QWEST CORP 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All references to "Notes" in this Item 7 of Part II refer to the Notes to Consolidated Financial Statements included in Item 8 of Part II of this report. Certain statements in this report constitute forward-looking statements. See "Special Note Regarding Forward-Looking Statements" immediately prior to Item 1 of Part I of this report for factors relating to these statements and "Risk Factors" in Item 1A of Part I of this report for a discussion of certain risk factors applicable to our business, financial condition, results of operations, liquidity and prospects. Overview We are an integrated communications company engaged primarily in providing an array of communications services to our business and residential customers. Our specific products and services are detailed below under the heading "Operations - Products and Services" in Item 1 of Part I of this report. Our ultimate parent company, Lumen Technologies, Inc., has cash management arrangements or loan arrangements with a majority of its income-generating subsidiaries that include lines of credit, affiliate obligations, capital contributions and dividends. Under these arrangements, the majority of our cash balance is advanced on a daily basis for centralized management by an affiliate of Lumen and most affiliate transactions are deemed to be settled at the time the transactions are recorded. The resulting net balance at the end of each period is reported as advances to affiliates or advances from affiliates on our consolidated balance sheets. From time to time we may declare and pay dividends to our parent, QSC. These dividends are settled in accordance with the cash management process described above, which has the net effect of reducing our advances to affiliates or increasing our advances from affiliates. At December 31, 2020, we served approximately 2.8 million broadband subscribers. Our methodology for counting broadband subscribers may not be comparable to those of other companies. For the reasons noted in Note 1—Background And Summary Of Significant Accounting Policies and Note 14—Products and Services Revenue, we have determined that we have one reportable segment. We categorize our products, services and revenue among the following six categories: • IP and Data Services , which primarily consists of VPN data networks, Ethernet, retail video, IP and other ancillary services; • Transport and Infrastructure , which includes broadband, private line (including business data services) and other ancillary services; 26 • Voice and Collaboration , which includes primarily local voice, including wholesale voice, and other ancillary services; • IT and Managed Services, which includes information technology services and managed services, which may be purchased in conjunction with our other network services; • Regulatory Revenue, which consists of USF and CAF support payments and other operating revenue. We receive federal support payments from both federal and state USF programs and from the federal CAF II program. These support payments are government subsidies designed to reimburse us for various costs related to certain telecommunications services including the costs of deploying, maintaining and operating voice and broadband infrastructure in high-cost rural areas where we are not able to fully recover our costs from our customers; and • Affiliate Services, which are telecommunication services we provide to our affiliates that we also provide to our external customers. In addition, we provide to our affiliates computer system development and support services, network support and technical services. From time to time, we change the categorization of our products and services, and we may make similar changes in the future. Trends Impacting Our Operations Our consolidated operations have been, and are expected to continue to be, impacted by the following company-wide trends: • Customers' demand for automated products and services and competitive pressures will require that we continue to invest in new technologies and automated processes to improve the customer experience and reduce our operating expenses. • The increasingly digital environment and the growth in online video require robust, scalable network services. We are continuing to enhance our product capabilities and simplify our product portfolio based on demand and profitability to enable customers to have access to greater bandwidth. • Businesses continue to adopt distributed, large-scale operating models. We are expanding and densifying our fiber network, connecting more buildings to our network to generate revenue opportunities and reduce our costs associated with leasing networks from other carriers. • Industry consolidation, coupled with changes in regulation, technology and customer preferences, are significantly reducing demand for our traditional voice services and are pressuring some other revenue streams through volume or rate reductions, while other advances, such as the need for lower latency provided by Edge computing or the implementation of 5G networks, are expected to create opportunities. • The operating margins of several of our newer, more technologically advanced services, some of which may connect to customers through other carriers, are lower than the operating margins on our traditional, on-net wireline services. Impact of COVID-19 Pandemic In response to the safety and economic challenges arising out of the COVID-19 pandemic, we have taken a variety of steps to ensure the availability of our network infrastructure, to promote the safety of our employees, to enable us to continue to provide our products and services worldwide to our customers, and to strengthen our communities. These steps have included: • Lumen Technologies taking the FCC’s “Keep Americans Connected Pledge,” under which we waived certain late fees and suspended the application of data caps and service terminations for non-payment by certain consumer and small business customers through the end of the second quarter of 2020; 27 • establishing new protocols for the safety of our on-site technicians and customers, including our “Safe Connections” program; • adopting a rigorous employee work-from-home policy and substantially restricting non-essential business travel; each of which remains in place; • continuously monitoring our network to enhance its ability to respond to changes in usage patterns; • donating products or services in several of our communities to enhance their abilities to provide necessary support services; and • taking steps to maintain our internal controls and the security of our systems and data in a remote work environment. As the pandemic continues and vaccination rates increase, we expect to revise our responses or take additional steps to adjust to changed circumstances. Social distancing, business and school closures, travel restrictions and other actions taken in response to the pandemic have impacted us, our customers and our business since March 2020. In particular, during the second half of 2020, we rationalized our lease footprint and ceased the use of 5 leased property locations that were underutilized due to the COVID-19 pandemic. We determined that we no longer needed the leased space and due to the limited remaining term on the contracts concluded that we had neither the intent nor the ability to sublease the properties. As a result, we incurred accelerated lease costs of approximately $31 million. In conjunction with our plans to improve long-term profitability, we expect to continue our real estate rationalization efforts and incur additional costs in 2021. Additionally, as discussed further elsewhere herein, we are tracking pandemic impacts such as (i) increases in certain of our revenue streams and decreases in others (including late fee revenue), (ii) increases in our allowances for credit losses each quarter since the start of the pandemic, (iii) increases in overtime expenses, and (iv) delays in our cost transformation initiatives. Thus far, these changes have not materially impacted our financial performance or financial position. This could change, however, if the pandemic intensifies or economic conditions further deteriorate. The impact of the pandemic during 2021 will materially depend on additional steps that we may take in response to the pandemic and various events outside of our control, including the pace of vaccinations, the length and severity of the health crisis and economic slowdown, actions taken by governmental agencies or legislative bodies, and the impact of those events on our employees, suppliers and customers. For additional information, see the risk factor disclosures set forth or referenced in Item 1A of Part II of this report. For additional information on the impacts of the pandemic, see the remainder of this item, including "— Liquidity and Capital Resources — Pension and Post-retirement Benefit Obligations." 28 Results of Operations The following table summarizes the results of our consolidated operations for the years ended December 31, 2020 and 2019: Years Ended December 31, 2020 2019 (Dollars in millions) Operating revenue $ 7,313 8,052 Operating expenses 4,602 5,168 Operating income 2,711 2,884 Other expense, net (409) (416) Income before income taxes 2,302 2,468 Income tax expense 595 641 Net income $ 1,707 1,827 Operating Revenue The following table summarizes our consolidated operating revenue recorded under our six revenue categories: Years Ended December 31, % Change 2020 2019 (Dollars in millions) IP and Data Services $ 524 595 (12) % Transport and Infrastructure 2,604 2,773 (6) % Voice and Collaboration 1,517 1,618 (6) % IT and Managed Services 2 4 (50) % Regulatory Services 179 189 (5) % Affiliate Services 2,487 2,873 (13) % Total operating revenue $ 7,313 8,052 (9) % Total operating revenue decreased by $739 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The decrease in operating revenue was primarily driven by lower affiliate service revenues due to the transfer of employees, and the revenues related to the services those employees provide, from us to an affiliate. The remaining decline in revenue was primarily due to decreases in our voice, broadband, private line and Ethernet services. Operating Expenses The following table summarizes our consolidated operating expenses: Years Ended December 31, % Change 2020 2019 (Dollars in millions) Cost of services and products (exclusive of depreciation and amortization) $ 1,995 2,333 (14) % Selling, general and administrative 564 659 (14) % Operating expenses-affiliates 728 812 (10) % Depreciation and amortization 1,315 1,364 (4) % Total operating expenses $ 4,602 5,168 (11) % These expense classifications may not be comparable to those of other companies. 29 Cost of Services and Products (exclusive of depreciation and amortization) Cost of services and products (exclusive of depreciation and amortization) are expenses incurred in providing products and services to our customers. These expenses include: employee-related expenses directly attributable to operating and maintaining our network (such as salaries, wages, benefits and professional fees); facilities expenses (which include third-party telecommunications expenses we incur for using other carriers' networks to provide services to our customers); rents and utilities expenses; equipment expenses (such as modem expenses); costs incurred for universal service funds (which are state funds that are established to promote the availability of telecommunications services to all consumers at reasonable and affordable rates); certain legal and other expenses directly related to our operations. Cost of services and products (exclusive of depreciation and amortization) decreased by $338 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The decrease in our cost of services and products was primarily due to reductions in salaries and wages and employee-related expenses resulting from lower headcount. These reductions were partially offset by higher network expenses from project impairments and higher customer premises equipment costs due to increased customer installations. Selling, General and Administrative Selling, general and administrative expenses are expenses incurred in selling products and services to our customers, corporate overhead and other operating expenses. These expenses include: employee-related expenses (such as salaries, wages, internal commissions, benefits and professional fees) directly attributable to selling products or services and employee-related expenses for administrative functions; marketing and advertising expenses; property and other operating taxes and fees; external commissions; legal expenses associated with general matters; bad debt expense; and other selling, general and administrative expenses. Selling, general and administrative expenses decreased by $95 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 primarily due to reductions in salaries and wages and employee-related expenses from lower headcount, commissions, professional fees, marketing and advertising expenses. These reductions were partially offset by higher property and other taxes, insurance and fees and bad debt. Operating Expenses-Affiliates Since Lumen's acquisition of us, we have incurred affiliate expenses related to our use of telecommunication services, marketing and employee related support services provided by Lumen Technologies and its subsidiaries. Operating expenses-affiliates decreased by $84 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 primarily due to the decline in the level of services provided to us by our affiliates. Depreciation and Amortization The following table provides detail of our depreciation and amortization expense: Years Ended December 31, % Change 2020 2019 (Dollars in millions) Depreciation $ 834 831 — % Amortization 481 533 (10) % Total depreciation and amortization $ 1,315 1,364 (4) % 30 Annual depreciation expense is impacted by several factors, including changes in our depreciable cost basis, changes in our estimates of the remaining economic life of certain network assets and the addition of new plant. Depreciation expense increased by $3 million, for the year ended December 31, 2020 as compared to the year ended December 31, 2019. Depreciation expense increased by $78 million due to the increase in depreciable assets which was offset primarily due to a decrease in depreciation expense of $72 million from annual rate depreciable life changes. Amortization expense decreased by $52 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 primarily due to a $45 million decrease from the effect of using an accelerated amortization method resulting in an incremental decline in expense each period as the intangible assets amortize and a $8 million decrease associated with annual rate amortizable life changes of software for the period. Other Consolidated Results The following table summarizes our total other expense, net and income tax expense: Years Ended December 31, % Change 2020 2019 (Dollars in millions) Interest expense $ (279) (380) (27) % Interest expense - affiliates, net (74) (62) 19 % Other (expense) income, net (56) 26 nm Total other expense, net $ (409) (416) (2) % Income tax expense $ 595 641 (7) % _______________________________________________________________________________ nm - Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful. Interest Expense Interest expense decreased by $101 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. This decrease was primarily due to the decrease in average long-term debt from $6.0 billion to $4.6 billion, and the decrease in our average interest rate from 6.67% to 6.56%. See Note 6—Long-Term Debt and Note Payable - Affiliate and Liquidity and Capital Resources below for additional information about our debt. Interest Expense - Affiliates, Net Interest expense - affiliates, net increased by $12 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The increase in interest expense - affiliates, net was primarily due to the increase in outstanding advances from our affiliates, which incur interest at the same rate as the note payable to our affiliate. See Note 6—Long-Term Debt and Note Payable - Affiliate. Other (Expense) Income, Net The following table summarizes our total other (expense) income, net: 31 Years Ended December 31, 2020 2019 % Change (Dollars in millions) Loss on debt extinguishment $ (63) — nm Interest income, affiliate 1 21 (95) % Other 6 5 20 % Total other (expense) income, net $ (56) 26 nm _______________________________________________________________________________ nm Percentages greater than 200% and comparisons between positive and negative values or to/from zero values are considered not meaningful. The loss on debt extinguishment relates to the senior note redemptions discussed in Note 6—Long-Term Debt and Note Payable - Affiliate. The decrease in interest income, affiliate is due to the reduction of the advances to affiliates. Income Tax Expense Income tax expense for the year ended December 31, 2020, was $595 million, or an effective tax rate of 25.8%, compared to $641 million, or an effective tax rate of 26.0%, for the year ended December 31, 2019. For additional information on income taxes, see Note 13—Income Taxes. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenue and expenses. We have identified certain policies and estimates as critical to our business operations and the understanding of our past or present results of operations related to (i) property, plant and equipment; (ii) affiliate transactions and (iii) income taxes. These policies and estimates are considered critical because they had a material impact, or they have the potential to have a material impact, on our consolidated financial statements and because they require us to make significant judgments, assumptions or estimates. We believe that the estimates, judgments and assumptions made when accounting for the items described below were reasonable, based on information available at the time they were made. However, there can be no assurance that actual results will not differ from those estimates. Affiliate Transactions We recognize intercompany charges at the amounts billed to us by our affiliates and we recognize intercompany revenue for services we bill to our affiliates. Pricing between affiliates currently uses market based, volume discounted rates. Because of the significance of the services we provide to our affiliates and our other affiliate transactions, the results of operations, financial position and cash flows presented herein are not necessarily indicative of the results of operations, financial position and cash flows we would have achieved had we operated as a stand-alone entity during the periods presented. See Note 15—Affiliate Transactions for additional information. 32 Income Taxes We are included in the consolidated federal income tax return of Lumen Technologies. Under Lumen's tax allocation policy, Lumen treats our consolidated results as if we were a separate taxpayer. The policy requires us to settle our tax liabilities through a change in our general intercompany obligation based upon our separate return taxable income. We are also included in the combined state tax returns filed by Lumen and the same payment and allocation policy applies. Our reported deferred tax assets and liabilities are primarily determined as a result of the application of the separate return allocation method and therefore the settlement of these amounts is dependent upon our parent, Lumen, rather than tax authorities. Lumen does have the right to change their policy regarding settlement of these assets and liabilities at any time. Our provision for income taxes includes amounts for tax consequences deferred to future periods. We record deferred income tax assets and liabilities reflecting future tax consequences attributable to tax credit carryforwards and differences between the financial statement carrying value of assets and liabilities and the tax bases of those assets and liabilities. Deferred taxes are computed using enacted tax rates expected to apply in the year in which the differences are expected to affect taxable income. The effect on deferred income tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date. The measurement of deferred taxes often involves the exercise of considerable judgment related to the realization of tax basis. Our deferred tax assets and liabilities reflect our assessment that tax positions taken in filed tax returns and the resulting tax basis, are more likely than not to be sustained if they are audited by taxing authorities. Assessing tax rates that we expect to apply and determining the years when the temporary differences are expected to affect taxable income requires judgment about the future apportionment of our income among the states in which we operate. Any changes in our practices or judgments involved in the measurement of deferred tax assets and liabilities could materially impact our financial condition or results of operations. See Note 13—Income Taxes for additional information. Liquidity and Capital Resources Overview 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. Lumen Technologies has cash management arrangements with a majority of its subsidiaries that include lines of credit, affiliate advances and obligations, capital contributions and dividends. As part of these cash management arrangements, affiliates provide lines of credit to certain other affiliates. Amounts outstanding under these lines of credit and intercompany obligations vary from time to time. Under these arrangements, the majority of our cash balance is advanced on a daily basis for centralized management by Lumen's service company affiliate. From time to time we may declare and pay dividends to our stockholder, QSC, sometimes in excess of our earnings to the extent permitted by applicable law, using cash owed to us under these advances, which has the net effect of reducing the amount of these advances. Our debt covenants do not currently limit the amount of dividends we can pay to QSC. Given our cash management arrangement with our ultimate parent, Lumen Technologies, Inc., and the resulting amounts due to us from Lumen Technologies, Inc., a significant component of our liquidity is dependent upon Lumen's ability to repay its obligation to us. We anticipate that our future liquidity needs will be met through (i) our cash provided by our operating activities, (ii) amounts due to us from Lumen Technologies, (iii) our ability to refinance QC's debt securities at maturity and (iv) capital contributions, advances or loans from Lumen Technologies or its affiliates if and to the extent they have available funds or access to available funds that they are willing and able to contribute, advance or loan. 33 Capital Expenditures We incur capital expenditures on an ongoing basis in order to enhance and modernize our networks, compete effectively in our markets and expand and improve our service offerings. Our parent, Lumen Technologies, and we evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and the expected return on investment. The amount of Lumen’s consolidated capital investment, and our portion thereof, is influenced by, among other things, demand for Lumen’s services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations (such as Lumen's CAF Phase II or RDOF infrastructure buildout requirements). For more information on Lumen’s total capital expenditures, please see its annual and quarterly reports filed with the SEC. For more information on our capital spending, see "Business" and "Risk Factors" in Items 1 and 1A, respectively, of Part I of this report. Debt and Other Financing Arrangements As of December 31, 2020, we owed a face amount of approximately $3.4 billion aggregate outstanding indebtedness (excluding finance leases, unamortized premiums, net and unamortized debt issuance costs), which includes our $215 million term loan. Subject to market conditions, and to the extent feasible, we may issue debt securities, under Qwest Corporation, from time to time in the future 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 date of this report, the credit ratings for Qwest Corporation's senior unsecured debt were as follows: Agency Credit Ratings Standard & Poor's BBB- Moody's Investors Service, Inc. Ba2 Fitch Ratings BB+ Lumen's and Qwest Corporation's credit ratings are reviewed and adjusted from time to time by the rating agencies. See Note 6—Long-Term Debt And Note Payable - Affiliate for additional information about our term loan and senior note indebtedness. Note Payable - Affiliate The Intercompany Note (defined in Note 6—Long-Term Debt and Note Payable - Affiliate) was entered into between Qwest Corporation and an affiliate of our ultimate parent company, Lumen Technologies, Inc., in the amount of $965 million. The outstanding principal balance owed by us under the Intercompany Note and the accrued interest thereon is due and payable on demand, but if no demand is made, then on June 30, 2022. Interest is accrued on the outstanding balance during an interest period using a weighted average per annum interest rate on the consolidated outstanding debt of Lumen Technologies, Inc. and its subsidiaries. As of December 31, 2020, the weighted average interest rate was 4.974%. As of December 31, 2020 and December 31, 2019, the Intercompany Note is reflected on our consolidated balance sheets as a current liability under note payable - affiliate. As of December 31, 2020 and 2019, $28 million and $31 million of accrued interest are reflected in other current liabilities on our consolidated balance sheets, respectively. For additional information about our indebtedness, see Note 6—Long-Term Debt And Note Payable - Affiliate. 34 Future Contractual Obligations Our estimated future obligations as of December 31, 2020 include both current and long term obligations. Related to debt, as noted in Note 6—Long-Term Debt And Note Payable - Affiliate, we have current maturities of $951 million and a long-term obligation of $2.4 billion. Under our operating leases as noted in Note 4—Leases, we have a current obligation of $32 million and a long-term obligation of $84 million. As noted in Note 16—Commitments, Contingencies and Other Items, we have a current obligation related to right-of-way agreements and purchase commitments of $34 million and a long-term obligation of $46 million. Additionally, we have a current obligation for asset retirement obligations of $3 million and a long-term obligation of $27 million. Dividends We periodically pay dividends to our direct parent company, which reduce our capital resources for debt repayments and other purposes. See Note 19—Stockholder's Equity. Pension and Post-retirement Benefit Obligations Lumen Technologies is subject to material obligations under its existing defined benefit pension plans and post-retirement benefit plans. At December 31, 2020, the accounting unfunded status of Lumen's qualified and non-qualified defined benefit pension plans and qualified post-retirement benefit plans was approximately $1.7 billion and $3.0 billion, respectively. See Note 10—Employee Benefits and Note 10—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, 2020 for additional information about our and Lumen's pension and post-retirement benefit arrangements. 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. Benefits paid by Lumen's qualified pension plan are paid through a trust that holds all of the plan's assets. Based on current laws and circumstances, Lumen Technologies does not expect any contributions to be required for their qualified pension plan during 2021. The amount of required contributions to Lumen's qualified pension plan will depend on a variety of factors, most of which are beyond their control, including earnings on plan investments, prevailing interest rates, demographic experience, changes in plan benefits and changes in funding laws and regulations. Lumen Technologies occasionally makes voluntary contributions in addition to required contributions. Although Lumen Technologies believes it is not required to make contributions to the pension plan in 2021 based on current laws and circumstances, it could make voluntary contributions. 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, In the past Lumen Technologies has maintained several trusts that helped cover some of these costs, but the trust funds are almost completely depleted and currently cover an immaterial amount of Lumen's annual plan costs. The affiliate obligations, net in current and noncurrent liabilities on our consolidated balance sheets primarily represents the cumulative allocation of expenses, net of payments, associated with QCII's pension plans and post-retirement benefits plans prior to the plan mergers. In 2015, we agreed to a plan to settle the outstanding pension and post-retirement affiliate obligations, net balance with QCII over a 30 year term. Under the plan, payments are scheduled to be made on a monthly basis. For the year ended December 31, 2020, we made settlement payments of $71 million to QCII in accordance with the plan. Changes in the affiliate obligations, net are reflected in operating activities on our consolidated statements of cash flows. For the year ended 2021, we expect to make aggregate settlement payments of $66 million to QCII under the plan. 35 For 2020, Lumen's expected annual long-term rates of return were 6.0% and 4.0% for the pension plan trust assets and post-retirement plans' trust assets based on the assets held and net of expected fees and administrative costs. For 2021, our expected annual long-term rates on these assets are 5.5% and 4.0%, respectively. However, actual returns could be substantially different. For additional information, see "Risk Factors—Financial Risks in Item 1A of Part I of this report. Connect America Fund & Rural Digital Opportunity Fund Since 2015, Lumen has been receiving over $500 million annually through Phase II of the CAF, a program that will end this year. In connection with CAF funding, we and Lumen must meet certain specified infrastructure buildout requirements in 13 states which requires substantial capital expenditures. While we are on track to meet the requirement this year, we cannot provide any assurances that we will be able to timely meet our mandated buildout requirements. In accordance with the FCC’s January 2020 order, we elected to receive an additional year of CAF Phase II funding in 2021. In early 2020, the FCC created the RDOF which is a new federal support program designed to replace the CAF Phase II program. On December 7, 2020, the FCC allocated in its RDOF Phase I auction $9.2 billion in support payments over 10 years to deploy high speed broadband to over 5.2 million unserved locations. Lumen Technologies won bids for RDOF Phase I support payments of $26 million annually. These RDOF Phase I support payments are expected to begin January 1, 2022. For additional information on these programs, see "Business—Regulation" in Item 1 of Part I of this report and see "Risk Factors—Financial Risks" in Item 1A of Part I of this report. Historical Cash Flow Information The following tables summarize our consolidated cash flow activities: Years Ended December 31, Change 2020 2019 (Dollars in millions) Net cash provided by operating activities $ 3,071 3,332 (261) Net cash provided by (used in) investing activities 754 (1,723) 2,477 Net cash used in financing activities (3,814) (1,612) 2,202 Operating Activities Net cash provided by operating activities decreased by $261 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 primarily due to a decrease in other current liabilities and reductions of other noncurrent liabilities. Cash provided by operating activities is subject to variability period over period as a result of the timing of the collection of receivables and payments related to interest expense, accounts payable, and payroll and bonuses. For additional information about our operating results, see "Results of Operations" above. Investing Activities Net cash provided by (used in) investing activities changed by $2.5 billion for the year ended December 31, 2020 as compared to the year ended December 31, 2019 primarily due to funds received from affiliates, used to repay our senior notes, which in turn reduced our advances to affiliates balance. Financing Activities Net cash used in financing activities increased by $2.2 billion for the year ended December 31, 2020 as compared to the year ended December 31, 2019 primarily due to higher repayments of long-term debt partially offset by advances from affiliates. 36 See Note 6—Long-Term Debt and Note Payable - Affiliate for additional information on our outstanding debt securities and financing activities. Other Matters 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 16—Commitments, Contingencies and Other Items for additional information. 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 matters, we have not accrued any liabilities for these matters as of December 31, 2020. Market Risk As of December 31, 2020, we were exposed to market risk from changes in interest rates on our variable rate long-term debt obligations, amended and restated revolving promissory note and fluctuations in certain foreign currencies. We seek to maintain a favorable mix of fixed and variable rate debt in an effort to limit interest costs and cash flow volatility resulting from changes in rates. Management periodically reviews our exposure to interest rate fluctuations and periodically implements strategies to manage the exposure. From time to time, we have used derivative instruments to (i) swap our exposure to changing or variable interest rates for fixed interest rates or (ii) to swap obligations to pay fixed interest rates for variable interest rates. As of December 31, 2020, we had no such instruments outstanding. We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative instrument activities. As of December 31, 2020, we did not hold or issue derivative financial instruments for trading or speculative purposes. At December 31, 2020, we had approximately $3.2 billion (excluding finance lease and other obligations) of long-term debt outstanding which bears interest at fixed rates and is therefore not exposed to interest rate risk. At December 31, 2020, we had $215 million floating rate debt exposed to changes in the London InterBank Offered Rate (LIBOR). A hypothetical increase of 100 basis points in LIBOR relative to this debt would decrease our annual pre-tax earnings by $2 million. At December 31, 2020, we had approximately $1.13 billion in debt, which was owed to an affiliate of our ultimate parent, Lumen Technologies, Inc. The note payable-affiliate bears interest at a variable rate, which is based on a weighted average per annum interest rate of Lumen's outstanding borrowings for the interest period and therefore is exposed to potential interest rate risk. Certain shortcomings are inherent in the method of analysis presented in the computation of exposures to market risks. Actual values may differ materially from those disclosed by us from time to time if market conditions vary from the assumptions used in the analyses performed. These analyses only incorporate the risk exposures that existed at December 31, 2020.