QWEST CORP 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides an overview of our financial performance, liquidity, and the business environment in which we operate. This discussion is intended to help readers understand our results and key factors influencing our operations. The MD&A should be read together with our audited consolidated financial statements and accompanying notes included in Item 8. All references to “Notes” in this section refer to the Notes to Consolidated Financial Statements in Item 8. This section includes forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those expressed or implied. For a discussion of these risks, see “Special Note Regarding Forward-Looking Statements” immediately prior to Item 1 and “Risk Factors” in Item 1A. The MD&A generally discusses results for the years ended December 31, 2025 and 2024, including year-over-year comparisons between these periods. For discussions of 2023 results and comparisons between 2024 and 2023 that are not in this document, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2024. We reclassified certain prior period amounts to conform to the current period presentation, including our revenue by product and service categories. OVERVIEW We are a leading digital networking services company, empowering enterprise businesses to fuel growth in a multi-cloud, AI-first marketplace by connecting people, data, and applications quickly, securely, and effortlessly. We operate in a rapidly evolving landscape with growing demand for secure, high-speed connectivity. Our strategy focuses on growing and transforming our network and business to deliver next-generation solutions that meet these needs and build the backbone of the AI economy. As of December 31, 2025, we served approximately 1.2 million broadband subscribers. Our methodology for counting broadband subscribers may be different than the methodologies used by other companies. Reporting Segment For the reasons noted in Note 1—Background and Summary of Significant Accounting Policies, we have determined that we have one reportable segment. 2026 Divestiture On May 21, 2025, we and certain of our affiliates entered into a definitive agreement to sell our Mass Markets Fiber-to-the-Home business in the Territory to AT&T (the "Mass Markets Fiber-to-the-Home divestiture"). On February 2, 2026, we completed the Mass Markets Fiber-to-the-Home divestiture in exchange for pre-tax cash proceeds of $5.75 billion, subject to post-closing adjustments. In connection with the sale, we have entered into a transition services agreement under which we will provide to AT&T various support services and certain long-term agreements under which we and AT&T will provide to each other various network and other commercial services. 31 Products and Services As of December 31, 2025, our products and services are categorized according to the core technologies that drive them and customer focus. • Mass Markets category : Revenue is reported under three product categories: Other Broadband, Voice and Other, and Fiber Broadband. • Business category : Revenue is reported under three product categories: Grow, Nurture, and Harvest. • Affiliates category : Revenue is reported under Affiliate Services. From time to time, we may change the categorization of our products and services. Our specific products and services are detailed in Note 4—Revenue Recognition. Cash Management and Intercompany Arrangements Our ultimate parent company, Lumen Technologies, Inc., maintains cash management and financing arrangements with many of its subsidiaries, including us. These arrangements include lines of credit, affiliate obligations, capital contributions, and dividends, and allow affiliates to extend lines of credit to other affiliates. Under these arrangements, most of our cash is advanced daily to Lumen's service company affiliate for centralized management. We report the resulting balances as advances to affiliates on our consolidated balance sheet. We may also declare and pay dividends to our direct parent, Qwest Services Corporation (“QSC”), using cash owed to us under these advances, which reduces the outstanding balance of these advances. Current Business Environment and Macroeconomic Factors The macroeconomic environment in which we operate remains dynamic and continues to affect our business. Key factors that have impacted us and our customers include: • Revenue mix : Shifts in technology and economic conditions have driven us to continuously review our strategy and as such, we expect to see continued reduction in legacy voice, broadband, and other legacy services, while fueling growth in our strategic products. • Inflationary pressures : Rising costs for labor, materials, and energy have increased operating expenses and capital expenditures, particularly for other network transformations. • Supply constraints : Shortages of critical components and other materials have slowed certain network expansion efforts. • Customer behavior : Certain customers have delayed purchasing decisions, which has occasionally impacted sales cycles. To date, we do not believe these factors have materially impacted our financial performance or position. However, ongoing economic and geopolitical uncertainty, tariffs, inflation, and supply constraints could increase costs, reduce revenues, delay network expansion, or disrupt service delivery, which could materially impact our results. If these conditions persist, our projected cash flows and market capitalization could decline. For further information relating to these matters, see “— Trends Impacting Our Operations” below and "Risk Factors" in Item 1A. We are actively managing these challenges through disciplined capital allocation, cost optimization, and strategic investments in network infrastructure. We believe these actions position us to navigate current macroeconomic conditions while pursuing long-term growth opportunities. We expect continued demand for high-capacity, low-latency connectivity solutions, supported by enterprise digital transformation and government broadband programs. While macroeconomic uncertainty and competitive pressures present risks, we believe our transformation initiatives position us to deliver long-term value. 32 Trends Impacting Our Operations Our operations are shaped by evolving technology, customer expectations, and market dynamics. Key trends that impact us, and will continue to impact us, include: • Automation and digital innovation : Growing demand for automated experiences and advanced technologies like AI requires ongoing investment in technology and infrastructure to enhance service quality and reduce costs. • Legacy decline and margin pressure : Legacy wireline services continue to shrink, while newer offerings often deliver lower margins — especially those involving third-party connectivity — necessitating cost optimization and pricing discipline. • Globalization and network expansion amid cost pressures : Distributed business models drive demand for high-capacity, low-latency networks. We are expanding our network capacity to capture growth, while managing vendor cost increases and dis-synergies from our recently completed divestiture. • Monetizing network assets with execution risk : We aim to generate revenue through custom connectivity solutions, by leveraging excess conduit and fiber assets. These opportunities can be significant but depend on market demand, regulatory conditions, and timely execution. These and other developments and trends impacting our operations are discussed in "Risk Factors" in Item 1A and elsewhere throughout MD&A. RESULTS OF OPERATIONS The following table summarizes the results of our consolidated operations for the years ended December 31, 2025 and 2024: Years Ended December 31, 2025 2024 (Dollars in millions) Operating revenue $ 4,748 5,508 Operating expenses 5,757 3,457 Operating (loss) income (1,009) 2,051 Total other income (expense), net 34 (37) (Loss) income before income taxes (975) 2,014 Income tax expense 352 527 Net (loss) income $ (1,327) 1,487 33 Operating Revenue The following table summarizes our consolidated operating revenue recorded under our revenue categories as described in Note 4—Revenue Recognition in Item 8: Years Ended December 31, % Change 2025 2024 (Dollars in millions) Other Broadband $ 763 933 (18) % Voice and Other 442 516 (14) % Fiber Broadband 314 377 (17) % Harvest 834 942 (11) % Nurture 330 357 (8) % Grow 130 134 (3) % Affiliate Services 1,935 2,249 (14) % Total operating revenue $ 4,748 5,508 (14) % Operating revenue decreased $760 million in 2025 compared to 2024. The following were the primary drivers within each revenue category: • Other Broadband decreased $170 million in 2025. This was primarily as a result of: ◦ fewer Mass Market customers for our low speed copper-based broadband services. • Voice and Other decreased $74 million in 2025. This was primarily as a result of: ◦ the continued loss of copper-based Mass Market voice customers; and ◦ a decrease of $11 million due to the voluntary relinquishment of our funding received under the FCC's Rural Digital Opportunity Fund (“RDOF”) in the second quarter of 2025. See the "Liquidity and Capital Resources—Federal Broadband Support Programs" below for more information. • Fiber Broadband decreased $63 million in 2025. This was primarily as a result of: ◦ fewer Mass Market subscribers for our fiber services, primarily resulting from customers migrating to the Quantum Fiber services offered by Lumen (which bills customers for such services and pays us for use of our network in providing such services, as further described below). • Harvest decreased $108 million in 2025. This was primarily as a result of: ◦ a decrease of $64 million in legacy voice services for Business customers; and ◦ a decrease of $39 million in legacy private line services. • Nurture decreased $27 million in 2025. This was primarily as a result of: ◦ a decrease of $30 million in Ethernet services. • Grow decreased $4 million in 2025, which was relatively flat period over period. 34 • Affiliate Services decreased $314 million in 2025. This was primarily as a result of: ◦ a decrease of $303 million in wavelengths services provided to our affiliates; ◦ a decrease of $77 million in Ethernet services and other direct legacy telecommunication services provided to our affiliates; and ◦ an offsetting increase of $67 million in fiber broadband services provided to our affiliates. Operating Expenses The following table summarizes our consolidated operating expenses; however, these expense categories may not be comparable to those of other companies:: Years Ended December 31, % Change 2025 2024 (Dollars in millions) Cost of services and products (exclusive of depreciation and amortization) $ 1,449 1,505 (4) % Selling, general and administrative 456 438 4 % Net loss on disposal group held for sale 235 — nm Operating expenses-affiliates 920 761 21 % Depreciation and amortization 685 753 (9) % Goodwill impairment 2,012 — nm Total operating expenses $ 5,757 3,457 67 % _______________________________________________________________________________ nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful. Cost of Services and Products (exclusive of depreciation and amortization) Cost of services and products (exclusive of depreciation and amortization) decreased $56 million in 2025 compared to 2024. This was primarily as a result of: • a decrease of $78 million in employee-related expenses; and • an offsetting increase of $24 million in network expenses. Selling, General and Administrative Selling, general and administrative expenses increased $18 million in 2025 compared to 2024. This was primarily as a result of: • an increase of $21 million from the sale of operating assets and associated gain recognized in the fourth quarter of 2024; • an increase of $13 million in professional fees; • an increase of $12 million in fees related to our voluntary relinquishment of FCC Rural Digital Opportunity Fund (“RDOF”) funding in the second quarter of 2025; and • an offsetting decrease of $11 million in bad debt expense. 35 Net Loss on Disposal Group Held for Sale For a discussion of the loss on the disposal group held for sale that we recognized for the year ended December 31, 2025, see Note 2—Divestiture in Item 8. Operating Expenses-Affiliates Operating expenses - affiliates increased $159 million in 2025 compared to 2024. This was primarily as a result of: • an increase of $166 million in allocated employee and corporate expense provided to us by our affiliates which includes the impact of (i) higher overall professional fees related to our recently completed divestiture and ongoing modernization and simplification strategies (ii) increased employee-related expenses and (iii) the impact of ongoing adjustments to the basis for allocations of cost shared amongst affiliates in normal course of business; • an offsetting decrease of $9 million in direct telecommunication services provided to us by affiliates Depreciation and Amortization The following table provides detail of our depreciation and amortization expense: Years Ended December 31, % Change 2025 2024 (Dollars in millions) Depreciation $ 652 712 (8) % Amortization 33 41 (20) % Total depreciation and amortization $ 685 753 (9) % Depreciation decreased $60 million in 2025 compared to 2024. This was primarily as a result of: • a decrease of $69 million due to the discontinuation of the depreciation of the tangible assets of the Lumen Mass Markets Fiber-to-the-Home business held for sale during the second quarter of 2025; and • an offsetting increase of $9 million in net growth in depreciable assets; Amortization decreased $8 million in 2025 compared to 2024. This was primarily as a result of: • a decrease in the net amount of amortizable assets. Goodwill Impairments We are required to perform impairment tests related to our goodwill annually, which we perform as of October 31, or sooner if an indicator of impairment occurs. 36 When we performed a qualitative impairment test during the fourth quarter of 2025, and concluded the estimated fair value of our equity was less than our carrying value of equity at October 31, 2025. As a result, we recorded a non-cash, non-tax-deductible goodwill impairment charge of $2.0 billion on October 31, 2025. During the second quarter of 2025, we determined that the classification of the Lumen Mass Markets Fiber-to-the-Home business in the Territory as held for sale, as described in Note 2—Divestiture, was considered an event or change in circumstance which required an assessment of our goodwill for impairment as of April 30, 2025. Based on our assessments performed, the estimated fair value of our equity exceeded our carrying value of equity and therefore concluded that we had no impairment as of our April 30, 2025 assessment date. For a discussion of the goodwill impairment we recognized in 2025, see Note 3—Goodwill and Intangible Assets in Item 8. Other Consolidated Results The following table summarizes our total other expense, net and income tax expense: Years Ended December 31, % Change 2025 2024 (Dollars in millions) Interest expense $ (91) (62) 47 % Interest income - affiliate, net 89 24 nm Other income, net 36 1 nm Total other income (expense), net $ 34 (37) nm Income tax expense $ 352 527 (33) % _______________________________________________________________________________ nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful. Interest Expense Interest expense increased $29 million in 2025 compared to 2024. This was primarily as a result of: • a decrease of $40 million decrease in capitalized interest; • an offsetting decrease in average interest rate from 6.75% to 6.70%; and • an offsetting decrease in average outstanding long-term debt of $150 million. Interest Income - Affiliate, Net Interest income - affiliate increased $65 million in 2025 compared to 2024. This was primarily as a result of: • a higher average receivable from affiliate, inclusive of our note-receivable - affiliates. See Note 14—Affiliate Transactions in Item 8 for more information on these facilities. Income Tax Expense For 2025 and 2024, our effective income tax rate was (36.1)% and 26.2%, respectively. The effective tax rate for 2025 includes $421 million of unfavorable impact due to a non-deductible goodwill impairment. For additional information, see Note 13—Income Taxes in Item 8 and "Critical Accounting Estimates — Income Taxes" below. 37 LIQUIDITY AND CAPITAL RESOURCES Overview of Sources and Uses of Cash We are an indirectly wholly-owned subsidiary of Lumen Technologies, Inc. As such, factors relating to, or affecting, Lumen's liquidity and capital resources could have material impacts on us, including impacts on our credit ratings, our access to capital markets and changes in the financial market's perception of us. Our primary sources of liquidity are: • cash from operating activities; • amounts due to us from Lumen Technologies, • our ability to refinance our debt obligations; and • capital contributions, advances, or loans from Lumen Technologies or its affiliates. Key balances as of December 31, 2025 included: • Cash and cash equivalents : $39 million • Note receivable-affiliate : $937 million • Total consolidated indebtedness : $1.7 billion As of December 31, 2025, $35 million of our cash and cash equivalents were held in foreign bank accounts for funding our foreign operations. Due to various factors, our access to foreign cash is generally more restricted than our access to domestic cash. We regularly review liquidity and capital allocation strategies with senior management and the Board of Directors, adjusting as strategies and conditions change. Based on current assumptions, we believe our liquidity sources — operating cash flows, available cash, and credit capacity — will be sufficient to fund near-term requirements and strategic investments. For additional information on risks that could affect liquidity, see “Risk Factors — Financial Risks” in Item 1A. Cash Management and Intercompany Arrangements We participate in Lumen Technologies, Inc.’s centralized cash‑management and intercompany financing arrangements, under which most of our cash held in U.S. banks is advanced daily to a Lumen service company affiliate for cash management. Under these arrangements affiliates may extend lines of credit to other affiliates. Intercompany lines of credit and other affiliate obligations cause our balances with Lumen and its affiliates to fluctuate. From time to time, we may declare and pay dividends to QSC, including amounts in excess of current earnings when permitted by law, using cash owed to us under these advances, which reduces the outstanding balance. Our debt covenants do not currently restrict the amount of dividends we can pay to QSC. A significant component of our liquidity consists of amounts due from Lumen under these arrangements; accordingly, our liquidity depends on Lumen’s ability to repay its obligations to us. 38 Cash Flow Activities The following table summarizes our consolidated cash flow activities: Years Ended December 31, $ Change 2025 2024 (Dollars in millions) Net cash provided by operating activities $ 1,762 2,194 (432) Net cash used in investing activities (1,512) (1,891) (379) Net cash used in financing activities (238) (287) (49) Operating Activities Net cash provided by operating activities decreased $432 million in 2025 compared to 2024. This was primarily as a result of: • lower net income adjusted for non-cash income and expenses Cash provided by operating activities is subject to variability period over period as a result of timing differences, including with respect to collection of receivables and payments of interest expense, accounts payable and bonuses. For additional information about our operating results, see "Results of Operations" above. Investing Activities Net cash used in investing activities decreased $379 million in 2025 compared to 2024. This was primarily as a result of: • a decrease in advances to affiliates; • a decrease in capital expenditures; and • an offsetting increase due to the issuance of a note receivable - affiliate. Financing Activities Net cash used in financing activities decreased $49 million in 2025 compared to 2024 . This was primarily as a result of: • a decrease resulting from the timing of repayments of advances from affiliates; and • an offsetting increase due to higher repayments of debt in 2025 as compared to 2024. Short-term Liquidity Needs As of December 31, 2025, we held cash and cash equivalents of $39 million, which together with cash generated from operating activities. This, along with Lumen’s outstanding obligations to us as described above, represent our primary sources of liquidity for the next 12 months. Additionally, we anticipate being assigned a portion of the proceeds from the recently completed Mass Markets Fiber-to-the-Home divestiture from Lumen through our cash management and intercompany arrangements previously described. Based on our current capital allocation objectives, we project expenditures for the next 12 months to include, among others, the following: 39 • RDOF relinquishment : $26 million for remittance of awards and associated fees — see "Federal Broadband Support Programs" below for further details. We expect to fund these expenditures primarily through operating cash flows, supplemented by available cash and borrowing capacity as needed. Based on current assumptions, we believe our liquidity sources will be sufficient to fund near-term requirements and strategic investments. For additional information on short-term liquidity needs, see “Future Contractual Obligations” below. Long-term Liquidity Needs Beyond the next 12 months, we plan to refinance a substantial portion of maturing debt through future debt issuances, subject to market conditions and covenant restrictions. Our ability to access capital markets depends on credit ratings and prevailing interest rates, and we cannot assure favorable terms for future borrowings. We may also consider other sources of liquidity, such as equity offerings or asset dispositions, depending on market conditions. For additional information on our credit ratings and factors that may affect our access to capital markets, see “— Future Debt Transactions” below. For additional information on long-term liquidity needs, see “Future Contractual Obligations” below. Impact of Strategic Transactions on Liquidity Our liquidity and capital resources have been influenced by several strategic actions aimed at optimizing our financial position, enhancing flexibility, and supporting long-term transformation initiatives. Key actions include: • Recent divestiture : The 2026 Mass Markets Fiber-to-the-Home divestiture generated significant cash proceeds but reduced recurring operating cash flows. The Mass Markets Fiber-to-the-Home divestiture is also expected to reduce Lumen's Mass Markets fiber-related capital expenditures by approximately $1 billion annually. While this transaction is expected to reduce recurring revenue and operating cash flows, we believe it will sharpen our focus on enterprise and fiber growth and deliver significant cash proceeds to strengthen our financial position. We expect these and future transactions to influence cash flows, leverage, and investment capacity. While divestitures provide immediate liquidity and support network expansion, they also introduce variability in operating cash flows. We will continue to pursue opportunities aligned with our capital allocation priorities and market conditions. Capital Expenditures We regularly invest in capital projects to expand and improve services, enhance and modernize networks, and strengthen our competitive position. Discretionary projects are evaluated by us and Lumen Technologies based on strategic impact such as revenue growth, productivity, service levels, customer retention, and expected return on investment. Lumen's consolidated capital spending is influenced by demand, contractual and regulatory requirements, cash flow, and resource availability. We expect capital spending to be focused on: • expanding our fiber network, including our other network capacity buildout plan; • modernizing and enhancing network efficiency and reliability; • developing new services; and • replacing aging network assets. These investments aim to improve service quality, drive innovation, and position us to meet future demand. 40 For additional details on our capital spending, see “Cash Flow Activities — Investing Activities ” above, "Business" in Item 1, and "Risk Factors" in Item 1A. Debt Instruments and Financing Arrangements Debt Instruments As of December 31, 2025, we had approximately $1.7 billion aggregate outstanding indebtedness (excluding finance leases, unamortized premiums, net, unamortized debt issuance costs, and Note Payable - Affiliate). None of our outstanding debt is due in the next 12 months (excluding finance lease obligations). See the details of our outstanding indebtedness as of December 31, 2025 in Note 7—Long-Term Debt and Note Payable - Affiliate of Item 8. Future Debt Transactions Subject to market conditions, and to the extent permitted under applicable debt covenants, Qwest Corporation may issue debt securities from time to time primarily to refinance a portion of our maturing debt. The availability, interest rate and other terms of any new borrowings will depend on the ratings assigned to Qwest Corporation by credit rating agencies, among other factors. As of the filing date of this report, the credit ratings for Qwest Corporation's senior unsecured debt were as follows: Agency Credit Ratings Moody's Investors Service, Inc. Caa1 Standard & Poor's B Fitch Ratings (1) BB _______________________________________________________________________________ (1) In February 2026, Moody's and Fitch upgraded our issuer default rating. Future changes in these ratings — or Lumen's ratings — could impact our access to capital and borrowing costs. We cannot be certain that we will be able to borrow additional funds on favorable terms, or at all. See "Risk Factors—Financial Risks" in Item 1A. Note Receivable - Affiliate On March 31, 2025, we entered into an unsecured revolving promissory note with our ultimate parent company, Lumen Technologies. The note allows Lumen to borrow up to $3.0 billion from us at an annual interest rate of 8.3%. Borrowings are payable on demand and may be prepaid at any time, but no later than March 31, 2030. The note will automatically renew on the maturity date for successive 12-month periods unless we elect otherwise. The facility includes covenants and other limitations. As of December 31, 2025, we had $937 million owed to us under this promissory note. For more information, see Note 14—Affiliate Transactions. Note Payable - Affiliate We are permitted to borrow up to $2.0 billion from our ultimate parent Lumen Technologies under a revolving promissory note. As of December 31, 2025, nothing was due under this promissory note. For more information, see Note 7—Long-Term Debt and Note Payable - Affiliate in Item 8. 41 Pension and Post-Retirement Benefit Obligations Lumen Technologies maintains significant pension and post-retirement benefit plans that require ongoing cash outflows and could affect our liquidity and financial flexibility. These obligations are sensitive to market conditions and actuarial assumptions, and adverse changes could increase funding requirements and reduce cash available for other uses. A substantial portion of our active and retired employees participate in Lumen's qualified pension plan and post-retirement benefit plans. On December 31, 2014, the Qwest Communications International Inc. ("QCII") 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. Our contributions are not segregated or restricted to pay amounts due to our employees and may be used to provide benefits to other employees of our affiliates. Prior to the pension plan merger, the above-noted employees participated in the QCII pension plan. Current Status As of December 31, 2025, Lumen's unfunded obligations were: • Pension plans : $588 million • Post-retirement plans : $1.7 billion The expected long-term rate of return on pension assets, net of administrative expenses, was 6.5% for 2025 and is 6.5% for 2026. Actual investment performance may differ substantially from these assumptions, which could influence future funding needs. Lower asset returns or interest rates could increase our obligations and may require additional contributions, reducing cash available for other uses. For additional details, see “CRITICAL ACCOUNTING ESTIMATES — Pension and Post-retirement Benefits” in Item 7 and Note 11—Employee Benefits in Item 8 and the corresponding note in Lumen’s 2025 Form 10‑K. Funding and Contributions Benefits paid by Lumen's qualified pension plan are paid through a trust which holds all of the plan's assets. Based on current laws and circumstances, Lumen does not expect required contributions to their qualified pension plan during 2026. Future contribution requirements will depend on factors such as investment performance, interest rates, demographics, plan changes, and funding regulations. Lumen makes voluntary contributions; none were made in 2025. Lumen made a voluntary contribution to the trust for the Combined Pension Plan of $101 million in January 2026 and $170 million in 2024. Any required or voluntary contributions could reduce available cash and impact liquidity. Settlements Our affiliate obligations primarily represent the cumulative allocation of pension and post‑retirement expenses, net of payments, associated with the former QCII plans prior to their merger into the Lumen Combined Pension Plan in 2014. In 2015, we agreed to settle these obligations over a 30 year term through monthly payments. Under the plan, payments are scheduled to be made on a monthly basis. For the year ended December 31, 2025, we made net settlement payments of $48 million to QCII in accordance with the plan. For the year ended 2026, we expect to make aggregate settlement payments of $44 million to QCII under the plan. Affiliate obligations, net are reflected in other within Current liabilities and Noncurrent liabilities on our consolidated balance sheets, while changes in the affiliate obligations are reflected in operating activities on our consolidated statements of cash flows. Post-Retirement Benefits Substantially all of Lumen's post-retirement health care and life insurance benefits plans are unfunded and are paid by Lumen Technologies with available cash. 42 Future Contractual Obligations We maintain obligations related to debt, leases, purchase commitments, and asset retirement. Our estimated future obligations as of December 31, 2025 include: Item 8 Note Reference Current Obligation (within next 12 months) Long-term Obligation (beyond next 12 months) Total (Dollars in millions) Long-term debt (excluding unamortized premiums, net and unamortized debt issuance costs) Note 7—Long-Term Debt and Note Payable - Affiliate $ — 1,738 1,738 Operating leases Note 5—Leases 19 65 84 Right-of-way agreements and purchase commitments Note 15—Commitments, Contingencies and Other Items 34 90 124 Asset retirement obligations N/A 2 21 23 Total $ 55 1,914 1,969 _______________________________________________________________________________ N/A Item 8 Note Reference not applicable, as no additional disclosure is included. Dividends We periodically pay dividends to QSC, our direct parent company, which reduce our capital resources for debt repayments and other purposes. For additional information, see our consolidated statements of cash flows and stockholder's equity and Note 18—Stockholder's Equity in Item 8. Federal Broadband Support Programs The FCC's RDOF program aims to support broadband expansion in rural areas throughout America. Although we initially agreed to participate in the program in certain areas, as previously disclosed, we voluntarily relinquished the entirety of our RDOF awards. As a result, we will no longer receive funding through the RDOF program and recognized a reduction to revenue of $11 million in our consolidated statements of operations in the second quarter of 2025. We also incurred fees totaling $12 million in connection therewith, which are reflected in our operating expenses within our consolidated statements of operations. In January 2026, we paid the $23 million of revenue and fees summarized above, along with an additional $3 million relating to our 2024 relinquishment as repayment of funds previously received and remittance of the fees incurred. Federal officials continue to advance broadband‑related proposals, and Congress has authorized a $65 billion program to expand broadband affordability and access. State and federal agencies are in the process of implementing these initiatives, and we expect that the release of associated funding may increase competition in newly served markets. For additional information on these programs, see Note 4—Revenue Recognition in Item 8, "Business—Regulation of Our Business" in Item 1, and "Risk Factors—Legal and Regulatory Risks" in Item 1A. Other Matters Legal Proceedings and Other Contingent Liabilities We are subject to various legal proceedings and other contingent liabilities that individually or in the aggregate could materially affect our financial condition, future results of operations or cash flows. See Note 15—Commitments, Contingencies and Other Items for additional information. 43 Our network includes a limited number of legacy lead-sheathed copper cables. Previous media reports regarding potential health and environmental risks associated with these cables have led to regulatory inquiries and lawsuits, and may result in legislative or regulatory actions, removal costs, compliance costs, or penalties. As of December 31, 2025, we have not recorded any accruals for such costs and will only accrue such costs when they become probable and reasonably estimable. For more information on related litigation and risks, see Note 15—Commitments, Contingencies and Other Items in Item 8 and “Risk Factors” in Item 1A. Lumen Technologies is involved in several legal proceedings to which we are not a party that, if resolved against it, could have a material adverse effect on its business and financial condition. As a wholly owned subsidiary of Lumen Technologies, our business and financial condition could be similarly affected. You can find descriptions of these legal proceedings in Lumen's quarterly and annual reports filed with the SEC. Because we are not a party to any of the Lumen matters, we have not accrued any liabilities for these matters as of December 31, 2025. Tax Law Changes In July 2025, the U.S. enacted H.R. 1, also known as the “One, Big Beautiful Bill Act” (the “OBBBA”), which permanently allows 100% bonus depreciation, immediate expensing for domestic R&D, and favorable changes to interest expense limitations. These provisions did not have a material impact on our 2025 effective tax rate but are expected to significantly reduce our federal income tax liability. The Organization for Economic Co-operation and Development ("OECD") has issued Pillar Two model rules introducing a new global minimum corporate tax of 15% for tax years effective after December 31, 2023. While the U.S. has not adopted Pillar Two legislation, certain countries in which we operate have already adopted legislation to implement Pillar Two. On January 5, 2026, the OECD announced the Side-by-Side ("SbS") package, implemented as administrative guidance and modifying the operation of Pillar Two rules that would fully exempt U.S.-parented groups from the application of certain Pillar Two top-up taxes. The SbS package also extends the current Transitional Country-by-Country Reporting ("CbCR") Safe Harbor by one year, through the end of fiscal year of 2027.The Pillar Two rules have increased our compliance requirements but did not materially impact our 2025 results. We continue to monitor evolving global and domestic tax legislation and administrative guidance. CRITICAL ACCOUNTING ESTIMATES The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenue, and expenses. Certain policies and estimates are considered critical because they involve significant judgments and assumptions and could materially impact our financial statements. These include: • goodwill and intangible assets; • affiliate transactions; and • income taxes. While we believe our estimates are reasonable based on information available at the time they were made, actual results may differ and could be material. Goodwill and Intangible Assets We have a significant amount of goodwill, which was derived from Lumen's acquisition of us where the purchase price exceeded the fair value of the net assets acquired. Goodwill is assessed at least annually for impairment. As of December 31, 2025, goodwill and intangible assets totaled $3.7 billion (excluding goodwill and intangible assets classified as held for sale), representing 24% of our total assets. The impairment analyses of these assets are considered critical because of their significance to us, the subjective nature of certain assumptions used to estimate fair value, and because it can materially impact reported results and future expense. 44 Amortization Intangible assets acquired in business combinations — such as goodwill and capitalized software — are recorded at estimated fair value at acquisition. Other intangible assets not arising from business combinations are initially recorded at cost and are subsequently amortized over their useful lives. We amortize finite-lived intangible assets using the straight-line method over the following estimated lives: • Capitalized software : 3 - 7 years The amount of future amortization expense may differ materially from current amounts, depending on the results of our annual reviews. Impairment Testing Goodwill Goodwill is tested annually as of October 31, or more frequently if events or changes in circumstances indicate potential impairment. We first consider qualitative factors. If necessary, we perform a quantitative test comparing the reporting unit’s estimated fair value to its carrying amount. If fair value is lower, we record a non-cash impairment charge for the difference. Fair Value Estimation Depending on the facts and circumstances, we typically estimate the fair value of our reporting unit by considering either or both of (i) a discounted cash flow method and (ii) a market approach. Under the discounted cash flow method, we estimate fair value by calculating the present value of projected cash flows over a discrete period plus a terminal value based on normalized future cash flows. Discounted Cash Flow Method • Cash flow projections : Derived from estimates developed from our long-range plan, informed by industry trends — including wireline-specific factors — competitive landscape, product lifecycles, operational initiatives, and capital allocation strategies. These projections consider recent historical results and are consistent with our short-term financial forecasts and long-term business strategies. • Discount rate : Determined using a weighted average cost of capital, reflecting market participant assumptions for cost of equity and after-tax cost of debt, and incorporating risks inherent in the projections. • Terminal value : Represents expected normalized cash flows beyond the discrete projection period. • Uncertainty : Actual cash flows may differ significantly from projections due to inherent uncertainties. Market Approach Under the market approach, we estimate fair value of a reporting unit based upon a market multiple applied to the reporting unit's revenue and EBITDA, adjusted for an appropriate control premium based on recent market transactions. • Market multiples : Derived using publicly traded companies whose services and operating characteristics are comparable to ours. • Revenue and EBITDA : Derived using actual results and estimates and assumptions related to the forecasted results for the remainder of the year, including revenues, expenses, and the achievement of certain strategic initiatives. 45 • Weighting : Revenue and EBITDA multiples are weighted based on the characteristics of each reporting unit. • Control premium : Our implied control premium is a factor used to evaluate our fair value assessment and is evaluated for reasonableness, as described in the "Reconciliation" bullet below. Our development of fair value estimates under both the discounted cash flow method and the market approach method are subject to inherent uncertainties and rely on assumptions about industry trends, competitive conditions, product lifecycles, and capital allocation. Actual results could vary significantly from our estimates. • Reconciliation : Estimated fair values are reconciled to our market capitalization to ensure reasonableness compared to market transactions. Sensitivity and Risk Factors Changes in assumptions used in the discounted cash flow method or market approach — such as asset and liability allocations — can materially affect fair value estimates, and actual results could vary significantly from our estimates and assumptions. We perform sensitivity analyses using a range of discount rates and EBITDA multiples and believe our methods and assumptions are reasonable. However, any changes to these inputs can significantly impact whether impairment charges are required and the magnitude of those charges. For additional information on our goodwill balances by segment and results of our impairment analyses, see Note 3—Goodwill and Intangible Assets in Item 8. Affiliate Transactions We recognized intercompany charges for the amounts billed to us by our affiliates and we recognized intercompany revenue for services we bill to our affiliates. Because of the significance of these transactions, our results of operations, financial position, and cash flows are not necessarily indicative of the amounts we would have achieved had we operated as a stand-alone entity. Regarding telecommunications services that we provide to our affiliates, we saw a reduction to affiliate revenue for the year ended December 31, 2025. This was primarily due to the 2024 repricing of certain services provided to our affiliates to align with lower market rates including certain transport services, along with the termination of certain affiliate circuits that we no longer required to provide services to our external customers. See Note 14—Affiliate Transactions in Item 8 for additional information. Affiliate transactions are considered a critical accounting estimate because they involve significant judgment in determining pricing, allocation of costs, and the nature of services exchanged, all of which can materially impact reported results. Income Taxes We are included in the consolidated federal income tax return of Lumen Technologies. Lumen Technologies treats our consolidated results as if we were a separate taxpayer. We are required to pay our tax liabilities to Lumen Technologies based upon our separate return taxable income. We are also included in the combined state tax returns filed by Lumen Technologies. Given the significant judgment, inherent complexity, uncertainty of outcomes, varying internal and external factors, and overall potential to materially impact our financial results, we consider the measurement of deferred taxes to be critical accounting estimates. Deferred Taxes Our provision for income taxes includes amounts for current and deferred tax consequences. Deferred tax assets and liabilities reflect future tax effects of: 46 • tax credit carryforwards, and • differences between financial statement carrying values of assets and liabilities and tax bases of those assets and liabilities. Deferred taxes are computed using enacted tax rates expected to apply in the year in which the temporary differences are expected to affect taxable income. Changes in tax rates impacting deferred income tax assets and liabilities are recognized in earnings in the period of enactment. The measurement of deferred taxes requires significant judgment related to the realization of tax basis. We evaluate whether tax positions taken in filed returns are more likely than not to be sustained upon audit. Determining applicable tax rates and timing of reversals involves judgment about future income apportionment among jurisdictions. Changes in our practices or these judgments could materially affect our financial condition and results of operations. We evaluate tax matters on a quarterly basis; see Note 13—Income Taxes in Item 8 for additional details.