cash flows, the discount rate, and the earnings before interest, taxes, depreciation and amortization (EBITDA) market multiple.

The evaluation of these assumptions was challenging due to their subjective nature.

Additionally, differences in judgment used to determine these assumptions could have had a significant effect on the reporting unit’s estimated fair value.

Specialized skills and knowledge were required in the assessment of the discount rate and the EBITDA market multiple.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the annual impairment testing of goodwill.

This included controls related to the Company’s development of projected cash flows and the determination of the discount rate and EBITDA market multiple.

We assessed the Company’s ability to accurately project cash flows by comparing the Company’s historical projected cash flows to actual results.

also evaluated the Company’s projected cash flows by comparing them to the Company’s underlying business strategies, historic trends and publicly available industry and analyst reports.

We involved valuation professionals with specialized skills and knowledge, who assisted in:

• evaluating the discount rate by independently developing a discount rate range using publicly available market data for comparable entities

• evaluating the EBITDA market multiple by comparing to EBITDA market multiple range developed using publicly available market data for comparable entities

We have served as the Company’s auditor since 2002.

14 unchanged sentences

Selling, general and administrative 456 438 478

Net loss on disposal group held for sale 235 — —

Operating expenses - affiliates 920 761 796

1 unchanged sentence

Goodwill impairment

2,012 — 2,405

Total operating expenses 5,757 3,457 6,110

OPERATING INCOME (LOSS)

OPERATING (LOSS) INCOME

( 1,009 ) 2,051 ( 195 )

OTHER EXPENSE

OTHER INCOME (EXPENSE)

Interest expense ( 91 ) ( 62 ) ( 95 )

Interest income (expense) - affiliate, net

Interest income - affiliate, net

Other income, net

Total other expense, net ( 37 ) ( 75 ) ( 165 )

INCOME (LOSS) BEFORE INCOME TAXES

Total other income (expense), net

34 ( 37 ) ( 75 )

(LOSS) INCOME BEFORE INCOME TAXES

( 975 ) 2,014 ( 270 )

Income tax expense 352 527 561

NET INCOME (LOSS)

NET (LOSS) INCOME

$ ( 1,327 ) 1,487 ( 831 )

6 unchanged sentences

Accounts receivable, less allowance of $ 37 and $ 29

Assets held for sale

Advances to affiliates 666 902

Other 152 144

Note receivable - affiliates

Other current assets, net

Total current assets 4,505 1,307

2 unchanged sentences

Goodwill 3,638 6,955

Other intangible assets, net 84 103

Other, net 151 164

Intangible assets, net

Other assets, net

Total goodwill and other assets 3,869 7,190

4 unchanged sentences

Accounts payable 152 221

Advances from affiliates — 61

Accrued expenses and other liabilities

1 unchanged sentence

Income and other taxes 110 106

Other 117 121

Other current liabilities

Liabilities held for sale

Current portion of deferred revenue 143 153

4 unchanged sentences

Affiliate obligations, net 399 444

Other 685 679

Other liabilities

Total deferred credits and other liabilities 2,563 2,465

13 unchanged sentences

OPERATING ACTIVITIES

Net income (loss)

Net (loss) income

$ ( 1,327 ) 1,487 ( 831 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization 685 753 823

Net loss on disposal group held for sale 235 — —

Goodwill impairment 2,012 — 2,405

1 unchanged sentence

Provision for uncollectible accounts 39 45 66

Accrued interest on affiliate note — — 28

Changes in current assets and liabilities:

4 unchanged sentences

57 ( 49 ) ( 97 )

Changes in other noncurrent assets and liabilities, net

( 8 ) 17 ( 28 )

Changes in other assets and liabilities, net

Changes in affiliate obligations, net

6 unchanged sentences

Changes in advances to affiliates 236 ( 902 ) 569

Net increase in note receivable - affiliates ( 937 ) — —

Proceeds from sale of property, plant and equipment and other assets 13 58 27

2 unchanged sentences

FINANCING ACTIVITIES

Payment of note payable - affiliate — — ( 1,215 )

Payments of long-term debt ( 238 ) ( 226 ) ( 2 )

26 unchanged sentences

Balance at beginning of period 2,193 706 3,517

Net income (loss)

Net (loss) income

( 1,327 ) 1,487 ( 831 )

10 unchanged sentences

Note 1—Background and Summary of Significant Accounting Policies

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

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 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.

11 unchanged sentences

Our current definitions of operating expenses are as follows:

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

Cost of services and products (exclusive of depreciation and amortization):

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);

• employee-related expenses directly attributable to operating and maintaining our network (e.g., salaries, wages, benefits and professional fees);

• facilities expenses (e.g., third-party telecommunications expenses we incur for using other carriers' networks to provide services to our customers);

• rents and utilities expenses;

equipment sales expenses (such as data integration and modem expenses);

and other expenses directly related to our operations;

• Selling, general and administrative expenses are corporate overhead and other operating expenses.

• equipment sales expenses (e.g., modem expenses);

• other expenses directly related to our operations.

Selling, general and administrative expenses:

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;

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

• marketing and advertising;

3 unchanged sentences

• bad debt expense;

and other selling, general and administrative expenses.

• other selling, general and administrative expenses.

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

Our operations are integrated into and reported as part of Lumen Technologies.

Lumen's CEO is our chief operating decision maker ("CODM") and reviews our financial information on an aggregate basis only in connection with our quarterly and annual reports that we file with the SEC.

Lumen's Chief Executive Officer is our chief operating decision maker ("CODM") and reviews our financial information on an aggregate basis only in connection with our quarterly and annual reports that we file with the Securities and Exchange Commission.

Our CODM assesses performance and allocates resources in conjunction with and based on the operations of Lumen Technologies.

4 unchanged sentences

Our consolidated financial statements are prepared in accordance with U.S.

generally accepted accounting principles.

These accounting principles require us to make certain estimates, judgments and assumptions.

We believe that the estimates, judgments and assumptions we make when accounting for specific items and matters are reasonable, based on information available at the time they are made.

These estimates, judgments and assumptions can materially affect the reported amounts of assets, liabilities and components of stockholder's equity as of the dates of the consolidated balance sheets, as well as the reported amounts of revenue, expenses and components of cash flows during the periods presented in our other consolidated financial statements.

generally accepted accounting principles ("GAAP") and require management to make estimates and assumptions that affect reported amounts of assets, liabilities, equity, revenue, expenses, and cash flows and related disclosures.

These estimates are based on information available at the time, including historical and forward-looking factors, that we believe are reasonable;

however, these estimates may differ materially from actual results.

We also make estimates in our assessments of potential losses in relation to threatened or pending tax and legal matters.

5 unchanged sentences

We recognize interest on the amount of unrecognized benefit from uncertain tax positions.

For all of these and other matters, actual results could differ materially from our estimates.

Assets Held for Sale

Assets and related liabilities are classified as held for sale when:

• management commits to a plan to sell the assets;

• the assets are available for immediate sale;

• an active program to locate a buyer is initiated;

• the sale is probable within one year.

Assets and related liabilities held for sale are presented separately at the lower of (i) carrying amount or (ii) fair value less costs to sell.

If the carrying amount exceeds fair value less cost to sell, a loss is recognized.

Depreciation and amortization cease once assets are classified as held for sale.

Assets classified as held for sale are remeasured each reporting period to ensure they are stated at the lower of (i) carrying amount or (ii) fair value less costs to sell.

Unless otherwise specified, the amounts and information presented in the notes do not include assets and liabilities that were classified as held for sale.

See Note 2—Divestiture for details on our recently completed divestiture.

Revenue Recognition

We earn most of our consolidated revenue from contracts with customers, primarily through the provision of communications and other services.

Revenue from contracts with customers is accounted for under Accounting Standards Codification ("ASC") 606.

We also earn revenue from leasing arrangements (primarily fiber capacity agreements) and governmental subsidy payments, neither of which are accounted for under ASC 606.

Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services.

Revenue is recognized based on the following five-step model:

We recognize revenue primarily from contracts with customers for communications and related services in accordance with Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers" (“ASC 606”).

Revenue is measured based on the consideration we expect to receive and is recognized when control of goods or services transfers to the customer.

We also earn revenue from leasing arrangements (e.g., fiber capacity and conduit leases and colocation agreements) and governmental subsidies, which are outside the scope of ASC 606.

Under ASC 606, revenue is recognized using the following five-step model:

• identification of the contract with a customer;

3 unchanged sentences

• recognition of revenue when, or as, we satisfy a performance obligation.

We provide an array of communications services to business and residential customers, including local voice, VPN, Ethernet, data, broadband, private line (including special access), network access, transport, voice, information technology, video and other ancillary services.

We provide these services to a wide range of businesses, including global, enterprise, wholesale, government, and small and medium business customers.

Certain contracts also include the sale of equipment, which is not significant to our business.

Service and Equipment Revenue

We provide a broad range of communications services to business and residential customers.

Certain contracts include equipment sales, which are not significant to our operations.

We recognize revenue for services when we provide the applicable service or when control of a product is transferred.

Recognition of certain payments received in advance of services being provided is deferred.

These advance payments may include design, planning, and engineering fees, as well as certain activation and installation charges.

If these advance payments are not separate performance obligations, we recognize them as revenue over the actual or expected contract term using historical experience, which typically ranges from one to five years depending on the service.

In most cases, termination fees or other fees on existing contracts that are negotiated in conjunction with new contracts are deferred and recognized over the new contract term.

For arrangements using third-party vendors, we assess whether we act as a principal or agent to determine whether revenue is reported on a gross or net basis.

Performance Obligations

Customer contracts are evaluated to determine whether the performance obligations are separable.

If the performance obligations are deemed separable and separate earnings processes exist, the transaction price is allocated to each performance obligation based on its relative standalone selling price.

The revenue associated with each performance obligation is then recognized as when, or as, the performance obligation is satisfied.

Deferred Revenue and Fees

Payments received in advance — such as design, planning, engineering, activation, or installation fees — are deferred unless they represent separate performance obligations.

When these payments are not separate obligations, we recognize them over the contract term or estimated useful life, typically one to five years , based on historical experience.

Termination fees or other charges negotiated with new contracts are also deferred and recognized over the new contract term.

Billing Practices

For access services, we generally bill fixed monthly charges one month in advance to customers and recognize revenue as service is provided over the contract term in alignment with the customer's receipt of service.

1 unchanged sentence

In most cases, the amount invoiced for our service offerings constitutes the price that would be billed on a standalone basis.

In certain cases, customers may be permitted to modify their contracts.

We evaluate the change in scope or price to identify whether the modification should be treated as a separate contract, as a termination of the existing contract and creation of a new contract, or as a change to the existing contract.

Customer contracts are evaluated to determine whether the performance obligations are separable.

If the performance obligations are deemed separable and separate earnings processes exist, the total transaction price that we expect to receive with the customer is allocated to each performance obligation based on its relative standalone selling price.

The revenue associated with each performance obligation is then recognized as earned.

We periodically sell transmission capacity on our network.

These transactions are generally structured as indefeasible rights of use, commonly referred to as IRUs, which are the exclusive right to use a specified amount of capacity or fiber for a specified term, typically 20 years.

In most cases, we account for the cash consideration received on transfers of transmission capacity as ASC 606 revenue, which is adjusted for the time value of money and is recognized ratably over the term of the agreement.

Cash consideration received on transfers of dark fiber is accounted for as non-ASC 606 lease revenue, which we also recognize ratably over the term of the agreement.

We do not recognize revenue on any contemporaneous exchanges of our transmission capacity assets for other non-owned transmission capacity assets.

In connection with offering products and services provided to the end user by third-party vendors, we review the relationship between us, the vendor and the end user to assess whether revenue should be reported on a gross or net basis.

In assessing whether revenue should be reported on a gross or net basis, we consider whether we act as a principal in the transaction and control the goods and services used to fulfill the performance obligations associated with the transaction.

We have service level commitments pursuant to contracts with certain of our customers.

To the extent that we determine that such service levels were not achieved or may not have been achieved, we estimate the amount of credits to be issued and record a corresponding reduction to revenue in the period that the service level commitment was not met or may not be met.

Customer payments are made based on billing schedules included in our customer contracts, which is typically on a monthly basis.

Contract Costs

We defer (or capitalize) incremental contract acquisition and fulfillment costs and recognize (or amortize) such costs over the average contract life.

1 unchanged sentence

These deferred costs are periodically monitored to reflect any significant change in assumptions.

Contract Modifications

In certain cases, customers may be permitted to modify their contracts.

Indefeasible Rights of Use and Leases

We periodically sell transmission capacity on our network through indefeasible rights of use (“IRU”s), which grant the exclusive right to use a specified amount of capacity or fiber for a typical term of 20 years.

Cash consideration received on transfers of transmission capacity is recognized as ASC 606 revenue, adjusted for time value of money and recognized ratably over the term.

Cash consideration received on transfers of dark fiber is treated as non-ASC 606 lease revenue, which we also recognized ratably over the lease term.

We treat contemporaneous exchanges of transmission capacity assets as non-revenue generating activities and therefore do not recognize revenue for these exchanges.

Service Level Commitments

We have service level commitments pursuant to contracts with certain of our customers.

See Note 4—Revenue Recognition for additional information.

17 unchanged sentences

Interest is assessed on advances to and from affiliates using the current interest rate for our note payable-affiliate.

The affiliate obligations, net in current and noncurrent liabilities on our consolidated balance sheets primarily represents the cumulative allocation of expense, 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 affiliate obligations, net balance with QCII over a 30 year term.

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

For the years ended December 31, 2024 and 2023, we made settlement payments of $ 52 million and $ 57 million, respectively, 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.

In the normal course of business, we transfer assets to and from various affiliates through our parent, QSC, which are recorded through our equity.

26 unchanged sentences

This activity is included in the operating activities section in our consolidated statements of cash flows.

There was less than $ 1 million and no book overdrafts included in accounts payable at December 31, 2024 or December 31, 2023, respectively.

Restricted Cash

Restricted cash consists primarily of cash and investments that serve to collateralize certain performance and operating obligations.

Restricted cash consists primarily of cash and investments that collateralize certain performance and operating obligations.

Restricted cash is recorded as current or non-current assets in the consolidated balance sheets depending on the duration of the restriction and the purpose for which the restriction exists.

7 unchanged sentences

Property, Plant and Equipment

As a result of our indirect acquisition by Lumen Technologies, Inc., property, plant and equipment acquired at the time of acquisition was recorded based on its estimated fair value as of the acquisition date.

Subsequently purchased and constructed property, plant and equipment are recorded at cost, plus the estimated value of any associated legally or contractually required retirement obligations.

Prior to January 1, 2024, we depreciated the majority of our property, plant and equipment using the straight-line group method over the estimated useful lives of groups of assets.

Under the straight-line group method, assets dedicated to providing telecommunications services (which comprise the majority of our property, plant and equipment) that have similar physical characteristics, use and expected useful lives are pooled for purposes of depreciation and tracking.

We used the equal life group procedure to establish each pool's average remaining useful life.

Generally, under the straight-line group method, when an asset is sold or retired in the course of normal business activities, the cost is deducted from property, plant and equipment and charged to accumulated depreciation without recognition of a gain or loss.

Effective January 1, 2024, we re-established all of our assets individually, including accumulated depreciation, and began to depreciate all of our assets using the straight-line method over the estimated useful lives of the specific asset.

A gain or loss is recognized in our consolidated statements of operations only if a disposal is unusual.

Leasehold improvements are amortized over the shorter of the useful lives of the assets or the expected lease term.

Purchased and constructed property, plant, and equipment are recorded at cost and assets acquired through business combinations are recorded at their estimated fair value as of the acquisition date.

In both instances we include the estimated value of any associated legally or contractually required retirement obligations.

Expenditures for maintenance and repairs are expensed as incurred.

Supplies used internally are carried at average cost, except for significant individual items which are carried at actual cost.

Depreciation Methods

• Prior to January 1, 2024:

Most assets were depreciated using the straight-line group method.

Under this approach, assets with similar characteristics and useful lives were pooled together and depreciated over the group’s average remaining useful life.

When assets were sold or retired in the normal course of business, their cost was removed from both the asset and accumulated depreciation accounts, with no gain or loss recognized.

• Effective January 1, 2024:

We re-established all of our assets individually, including accumulated depreciation, and transitioned to depreciating all assets individually using the straight-line method over each asset’s estimated useful life.

When assets are sold in the normal course of business, a gain or loss is recognized in our consolidated statements of operations.

Leasehold Improvements and Capital Projects

Leasehold improvements are amortized over the shorter of the assets’ useful lives or the expected lease term.

During the construction phase of network and other internal-use capital projects, we capitalize related employee and interest costs.

Property, plant and equipment supplies used internally are carried at average cost, except for significant individual items for which cost is based on specific identification.

We perform annual internal reviews to evaluate the reasonableness of the depreciable lives for our property, plant and equipment.

Our reviews utilize models that take into account actual usage, physical wear and tear, replacement history, assumptions about technology evolution and, in certain instances, actuarially determined probabilities to estimate the remaining useful life of our asset base.

Our reviews utilize models that take into account actual usage, physical wear and tear, replacement history, and assumptions about technology evolution.

Our remaining useful life assessments evaluate the possible loss in service value of assets that may precede the physical retirement.

Assets shared among many customers may lose service value as those customers reduce their use of the network.

Assets shared among many customers may lose service value as those customers reduce their use of the asset.

However, the asset is not retired until all customers no longer utilize the asset and we determine there is no alternative use for the asset.

Impairment Testing

We review long-lived tangible assets for impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable.

For assessment purposes, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, absent a material change in operations.

For assessment purposes, long-lived assets are grouped with other assets and liabilities at the lowest identifiable level for which we generate cash flows independently of other groups of assets and liabilities.

An impairment loss is recognized only if the carrying amount of the asset group is not recoverable and exceeds its estimated fair value.

3 unchanged sentences

We initially record intangible assets arising from business combinations, such as goodwill and capitalized software at estimated fair value.

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

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

Other intangible assets not arising from business combinations are initially recorded at cost.

Internal Use Software

Internally used software, whether purchased or developed by us, is capitalized and amortized using the straight-line method over its estimated useful life.

We have capitalized certain costs associated with software such as costs of employees devoting time to the projects and external direct costs for materials and services.

Costs associated with software to be used for internal purposes are expensed until the point at which the project has reached the development stage.

Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform.

Software maintenance, data conversion and training costs are expensed in the period in which they are incurred.

We capitalized costs of employees devoted to software development and external direct costs for materials and services.

Costs are expensed until the project reaches the development stage.

Subsequent additions, modifications, or upgrades are capitalized only if they add new functionality.

Software maintenance, data conversion, and training costs are expensed as incurred.

We review the remaining economic lives of our capitalized software annually.

Capitalized software is included in other intangible assets, net, in our consolidated balance sheets.

We are required to assess our goodwill for impairment annually, or more frequently if an event occurs or circumstances change that would indicate an impairment may have occurred.

We are required to write-down the value of goodwill of the reporting unit in periods in which the carrying amount of the reporting unit equity exceeds the estimated fair value of the equity of the reporting unit limited to the goodwill balance.

Impairment Testing

We test goodwill for impairment annually as of October 31, or more frequently if events suggest a reporting unit’s fair value may fall below its carrying value.

If the carrying value of a reporting unit exceeds its fair value of equity, we write-down goodwill.

The impairment assessment is performed at the reporting unit level.

We have determined that our operations consist of one reporting unit, consistent with our determination that our business consists of one operating segment.

See Note 2—Goodwill and Other Intangible Assets for additional information.

See Note 3—Goodwill and Intangible Assets for additional information.

Pension and Post-Retirement Benefits

6 unchanged sentences

The allocation of the service costs to us is based upon our employees who are currently earning benefits under the plans.

For further information on qualified pension, post-retirement and other post-employment benefit plans, see 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.

Change in Accounting Estimates

Effective January 1, 2024, we changed our method of depreciation and amortization for incumbent local exchange carriers ("ILEC") fixed assets from the group method of depreciation to straight line by individual asset method.

Historically, we have used the group method of depreciation for the property, plant and equipment and amortization of certain intangible capitalized software assets of our ILECs.

Under the group method, all like kind assets were combined into common pools and depreciated under composite depreciation rates.

We believe the straight-line depreciation method for individual assets is preferable to the group method as it will result in a more precise estimate of depreciation expense and will result in a consistent depreciation method for all our subsidiaries.

This change in the method of depreciation and amortization is considered a change in accounting estimate inseparable from a change in accounting principle.

The change in accounting estimate decreased depreciation and amortization expense $ 101 million, $ 77 million net of tax for the year ended December 31, 2024.

Additionally, during the first quarter of 2024, we updated our analysis of economic lives of owned fiber network assets.

As of January 1, 2024, we extended the estimated economic life and depreciation period of such assets from 25 years to 30 years to better reflect the physical life of the assets that we have experienced and absence of technological changes that would replace fiber.

The change in accounting estimate decreased depreciation expense by approximately $ 24 million, $ 18 million net of tax for the year ended December 31, 2024.

For further information on qualified pension, post-retirement and other post-employment benefit plans, see Note 11—Employee Benefits to the consolidated financial statements in Item 8.

Recently Adopted Accounting Pronouncements

2 unchanged sentences

The ASU does not change how a public entity identifies its operating segments, aggregates them or applies quantitative thresholds to determine reportable segments.

Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280, "Segment Reporting." We did not early adopt this standard.

The adoption of this ASU did not have a material impact on our consolidated financial statements.

Government Assistance

On January 1, 2022, we adopted ASU 2021-10 "Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance." This ASU requires business entities to disclose information about certain types of government assistance they receive.

Refer to Note 3—Revenue Recognition for more information on the impact of this ASU on our consolidated financial statements.

On January 1, 2024, we adopted ASU 2023-02, “Investments-Equity Method and Joint Ventures (Topic 323):

7 unchanged sentences

The adoption of this ASU did not have any impact on our consolidated financial statements.

On January 1, 2022, we adopted ASU 2021-05, “Leases (Topic 842):

Lessors—Certain Leases with Variable Lease Payments.” This ASU (i) amends the lease classification requirements for lessors, (ii) provides criteria for lessors to classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease;

and (iii) provides guidance with respect to net investments by lessors under operating leases and other related topics.

The adoption of this ASU did not have a material impact on our consolidated financial statements.

Reference Rate Reform

In December 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-06, “Reference Rate Reform (Topic 848) – Deferral of the Sunset Date of Topic 848." This ASU, which was effective upon issuance, extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848, by deferring the sunset date from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

Based on our review of our key material contracts through December 31, 2024, this ASU does not have a material impact on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” This ASU requires that public business entities must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate).

This ASU became effective for us in the annual period of fiscal 2025.

Refer to Note 13—Income Taxes for more information.

Business Combinations

In August 2023, the FASB issued ASU 2023-05, “Business Combinations – Joint Venture Formations (Subtopic 805-60):

Recognition and Initial Measurement.” This ASU applies to the formation of entities that meet the definition of a joint venture (or a corporate joint venture).

The amendments in the ASU require that a joint venture apply a new basis of accounting upon formation.

This ASU became effective for us in the first quarter of fiscal 2025.

The adoption of this ASU did not have any impact on our consolidated financial statements.

Supplier Finance Programs

6 unchanged sentences

The adoption of this ASU did not have a material impact on our consolidated financial statements.

Adoption of Other ASUs

In July 2023, the FASB issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718):

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X:

Income or Loss Applicable to Common Stock.” This ASU became effective for us once the addition to the FASB Codification was made available in July 2023.

This ASU amends or supersedes various SEC paragraphs within the applicable codification to conform to past SEC staff announcements.

This ASU does not provide any new guidance.

The adoption of this ASU did not have any impact on our consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2025, the Financial Accounting Standards Board ("FASB") issued ASU 2025-12 “Codification Improvements.” The ASU represents changes to the Codification that clarify, correct errors, or make minor improvements.

The amendments make the Codification easier to understand and apply.

The amendments in ASU 2025-12 are effective for fiscal years beginning after December 15, 2026, including interim periods within those fiscal years, with early adoption permitted.

Except for the amendments to Topic 260, "Earnings Per Share" this ASU can be applied either prospectively or retrospectively with transition method elected on an issue-by-issue basis.

The Company is currently evaluating ASU 2025-12 to determine the impact it may have on our consolidated financial statements.

In December 2025, the FASB issued ASU 2025-11, "Interim Reporting (Topic 270):

Narrow-Scope Improvements." This ASU clarifies that the interim reporting requirements in Topic 270 apply to all entities that issue interim financial statements prepared in accordance with U.S.

GAAP and consolidates such requirements within Topic 270.

The amendments provide a comprehensive list within Topic 270 of required interim disclosures, establish a principle requiring disclosure of events or changes occurring after the end of the most recent annual reporting period that have a material impact on interim results and clarifies the form and content requirements applicable to interim financial statements.

The amendments in ASU 2025-11 are effective for the interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted.

This ASU can be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements.

The Company is currently evaluating ASU 2025-11 to determine the impact it may have on our consolidated financial statements.

In December 2025, the FASB issued ASU 2025-10, "Government Grants (Topic 832):

Accounting for Government Grants Received by Business Entities." This ASU establishes authoritative guidance on the accounting for government grants received by business entities.

The amendments in ASU 2025-10 are effective for annual reporting periods beginning after December 15, 2028, and interim reporting periods within those annual reporting periods, with early adoption permitted.

This ASU can be applied using a modified prospective approach, a modified retrospective approach, or a retrospective approach.

The Company is currently evaluating ASU 2025-10 to determine the impact it may have on our consolidated financial statements.

In November 2025, the FASB issued ASU 2025-09, "Derivatives and Hedging (Topic 815):

Hedge Accounting Improvements." This ASU introduces five targeted improvements to better align hedge accounting with entities’ risk management activities.

The amendments in ASU 2025-09 are effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods, with early adoption permitted and should be applied on a prospective basis for all hedging relationships.

The Company intends to early adopt ASU 2025-09 prospectively, effective January 1, 2026.

The adoption is not expected to have an impact on our consolidated financial statements.

In November 2025, the FASB issued ASU 2025-08, "Financial Instruments — Credit Losses (Topic 326):

Purchased Loans." This ASU requires that loans acquired without credit deterioration and deemed “seasoned” will be considered purchased seasoned loans and accounted for using the gross-up approach at acquisition (i.e., record the loan at its purchase price and separately record an allowance for expected credit losses).

Seasoned loans include all loans acquired in a business combination, that do not have “more-than-insignificant” deterioration of credit quality since origination, as well as loans purchased at least 90 days after origination, where the purchaser was not involved in the origination of the loans.

The amendments in ASU 2025-08 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, with early adoption permitted.

This ASU should be applied prospectively to loans that are acquired on or after the initial application date.

The Company intends to early adopt ASU 2025-08 prospectively, effective January 1, 2026.

The adoption is not expected to have an impact on our consolidated financial statements.

In September 2025, the FASB issued ASU 2025-07, "Derivatives and Hedging (Topic 815)" and "Revenue from Contracts with Customers (Topic 606)." The guidance refines the scope of Topic 815 to clarify which contracts are subject to derivative accounting.

This ASU also provides clarification under Topic 606 for share-based payments from a customer in a revenue contract.

The amendments in ASU 2025-07 are effective for fiscal years beginning after December 15, 2026, and interim reporting periods, with early adoption permitted.

This ASU is permitted to be applied either prospectively to new contracts entered into on or after the date of adoption or on a modified retrospective basis through a cumulative-effect adjustment to the opening balance of retained earnings.

The Company intends to early adopt ASU 2025-07 prospectively, effective January 1, 2026.

The adoption is not expected to have an impact on our consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, "Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting for Internal-Use Software" which amends the guidance in ASC 350-40, "Intangibles — Goodwill and Other — Internal-Use Software." This ASU modernizes the recognition and disclosure framework for internal-use software costs, removing the previous “development stage” model and introducing a more judgment-based approach.

The amendments in ASU 2025-06 are effective for fiscal years beginning after December 15, 2027, and for interim periods within those annual reporting periods, with early adoption permitted.

This ASU is permitted to be applied prospectively, retrospectively or through a modified transition approach.

The Company intends to early adopt ASU 2025-06 prospectively, effective January 1, 2026.

The adoption is not expected to have an impact on our consolidated financial statements.

In July 2025, the FASB issued ASU 2025-05 "Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses for Accounts Receivable and Contract Assets." This ASU provides entities with a practical expedient to simplify the estimation of expected credit losses on current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606 by allowing the assumption that current conditions as of the balance sheet date will not change during the remaining life of the asset.

The amendments in ASU 2025-05 are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early prospective adoption permitted.

The Company is currently evaluating ASU 2025-05 to determine the impact it may have on our consolidated financial statements.

In May 2025, the FASB issued ASU 2025-03 "Business Combinations (Topic 805) and Consolidation (Topic 810):

Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity." This ASU revises current guidance for determining the accounting acquirer for a transaction effected primarily by exchanging equity interests in which the legal acquiree is a variable interest entity that meets the definition of a business.

The amendments require an entity to consider the same factors that are currently required for determining which entity is the accounting acquirer in other acquisition transactions.

The amendments in ASU 2025-03 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, with early prospective adoption permitted.

The Company intends to early adopt ASU 2025-03 prospectively, effective January 1, 2026.

The adoption is not expected to have an impact on our consolidated financial statements.

In November 2024, the FASB issued ASU 2024-04, "Debt—Debt with Conversion and Other Options (Subtopic 470-20):

Induced Conversions of Convertible Debt Instruments." This ASU clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as induced conversions rather than as debt extinguishments.

This standard is effective for the annual period of fiscal 2026, and early adoption is permitted.

The amendments in ASU 2024-04 are effective for the annual period of fiscal 2026, and early adoption is permitted.

This ASU is permitted to be applied on either a prospective or retrospective basis.

As of December 31, 2025, we do not hold convertible debt instruments and do not expect this ASU will have any impact on our consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, "Disaggregation of Income Statement Expenses." This ASU requires additional footnote disclosure of the details of certain income statement expense line items as well as additional disclosure about selling expenses.

This standard is effective for the annual period of fiscal 2027, and early adoption is permitted.

The amendments in ASU 2024-03 are effective for the annual period of fiscal 2027, and early adoption is permitted.

The guidance is to be applied prospectively, with the option for retrospective application.

We are currently evaluating the impact the adoption of this standard will have on our disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

This ASU will become effective for us in the annual period of fiscal 2025 and early adoption is permitted.

We have chosen not to early adopt this ASU and are currently evaluating its impact on our consolidated financial statements, including our annual disclosure within our Income Taxes footnote.

In December 2023, the FASB issued ASU 2023-08, “Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60):

Accounting for and Disclosure of Crypto Assets.” This ASU is intended to improve the accounting for certain crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income.

The amendments also improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period.

This ASU will become effective for us in the first quarter of fiscal 2025 and early adoption is permitted.

As of December 31, 2024, we do not hold crypto assets and do not expect this ASU to have any impact on our consolidated financial statements.

In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU incorporates certain SEC disclosure requirements into the FASB Codification.

The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of FASB Codification topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the FASB Codification with the SEC’s regulations.

This ASU will become effective for each amendment on the effective date of the SEC's corresponding disclosure rule changes.

As of December 31, 2024, we do not expect this ASU to have any impact on our consolidated financial statements.

In August 2023, the FASB issued ASU 2023-05, “Business Combinations – Joint Venture Formations (Subtopic 805-60):

Recognition and Initial Measurement.” This ASU applies to the formation of entities that meet the definition of a joint venture (or a corporate joint venture).

The amendments in the ASU require that a joint venture apply a new basis of accounting upon formation.

This ASU will become effective for us in the first quarter of fiscal 2025 and early adoption is permitted.

As of December 31, 2024, we do not expect this ASU to have any impact on our consolidated financial statements.

Note 2—Goodwill and Other Intangible Assets

Goodwill and other intangible assets consisted of the following:

As of December 31,

The Company is currently evaluating ASU 2024-03 and the impact the adoption of this standard will have on our disclosures.

Note 2—Divestiture

On May 21, 2025, we and certain of our affiliates entered into a definitive agreement to sell to AT&T the Lumen Mass Markets Fiber-to-the-Home business, operated by us and certain of our affiliates in 11 states (the "Territory") for $ 5.75 billion in cash, subject to working capital and other negotiated purchase price adjustments.

The portion of this amount attributable to us cannot currently be calculated, and will be dependent upon several variables.

The actual amount of our net after-tax proceeds from this divestiture could vary substantially from the amounts we currently estimate, including if there are changes in other assumptions that impact our estimates.

We do not believe this divestiture transaction represents a strategic shift for us and therefore, does not meet the criteria to be classified as a discontinued operation.

As a result, we continued to report our operating results for the Mass Markets Fiber-to-the-Home business in the Territory (the "disposal group") in our consolidated operating results through the disposal date.

As of December 31, 2025 in the accompanying consolidated balance sheet, the assets and liabilities of the disposal group are classified as held for sale and measured at the lower of (i) the carrying value when we classified the disposal group as held for sale or (ii) the fair value of the disposal group, less costs to sell.

Effective with the designation of the disposal group as held for sale on May 21, 2025, we suspended recording depreciation of property, plant and equipment while these assets are classified as held for sale.

We estimate that we would have recorded an additional $ 69 million of depreciation for the year ended December 31, 2025, if the disposal group did not meet the held for sale criteria.

As a result of our evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to the agreed upon sales price, adjusted for costs to sell, we recorded a loss on disposal group held for sale of $ 235 million in our consolidated statement of operations during the year ended December 31, 2025.

Under the terms of the purchase agreement related to the sale of the Mass Market Fiber-to-the-Home business in the Territory, Lumen agreed to grant the purchaser an IRU certain Lumen retained fiber assets following the closing of the transaction in order to service the transferred customer contracts.

The value of these retained Lumen assets subject to the IRU is excluded from assets held for sale in the table below.

The principal components of the held for sale assets and liabilities of the disposal group as of December 31, 2025 are as follows:

December 31, 2025

(Dollars in millions)

Assets held for sale

Accounts receivable, less allowance of $ 1

Other current assets, net

Property, plant and equipment, net of accumulated depreciation of $ 602

Goodwill, net of loss on disposal of $ 235

Other assets, net

Total Assets held for sale

Liabilities held for sale

Other current liabilities $ 4

Current portion of deferred revenue 6

Total Liabilities held for sale

Subsequent Event

On February 2, 2026, we and certain of our affiliates completed the sale of Lumen's Mass Markets Fiber-to-the-Home business in 11 states to AT&T in exchange for pre-tax cash proceeds of approximately $ 5.75 billion, subject to working capital and other negotiated post-closing adjustments.

In connection with the sale, Lumen has entered into a transition services agreement under which it will provide to the purchaser various support services and certain long-term agreements under which Lumen and the purchaser will provide to each other various network and other commercial services.

Note 3—Goodwill and Intangible Assets

Goodwill and intangible assets, net on our consolidated balance sheets consisted of the following:

(Dollars in millions)

Goodwill, less accumulated impairment losses of $ 4,417 and $ 2,405 (1)

$ 3,638 6,955

Other intangible assets, less accumulated amortization of $ 1,841 and $ 1,966

As of December 31, 2024 and 2023, the gross carrying amount of goodwill and other intangible assets was $ 8.9 billion and $ 9.0 billion, respectively.

Intangible assets, less accumulated amortization of $ 1,642 and $ 1,841

_______________________________________________________________________________

(1) As of December 31, 2025, this amount excluded goodwill classified as held for sale of $ 1.1 billion;

see Note 2—Divestiture.

As of December 31, 2025 and 2024, the gross carrying amount of goodwill and other intangible assets was $ 5.4 billion and $ 8.9 billion, respectively, excluding the amounts classified as held for sale.

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

4 unchanged sentences

Goodwill Impairment Analysis

2025 Goodwill Impairment Analysis

Fourth Quarter Analysis

At October 31, 2025, we estimated the fair value by considering both a market approach and a discounted cash flow method.

The market approach method includes the use of comparable multiples of publicly traded companies whose services are comparable to ours.

Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry which supported a range of fair values derived from annualized revenue and earnings before interest, tax, depreciation and amortization ("EBITDA") multiples between 1.6 x and 3.1 x and 5.1 x and 7.9 x, respectively.

We selected a revenue multiple and an EBITDA multiple in line with these comparable market multiples.

The discounted cash flow method is based on the present value of projected cash flows and a terminal value equal to the present value of all normalized cash flows after the projection period.

Based on our assessment performed, 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.

Second Quarter Analysis

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.

We performed a pre-classification goodwill impairment test using the market approach to test for impairment prior to the classification of these assets as held for sale and to determine the April 30, 2025 fair values to be utilized for goodwill impairment testing.

Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry which supported a range of fair values derived from annualized revenue and EBITDA multiples between 1.8 x and 3.1 x and 5.8 x and 8.0 x, respectively.

As of April 30, 2025, based on our assessments performed, the estimated fair value of our equity exceeded our carrying value of equity by approximately 15 % and 14 % for the pre-classification and post-classification, respectively.

We concluded that we had no impairment as of our April 30, 2025 assessment date.

2024 Goodwill Impairment Analysis

As of October 31, 2024, we performed our annual impairment analysis of the goodwill of our one above-mentioned reporting unit by using a qualitative assessment to determine whether it was more likely than not that the fair value of the reporting unit was less than its carrying value.

19 unchanged sentences

Alternative interpretations of these factors could have resulted in different conclusions.

2022 Goodwill Impairment Analysis

At October 31, 2022, we estimated the fair value of equity by considering both a market approach and a discounted cash flow method.

The market approach method includes the use of comparable multiples of publicly traded companies whose services are comparable to ours.

The discounted cash flow method is based on the present value of projected cash flows and a terminal value, equal to the present value of all normalized cash flows after the projection period.

Based on our assessment performed, the estimated fair value of our equity exceeded our carrying value of equity by approximately 24 % at October 31, 2022.

We concluded that goodwill was not impaired as of October 31, 2022.

Our fair value estimates for evaluating goodwill incorporated significant judgments and assumptions including forecast revenues and expenses, cost of capital, and control premiums.

In developing market multiples, we also considered observed trends of our industry participants and other qualitative factors that required significant judgment.

Alternative estimates, judgments, and interpretations of these factors could have resulted in different conclusions regarding the need for an impairment charge.

The following table shows the rollforward of goodwill from December 31, 2023 through December 31, 2025:

1 unchanged sentence

As of December 31, 2023 (1)

Impairment ( 2,405 )

As of December 31, 2024 (1)

Reclassified as held for sale (2)

As of December 31, 2025 (1)

______________________________________________________________________

(1) Goodwill at December 31, 2024 and December 31, 2023 is net of accumulated impairment losses of $ 2.4 billion.

(1) Goodwill as of December 31, 2025, December 31, 2024 and December 31, 2023 is net of accumulated impairment losses of $ 4.4 billion, $ 2.4 billion and $ 2.4 billion, respectively.

(2) Reflects initial goodwill reclassified as held for sale on May 21, 2025, related to our recently completed divestiture.

See Note 2—Divestiture.

Intangible Assets

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

The actual amounts of amortization expense may differ materially from our estimates, depending on the results of our annual reviews.

As of December 31, 2024, the weighted average remaining useful life was three years for capitalized software.

Total amortization expense for intangible assets for the years ended December 31, 2024, 2023 and 2022 was $ 41 million, $ 67 million and $ 79 million, respectively.

As of December 31, 2025, the weighted average remaining useful life was four years for capitalized software, which is our primary intangible asset.

Amortization Expense

Total amortization expense for finite-lived intangible assets for the years ended December 31, 2025, 2024 and 2023 was $ 33 million, $ 41 million and $ 67 million, respectively.

We estimate that future total amortization expense for finite-lived intangible assets will be as follows:

3 unchanged sentences

Note 4—Revenue Recognition

We categorize 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.

As of December 31, 2025, we categorize our revenue derived from our operations based on the customers we serve, as follows:

(i) revenue derived from serving our Mass Markets customers, are categorized primarily within the first three categories listed below, (ii) revenue derived from servicing our Business customers are categorized primarily in the 'Harvest', 'Nurture' and 'Grow' categories listed below, and (iii) revenue derived from servicing our affiliates are categorized in the 'Affiliate Services' category listed:

• 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;

Includes our legacy services managed for cash flow, including Time Division Multiplexing voice and private line services;

Includes our more mature offerings, including primarily ethernet;

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

• Affiliate Service s:

Includes (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.

Reconciliation of Total Revenue to Revenue from Contracts with Customers

53 unchanged sentences

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities:

As of December 31,

The following table provides balances of customer receivables, contract assets and contract liabilities, net of amounts classified as held for sale:

(Dollars in millions)

Customer receivables, less allowance of $ 30 million and $ 23 million (1)(2)

Contract assets — 7

Contract liabilities (3)

______________________________________________________________________

(1) Customer receivables includes affiliate receivables.

(2) As of December 31, 2025, this amount excluded $ 11 million of customer receivables, net associated with the disposal group classified as held for sale.

(3) As of December 31, 2025, this amount excluded $ 6 million of contract liabilities associated with the disposal group classified as held for sale.

Contract liabilities consist of consideration we have received from our customers or billed in advance of providing goods or services promised in the future.

6 unchanged sentences

As of December 31, 2025, the transaction price related to unsatisfied performance obligations that are expected to be recognized in 2026, 2027, and thereafter was $ 752 million, $ 490 million, and $ 461 million, respectively.

These amounts exclude (i) the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), and (ii) contracts that are classified as leasing arrangements that are not subject to ASC 606 .

These amounts exclude:

• the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed);

• contracts that are classified as leasing arrangements that are not subject to ASC 606;

• the value of unsatisfied performance obligations for contracts which relate to the disposal group .

Contract Costs

The following tables provide changes in our contract acquisition costs and fulfillment costs:

Year Ended December 31, 2024

Acquisition Costs Fulfillment Costs

(Dollars in millions)

Beginning of period balance $ 58 46

Costs incurred 32 34

Amortization ( 39 ) ( 34 )

End of period balance $ 51 46

Year Ended December 31, 2023

Acquisition Costs Fulfillment Costs

(Dollars in millions)

Year Ended December 31, 2025 Year Ended December 31, 2024

Acquisition Costs Fulfillment Costs Acquisition Costs Fulfillment Costs

(Dollars in millions) (Dollars in millions)

Beginning of period balance $ 51 46 58 46

1 unchanged sentence

Amortization ( 30 ) ( 34 ) ( 39 ) ( 34 )

Change in contract costs held for sale

( 6 ) ( 7 ) — —

End of period balance (1)

$ 35 48 51 46

______________________________________________________________________

(1) The ending balance for the year ended December 31, 2025 excluded acquisition costs and fulfillment costs associated with the disposal group classified as held for sale of $ 6 million and $ 7 million, respectively.

Acquisition costs include commission fees paid to employees as a result of obtaining contracts.

Fulfillment costs include third-party and internal costs associated with the provision, installation and activation of communications services to customers, including labor and materials consumed for these activities.

We amortize deferred acquisition and fulfillment costs based on the transfer of services on a straight-line basis over the average contract life of 50 months for Mass Markets customers and average contract life of 35 months for Business customers.

We amortize deferred acquisition and fulfillment costs based on the transfer of services on a straight-line basis over the average contract life of 47 months for Mass Markets customers and average contract life of 34 months for Business customers, respectively.

We include amortized fulfillment costs in cost of services and products and amortized acquisition costs are included in selling, general and administrative expenses in our consolidated statements of operations.

We include the amount of these deferred costs that are anticipated to be amortized in the next 12 months in other current assets on our consolidated balance sheets.

We include the amount of deferred costs expected to be amortized beyond the next 12 months in other non-current assets on our consolidated balance sheets.

We include the amount of these deferred costs that are anticipated to be amortized in the next 12 months in Other current assets, net and the deferred costs expected to be amortized beyond the next 12 months in Other assets, net on our consolidated balance sheets.

We assess deferred acquisition and fulfillment costs for impairment on a quarterly basis.

11 unchanged sentences

For the year ended December 31, 2025 and 2024, we recorded non-customer revenue of $ 28 million and $ 31 million, respectively, under government assistance programs , of which 44 % and 29 %, respectively, was associated with state universal service fund support programs.

Between 2015 and 2021, Lumen received approximately $ 500 million annually through the Federal Communications Commission (the "FCC")'s Connect America Fund II ("CAF II"), a program that ended on December 31, 2021.

Our share of this CAF II funding was approximately $ 145 million annually.

In connection with the CAF II funding, we were required to meet certain specified infrastructure buildout requirements in 13 states by the end of 2021, which required substantial capital expenditures.

In the first quarter of 2022, we recognized $ 13 million of previously deferred revenue related to the conclusion of the CAF II program based upon our final buildout and filing submissions.

The government has the right to audit our compliance with the CAF II program and the ultimate outcome of any remaining examinations is unknown, but could result in a liability to us in excess of our accruals established for these matters.

In early 2020, the FCC created the Rural Digital Opportunity Fund (the “RDOF”) program, a federal support program designed to fund broadband deployment in rural America.

The federal government has introduced several programs to expand broadband access, including the Rural Digital Opportunity Fund (“RDOF”) program, an FCC initiative that provides federal financial support to fund broadband deployment in rural America.

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

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) an expectation of payment to the federal government.

These impacts are expected to be immaterial.

We participate in multiple state sponsored programs for broadband deployment in unserved and underserved areas for which the states have state universal service funds sourced from fees levied on telecommunications providers and passed on to consumers.

During the year ended December 31, 2024, we participated in these types of programs primarily in the states of Nebraska and New Mexico.

During the year ended December 31, 2023, we participated in these types of programs primarily in the states of Nebraska, New Mexico, and Minnesota .

In the second quarter of 2025, we voluntarily relinquished the remainder 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 of $ 12 million 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.

We participate in two state sponsored programs for broadband deployment in unserved and underserved areas for which the states have state universal service funds sourced from fees levied on telecommunications providers and passed on to consumers.

During the year ended December 31, 2025 and 2024, we participated in these types of programs in the states of Nebraska and New Mexico .

Note 5—Leases

9 unchanged sentences

Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.

Operating lease assets are included in Other, net under goodwill and other assets on our consolidated balance sheets.

Current operating lease liabilities are included in Other under accrued expenses and other liabilities on our consolidated balance sheets.

Noncurrent operating lease liabilities are included in Other under deferred credits and other liabilities on our consolidated balance sheets.

Some of our lease arrangements contain lease components, non-lease components (including common-area maintenance costs) and executory costs (including real estate taxes and insurance costs).

6 unchanged sentences

Our lease agreements do not generally contain any material residual value guarantees or material restrictive covenants.

We lease various equipment, office facilities, retail outlets, and other network sites from third parties.

These leases, with few exceptions, provide for renewal options and escalations that are either fixed or based on the consumer price index.

Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line basis over the lease term.

The lease term for most leases includes the initial non-cancelable term plus any term under renewal options that are reasonably assured.

Lease expense consisted of the following:

7 unchanged sentences

Total lease cost $ 22 24 27

We lease various equipment, office facilities, retail outlets, and other network sites from third parties.

These leases, with few exceptions, provide for renewal options and escalations that are either fixed or based on the consumer price index.

Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line basis over the lease term.

The lease term for most leases includes the initial non-cancelable term plus any term under renewal options that are reasonably assured.

For the years ended December 31, 2024, 2023 and 2022, our gross rental expense was $ 24 million, $ 27 million and $ 26 million, respectively.

We also received sublease rental income for the years ended December 31, 2024, 2023 and 2022 of $ 9 million, $ 8 million and $ 9 million, respectively.

Supplemental consolidated balance sheet information and other information related to leases is included below:

As of December 31,

Leases (Dollars in millions) Classification on the Balance Sheet 2024 2023

Operating lease assets Other, net $ 64 65

Leases (Dollars in millions) Balance Sheet Classification

Operating lease assets Other assets, net

Finance lease assets Property, plant and equipment, net of accumulated depreciation 5 6

Total leased assets $ 70 70

Operating Other $ 15 20

Finance Current maturities of long-term debt — 1

Operating Other 49 47

Operating Other current liabilities

Operating Other liabilities

Finance Long-term debt 2 3

14 unchanged sentences

Operating lease right-of-use assets obtained in exchange for new operating lease liabilities $ 15 20

Right-of-use assets obtained in exchange for new finance lease liabilities — 3

As of December 31, 2025, maturities of lease liabilities were as follows:

7 unchanged sentences

As of December 31, 2025, we had no material operating or finance leases that had not yet commenced.

Operating Lease Revenue

We lease various data transmission capacity, office facilities, switching facilities and other network sites to third parties under operating leases.

Lease and sublease income are included in operating revenue in the consolidated statements of operations.

Lease and sublease revenue are included in operating revenue in the consolidated statements of operations.

See "Revenue Recognition" in Note 1—Background and Summary of Significant Accounting Policies.

For the years ended December 31, 2024 , 2023 and 2022, our gross rental income was $ 273 million, $ 304 million and $ 346 million, respectively which represents 5 % of our operating revenue for each of the years ended December 31, 2024, 2023 and 2022, respectively.

For the years ended December 31, 2025, 2024 and 2023, our gross operating lease revenue was $ 262 million, $ 273 million and $ 304 million, respectively which represents 6 %, 5 %, and 5 % of our operating revenue for the years ended December 31, 2025, 2024 and 2023, respectively.

Included in operating lease revenue is sublease revenue of $ 9 million, $ 9 million and $ 8 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Note 6—Credit Losses on Financial Instruments

19 unchanged sentences

(Dollars in millions)

Balance at December 31, 2021

Balance as of December 31, 2022

Provision for expected losses 20 46 66

1 unchanged sentence

Recoveries collected — 1 1

Balance at December 31, 2022

Balance as of December 31, 2023

Provision for expected losses 9 36 45

1 unchanged sentence

Recoveries collected — 2 2

Balance at December 31, 2023

Balance as of December 31, 2024

Provision for expected losses 9 30 39

1 unchanged sentence

Recoveries collected — 2 2

Balance at December 31, 2024

Change in allowance in assets held for sale (1)

— ( 1 ) ( 1 )

Balance as of December 31, 2025

(1) Represents changes in amounts classified as held for sale associated with the disposal group related to the recently completed Mass Markets Fiber-to-the-Home business in the Territory.

See Note 2—Divestiture.

Note 7—Long-Term Debt and Note Payable - Affiliate

The following chart reflects (i) the consolidated long-term debt of Qwest Corporation and its subsidiaries, including finance lease and other obligations, unamortized premiums, net, unamortized debt issuance costs and (ii) note payable-affiliate:

As of December 31,

The following table reflects our consolidated long-term debt as of the dates indicated below, including unamortized discounts and premiums and unamortized debt issuance costs:

Interest Rates (1)

3 unchanged sentences

$ 1,736 1,973

Former term loan (2)

Finance lease and other Various Various 2 3

5 unchanged sentences

_______________________________________________________________________________

N/A - Not applicable

(1) As of December 31, 2025.

(2) Qwest Corporation's Term Loan was due in 2027 and had an interest rate of 7.970 % as of December 31, 2023, prior to being cancelled on the TSA Effective Date (as defined below).

Long-Term Debt Maturities

10 unchanged sentences

Qwest Guarantees of Lumen Debt

Lumen’s obligations under its new credit agreements entered into on March 22, 2024 and its new superpriority secured senior notes issued on and after March 22, 2024 are unsecured, but Qwest Corporation and certain of its subsidiaries have provided an unconditional unsecured guarantee of payment of Lumen’s obligations under these agreements and senior notes.

Lumen’s obligations under its new credit agreements entered into on March 22, 2024 and its superpriority secured senior notes issued on and after March 22, 2024 are unsecured, but Qwest Corporation and certain of its subsidiaries have provided an unconditional unsecured guarantee of payment of Lumen’s obligations under these agreements and senior notes.

Note Payable - Affiliate

19 unchanged sentences

Total interest expense $ 91 62 95

Interest (income) expense-affiliates, net

Interest income-affiliates, net

$ ( 89 ) ( 24 ) ( 15 )

The senior notes of Qwest Corporation were issued under indentures dated April 15, 1990 and October 15, 1999.

These indentures contain restrictions on the incurrence of liens and the consummation of certain transactions substantially similar to the above-described covenants in the indentures governing Lumen’s senior unsecured notes (but contain no mandatory repurchase provisions).

These indentures contain restrictions on the incurrence of liens, the consummation of certain transactions involving Qwest Corporation, and the transfer or lease of Qwest Corporation's property and assets substantially as an entity (but contain no mandatory repurchase provisions).

The senior notes of Qwest Capital Funding, Inc.

4 unchanged sentences

The following table presents details of our accounts receivable balances:

As of December 31,

(Dollars in millions)

Trade and purchased receivables $ 307 295

Earned and unbilled (credits) receivables

Earned and unbilled credits

( 100 ) ( 67 )

2 unchanged sentences

Accounts receivable, less allowance $ 199 227

_______________________________________________________________________________

(1) These values exclude assets classified as held for sale as of December 31, 2025.

We are exposed to concentrations of credit risk from our customers.

5 unchanged sentences

Net property, plant and equipment is composed of the following:

Lives As of December 31,

Lives December 31,

(Dollars in millions)

6 unchanged sentences

Construction in progress (4)

N/A 530 1,146

Gross property, plant and equipment 16,356 17,775

6 unchanged sentences

(4) Construction in progress includes inventory held for construction and property of the aforementioned categories that has not been placed in service as it is still under construction.

(5) These values exclude assets classified as held for sale as of December 31, 2025.

As of December 31, 2025, we classified certain property, plant and equipment, net as held for sale and discontinued recording depreciation on the disposal group.

See Note 2—Divestiture.

We recorded depreciation expense of $ 652 million, $ 712 million and $ 756 million for the years ended December 31, 2025, 2024 and 2023, respectively.

14 unchanged sentences

Pension and Post-Retirement Benefits

Pension Benefits

QCII's post-retirement benefit plans were merged into Lumen's post-retirement benefit plans on January 1, 2012, and on December 31, 2014, QCII's qualified pension plan and a pension plan of an affiliate were merged into the CenturyLink Retirement Plan, which is now named the Lumen Combined Pension Plan (the "LCPP").

2 unchanged sentences

Lumen Technologies occasionally makes voluntary contributions in addition to required contributions.

Lumen Technologies made a voluntary contribution of $ 170 million to the LCPP in 2024.

Lumen Technologies did no t make a voluntary contribution to the LCPP in 2025.

Lumen Technologies made a voluntary contribution of $ 170 million to the LCPP in 2024.

The unfunded status of Lumen's qualified and non-qualified pension plans for accounting purposes was approximately $ 588 million and $ 645 million as of December 31, 2025 and 2024, which includes the merged QCII qualified pension plan.

The unfunded status of Lumen's post-retirement benefit plans for accounting purposes was $ 1.7 billion and $ 1.7 billion as of December 31, 2025 and 2024, respectively.

Lumen Technologies allocates current service costs to subsidiaries relative to employees who are currently earning benefits under the pension and post-retirement benefit plans.

The net cost allocated to us is paid on a monthly basis through Lumen's intercompany cash management process.

The affiliate obligations, net in current and noncurrent liabilities on the consolidated balance sheets primarily represents the cumulative allocation of expense, 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.

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

For the years ended December 31, 2024 and 2023, we made settlement payments in the aggregate of $ 52 million and $ 57 million, respectively, to QCII under the plan.

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

We are allocated a portion of Lumen's pension and post-retirement services costs.

The combined net pension and post-retirement service costs is included in cost of services and products and selling, general and administrative expenses on our consolidated statement of operations, in the amounts for the respective periods presented in the table below:

Years Ended December 31,

2024 2023 2022

(Dollars in millions)

Allocated pension service costs $ 20 22 31

Allocated post-retirement service costs 4 4 7

% of Lumen's total pension and post-retirement service costs 86 % 87 % 72 %

Lumen Technologies sponsors a noncontributory qualified defined benefit pension plan that covers certain participants.

6 unchanged sentences

however, the plan was amended to eliminate this benefit effective March 1, 2010 for retirees who retired prior to January 1, 2004 and whose deaths occur after February 28, 2010 and eliminate the death benefit for eligible beneficiaries of certain retirees who retired after December 31, 2003.

Post-Retirement Benefits

Lumen Technologies maintains post-retirement benefit plans that provide health care and life insurance benefits primarily for certain eligible retirees.

8 unchanged sentences

However, Lumen's contribution under its post-1990 non-represented retirees' health care plan is capped at a specific dollar amount.

Cost Allocation

Lumen Technologies allocates current service costs to subsidiaries relative to employees who are currently earning benefits under the pension and post-retirement benefit plans.

The net cost allocated to us is paid on a monthly basis through Lumen's intercompany cash management process.

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.

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

For the years ended December 31, 2025 and 2024, we made settlement payments in the aggregate of $ 48 million and $ 52 million, respectively, to QCII under the plan.

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

We are allocated a portion of Lumen's pension and post-retirement services costs.

Years Ended December 31,

2025 2024 2023

(Dollars in millions)

Allocated pension service costs $ 17 20 22

Allocated post-retirement service costs 3 4 4

% of Lumen's total pension and post-retirement service costs 79 % 86 % 87 %

Other Benefit Plans

Medicare Prescription Drug, Improvement and Modernization Act of 2003

1 unchanged sentence

Lumen Technologies recognizes the impact of the federal subsidy received under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 in the calculation of its post-retirement benefit obligation and net periodic post-retirement benefit expense.

Other Benefit Plans

Health Care and Life Insurance

We provide health care and life insurance benefits to essentially all of our active employees.

We provide health care and life insurance benefits to essentially all our active employees.

We are largely self-funded for the cost of the health care plan.

1 unchanged sentence

Employees' group basic life insurance plans are fully insured and the premiums are paid by Lumen Technologies.

Lumen Technologies sponsors a qualified defined contribution plan covering substantially all of our employees.

Lumen Technologies sponsors a qualified defined contribution plan covering substantially all our employees.

Under this plan, employees may contribute a percentage of their annual compensation up to certain maximums, as defined by the plan and by the Internal Revenue Service ("IRS").

1 unchanged sentence

We recognized $ 24 million, $ 25 million and $ 27 million in expense related to this plan for the years ended December 31, 2025, 2024 and 2023, respectively.

Subsequent Event

In January 2026, Lumen made a voluntary contribution of $ 101 million to the trust for the Lumen Combined Pension Plan.

Note 12—Fair Value of Financial Instruments

10 unchanged sentences

The following table presents the carrying amounts and estimated fair values of our financial liabilities as of December 31, 2025 and 2024, as well as the input level used to determine the fair values indicated below:

As of December 31, 2024 As of December 31, 2023

December 31, 2025 December 31, 2024

Level Carrying

4 unchanged sentences

The components of the Income tax expense from continuing operations are as follows:

Year Ended December 31,

(Dollars in millions)

Loss (income) before income taxes

Domestic $ ( 987 )

Total pre-tax book loss $ ( 975 )

Income tax expense

Current tax expense

Federal $ 181

State and Local 40

Total current tax expense 227

Deferred tax expenses

State and Local 21

Total deferred tax expense 125

Income tax expense

State and Local 61

Total income tax expense $ 352

Years Ended December 31,

2024 2023 2022

(Dollars in millions)

5 unchanged sentences

Current 94 107

Deferred 3 3 14

Income tax expense $ 527 561

The effective income tax rate for continuing operations differs from the statutory tax rate as follows:

Years Ended December 31,

The following is a reconciliation from the statutory federal income tax rate to our effective income tax rate:

Year Ended December 31,

(Dollars in millions) Percentage of pre-tax loss

Statutory federal income tax rate $ ( 205 ) 21.0 %

Effect of cross-border tax laws

Other ( 1 ) 0.1 %

Changes in valuation allowance — — %

Nontaxable or nondeductible items

Goodwill impairment 421 ( 43.2 ) %

Loss on disposal group held for sale (Note 3) 50 ( 5.1 ) %

Other ( 1 ) 0.1 %

State income taxes, net of federal income tax benefit (1)

Change in liability for unrecognized tax position 25 ( 2.6 ) %

Foreign tax effect

Deferred tax on unremitted earnings

Other 3 ( 0.3 ) %

Effective income tax rate $ 352 ( 36.1 ) %

_______________________________________________________________________________

(Percentage of pre-tax income (loss))

(1) During the year ended December 31, 2025, state taxes in Minnesota, Colorado and Arizona comprised greater than 50% of the tax effect in this category.

Years Ended December 31,

(Percentage of pre-tax income)

Effective income tax rate:

7 unchanged sentences

Effective income tax rate 26.2 % ( 207.8 ) %

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.

The effective tax rate for 2025 and 2023 includes $ 421 million and $ 505 million, respectively, of unfavorable impact of non-deductible goodwill impairment.

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:

As of December 31,

(Dollars in millions)

9 unchanged sentences

Net deferred tax liabilities $ ( 1,459 ) ( 1,334 )

As of December 31, 2024 and 2023, we had no established valuation allowance based on our assessment of whether it is more likely than not that our deferred tax assets will be realized.

As of December 31, 2024 and 2023, the $ 1.3 billion net deferred tax liabilities are included in long-term liabilities on our consolidated balance sheet.

As of December 31, 2025, we have determined that a portion of our undistributed earnings in India are no longer permanently reinvested, resulting in the recognition of an immaterial deferred tax liability.

We continue to assert that undistributed earnings of our subsidiaries in all other foreign jurisdictions are indefinitely reinvested.

As of both December 31, 2025 and 2024, we had no established valuation allowance based on our assessment of whether it is more likely than not that our deferred tax assets will be realized.

As of December 31, 2025 and 2024, the $ 1.5 billion and $ 1.3 billion, respectively, net deferred tax liabilities are included in long-term liabilities on our consolidated balance sheet.

Income taxes paid, net are as follows:

Year Ended December 31,

(Dollars in millions)

Federal $ 154

Total income taxes paid, net (1)

_______________________________________________________________________________

(1) During the year ended December 31, 2025, there were no individual jurisdictions with cash taxes paid that equaled or exceeded 5% of the total income taxes paid.

With few exceptions, we are no longer subject to U.S.

6 unchanged sentences

Unrecognized tax benefits at beginning of period $ 293 317

Decrease due to tax positions taken in a prior year ( 11 ) ( 1 )

Increase (decrease) due to tax positions taken in a prior year 1 ( 11 )

Decrease due to tax positions taken in a current year ( 4 ) ( 13 )

Unrecognized tax benefits at end of period $ 290 293

As of December 31, 2024, the total amount of unrecognized tax benefits that, if recognized, would impact the effective income tax rate is immaterial .

As of December 31, 2025, the total amount of unrecognized tax benefits that, if recognized, would impact the effective income tax rate is $ 5 million.

The unrecognized tax benefits also includes tax positions that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes, that would not impact the effective tax rate but could impact cash tax amounts payable to taxing authorities.

4 unchanged sentences

We paid $ 199 million, $ 497 million, and $ 509 million related to income taxes for the years ended December 31, 2025, 2024, and 2023, respectively.

In August 2022, the Inflation Reduction Act was signed into law and which, among other things, implemented a 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”) 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.

The 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, 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.

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 modifying the operation of Pillar Two rules, which would fully exempt U.S.-parented groups from the application 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.

Note 14—Affiliate Transactions

We provide incumbent local exchange carrier telecommunications services to our affiliates that we also provide to external customers.

We periodically review and update our prices for affiliate network services to align with regulated rates, where applicable, or competitive market-based rates charged to external customers, taking into consideration the average third party customer contract term those affiliate services pertain to.

We provide incumbent local exchange carrier telecommunications services to our affiliates that are similar to the services we provide to external customers.

We periodically review and update our prices for affiliate network services to align with regulated rates, where applicable, or competitive market-based rates charged to external customers, taking into consideration the average third-party customer contract term to which those affiliate services pertain.

These services are billed directly to our affiliates and recognized as affiliate revenue on our consolidated statements of operations.

4 unchanged sentences

From time to time, we may adjust the basis for allocating the costs of a shared service among affiliates.

Any such changes in allocation methodologies are applied prospectively.

The following table provides details of affiliate revenue:

Any such changes in allocation methodologies are generally applied prospectively.

On March 31, 2025, we entered into an unsecured revolving promissory note with our ultimate parent Lumen Technologies, under which Lumen Technologies is permitted to borrow up to $ 3.0 billion from us at an 8.3 % interest rate per annum.

The principal amount is payable upon demand by us and prepayable by Lumen Technologies at any time, but no later than March 31, 2030, which will automatically renew on the maturity date for successive 12-month periods unless we elect otherwise.

The facility has covenants and is subject to other limitations.

As of December 31, 2025, we had $ 937 million of principal and capitalized interest due from Lumen Technologies under this promissory note.

The following table provides details of our affiliate revenue:

Years Ended December 31,

3 unchanged sentences

Allocated affiliate revenue

Total affiliate revenue

Total operating revenue - affiliate

$ 1,935 2,249 2,159

5 unchanged sentences

As such, as of any given date we could have exposure to losses under proceedings as to which no liability has been accrued or as to which the accrued liability is inadequate.

Subject to these limitations, at December 31, 2024 and December 31, 2023, we had accrued $ 17 million and $ 15 million, respectively, in the aggregate for our litigation and non-income tax contingencies, which are included in Other under Current Liabilities or Other under Deferred Credits and Other Liabilities in our consolidated balance sheets as of such dates.

We cannot at this time estimate the reasonably possible loss or range of loss, if any in excess of this $ 17 million accrual due to the inherent uncertainties and speculative nature of contested proceedings.

Subject to these limitations, as of December 31, 2025 and December 31, 2024, we had accrued $ 15 million and $ 17 million, respectively, in the aggregate for our litigation and non-income tax contingencies, which are included in Other current liabilities or Other liabilities in our consolidated balance sheets as of such dates.

We cannot at this time estimate the reasonably possible loss or range of loss, if any in excess of our $ 15 million accrual as of December 31, 2025 due to the inherent uncertainties and speculative nature of contested proceedings.

The establishment of an accrual does not mean that actual funds have been set aside to satisfy a given contingency.

11 unchanged sentences

Mary’s Parish along with other parishes, municipalities, and two individuals served a notice of intent to file citizen suit under the Louisiana Environmental Quality Act, asserting claims identical to the class action which the plaintiffs voluntarily dismissed.

In April 2025, the Village of Parks (one of the municipalities which had served a notice of intent to file a citizen suit) served Lumen with a petition in an action captioned Village of Parks v.

Lumen Technologies, Inc., Case 95026, in the 16th Judicial District Court for the Parish of St.

Martin, State of Louisiana.

The Village of Parks petition seeks damages and injunctive relief under Louisiana state law relating to the above-described allegations about lead-sheathed telecommunication cables.

On November 6, 2023, a putative class action complaint was filed in the 16th Judicial District Court for the Parish of St.

2 unchanged sentences

The case has been removed to Federal Court in the United States District Court Western District of Louisiana Lafayette Division, Case 6:23-CV-01748.

In December 2024, the plaintiffs filed an amended complaint and a motion for remand.

In September 2025, the motion to remand was denied.

FCRA Litigation

3 unchanged sentences

In February 2017, the case was dismissed for lack of standing.

The plaintiff appealed and the 9th Circuit reversed and remanded.

The plaintiff appealed and the Ninth Circuit reversed and remanded.

Class certification was contested and ultimately granted in 2023.

The 9th Circuit denied Lumen’s request to appeal the class certification ruling.

The Ninth Circuit denied Lumen’s request to appeal the class certification ruling.

A jury trial was conducted in September 2024.

The jury found that CenturyLink willfully violated the FCRA and awarded each class member $ 500 for statutory damages and $ 2,000 for punitive damages.

If the verdict is not set aside in connection with post-trial motion practice, Lumen will appeal to the 9th Circuit.

The district court denied Lumen's post-trial motions for relief, and on October 16, 2024, Lumen filed an appeal which is captioned Bultemeyer v.

CenturyLink, Inc., Case 24-6413, in the U.S.

Court of Appeals for the Ninth Circuit.

We have not accrued a contingent liability for this matter.

While liability is possible, we have not determined it to be probable, and damages exposure, if any, is uncertain.

Billing Practices Suits

In June 2017, a former employee of a Lumen Technologies subsidiary filed an employment lawsuit against Lumen Technologies (at the time named CenturyLink, Inc.) claiming that she was wrongfully terminated for alleging that Lumen charged some of its retail customers for products and services they did not authorize.

Thereafter, based in part on the allegations made by the former employee, several legal proceedings were filed, including consumer class actions in federal and state courts, a series of securities investor class actions in federal courts, and several shareholder derivative actions in federal and Louisiana state courts.

The derivative cases were brought on behalf of CenturyLink, Inc.

against certain current and former officers and directors of the Company and seek damages for alleged breaches of fiduciary duties.

We have settled the consumer and securities investor class actions, and the derivative actions.

Qwest has engaged in discussions regarding related claims with a number of state attorneys general, and has entered into agreements settling certain of the consumer practices claims asserted by several state attorneys general.

Huawei Network Deployment Investigations

14 unchanged sentences

The Marshall Fire killed two people, and it burned thousands of acres, including entire neighborhoods.

Approximately 300 lawsuits naming various defendants and asserting various claims for relief have been filed.

To date, three of those name Qwest Corporation as being at fault:

Allstate Fire and Casualty Insurance Company, et al., v.

Qwest Corp., et al., Case 2023-cv-3048, and Wallace, et al., v, Qwest Corp., et al., Case 2023-cv-30488, both of which have been consolidated with Kupfner, et al., v.

Public Service Company of Colorado, et al.

Case 2022-cv-30195.

The consolidated proceeding is pending in Colorado District Court, Boulder, Colorado, Preliminary estimates of potential damage claims exceed $ 2 billion.

911 Surcharge

In June 2021, the Company was served with a complaint filed in the Santa Fe County District Court by Phone Recovery Services, LLC (“PRS”), acting on behalf of the State of New Mexico.

The complaint claims Qwest Corporation and CenturyTel of the Southwest have violated the New Mexico Fraud Against Taxpayers Act since 2004 by failing to bill, collect and remit certain 911 surcharges from customers.

Through pre-trial proceedings, the Court has narrowed the issues to be resolved by jury.

On August 21, 2024, a jury decided the remaining issues, and consequently all claims asserted, in Lumen's favor.

The plaintiff has filed a Notice of Appeal and Lumen submitted a cross-appeal as to the original motion to dismiss and motion for summary judgment.

Approximately 300 lawsuits seeking substantial monetary relief have been filed naming as defendants Qwest Corporation, an additional telecommunications company, and certain power companies.

The complaints involving Qwest have been consolidated with Kupfner et al., v.

Public Service Company of Colorado, et al., Case 2022-cv-30195, pending in Colorado District Court, Boulder, Colorado.

In September 2025, the court vacated the trial date because the defendants reached agreements in principle to settle with virtually all of the plaintiffs, subject to final documentation.

The court has held periodic status conferences and set a further status conference for February 26, 2026.

Other Proceedings, Disputes and Contingencies

1 unchanged sentence

We are currently defending several patent infringement lawsuits asserted against us by non-practicing entities, which are seeking substantial recoveries.

These cases have progressed to various stages and one or more may go to trial within the next twelve months if they are not otherwise resolved.

These cases have progressed to various stages and one or more may go to trial within the next 12 months if they are not otherwise resolved.

Where applicable, we are seeking full or partial indemnification from our vendors and suppliers.

7 unchanged sentences

The matters listed in this Note do not reflect all of our contingencies.

The ultimate outcome of the above-described matters may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our statements appearing above in this Note, and proceedings we currently consider immaterial may ultimately affect us materially.

At December 31, 2024, our future rental commitments and Right-of-Way ("ROW") agreements were as follows:

As of December 31, 2025, our future rental commitments and Right-of-Way ("ROW") agreements were as follows:

(Dollars in millions)

2 unchanged sentences

Purchase Commitments

We have several commitments to a variety of vendors for services to be used in the ordinary course of business totaling $ 87 million at December 31, 2024.

Of this amount, we expect to purchase $ 9 million in 2025, $ 18 million in 2026 through 2027, $ 19 million in 2028 through 2029 and $ 41 million in 2030 and thereafter.

We have several commitments to a variety of vendors for services to be used in the ordinary course of business.

As of December 31, 2025, we expect to purchase the following amounts under these commitments:

(Dollars in millions)

2027 through 2028 7

2029 through 2030 8

2031 and thereafter 14

Total purchase commitments

These amounts do not represent our entire anticipated purchases in the future, but represent only those items for which we are the contractually committed party as of December 31, 2025.

In addition to our above-described contractual obligations, our ultimate parent company Lumen Technologies is contractually committed to purchase additional services under arrangements from which we may purchase in the future.

Amounts included in the ROW and in the purchase commitments tables above are inclusive of contractual obligations related to our Mass Markets Fiber-to-the-Home business as of December 31, 2025 that were subsequently transferred to the buyer upon the close of the divestiture in February 2026.

Note 16—Other Financial Information

Other Current Assets

The following table presents details of other current assets in our consolidated balance sheets:

As of December 31,

Other Current Assets, net

The following table presents details of Other current assets, net in our consolidated balance sheets:

(Dollars in millions)

2 unchanged sentences

Contract fulfillment costs 26 26

Assets held for sale

Total other current assets $ 152 144

Total other current assets, net (1)

______________________________________________________________________

(1) As of December 31, 2025, Other current assets, net excludes $ 8 million associated with the disposal group classified as held for sale.

Current Liabilities

Accounts Payable

Included in accounts payable as of December 31, 2025 and 2024 were $ 37 million and $ 57 million, respectively, associated with capital expenditures.

Other Current Liabilities

The following table presents details of other current liabilities in our consolidated balance sheets:

As of December 31,

(Dollars in millions)

2 unchanged sentences

Total other current liabilities (1)

Included in accounts payable at December 31, 2024 and 2023 were $ 57 million and $ 116 million, respectively, associated with capital expenditures.

Other Noncurrent Liabilities

______________________________________________________________________

(1) As of December 31, 2025, Other current liabilities excludes $ 4 million associated with the disposal group reclassified as held for sale.

Other Liabilities

The following table presents details of other noncurrent liabilities in our consolidated balance sheets:

As of December 31,

(Dollars in millions)

2 unchanged sentences

Noncurrent operating lease liability 51 49

Total other noncurrent liabilities $ 685 679

Total other liabilities $ 703 685

Note 17—Labor Union Contracts

19 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk