What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-02-24 compared with 2021-03-03 · 189 added, 265 removed, 844 unchanged (35% of the section changed)

9 unchanged sentences

generally accepted accounting principles.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the presentation of taxes assessed by a governmental authority as of January 1, 2020.

Basis for Opinion

20 unchanged sentences

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

Complex auditor judgment was required in evaluating the sufficiency of audit evidence over revenue due to the

large volume of data and the number and complexity of the revenue accounting systems.

Complex auditor judgment was required in evaluating the sufficiency of audit evidence over revenue due to the large volume of data and the number and complexity of the revenue accounting systems.

Specialized skills and knowledge were needed to test the IT systems used for the processing and recording of revenue.

7 unchanged sentences

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

Shreveport, Louisiana

March 3, 2021

Denver, Colorado

February 24, 2022

QWEST CORPORATION

30 unchanged sentences

Accounts receivable, less allowance of $ 38 and $ 61

Advances to affiliates — 1,842

Other 187 122

63 unchanged sentences

Proceeds from sale of property, plant and equipment and other assets 46 3 26

Net cash provided by (used in) investing activities 754 ( 1,723 ) ( 1,153 )

Net cash (used in) provided by investing activities ( 751 ) 754 ( 1,723 )

FINANCING ACTIVITIES

4 unchanged sentences

Net cash used in financing activities ( 2,293 ) ( 3,814 ) ( 1,612 )

Net increase (decrease) in cash, cash equivalents and restricted cash 11 ( 3 ) 4

Net (decrease) increase in cash, cash equivalents and restricted cash ( 11 ) 11 ( 3 )

Cash, cash equivalents and restricted cash at beginning of period 15 4 7

1 unchanged sentence

Supplemental cash flow information:

Income taxes (paid) refunded, net $ ( 556 ) ( 539 ) 8

Income taxes paid, net $ ( 697 ) ( 556 ) ( 539 )

Interest paid (net of capitalized interest of $ 19 , $ 29 and $ 27 )

$ ( 188 ) ( 310 ) ( 378 )

Supplemental noncash information of investing activities:

Sale of property, plant and equipment in exchange for receivable $ 56 — —

Cash, cash equivalents and restricted cash:

12 unchanged sentences

Balance at beginning of period 48 67 ( 182 )

Cumulative effect of adoption of ASU 2016-13, Measurement of Credit losses , net $( 1 ) tax

Cumulative net effect of adoption of ASU 2016-02, Leases

Cumulative net effect of adoption of ASU 2014-09, Revenue from Contracts with Customers , net of $( 49 ) taxes

Net income 2,107 1,707 1,827

Cumulative effect of adoption of ASU 2016-13 , Measurement of Credit losses, net of $( 1 ) tax

Cumulative net effect of adoption of ASU 2016-02 , Leases

Dividends ( 570 ) ( 1,725 ) ( 1,600 )

7 unchanged sentences

(1) Background and Summary of Significant Accounting Policies

We are an integrated communications company engaged primarily in providing a broad array of communications services to our business and residential customers.

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

We are an integrated communications company engaged primarily in providing a broad array of communications services to our mass markets and business customers.

Our specific products and services are detailed in Note 3—Revenue Recognition of this report.

We generate the majority of our total consolidated operating revenue from services provided in the 14 -state region of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming.

We refer to this region as our local service area.

On April 1, 2011, our indirect parent QCII became a wholly-owned subsidiary of Lumen Technologies, Inc.

in a tax-free, stock-for-stock transaction.

Basis of Presentation

2 unchanged sentences

Transactions with our non-consolidated affiliates (referred to herein as affiliates) have not been eliminated.

We reclassified certain prior period amounts to conform to the current period presentation.

See Note 14—Products and Services Revenue for additional information.

These changes had no impact on total operating revenue, total operating expenses or net income for any period presented.

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.

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

See Note 3—Revenue Recognition for additional information.

These changes had no impact on total operating revenue, total operating expenses or net income for any period.

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

3 unchanged sentences

Summary of Significant Accounting Policies

Change in Accounting Policy

During the first quarter of 2020, we elected to change the presentation for taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, including federal and certain state Universal Service Fund ("USF") regulatory fees, to present all such taxes on a net basis in our statement of operations.

Prior to the first quarter of 2020, we assessed whether we were the primary obligor or principal taxpayer for the taxes assessed in each jurisdiction where we do business.

The previous policy resulted in presenting such USF fees on a gross basis within operating revenue and cost of services and products, and all other significant taxes on a net basis.

We applied this change in accounting policy retrospectively during the first quarter of 2020.

As a result, we have decreased both operating revenue and cost of services and products by $ 105 million, $ 105 million and $ 98 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The change had no impact on operating income or net income in our consolidated statements of operations.

Refer to our Form 8-K filing dated May 7, 2020 for further information.

We changed our policy to present such taxes on the net basis and believe the new policy is preferable because of the historical and potential future regulatory rate changes outside of our control resulting in significant variability in tax and fee revenue that are not indicative of our operating performance.

We believe that net presentation provides the most useful and transparent financial information and improves comparability and consistency of financial results.

Use of Estimates

50 unchanged sentences

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

Our deferred contract costs for our customers have average amortization periods of approximately 30 months for consumer and 29 months for business.

Our deferred contract costs for our customers have average amortization periods of approximately 30 months for mass markets and 29 months for business.

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

2 unchanged sentences

We provide to our affiliates telecommunications services that we also provide to external customers.

In addition, we provide to our affiliates computer system development and support services.

In addition, we provide to our affiliates application development and support services.

Services provided by us to our affiliates are recognized as operating revenue-affiliates in our consolidated statements of operations.

3 unchanged sentences

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.

For additional information, see Note 13—Affiliate Transactions.

Our ultimate parent company, Lumen Technologies, Inc.

has cash management 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 transferred on a daily basis for centralized management by Lumen Technologies, Inc.

and most affiliate transactions are deemed to be settled at the time the transactions are recorded in our accounting records.

The resulting net balance at the end of each period is reported as advances to affiliates or advances from affiliates on the accompanying 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.

has cash management arrangements or loan arrangements with a majority of its subsidiaries that include lines of credit, affiliate obligations, capital contributions and dividends.

As part of these cash management 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 transferred on a daily basis for centralized management by Lumen's service company affiliate.

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

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

Dividends paid are reflected on our consolidated statements of stockholder's equity and the consolidated statements of cash flows reflects the changes in advances to affiliates as investing activities and changes in advances from affiliates as financing activities.

44 unchanged sentences

Accounts receivable are recognized based upon the amount due from customers for the services provided or at cost for purchased and other receivables less an allowance for credit losses.

Prior to the adoption of ASU 2016-13, the allowance for credit losses receivable reflected our best estimate of probable losses inherent in our receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence.

We implemented the new standard effective January 1, 2020, as discussed in the Recently Adopted Accounting Pronouncements - "Measurement of Credit Losses on Financial Instruments", below.

For more information, see Note 5—Credit Losses on Financial Instruments.

We use a loss rate method to estimate our allowance for credit losses.

For more information on our methodology for estimating our allowance for credit losses, see Note 5—Credit Losses on Financial Instruments.

We generally consider our accounts past due if they are outstanding over 30 days.

27 unchanged sentences

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

We amortize customer relationships primarily over an estimated life of ten years , using either the sum-of-the-years-digits or the straight-line methods, depending on the type of customer.

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

Prior to customer relationships becoming fully amortized in March 2021, we primarily amortized those assets over an estimated life of 10 years, using the sum-of-years digits method, depending on the type of customer.

We amortize capitalized software using the straight-line method over estimated lives ranging up to 7 years.

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

21 unchanged sentences

Recently Adopted Accounting Pronouncements

During 2020, we adopted Accounting Standards Update ("ASU") 2016-13, "Measurement of Credit Losses on Financial Instruments." During 2019, we adopted ASU 2016-02, "Leases (ASC 842)".

In 2018, we adopted ASU 2014-09, “Revenue from Contracts with Customers”.

During 2021, we adopted Accounting Standards Update ("ASU") 2020-09 " Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No.

33-10762 ," ("ASU 2020-09"), ASU 2020-01 " Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815) " ("ASU 2020-01") and ASU 2019-12 " Simplifying the Accounting for Income Taxes (Topic 740).

("ASU 2019-12")" During 2020, we adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13").

During 2019, we adopted ASU 2016-02, "Leases (ASC 842)" ("ASU 2016-02").

Each of these is described further below.

On January 1, 2021, we adopted ASU 2020-09.

This ASU amends and supersedes various SEC guidance to reflect SEC Release No.

33-10762, which includes amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees.

The adoption of ASU 2020-09 did not have an impact to our consolidated financial statements.

On January 1, 2021, we adopted ASU 2020-01.

This ASU, among other things, clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investments - Equity Method and Joint Ventures, for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

As of December 31, 2021, we determined there was no application or discontinuation of the equity method during the reporting periods covered in this report.

The adoption of ASU 2020-01 did not have an impact to our consolidated financial statements.

On January 1, 2021, we adopted ASU 2019-12.

This ASU removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes.

The adoption of ASU 2019-12 did not have a material impact to our consolidated financial statements.

Measurement of Credit Losses on Financial Instruments

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13.

The primary impact of ASU 2016-13 for us is a change in the model for the recognition of credit losses related to our financial instruments from an incurred loss model, which recognized credit losses only if it was probable that a loss had been incurred, to an expected loss model, which requires us to estimate the total credit losses expected on the portfolio of financial instruments.

We adopted ASU 2016-13, "Measurement of Credit Losses on Financial instruments" ("ASU 2016-13") on January 1, 2020, and recognized a cumulative adjustment to our retained earnings as of the date of adoption of $ 3 million, net of tax effect.

We adopted ASU 2016-13 on January 1, 2020, and recognized a cumulative adjustment to our retained earnings as of the date of adoption of $ 3 million, net of tax effect.

Please refer to Note 5—Credit Losses On Financial Instruments for more information.

We adopted Accounting Standards Update ("ASU") 2016-02, "Leases (ASC 842)" , as of January 1, 2019, using the non-comparative transition option pursuant to ASU 2018-11.

Therefore, we have not restated comparative period financial information for the effects of ASC 842, and we have not made the new required lease disclosures for comparative periods beginning before January 1, 2019.

Instead, we recognized ASC 842's cumulative effect transition adjustment (discussed below) as of January 1, 2019.

In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things (i) allowed us to carry forward the historical lease classification;

We adopted ASU 2016-02 on January 1, 2019, using the non-comparative transition option pursuant to ASU 2018-11, and recognized ASC 842's cumulative effect transition adjustment (discussed below) as of January 1, 2019.

In addition, we elected to apply the practical expedients permitted under the transition guidance within the new standard, which among other things (i) allowed us to carry forward the historical lease classification;

(ii) did not require us to reassess whether any expired or existing contracts are or contain leases under the new definition of a lease;

and (iii) did not require us to reassess whether previously capitalized initial direct costs for any existing leases would qualify for capitalization under ASC 842.

We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements.

We did not elect the hindsight practical expedient regarding the likelihood of exercising a lessee purchase option or assessing any impairment of right-of-use assets for existing leases.

On March 5, 2019, the FASB issued ASU 2019-01, "Leases (ASC 842):

Codification Improvements" , effective for public companies for fiscal years beginning after December 15, 2019.

We also elected to apply the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements.

We did not elect to apply the hindsight practical expedient regarding the likelihood of exercising a lessee purchase option or assessing any impairment of right-of-use assets for existing leases.

On March 5, 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-01, "Leases (ASC 842):

Codification Improvements" ("ASU 2019-01"), effective for public companies for fiscal years beginning after December 15, 2019.

The new ASU aligns the guidance in ASC 842 for determining fair value of the underlying asset by lessors that are not manufacturers or dealers, with that of existing guidance.

1 unchanged sentence

However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in ASC 820, " Fair Value Measurement ") should be applied.

More importantly, the ASU also exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard.

Early adoption permits public companies to adopt concurrent with the transition to ASC 842 on leases.

We adopted ASU 2019-01 as of January 1, 2019.

Adoption of the new standards resulted in the recording of operating lease assets and operating lease liabilities of approximately $ 126 million and $ 133 million, respectively, as of January 1, 2019.

In addition, we recorded a $ 22 million cumulative adjustment to accumulated deficit as of January 1, 2019, for the impact of the new accounting standards.

Our financial position for reporting periods beginning on or after January 1, 2019 is presented under the new guidance, as discussed above, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance.

Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update ("ASU") ASU 2014-09 which replaces virtually all existing generally accepted accounting principles on revenue recognition with a principles-based approach for determining revenue recognition using a new five step model.

The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

ASU 2014-09 also includes new accounting principles related to the deferral and amortization of contract acquisition and fulfillment costs.

We adopted the new revenue recognition standard on January 1, 2018 using the modified retrospective transition method applying the rules to all open contracts existing as of January 1, 2018.

During the year ended December 31, 2018, we recorded a cumulative catch-up adjustment that increased our retained earnings by $ 141 million, net of $ 49 million of income taxes.

See Note 3—Revenue Recognition for additional information.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740 ).

ASU 2019-12 removes certain exceptions for investments, intra-period allocations and interim calculations, and adds guidance to reduce complexity in accounting for income taxes.

In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance” (“ASU 2021-10”).

These amendments are expected to increase transparency in financial reporting by requiring business entities to disclose information about certain types of government assistance they receive.

ASU 2021-10 will become effective for us in the first quarter of fiscal 2022 and early adoption is permitted.

We do not believe the adoption will have a significant impact on our consolidated financial statements.

As of December 31, 2021, we do not expect the cumulative effect of initially applying ASU 2021-10 in the first quarter of fiscal 2022 will have a material impact to our consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), which requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

ASU 2021-08 will become effective for us in the first quarter of fiscal 2023 and early adoption is permitted.

As of December 31, 2021, we do not expect the cumulative effect of initially applying ASU 2021-08 on January 1, 2023 will have a material impact to our consolidated financial statements.

In July 2021, the FASB issued ASU 2021-05, “Leases (Topic 842):

Lessors—Certain Leases with Variable Lease Payments” (“ASU 2021-05”), which amends the lease classification requirements for lessors to align them with practice under ASC Topic 840.

Under this ASU, lessors should 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 if certain criteria are met;

and when a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and, therefore, does not recognize a selling profit or loss.

ASU 2021-05 will become effective for us in the first quarter of fiscal 2022 and early adoption is permitted.

As of December 31, 2021, we do not expect the cumulative effect of initially applying ASU 2021-05 on January 1, 2022 will have a material impact to our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under the current ASC.

Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features.

ASU 2020-06 will become effective for us in the first quarter of fiscal 2022 and early adoption is permitted.

As of December 31, 2021, we do not expect the cumulative effect of initially applying ASU 2020-06 on January 1, 2022 will have a material impact to our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, " Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , designed to ease the burden of accounting for contract modifications related to the global market-wide reference rate transition period.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting " ("ASU 2020-04" or "Reference Rate Reform"), designed to ease the burden of accounting for contract modifications related to the global market-wide reference rate transition period.

Subject to certain criteria, ASU 2020-04 provides qualifying entities the option to apply expedients and exceptions to contract modifications and hedging accounting relationships made until December 31, 2022.

We are evaluating ASU 2020-04's applicability to relevant transactions referencing the London Inter-bank Offering Rate ("LIBOR") or another reference rate expected to be discontinued and the resulting impact on our consolidated financial statements.

In October 2020, the FASB issued ASU 2020-09, "Debt (Topic 470) Amendments to SEC Paragraphs Pursuant to SEC Release No.

33-10762” (“ASU 2020-09”).

This ASU amends and supersedes various SEC paragraphs to reflect SEC Release No.

33-10762, which includes amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees.

The cumulative effect of initially applying ASU 2020-09 on January 4, 2021 will not have material impact to our consolidated financial statements.

See Note 6—Long-Term Debt and Note Payable - Affiliate for additional information.

These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

ASU 2020-04 provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform.

Based on our review of our key material contracts through December 31, 2021, we do not expect ASU 2020-04 will have a material impact to our consolidated financial statements.

(2) Goodwill, Customer Relationships and Other Intangible Assets

6 unchanged sentences

Total other intangible assets, net $ 199 343

As of December 31, 2021, the gross carrying amount of goodwill, customer relationships and other intangible assets was $ 17.1 billion.

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.

We assess our goodwill for impairment annually as of October 31,or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment.

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

Goodwill is evaluated for impairment at the reporting unit level, and we have determined that we have one reporting unit.

At October 31, 2020 and 2019, we estimated the fair value of our equity by considering both a market approach and a discounted cash flow method.

We assess our goodwill for impairment annually, or under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment.

We are required to write down the value of goodwill only when our assessment determines the carrying value of equity of our reporting unit exceeds its fair value.

Our annual impairment assessment date for goodwill is October 31, at which date we assess goodwill at our reporting unit.

In reviewing the criteria for reporting units, we have determined that we are one reporting unit.

At October 31, 2021, 2020 and 2019, 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, which represents the expected normalized cash flows of the reporting unit beyond the cash flows from the discrete projection period.

Based on our assessment performed with respect to our reporting unit as described above, we concluded that the estimated fair value of our equity exceeded the carrying value by 48 % and 65 % at October 31, 2020 and 2019, respectively.

Therefore no impairment was recorded in either period.

Lumen’s stock price declined significantly in the first quarter of 2019 causing us to evaluate our goodwill for impairment as of March 31, 2019.

Because Lumen's low stock price indicated the carrying value of our reporting unit was more likely than not in excess of its fair value, we estimated the fair value of our operations using only the market approach.

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 42 %, 48 % and 65 % at October 31, 2021, 2020 and 2019, respectively.

We concluded that goodwill was not impaired as of October 31, 2021, 2020 and 2019.

Because Lumen's low stock price was a trigger for impairment testing, we estimated the fair value of our operations using only the market approach in the quarter ended March 31, 2019.

Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry.

5 unchanged sentences

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

As of December 31, 2020, the gross carrying amount of goodwill, customer relationships and other intangible assets was $ 17.1 billion.

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, 2021, the weighted average remaining useful life was 2 years for capitalized software.

Total amortization expense for intangible assets for the years ended December 31, 2021, 2020 and 2019 was $ 176 million, $ 481 million and $ 533 million, respectively.

2 unchanged sentences

Year ending December 31,

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.

(3) Revenue Recognition

Beginning in the first quarter of 2021, we categorize our products, services and revenue among the following categories:

• Voice and Other , which include primarily local voice services, private line and other legacy services.

This category also includes Connect America Fund Phase II ("CAF II") support payments and other operating revenue.

We receive support payments from the federal CAF II program.

These support payments are government subsidies designed to compensate us for providing certain broadband and telecommunications services in high-cost areas or at discounts to low-income, educational, and healthcare customers.

During the twelve months ended December 31, 2021 we recorded approximately $ 145 million of revenue from the CAF II program that ended December 31, 2021.

• Fiber Infrastructure Services , which include high speed fiber-based and lower speed DSL-based broadband services, and optical network services;

• IP and Data Services , which consist primarily of Ethernet services;

• Affiliate Services, which are communications services that we also provide to external customers.

In addition, we provide to our affiliates application development and support services, network support and technical services.

Reconciliation of Total Revenue to Revenue from Contracts with Customers

The following tables provide disaggregation of revenue from contracts with customers based on service offerings for the years ended December 31, 2020, 2019 and 2018.

It also shows the amount of revenue that is not subject to ASC 606, but is instead governed by other accounting standards.

The following tables provide our total revenue by product and service category as well as the amount of revenue that is not subject to ASC 606, "Revenue from Contracts with Customers" ("ASC 606"), but is instead governed by other accounting standards:

Year Ended December 31, 2021

2 unchanged sentences

(Dollars in millions)

Voice and Other $ 2,099 ( 334 ) 1,765

Fiber Infrastructure 1,990 ( 120 ) 1,870

IP and Data Services 473 — 473

Transport and infrastructure (2)

2,604 ( 297 ) 2,307

Voice and collaboration (3)

1,517 — 1,517

IT and managed services (4)

Regulatory revenue (5)

179 ( 179 ) —

Affiliate revenue (6)

2,487 ( 3 ) 2,484

Affiliate Services 2,389 ( 29 ) 2,360

Total revenue $ 6,951 ( 483 ) 6,468

7 unchanged sentences

(Dollars in millions)

Voice and Other $ 2,281 ( 352 ) 1,929

Fiber Infrastructure 2,033 ( 123 ) 1,910

IP and Data Services 512 — 512

Transport and infrastructure (2)

2,773 ( 308 ) 2,465

Voice and collaboration (3)

1,618 — 1,618

IT and managed services (4)

Regulatory revenue (5)

189 ( 189 ) —

Affiliate revenue (6)

2,873 — 2,873

Affiliate Services 2,487 ( 4 ) 2,483

Total revenue $ 7,313 ( 479 ) 6,834

7 unchanged sentences

(Dollars in millions)

Voice and Other $ 2,496 ( 376 ) 2,120

Fiber Infrastructure 2,115 ( 121 ) 1,994

IP and Data Services 568 — 568

Transport and infrastructure (2)

2,870 ( 317 ) 2,553

Voice and collaboration (3)

1,783 — 1,783

IT and managed services (4)

Regulatory revenue (5)

214 ( 214 ) —

Affiliate revenue (6)

2,935 — 2,935

Affiliate Services 2,873 — 2,873

Total revenue $ 8,052 ( 497 ) 7,555

4 unchanged sentences

_______________________________________________________________________________

(1) Includes primarily VPN data networks, Ethernet, IP and other ancillary services

(2) Includes primarily broadband, private line (including business data services) and other ancillary services.

(3) Includes local voice, including wholesale voice, and other ancillary services.

(4) Includes IT services and managed services revenue.

(5) Includes CAF II and federal and state USF support revenue.

(6) Includes telecommunications and data services we bill to our affiliates.

(1) Includes regulatory revenue and lease revenue not within the scope of ASC 606.

We do not have any single external customer that comprises more than 10% of our total consolidated operating revenue.

Substantially all of our consolidated revenue comes from customers located in the United States.

Customer Receivables and Contract Balances

5 unchanged sentences

Contract liabilities 317 300

(1) Gross customer receivables, including gross affiliate receivables, of $ 396 million and $ 462 million, net of allowance for credit losses of $ 50 million and $ 32 million, at December 31, 2020 and December 31, 2019, respectively.

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

_______________________________________________________________________________

(1) Reflects gross customer receivables, including gross affiliate receivables, of $ 328 million and $ 396 million, net of allowance for credit losses of $ 30 million and $ 50 million, at December 31, 2021 and December 31, 2020, respectively.

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

We defer recognizing this consideration as revenue until we have satisfied the related performance obligation to the customer.

Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which typically ranges from one to five years depending on the service.

Contract liabilities are included within deferred revenue in our consolidated balance sheet.

During the years ended December 31, 2020, December 31, 2019 and December 31, 2018, we recognized $ 223 million, $ 273 million and $ 42 million, respectively, of revenue that was included in contract liabilities as of January 1, 2020, January 1, 2019 and January 1, 2018, respectively.

Contract liabilities include recurring services billed one month in advance and installation and maintenance charges that are deferred and recognized over the actual or expected contract term, which ranges from one to five years depending on the service.

Contract liabilities are included within deferred revenue in our consolidated balance sheets.

During the years ended December 31, 2021 and December 31, 2020, we recognized $ 199 million and $ 223 million, respectively, of revenue that was included in contract liabilities of $ 300 million and $ 338 million as of January 1, 2021 and 2020, respectively.

Performance Obligations

3 unchanged sentences

Contract Costs

The following table provides changes in our contract acquisition costs and fulfillment costs:

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

Year Ended December 31, 2021

13 unchanged sentences

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 telecommunications services to customers, including labor and materials consumed for these activities.

Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average contract life of 30 months for consumer customers and average contract life of 29 months for business customers.

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.

Deferred acquisition and fulfillment costs are amortized based on the transfer of services on a straight-line basis over the average contract life of 30 months for mass markets customers and average contract life of 29 months for business customers.

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

2 unchanged sentences

Deferred acquisition and fulfillment costs are assessed for impairment on an annual basis.

Our financial position for reporting periods beginning on or after January 1, 2019 is presented under the new accounting guidance, while prior periods amounts are not adjusted and continue to be reported in accordance with previous guidance, as discussed in Note 1—Background And Summary Of Significant Accounting Policies.

We primarily lease to or from third parties various office facilities, colocation facilities and equipment.

8 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).

21 unchanged sentences

We also received sublease rental income for the years ended December 31, 2021, 2020 and 2019 of $ 10 million, $ 12 million and $ 10 million, respectively.

Supplemental consolidated balance sheet information and other information related to leases:

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 2021 2020

Operating lease assets Other noncurrent assets $ 67 105

Operating lease assets Other, net $ 69 67

Finance lease assets Property, plant and equipment, net of accumulated depreciation 5 8

Total leased assets $ 74 75

Operating Other current liabilities $ 28 29

Operating Other $ 33 28

Finance Current maturities of long-term debt 1 1

Operating Other noncurrent liabilities 76 89

Operating Other 63 76

Finance Long-term debt 1 4

6 unchanged sentences

Finance leases 6.21 % 6.62 %

Supplemental consolidated cash flow statement information related to leases:

Supplemental consolidated cash flow statement information related to leases is included below:

Years Ended December 31,

14 unchanged sentences

Long-term portion $ 63 1

As of December 31, 2020, we had no material operating or finance leases that had not yet commenced.

As of December 31, 2021, we had less than $1 million of operating or finance leases that had not yet commenced.

Operating Lease Income

4 unchanged sentences

In accordance with ASC 326, "Financial Instruments - Credit Losses," we aggregate financial assets with similar risk characteristics to align our expected credit losses with the credit quality or deterioration over the life of such assets.

We monitor certain risk characteristics within our aggregated financial assets and revise their composition accordingly, to the extent internal and external risk factors change each reporting period.

We periodically monitor certain risk characteristics within our aggregated financial assets and revise their composition accordingly, to the extent internal and external risk factors change.

Financial assets that do not share risk characteristics with other financial assets are evaluated separately.

Our financial assets measured at amortized cost primarily consist of accounts receivable.

In developing our accounts receivable portfolio, we pooled certain assets with similar credit risk characteristics based on the nature of our customers, their industry, policies used to grant credit terms and their historical and expected credit loss patterns.

Prior to the adoption of the new credit loss standard, the allowance for doubtful accounts receivable reflected our best estimate of probable losses inherent in our receivable portfolio determined based on historical experience, specific allowances for known troubled accounts, and other currently available evidence.

We implemented the new standard effective January 1, 2020, using a loss rate method to estimate our allowance for credit losses.

Our determination of the current expected credit loss rate begins with our use of historical loss experience as a percentage of accounts receivable.

We use a loss rate method to estimate our allowance for credit losses.

Our determination of the current expected credit loss rate begins with our review of historical loss experience as a percentage of accounts receivable.

We measure our historical loss period based on the average days to recognize accounts receivable as credit losses.

When asset specific characteristics and current conditions change from those in the historical period, due to changes in our credit and collections strategy, certain classes of aged balances, or credit loss and recovery policies, we perform a qualitative and quantitative assessment to update our current loss rate, which as noted below has increased due to an increase in historic loss experience and weakening economic forecasts.

We use regression analysis to develop an expected loss rate using historical experience and economic data over a forecast period.

We measure our forecast period based on the average days to collect payment on billed accounts receivable.

To determine our allowance for credit losses, we combine the historical, current, and expected credit loss rates and apply them to our period end accounts receivable.

If there is a deterioration of a customer's financial condition or if future default rates in general differ from currently anticipated default rates (including changes caused by COVID-19), we may need to adjust the allowance for credit losses, which would affect earnings in the period that adjustments are made.

To determine our current allowance for credit losses, we combine the historical and expected credit loss rates and apply them to our period end accounts receivable.

If there is an unexpected deterioration of a customer's financial condition or an unexpected change in economic conditions (including changes caused by COVID-19 or other macroeconomic events), we assess the need to adjust the allowance for credit losses.

Any such resulting adjustments would affect earnings in the period that adjustments are made.

The assessment of the correlation between historical observed default rates, current conditions and forecasted economic conditions requires judgment.

1 unchanged sentence

The amount of credit loss is sensitive to changes in circumstances and forecasted economic conditions.

Our historical credit loss experience, current conditions and forecast of economic conditions may also not be representative of the customers' actual default experience in the future.

The following table presents the activity of our allowance for credit losses for our accounts receivable portfolio:

Our historical credit loss experience, current conditions and forecast of economic conditions may also not be representative of the customers' actual default experience in the future, and we may use methodologies that differ from those used by other companies.

In conjunction with an internal reorganization in the first quarter of 2021, as referenced in Note 3—Revenue Recognition, we pooled certain assets with similar credit risk characteristics based on the nature of our customers, their industry, policies used to grant credit terms and their historical and expected credit loss patterns.

Additionally, we reassessed our historical loss period for the portfolio reorganization.

The following tables presents the activity of our allowance for credit losses for our accounts receivable portfolio for the years ended December 31, 2021 and December 31, 2020:

Business Mass Markets Total

(Dollars in millions)

Beginning balance at January 1, 2021 (2)

Provision for expected losses 10 17 27

Write-offs charged against the allowance ( 19 ) ( 35 ) ( 54 )

Recoveries collected 3 1 4

Ending Balance at December 31, 2021 $ 19 19 38

Business Consumer Total

7 unchanged sentences

(1) The beginning balance includes the cumulative effect of the adoption of the new credit loss standard.

For the year ended December 31, 2020, we increased our allowance for credit losses for our business and consumer accounts receivable portfolio due to an increase in historical and expected loss experience, which we believe were predominantly attributable to the COVID-19 induced economic slowdown.

We believe that decreased write-offs (net of recoveries) driven by COVID-19 regulations and programs have further contributed to an increase in our allowance for credit losses.

(2) Due to an internal reorganization of our reporting categories on January 1, 2021, our accounts receivable portfolios were changed to align with changes to how we manage our customers.

Allowance for credit losses previously included in the Consumer and Business portfolio of $ 32 million and $ 4 million, respectively, were reclassified to the Mass Markets allowance for credit losses on January 1, 2021, as a result of this change.

For the year ended December 31, 2021, we decreased our allowance for credit losses for our business and mass markets accounts receivable portfolio primarily due to higher write-off activity in 2021, along with the easing of prior delays due to COVID-19 related restrictions from 2020 and lower receivable balances.

For the year ended December 31, 2020, we increased our allowance for credit losses for our business and consumer accounts receivable portfolios due to an increase during the period in historical and expected loss experience in certain classes of aged balances, which were predominantly attributable to the COVID-19 induced economic slowdown.

Decreased write-offs (net of recoveries) were driven by COVID-19 regulations and programs further contributed to the increase in our allowance for credit losses for the year ended December 31, 2020.

(6) Long-Term Debt and Note Payable - Affiliate

The following chart reflects our consolidated l ong-term debt, including unamortized premiums and discounts, unamortized debt issuance costs and note payable-affiliate:

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

As of December 31,

15 unchanged sentences

_______________________________________________________________________________

(1) Qwest Corporation's Term Loan had an interest rate of 2.150 % as of December 31, 2020 and 3.800 % as of December 31, 2019.

(1) Qwest Corporation's Term Loan had interest rates of 2.110 % and 2.150 % as of December 31, 2021 and December 31, 2020.

(2) As of December 31, 2021.

On December 1, 2021, Qwest Corporation paid at maturity the $ 950 million principal amount of its 6.750 % Senior Notes.

Redemption of Senior Notes

On December 14, 2020, Qwest Corporation redeemed in full all $ 775 million aggregate principal amount of its outstanding 6.125 % Notes due 2053 (the " 6.125 % Notes").

On October 26, 2020, Qwest Corporation redeemed the remaining $ 160 million aggregate principal amount of its outstanding 6.625 % Notes due 2055 (the " 6.625 % Notes").

Following this redemption, there were no bonds outstanding for the 6.625 % Notes.

On September 16, 2020, Qwest Corporation partially redeemed $ 250 million aggregate principal amount of its outstanding 6.625 % Notes.

On August 7, 2020, Qwest Corporation redeemed all of the remaining $ 300 million aggregate principal amount of its outstanding 6.875 % Notes due 2054 (the " 6.875 % Notes").

Following this redemption, there were no bonds outstanding for the 6.875 % Notes.

On June 29, 2020, Qwest Corporation partially redeemed $ 200 million aggregate principal amount of its outstanding 6.875 % Notes.

On January 15, 2020, Qwest Corporation redeemed in full (i) all $ 850 million aggregate principal amount of its outstanding 6.875 % senior notes due 2033, and (ii) all $ 250 million aggregate principal amount of its outstanding 7.125 % senior notes due 2043.

For the year ended December 31, 2020, redemptions of notes resulted in a loss of $ 63 million.

During 2019, we did no t repay any of our long-term debt.

On February 16, 2021, Qwest Corporation fully redeemed all $ 235 million aggregate principal amount of its outstanding 7.000 % Senior Notes due 2056.

On December 14, 2020, Qwest Corporation fully redeemed all $ 775 million aggregate principal amount of its outstanding 6.125 % Senior Notes due 2053 (the " 6.125 % Notes").

On October 26, 2020, Qwest Corporation redeemed all of the remaining $ 160 million aggregate principal amount of its outstanding 6.625 % Senior Notes due 2055 (the " 6.625 % Notes").

On September 16, 2020, Qwest Corporation partially redeemed $ 250 million aggregate principal amount of its outstanding 6.625 % Senior Notes.

On August 7, 2020, Qwest Corporation redeemed all of the remaining $ 300 million aggregate principal amount of its outstanding 6.875 % Senior Notes due 2054 (the " 6.875 % Notes").

On June 29, 2020, Qwest Corporation partially redeemed $ 200 million aggregate principal amount of its outstanding 6.875 % Senior Notes.

On January 15, 2020, Qwest Corporation fully redeemed (i) all $ 850 million aggregate principal amount of its outstanding 6.875 % S enior Notes due 2033, and (ii) all $ 250 million aggregate principal amount of its outstanding 7.125 % Senior Notes due 2043.

For the year ended December 31, 2021 and 2020, redemptions of Senior Notes resulted in a loss of $ 8 million and $ 63 million, respectively.

In 2015, we entered into a term loan in the amount of $ 100 million with CoBank ACB.

3 unchanged sentences

Interest is paid at least quarterly based upon either the LIBOR or the base rate (as defined in the credit agreement) plus an applicable margin between 1.50 % to 2.50 % per annum for LIBOR loans and 0.50 % to 1.50 % per annum for base rate loans depending on Qwest Corporation's then current senior unsecured long-term debt rating.

At December 31, 2020, and 2019, the outstanding principal balance owed under the new term loan and its predecessor was $ 215 million and $ 100 million, respectively.

Long-Term Debt Maturities

8 unchanged sentences

and its subsidiaries.

As of December 31, 2020, the Intercompany Note had an outstanding balance of $ 1.13 billion and bore interest at a weighted-average interest rate of 4.974 %.

As of December 31, 2021 and 2020, the Intercompany Note is reflected on our consolidated balance sheets as a current liability under "Note payable - affiliate".

29 unchanged sentences

At December 31, 2021 and 2020, we believe we were in compliance with the financial covenants contained in our material debt agreements in all material respects.

Subsequent Event

On February 16, 2021, we fully redeemed all $ 235 million aggregate principal amount of our outstanding 7.000 % Senior Notes due 2056.

(7) Accounts Receivable

38 unchanged sentences

(1) Fiber, conduit and other outside plant consists of fiber and metallic cable, conduit, poles and other supporting structures.

Fiber, conduit and other outside plant decreased at December 31, 2021 compared to December 31, 2020 due to the retirement of a portion of our copper-based infrastructure being replaced with our Quantum Fiber infrastructure.

(2) Central office and other network electronics consists of circuit and packet switches, routers, transmission electronics and electronics providing service to customers.

2 unchanged sentences

We recorded depreciation expense of $ 833 million, $ 834 million and $ 831 million for the years ended December 31, 2021, 2020 and 2019, respectively.

(9) Severance

Periodically, we reduce our workforce and accrue liabilities for the related severance costs.

These workforce reductions result primarily from the increased competitive pressures, cost reduction initiatives, process improvements through automation and reduced workload demands due to reduced demand for certain services.

We report severance liabilities within accrued expenses and other liabilities-salaries and benefits in our consolidated balance sheets and report severance expenses in cost of services and products and selling, general and administrative expenses in our consolidated statements of operations.

Changes in our accrued liability for severance expenses were as follows:

(Dollars in millions)

Balance at December 31, 2018 $ 33

Accrued to expense 66

Payments, net ( 36 )

Balance at December 31, 2019 63

Accrued to expense 17

Payments, net ( 53 )

Balance at December 31, 2020 $ 27

(9) Employee Benefits

3 unchanged sentences

The amount of required contributions to the Lumen Combined Pension Plan in 2022 and beyond will depend on earnings on plan investments, prevailing discount rates, demographic experience, changes in plan benefits and changes in funding laws and regulations.

Lumen Technologies occasionally makes voluntary contributions in addition to required contributions, and Lumen Technologies made such voluntary cash contributions of $ 500 million to the Lumen Combined Pension Plan during 2018.

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

Lumen Technologies did no t make a voluntary contribution in 2021 or 2020.

The unfunded status of Lumen's qualified pension plan for accounting purposes was $ 1.7 billion as of December 31, 2020 and 2019, which includes the merged QCII qualified pension plan.

The unfunded status of Lumen's post-retirement benefit plans for accounting purposes was $ 3.0 billion as of December 31, 2020 and 2019.

The unfunded status of Lumen's qualified pension plan for accounting purposes was $ 1.1 billion and $ 1.7 billion as of December 31, 2021 and 2020, which includes the merged QCII qualified pension plan.

The unfunded status of Lumen's post-retirement benefit plans for accounting purposes was $ 2.8 billion and $ 3.0 billion as of December 31, 2021 and 2020.

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

12 unchanged sentences

Lumen Technologies sponsors a noncontributory qualified defined benefit pension plan that covers certain of our eligible employees.

The CenturyLink Combined Pension Plan also provides survivor and disability benefits to certain employees.

The Lumen Combined Pension Plan also provides survivor and disability benefits to certain employees.

In November 2009, and prior to the plan merger, the pension plan was amended to no longer provide pension benefit accruals for active non-represented employees after December 31, 2009.

32 unchanged sentences

(11) Fair Value of Financial Instruments

Our financial instruments consist of cash and cash equivalents, accounts receivable, advances to affiliates, accounts payable, note payable-affiliate and long-term debt, excluding finance lease and other obligations.

Due to their short-term nature, the carrying amounts of our cash and cash equivalents, accounts receivable, advances to affiliates, accounts payable and note payable-affiliate approximate their fair values.

Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, advances to and from affiliates, accounts payable, note payable-affiliate and long-term debt, excluding finance lease and other obligations.

Due to their short-term nature, the carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, advances to and from affiliates, accounts payable and note payable-affiliate approximate their fair values.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent and knowledgeable parties who are willing and able to transact for an asset or liability at the measurement date.

6 unchanged sentences

Level 3 Unobservable inputs in which little or no market data exists.

The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding finance lease and other obligations, as well as the input levels used to determine the fair values:

The following table presents the carrying amounts and estimated fair values of our long-term debt, excluding finance lease and other obligations, as well as the input level used to determine the fair values indicated below:

As of December 31, 2021 As of December 31, 2020

23 unchanged sentences

State income taxes-net of federal effect 3.7 % 4.4 % 4.1 %

Accounting method changes — % — % ( 3.9 ) %

Other 0.5 % 0.4 % 0.9 %

Effective income tax rate 25.2 % 25.8 % 26.0 %

The effective rate for the year ended December 31, 2018, was favorably impacted by a tax benefit of $ 83 million generated by filing tax accounting method changes that accelerated significant tax deductions.

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

3 unchanged sentences

Property, plant and equipment $ ( 1,386 ) ( 1,369 )

Intangibles assets ( 169 ) ( 280 )

Intangible assets ( 129 ) ( 169 )

Other ( 25 ) —

Total deferred tax liabilities ( 1,540 ) ( 1,538 )

6 unchanged sentences

At December 31, 2021, we have established a valuation allowance of $ 8 million as it is not more likely than not that this amount of deferred tax assets will be realized.

As of December 31, 2020, the $ 1.2 billion net deferred tax liability is reflected as a $ 1.2 billion long-term liability and $ 2 million is reflected as a noncurrent deferred tax asset in other, net on our consolidated balance sheets.

As of December 31, 2019, the entire net deferred tax liability is reflected as a long-term liability.

As of December 31, 2021 and 2020, the $ 1.3 billion and $ 1.2 billion net deferred tax liability are reflected as a $ 1.3 billion and $ 1.2 billion long-term liability and $ 2 million and $ 2 million are reflected as a noncurrent deferred tax asset in other, net on our consolidated balance sheets.

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

14 unchanged sentences

The actual amount of changes, if any, will depend on future developments and events, many of which are outside our control.

We paid $ 556 million and $ 539 million related to income taxes for the years ended December 31, 2020 and 2019, respectively and received $ 8 million from QSC related to income taxes in the year ended December 31, 2018.

(14) Products and Services Revenue

We are an integrated communications company engaged primarily in providing an array of communications services, including local voice, broadband, private line (including business data services), Ethernet, network access, information technology and other ancillary services.

We strive to maintain our customer relationships by, among other things, bundling our service offerings to provide our customers with a complete offering of integrated communications services.

We categorize our products, services and revenue among the following six categories:

• IP and Data Services , which include primarily VPN data networks, Ethernet, retail video, IP and other ancillary services;

• Transport and Infrastructure , which include broadband, private line (including business data services) and other ancillary services;

• Voice and Collaboration , which includes primarily local voice, including wholesale voice, and other ancillary services;

• IT and Managed Services, which include information technology services and managed services, which may be purchased in conjunction with our other network services;

• Regulatory Revenue, which consist of Universal Service Fund ("USF") and Connect America Fund ("CAF") support payments and other operating revenue.

We receive federal support payments from both federal and state USF programs and from the federal CAF 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;

• 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 may change the categorization of our products and services.

Our operating revenue for our products and services consisted of the following categories for the years ended December 31, 2020, 2019 and 2018:

Years Ended December 31,

2020 2019 2018

(Dollars in millions)

IP and Data Services $ 524 595 587

Transport and Infrastructure 2,604 2,773 2,870

Voice and Collaboration 1,517 1,618 1,783

IT and Managed Services 2 4 6

Regulatory Services 179 189 214

Affiliate Services 2,487 2,873 2,935

Total operating revenue $ 7,313 8,052 8,395

We do not have any single external customer that provides more than 10% of our total consolidated operating revenue.

Substantially all of our consolidated revenue comes from customers located in the United States.

Our operations are integrated into and reported as part of the consolidated segment data of Lumen Technologies.

Lumen's chief operating decision maker ("CODM") is our CODM, but 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.

Consequently, we do not provide our discrete financial information to the CODM on a regular basis.

As such, we determined that we have one reportable segment.

We paid $ 697 million, $ 556 million, and $ 539 million related to income taxes for the years ended December 31, 2021, 2020, and 2019, respectively.

(13) Affiliate Transactions

We provide telecommunications service to our affiliates that we also provide to external customers.

In addition, we provide to our affiliates, computer system development and support services and network support and technical services.

In addition, we provide to our affiliates, application development and support services and network support and technical services.

Below are details of the services we provide to our affiliates:

1 unchanged sentence

Data, broadband and voice services in support of our affiliates' service offerings;

• Computer system development and support services.

• Application development and support services.

Information technology services primarily include the labor cost of developing, testing and implementing the system changes necessary to support order entry, provisioning, billing, network and financial systems, as well as the cost of improving, maintaining and operating our operations support systems and shared internal communications networks;

19 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.

Amounts accrued for our litigation and non-income tax contingencies at December 31, 2020 and December 31, 2019 aggregated to approximately $ 19 million and $ 50 million, respectively, and are included in "Other" current liabilities and "Other Liabilities" in our consolidated balance sheet as of such date.

Amounts accrued for our litigation and non-income tax contingencies for both December 31, 2021 and December 31, 2020 aggregated to approximately $ 19 million, and are included in "Other" current liabilities and "Other Liabilities" in our consolidated balance sheet as of such date.

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

2 unchanged sentences

Billing Practices Suits

In June 2017, a former employee of a Lumen Technologies subsidiary filed an employment lawsuit against Lumen Technologies (at the time known as 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.

In June 2017, McLeod v.

CenturyLink, a consumer class action, was filed against Lumen Technologies in the U.S.

District Court for the Central District of California alleging that Lumen Technologies charged some of its retail customers for products and services they did not authorize.

Other complaints asserting similar claims have been filed in other federal and state courts, as well.

The lawsuits assert claims including fraud, unfair competition, and unjust enrichment.

Also, in June 2017, Craig.

CenturyLink, Inc., et al., a securities investor class action, was filed in U.S.

District Court for the Southern District of New York, alleging that Lumen Technologies failed to disclose material information regarding improper sales practices, and asserting federal securities law claims.

A number of other cases asserting similar claims have also been filed.

Beginning June 2017, Lumen Technologies received several shareholder derivative demands addressing related topics.

In August 2017, Lumen Technologies' Board of Directors formed a special litigation committee of outside directors to address the allegations of impropriety contained in the shareholder derivative demands.

In April 2018, the special litigation committee concluded its review of the derivative demands and declined to take further action.

Since then, derivative cases were filed in Louisiana state court in the Fourth Judicial District Court for the Parish of Ouachita and in federal court in Louisiana and Minnesota.

These cases have been brought on behalf of Lumen Technologies against certain current and former officers and directors of the Company and seek damages for alleged breaches of fiduciary duties.

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.

The consumer class actions, the securities investor class actions, and the federal derivative actions were transferred to the U.S.

1 unchanged sentence

CenturyLink Sales Practices and Securities Litigation.

Lumen Technologies received final approval of the settlement of the consumer class actions for payments totaling $ 15.5 million plus certain notice and administration costs.

Approximately 12,000 potential class members elected to opt out of the class settlement and may elect to pursue their individual claims against Lumen Technologies on these issues through various dispute resolution processes, including individual arbitration.

Subject to certain conditions, Lumen Technologies has agreed to settle the claims of approximately 11,000 such class members asserted by one law firm.

Additionally, Lumen Technologies has reached an agreement settling the securities investor class actions for payment of $ 55 million, which Lumen expects to be paid by its insurers.

The settlement of the securities class claims is subject to court approval.

Lumen Technologies has settled the consumer and securities investor class actions, those settlements are final.

The derivative actions remain pending.

Lumen 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 state attorneys general.

While Lumen Technologies does not agree with allegations raised in these matters, it has been willing to consider reasonable settlements where appropriate.

Locate Service Investigations

In June 2019, Minnesota and Arizona initiated investigations related to the timeliness of responses by certain of our vendors to requests for marking the location of underground telecommunications facilities.

We, along with Lumen and its other subsidiaries are cooperating with the investigations.

In February 2020, the Minnesota claims were settled.

The terms of the settlement were not material to our consolidated results of operations or financial position.

Other Proceedings, Disputes and Contingencies

From time to time, we are involved in other proceedings incidental to our business, including patent infringement allegations, regulatory hearings relating primarily to our rates or services, actions relating to employee claims, various tax issues, environmental law issues, grievance hearings before labor regulatory agencies and miscellaneous third-party tort actions.

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

These cases have progressed to various stages and one or more may go to trial during 2021 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.

5 unchanged sentences

However, based on current circumstances, we do not believe that the ultimate resolution of these other proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on us.

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 currently viewed as immaterial by us may ultimately materially impact us.

At December 31, 2020, our future rental commitments for Right-of-Way agreements were as follows:

At December 31, 2021, our future rental commitments and Right-of-Way agreements were as follows:

Right-of-Way Agreements

4 unchanged sentences

We have several commitments primarily for marketing activities and support services from a variety of vendors to be used in the ordinary course of business totaling $ 120 million at December 31, 2021.

Of this amount, we expect to purchase $ 15 million in 2021 and $ 3 million in 2022.

Of this amount, we expect to purchase $ 38 million in 2022, $ 17 million in 2023 through 2024, $ 14 million in 2025 through 2026 and $ 51 million in 2027 and thereafter.

These amounts do not represent our entire anticipated purchases in the future, but represent only those items for which we were contractually committed as of December 31, 2021.

7 unchanged sentences

Contract fulfillment costs 31 28

Receivable for sale of land 56 —

Total other current assets $ 187 122

8 unchanged sentences

(16) Labor Union Contracts

As of December 31, 2020, approximately 44 % of our employees were members of various bargaining units represented by the Communication Workers of America ("CWA") and the International Brotherhood of Electrical Workers ("IBEW").

During the third quarter of 2019, we reached new agreements with the CWA and IBEW, which represented all of the above noted represented employees.

Therefore, there are no collective bargaining agreements that are scheduled to expire over the 12 month period ending December 31, 2021.

As of December 31, 2021, approximately 43 % of our employees were represented by the Communication Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW").

There are no collective bargaining agreements that are scheduled to expire over the twelve month period ending December 31, 2022.

We believe that relations with our employees continue to be generally good.

15 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