What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-20 compared with 2024-02-22 · 98 added, 104 removed, 247 unchanged (45% of the section changed)

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

We are a facilities-based technology and communications company that provides a broad array of integrated communications products and services to our business and mass markets customers.

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

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

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

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

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

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

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

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

Our methodology for counting broadband subscribers may not be comparable to those of other companies.

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

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

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

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

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

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

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

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

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

• Grow , which includes products and services marketed to our business customers that we anticipate will grow, including dark fiber and wavelengths services;

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

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

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

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

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

Changes in the Macroeconomic, Industry and Work Environments

Societal, governmental and macroeconomic changes have impacted us, our customers and our business in several ways since the onset of the COVID-19 pandemic in the U.S.

in March 2020.

Beginning in the second half of 2020 and continuing into 2023, we rationalized our lease footprint and ceased using seven underutilized leased property locations.

These lease cancellations resulted in accelerated lease costs, including $1 million and $3 million of such costs recognized during the years ended December 31, 2021 and 2023, respectively, but will lower our future operating costs.

We did not incur material accelerated lease costs during the year ended December 31, 2022.

In conjunction with our plans to continue to reduce costs, we expect to continue our real estate rationalization efforts and expect to incur additional accelerated real estate costs in future periods.

Additionally, as discussed further elsewhere herein, the pandemic and macroeconomic changes arising therefrom have resulted in (i) increases in certain revenue streams and decreases in others, (ii) operational challenges resulting from inflation and, to a lesser extent, shortages of certain components and other supplies that we use in our business, (iii) delays in our cost transformation initiatives and (iv) delayed decision-making by certain of our customers.

Macroeconomic Changes

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

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

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

Industry developments over the past couple years have increased fiber construction demand.

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

In 2022 and 2021, we believe these factors contributed to a delay in attaining our Quantum Fiber buildout targets.

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

For additional information on the impacts of the pandemic and the macroeconomic changes arising therefrom, see (i) the remainder of this item, including "—Liquidity and Capital Resources—Overview of Sources and Uses of Cash" and (ii) Item 1A of this report.

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

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

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

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

Trends Impacting Our Operations

In addition to the above-described impact of the pandemic and its aftermath, our consolidated operations have been, and will 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 increased use of digital applications, online video, gaming and artificial intelligence has substantially increased demand for 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.

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

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

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

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

• Businesses continue to adopt distributed, global operating models.

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

• Changes in customer preferences and in the regulatory, technological and competitive environment are (i) significantly reducing demand for our more mature service offerings, commoditizing certain of our other offerings, or resulting in volume or rate reductions for other of our offerings and (ii) also creating certain opportunities for us arising out of increased demand for lower latency provided by Edge computing and for faster and more secure data transmissions.

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

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

• Uncertainties regarding our financial performance, leverage and the debt covenant compliance of our affiliates have caused, and may continue to cause, certain of our customers and other third parties to reduce or cease transacting business with us.

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

Inflation has placed downward pressure on our margins and macroeconomic uncertainties have likely contributed to delayed decision-making by certain of our customers, which are trends that will likely continue to impact us as long as inflation rates remain elevated.

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

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

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

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

Results of Operations

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Operating expenses 3,457 6,110

Operating (loss) income

Operating income (loss)

Total other expense, net (37) (75)

(Loss) income before income taxes

Income (loss) before income taxes

Income tax expense 527 561

Net (loss) income

Net income (loss)

$ 1,487 (831)

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

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

• Decreases in Other Broadband by $164 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to decreased subscribers to our low speed broadband services;

• Decreases in Voice and Other by $102 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily attributable to (i) a decrease of $87 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 from a decline in voice services and (ii) a decrease of $13 million related to recognition in the first quarter of 2022 of previously deferred revenue related to the CAF II program, which lapsed on December 31, 2021, impacting the year ended December 31, 2023 as compared to the year ended December 31, 2022;

• Decreases in Harvest by $86 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily attributable to declines in legacy voice services for business customers of $58 million;

• Decreases in Nurture by $42 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to declines in Ethernet services.

• Decreases in Grow by $14 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to declines in wavelengths services.

These declines were partially offset by:

• Increases in Fiber Broadband by $9 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 driven by growth in fiber customers and associated with increased rates.

Affiliate services revenue also decreased by $135 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

The decreases were primarily due to (i) lower affiliate service revenues of $60 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 due to the transfer of employees to our affiliates, (which lowers our affiliate revenue under our cost allocation methodology) and (ii) decreases of $75 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to declines in the level of services provided to our affiliates.

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

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

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

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

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

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

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

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

Operating Expenses

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Selling, general and administrative

438 478 (8) %

Operating expenses-affiliates

761 796 (4) %

Depreciation and amortization

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

Cost of services and products (exclusive of depreciation and amortization) decreased by $38 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

These decreases were primarily due to reductions in allocated employee related costs of $58 million and insurance and fees of $10 million.

These decreases were partially offset by higher network expenses of $32 million.

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

Selling, General and Administrative

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and other selling, general and administrative expenses.

Selling, general and administrative expenses increased by $24 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to an increase in employee related expenses of $43 million.

This increase was partially offset by lower marketing and advertising expenses of $13 million and a decrease in bad debt expense of $4 million.

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

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

Operating Expenses-Affiliates

We incur 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 increased by $62 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to $82 million of increased allocated corporate expense due to Lumen's 2022 ILEC divestiture, partially offset by a decrease of $20 million from lower use of affiliate services.

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

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

Depreciation and Amortization

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$ 753 823 (9) %

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 decreased by $25 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to a decrease of $81 million resulting from annual rate depreciable life changes.

This decrease was partially offset by an increase of $60 million due to net growth in depreciable assets.

Amortization expense decreased by $12 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to a decrease of $17 million due to net decrease in amortizable assets.

The decrease was partially offset by an increase of $4 million resulting from annual rate amortizable life changes of software for the period.

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

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

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

Goodwill Impairment

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

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

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

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

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

When we performed our impairment tests during the fourth quarter of 2022 and 2021, we concluded the estimated fair value of our reporting unit was greater than our carrying value of equity as of our testing date.

Therefore, we concluded no impairment existed as of our annual assessment date in the fourth quarter of 2022 and 2021.

We are currently experiencing competitive, macroeconomic and financial pressures and concerns about our ability to refinance debt in the future.

In 2023, Lumen also experienced a sustained decline in their share price.

These and other factors contributed to us recognizing the above-described goodwill impairment.

If these pressures continue, we may experience additional deterioration in our projected cash flows or make significant changes to our assumptions of discount rates and market multiples.

Any of these could result in additional goodwill impairments in future quarters.

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

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

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

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

Some of these pressures continue to impact us.

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

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

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

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Interest expense $ (62) (95) (35) %

Interest income (expense) - affiliate, net

15 (60) (125) %

Interest income - affiliate, net

Other income, net

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

This decline was primarily due to higher capitalized interest of $25 million, which was partially offset by the increase in our average interest rate from 6.50% to 6.79%.

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

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

Interest Expense - Affiliate, Net

Interest expense - affiliate, net changed by $75 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

The change in interest expense - affiliate, net was primarily due to the repayment of the outstanding principal and interest on the Note Payable - Affiliate on September 30, 2022.

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

Interest Income - Affiliate, Net

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

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

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

Income Tax Expense

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

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

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

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

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

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

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

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

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

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

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

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

The development of these projected cash flows, and the discount rate applied to such cash flows, is subject to inherent uncertainties, and actual results could vary significantly from such estimates.

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

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

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

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

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

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

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

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

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

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

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

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

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

See Note 13—Affiliate Transactions for additional information.

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

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

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

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

While the U.S.

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

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

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

Capital Expenditures

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Debt and Other Financing Arrangements

On January 22, 2024, Lumen, Level 3 Financing and Qwest entered into an amended and restated transaction support agreement with a group of creditors representing over $12.5 billion of their combined outstanding indebtedness to, among other things, extend maturities of the debt instruments of Lumen and Level 3 Financing and provide Lumen with access to a new revolving credit facility in an amount expected to be approximately $1.0 billion.

In addition, the creditors have committed to provide $1.325 billion of financing to Lumen through new long-term debt.

The consummation of the transactions contemplated by the amended and restated transaction support agreement is subject to the satisfaction of various closing conditions.

For more information, see Note 18—Subsequent Event, to our consolidated financial statements included under Item 8 of Part II of this annual report.

As of December 31, 2023, we had a face amount of approximately $2.2 billion aggregate outstanding indebtedness (excluding finance leases, unamortized premiums, net, unamortized debt issuance costs, and Note Payable - Affiliate).

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

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

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

As of December 31, 2024, we had approximately $2.0 billion aggregate outstanding indebtedness (excluding finance leases, unamortized premiums, net, unamortized debt issuance costs, and Note Payable - Affiliate).

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

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

The availability, interest rate and other terms of any new borrowings will depend on the ratings assigned to Qwest Corporation by credit rating agencies, among other factors.

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

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

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

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

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

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

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

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

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

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

For 2024, Lumen's expected annual long-term rate of return on these assets is 6.5%.

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

However, actual returns could be substantially different.

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Federal Broadband Support Programs

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

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

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

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

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

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

These impacts are expected to be immaterial.

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

Federal officials have proposed changes to current programs and laws that could impact us, including proposals designed to increase broadband access, increase competition among broadband providers, lower broadband costs and re-adopt "net neutrality" rules similar to those adopted under the a prior administration.

In late 2021, the U.S.

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

Although it remains premature to speculate on the potential impact of this legislation on us, we anticipate that the release of this funding would increase competition for broadband customers in newly-served areas.

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

Cash Flow Activities

The following table summarizes our consolidated cash flow activities:

Years Ended December 31, (Decrease) / Increase

Years Ended December 31, $ Change

(Dollars in millions)

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Operating Activities

Net cash provided by operating activities decreased by $237 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to a net loss adjusted for non-cash items and partially offset by increases related to changes in working capital.

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

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

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Investing Activities

Net cash used in investing activities decreased by $883 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to a decrease in advances to affiliates, partially offset by an increase in capital expenditures.

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

Financing Activities

Net cash used in financing activities increased by $650 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily due to an increase in dividends paid to our parent, partially offset by the timing of payments of the Note Payable - Affiliate.

See Note 6—Long-Term Debt and Note Payable - Affiliate for additional information on our outstanding debt securities and financing activities.

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

Other Matters

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See Note 14—Commitments, Contingencies and Other Items for additional information.

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

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

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

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

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

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

As of December 31, 2023, 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.

At December 31, 2023, we had approximately $2.0 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, 2023, we had $215 million floating rate debt exposed to changes in the Secured Overnight Financing Rate ("SOFR").

A hypothetical increase of 100 basis points in SOFR relative to this debt would decrease our annual pre-tax earnings by $2 million.

At December 31, 2023, we had no debt which was owed to an affiliate of our ultimate parent, Lumen Technologies, Inc under the note payable-affiliate.

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 in evaluating our 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.

Our analyses only incorporate the risk exposures that existed at December 31, 2023.

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 7. Management’s Discussion and Analysis