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Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-02-28 · 344 added, 374 removed, 272 unchanged (73% of the section changed)

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Certain statements in this report constitute forward-looking statements.

See "Special Note Regarding Forward-Looking Statements" in 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 or prospects.

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

We believe, we are among the largest providers of communications services to domestic and global enterprise customers and the second largest enterprise wireline telecommunications company in the United States.

We provide services in over 60 countries, with most of our revenue being derived in the United States.

We continue expanding the reach and capabilities of our network by investing at the edge of our world class fiber network consisting of approximately 450,000 route miles, connecting approximately 170,000 fiber-based on-net enterprise buildings, connecting to public and private data centers and subsea networks.

We are also investing in new technologies, leveraging our extensive fiber network that provide customers with dynamic bandwidth and low-latency edge computing services to enable their digital transformation.

Acquisition of Level 3

On November 1, 2017, CenturyLink, Inc.

("CenturyLink") acquired Level 3 Communications, Inc.

("Level 3") through successive merger transactions, including a merger of Level 3 with and into a merger subsidiary, which survived such merger as our indirect wholly-owned subsidiary under the name of Level 3 Parent, LLC.

During the year ended December 31, 2019 , we recognized $234 million of integration and transformation-related expenses associated with our activities related to the Level 3 acquisition.

Our consolidated financial statements include the accounts of CenturyLink and its majority owned subsidiaries, including Level 3 beginning on November 1, 2017.

Due to the significant size of the acquisition, direct comparison of our results of operations for the periods ending on or after December 31, 2017 to prior periods are less meaningful than usual.

As a result of the acquisition, Level 3's assets and liabilities have been revalued and recorded at their fair value.

The assignment of estimated fair value requires a significant amount of judgment.

The use of fair value measures affects the comparability of our post-acquisition financial information and may make it more difficult to predict earnings in future periods.

We completed our final fair value determinations during the fourth quarter 2018.

Our final fair value determinations were different than those preliminary values reflected in our consolidated financial statements at December 31, 2017 and resulted in an increase in goodwill of $340 million and an increase to other noncurrent assets offset by a decrease in customer relationships during 2018.

In the discussion that follows, we refer to the business that we operated prior to the Level 3 acquisition as "Legacy CenturyLink", and we refer to the incremental business activities that we now operate as a result of the Level 3 acquisition as "Legacy Level 3."

For additional information about our acquisition of Level 3, see (i) Note 2—Acquisition of Level 3 to our consolidated financial statements in Item 8 of Part II of this report and (ii) the documents we filed with the SEC on February 13, 2017, November 1, 2017 and January 16, 2018.

Sale of Data Centers and Colocation Business

On May 1, 2017, we sold a portion of our data centers and colocation business to a consortium led by BC Partners, Inc.

and Medina Capital ("the Purchaser") in exchange for pre-tax cash proceeds of $1.8 billion and a minority stake in the limited partnership that owns the consortium's global secure infrastructure company, Cyxtera Technologies.

As part of the transaction, the Purchaser acquired 57 of our data centers and assumed our capital lease obligations, which amounted to $294 million on May 1, 2017, related to the divested properties.

Our colocation business generated revenue (excluding revenue from affiliates) of $210 million from January 1, 2017 through May 1, 2017.

This transaction did not meet the accounting requirements for a sale-leaseback transaction as described in ASC 840-40, Leases - Sale-Leaseback Transaction .

Under the failed-sale-leaseback accounting model, after the transaction we were deemed under GAAP to still own certain real estate assets sold to the Purchaser.

After factoring in the costs to sell the data centers and colocation business, excluding the impacts from the failed-sale-leaseback accounting treatment, the sale resulted in a $20 million gain as a result of the aggregate value of the consideration we received exceeding the carrying value of the assets sold and liabilities assumed.

Based on the fair market values of the failed-sale-leaseback assets, the failed-sale-leaseback accounting treatment resulted in a loss of $102 million as a result of the requirement to treat a certain amount of the pre-tax cash proceeds from the sale of the assets as though it were the result of a financing obligation.

The combined net loss of $82 million is included in selling, general and administrative expenses in our consolidated statement of operations for the year ended December 31, 2017.

Effective with the January 1, 2019 implementation date of the new accounting standard for Leases (ASU 2016-02), this particular accounting treatment was no longer applicable to our May 1, 2017 divestiture transaction.

Consequently, the above-described real estate assets and corresponding financing obligation were derecognized as of January 1, 2019 from our future consolidated balance sheets resulting in an increase of $115 million to stockholder's equity.

See Note 3—Sale of Data Centers and Colocation Business for additional information on the sale and Note 1— Background And Summary Of Significant Accounting Policies for discussion of the impact of implementing ASU 2016-02 to our consolidated financial statements in Item 8 of Part II of this report.

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 or prospects.

We are an international facilities-based technology and communications company focused on providing our business and residential customers with a broad array of integrated services and solutions necessary to fully participate in our rapidly evolving digital world.

We believe we are the world's most inter-connected network and our platform empowers our customers to rapidly adjust digital programs to meet immediate demands, create efficiencies, accelerate market access, and reduce costs – allowing customers to rapidly evolve their IT programs to address dynamic changes without distraction from their core competencies.

With approximately 450,000 route miles of fiber optic cable globally, we are among the largest providers of communications services to domestic and global enterprise customers.

Our terrestrial and subsea fiber optic long-haul network throughout North America, Europe, Latin America and Asia Pacific connects to metropolitan fiber networks that we operate.

We provide services in over 60 countries, with most of our revenue being derived in the U.S.

Impact of COVID-19 Pandemic

In response to the safety and economic challenges arising out of the COVID-19 pandemic and in an attempt to mitigate the negative impact on our stakeholders, we have taken a variety of steps to ensure the availability of our network infrastructure, to promote the safety of our employees and customers, to enable us to continue to adapt and provide our products and services worldwide to our customers, and to strengthen our communities.

These steps have included:

• taking the FCC's "Keep Americans Connected Pledge," under which we waived certain late fees and suspended the application of data caps and service terminations for non-payment by certain consumer and small business customers through the end of the second quarter of 2020;

• establishing new protocols for the safety of our on-site technicians and customers, including our "Safe Connections" program;

• adopting a rigorous employee work-from-home policy and substantially restricting non-essential business travel, each of which remains in place;

• continuously monitoring our network to enhance its ability to respond to changes in usage patterns;

• donating products or services in several of our communities to enhance their abilities to provide necessary support services;

• taking steps to maintain our internal controls and the security of our systems and data in a remote work environment.

As the pandemic continues and vaccination rates increase, we expect to revise our responses or take additional steps to adjust to changed circumstances.

Social distancing, business and school closures, travel restrictions, and other actions taken in response to the pandemic have impacted us, our customers and our business since March 2020.

In particular, during the second half of 2020, we rationalized our lease footprint and ceased using 16 leased property locations that were underutilized due to the COVID-19 pandemic.

The Company determined that they no longer needed the leased space and, due to the limited remaining term on the contracts, concluded that the Company had neither the intent nor ability to sublease the properties.

As a result, we incurred accelerated lease costs of approximately $41 million.

In conjunction with our plans to continue to reduce costs, we expect to continue our real estate rationalization efforts and incur additional costs in 2021.

Additionally, as discussed further elsewhere herein, we are tracking pandemic impacts such as:

(i) increases in certain revenue streams and decreases in others (including late fee revenue), (ii) increases in allowances for credit losses each quarter since the start of the pandemic, (iii) increase in overtime expenses and (iv) delays in our cost transformation initiatives.

Thus far, these changes have not materially impacted our financial performance or financial position.

This could change, however, if the pandemic intensifies or economic conditions deteriorate.

The impact of the pandemic during 2021 will materially depend on additional steps that we may take in response to the pandemic and various events outside of our control, including the pace of vaccinations worldwide, the length and severity of the health crisis and economic slowdown, actions taken by governmental agencies or legislative bodies, and the impact of those events on our employees, suppliers and customers.

For additional information, see the risk factor disclosures set forth or referenced in Item 1A of Part II of this report.

For additional information on the impacts of the pandemic, see the remainder of this item, including "—Liquidity and Capital Resources — Overview of Sources and Uses of Cash," and "— Pension and Post-retirement Benefit Obligations."

Reporting Segments

Our reporting segments are organized by customer focus:

Our reporting segments are organized by customer demographics.

At December 31, 2020, they consisted of:

• International and Global Accounts Management ("IGAM") Segment.

Under our IGAM segment, we provide our products and services to approximately 200 global enterprise customers and to enterprises and carriers in three operating regions:

Under our IGAM segment, we provided our products and services to approximately 200 global enterprise customers and three operating regions:

Europe Middle East and Africa, Latin America and Asia Pacific;

IGAM is responsible for working with large multinational organizations in support of their business and IT transformation strategies.

With our extensive fiber network, and our ability to provide global networking solutions and a differentiated customer experience spanning the globe, we believe we are well-positioned to serve customers within this segment.

This segment contains some of our largest customers which could result in revenue fluctuations driven by contract renegotiations or churn.

We remain focused on investing globally to expand our reach, scale and technology to grow services that we can offer to our global and international customers;

• Enterprise Segment.

Under our enterprise segment, we provide our products and services to large and regional domestic and global enterprises, as well as the public sector, which includes the U.S.

Under our enterprise segment, we provided our products and services to large and regional domestic and global enterprises, as well as the public sector, which includes the U.S.

Federal Government, state and local governments and research and education institutions;

Our ability to meet our enterprise customers' increasing needs for integrated data, broadband and voice services with our extensive product portfolio and our local approach to the market are differentiators.

We plan to grow revenue within our Enterprise segment by leveraging our extensive enterprise-focused fiber network to deliver dynamic solutions our customers require to meet their growing and evolving needs;

• Small and Medium Business ("SMB") Segment.

Under our SMB segment, we provide our products and services to small and medium businesses directly and through our indirect channel partners.

We generally designate businesses as small or medium if they have fewer than 500 employees.

With traditional voice services representing a significant portion of SMB segment revenues, we believe revenue growth will continue to be a challenge for this segment.

We believe by bringing products specific to meet the needs of this segment, adding fiber-fed on-net buildings and collaborating with our indirect channel partners, we will be better positioned to meet our SMB customers’ needs;

Under our SMB segment, we provided our products and services to small and medium businesses directly and indirectly through our channel partners;

• Wholesale Segment.

Under our wholesale segment, we provide our products and services to a wide range of other communication providers across the wireline, wireless, cable, voice and data center sectors.

Our wholesale segment contributes scale that we leverage in connection with serving our Enterprise customers.

We plan to continue to partner with 5G wireless providers to support their growing needs for transmission capacity, which in turn will place our network closer to our customers.

Nonetheless, we expect the relative contributions of our wholesale segment will decline over the longer term due to competitive pressures.

In the meantime, we expect our wholesale segment will remain volatile from quarter to quarter given the relatively large size of wholesale customer contracts.

Under our wholesale segment, we provided our products and services to a wide range of other communication providers across the wireline, wireless, cable, voice and data center sectors.

Our wholesale customers range from large global telecom providers to small regional providers;

• Consumer Segment.

Under our consumer segment, we provide our products and services to residential customers.

For this segment, we expect continued declines in revenues from our traditional voice services, as consumers continue their long-term migration towards alternative products and services, and from our video business, which we are no longer actively marketing to consumers.

We are aggressively investing in fiber to drive higher average revenue per broadband customer to offset legacy voice and video declines.

Additionally, we continue to invest in our own digital transformation to improve our service delivery and reduce our costs.

Under our consumer segment, we provided our products and services to residential customers.

Additionally, certain state support payments, Connect America Fund (“CAF”) federal support revenue, and other revenue from leasing and subleasing, including 2018 rental income associated with the 2017 failed-sale-leaseback are reported in our consumer segment as regulatory revenue.

At December 31, 2020, we served 4.5 million consumer broadband subscribers.

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

We no longer report or discuss access lines as a key operating metric given the significant migration in our industry from legacy services to IP-enabled services.

See Note 17—Segment Information to our consolidated financial statements in Item 8 of Part II of this report for additional information.

We categorize our revenue among the following four product and services categories that we sell to business customers:

See Note 16—Segment Information for additional information.

At December 31, 2020, we categorized our products and services revenue among the following four categories for the IGAM, Enterprise, SMB and Wholesale segments:

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

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

We categorize revenue among the following four categories that we sell to residential customers:

At December 31, 2020, we categorized our products and services revenue among the following four categories for the Consumer segment:

• Broadband , which includes high speed, fiber-based and lower speed DSL broadband services;

• Voice , which include local and long-distance services;

Regulatory Revenue, which consist of (i) CAF, USF and other support payments designed to reimburse us for various costs related to certain telecommunications services and (ii) other operating revenue from the leasing and subleasing of space;

• Regulatory Revenue, which consist of (i) CAF and other support payments designed to reimburse us for various costs related to certain telecommunications services and (ii) other operating revenue from the leasing and subleasing of space;

• Other, which include retail video services (including our linear TV services), professional services and other ancillary services.

Additionally, beginning in the first quarter of 2021, we plan on making changes to the product category reporting to better reflect product life cycles and the company's marketing approach.

These changes will include both the creation of new product categories and the realignment of products and services within previously reported product categories.

For Business segment revenue, we will report the following product categories:

Compute & Application Services, IP & Data Services, Fiber Infrastructure Services and Voice & Other, by customer-facing sales channel.

For Mass Markets segment revenue, we will report the following product categories:

Consumer Broadband, Small Business Group ("SBG") Broadband, Voice & Other and CAF Phase II.

Trends Impacting Our Operations

Our consolidated operations have been, and are expected to continue to be, impacted by the following company-wide trends:

In addition to the above-described impact of the pandemic, our consolidated operations have been, and are expected to continue to be, impacted by the following company-wide trends:

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

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• Businesses continue to adopt distributed, global operating models.

We are expanding and densifying our fiber network, connecting more buildings to our network to generate revenue opportunities and reduce our costs associated with leasing networks from other carriers.

Industry consolidation, coupled with changes in regulation, technology and customer preferences, are significantly reducing demand for our traditional voice services and are pressuring some other revenue streams, while other advances, such as the need for lower latency provided by Edge computing or the implementation of 5G networks, are expected to create opportunities.

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.

• Industry consolidation, coupled with changes in regulation, technology and customer preferences, are significantly reducing demand for our traditional voice services and are pressuring some other revenue streams through volume or rate reductions, while other advances, such as the need for lower latency provided by Edge computing or the implementation of 5G networks, are expected to create opportunities.

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

Additional trends impacting our segments are discussed elsewhere in this Item 7.

• Declines in our traditional wireline services have necessitated right-sizing our cost structures to remain competitive.

Results of Operations

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The following table summarizes our consolidated operating revenue recorded under each of our eight above described revenue categories:

Year Ended December 31,

(Dollars in millions)

Years Ended December 31, % Change Years Ended December 31, % Change

2020 2019 2019 2018

(Dollars in millions) (Dollars in millions)

IP and Data Services $ 6,372 6,621 (4) % 6,621 6,614 — %

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IT and Managed Services 479 535 (10) % 535 625 (14) %

Broadband 2,909 2,876 1 % 2,876 2,824 2 %

Voice 1,622 1,837 (12) % 1,837 2,127 (14) %

Regulatory 615 632 (3) % 632 727 (13) %

Other 105 172 (39) % 172 316 (46) %

Total operating revenue $ 20,712 21,458 (3) % 21,458 22,580 (5) %

Our consolidated revenue decreased by $1.0 billion , or 4% , for the year ended December 31, 2019 as compared to the year ended December 31, 2018 largely due to continued declines in voice revenue as customers transition to other voice and non-voice services, our deemphasis of low margin equipment sales within Transport and Infrastructure, churn in legacy contracts within IT and Managed Services, and the derecognition of our prior failed-sale leaseback, partially offset by growth in our IP and Data services and Broadband revenue.

Our consolidated revenue decreased by $746 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 largely due to revenue declines in most of our revenue categories.

See our segment results below for additional information.

Our consolidated revenue increased by $5.8 billion or 33% , for the year ended December 31, 2018 compared to the year ended December 31, 2017 primarily due to the inclusion of $6.7 billion in Legacy Level 3 post-acquisition operating revenue in our consolidated operating revenue.

Our consolidated revenue decreased by $1.1 billion for the year ended December 31, 2019 compared to the year ended December 31, 2018 largely due to revenue declines in most of our revenue categories.

See our segment results below for additional information.

Operating Expenses

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

The following tables summarize our operating expenses:

Years Ended December 31,

Year Ended December 31,

(Dollars in millions)

Years Ended December 31, % Change Years Ended December 31, % Change

2020 2019 2019 2018

(Dollars in millions) (Dollars in millions)

Cost of services and products (exclusive of depreciation and amortization) $ 8,934 9,134 (2) % 9,134 9,999 (9) %

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Total operating expenses $ 19,750 24,184 (18) % 24,184 22,010 10 %

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Percentages greater than 200% and comparison between positive and negatives values or to/from zero values are considered not meaningful.

Cost of Services and Products (exclusive of depreciation and amortization)

Cost of services and products (exclusive of depreciation and amortization) decreased by $785 million , or 7% , for the year ended December 31, 2019 as compared to the year ended December 31, 2018 .

The decrease in costs of services and products (exclusive of depreciation and amortization) was primarily due to reductions in (i) salaries and wages and employee-related expenses from lower headcount directly related to operating and maintaining our network, (ii) network expenses and voice usage costs, (iii) customer premises equipment costs from lower sales, in (iv) content costs from Prism TV, and (v) lower space and power expenses.

These reductions were partially offset by increases in direct taxes and fees, USF rates, professional services, customer installation costs and right of way and dark fiber expenses.

Cost of services and products (exclusive of depreciation and amortization) increased by $2.7 billion , or 32% , for the year ended December 31, 2018 as compared to the year ended December 31, 2017 .

The increase in costs of services and products (exclusive of depreciation and amortization) was attributable to the inclusion of $3.2 billion Legacy Level 3 post-acquisition costs (net of intercompany eliminations) in our consolidated costs of services and products (exclusive of depreciation and amortization).

Costs of services and products (exclusive of depreciation and amortization) for Legacy CenturyLink decreased $588 million , or 8% , for the year ended December 31, 2018 as compared to the year ended December 31, 2017 .

The decrease was primarily due to reductions in salaries and wages and employee related expenses from lower headcount, reduced overtime, lower real estate and power expenses and a decline in content costs for Prism TV.

Cost of services and products (exclusive of depreciation and amortization) decreased by $200 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019.

The decrease in costs of services and products (exclusive of depreciation and amortization) was primarily due to reductions in (i) salaries and wages and employee-related expense from lower headcount directly related to operating and maintaining our network and from lower medical costs from the COVID-19 pandemic, (ii) professional fees from contractors and consultants, (iii) facility costs from lower space and power expenses, and (iv) lower commissions due to increased commission deferrals.

These reductions were partially offset by increases in severance expense, higher network expense as a result of project impairments and higher voice usage from conferencing sales.

Cost of services and products (exclusive of depreciation and amortization) decreased by $865 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018.

The decrease in costs of services and products (exclusive of depreciation and amortization) was primarily due to reductions in (i) salaries and wages and employee-related expenses from lower headcount directly related to operating and maintaining our network, (ii) network expenses and voice usage costs, (iii) customer premises equipment costs from lower sales, (iv) content costs from Prism TV, and (v) lower space and power expenses.

These reductions were partially offset by increases in direct taxes and fees, professional services, customer installation costs and right of way and dark fiber expenses.

Selling, General and Administrative

Selling, general and administrative expenses decreased by $450 million , or 11% , for the year ended December 31, 2019 as compared to the year ended December 31, 2018 .

Selling, general and administrative expenses decreased by $251 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019.

The decrease in selling, general and administrative expenses was primarily due to reductions in salaries and wages and employee-related expenses from lower headcount and lower medical costs from the COVID-19 pandemic, lower workers compensation expenses and lower professional fees.

These reductions were partially offset by increases in the allowance for credit losses related to the impact of the COVID-19 pandemic and property and other taxes.

Selling, general and administrative expenses decreased by $450 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018.

The decrease in selling, general and administrative expenses was primarily due to reductions in salaries and wages and employee-related expenses from lower headcount, contract labor costs, lower rent expense in 2019 and from higher exited lease obligations in 2018, hardware and software maintenance costs, marketing and advertising expenses, bad debt expense, property and other taxes and an increase in the amount of labor capitalized or deferred and gains on the sale of assets.

These reductions were slightly offset by higher professional fees, network infrastructure maintenance expenses and commissions.

Selling, general and administrative expenses increased by $657 million , or 19% , for the year ended December 31, 2018 as compared to the year ended December 31, 2017 .

The increase in selling, general and administrative expenses was attributable to the inclusion of $1.1 billion legacy Level 3 post-acquisition costs (net of intercompany eliminations) in our consolidated selling, general and administrative expenses.

Selling, general and administrative expenses for Legacy CenturyLink decreased by $444 million, or 14%, for the year ended December 31, 2018 as compared to the year ended December 31, 2017.

The decrease was primarily due to (i) reductions in salaries and wages and employee related expenses from lower headcount, (ii) reduced overtime, professional fees, bad debt and marketing expenses and (iii) a loss on sale of data centers in 2017.

Depreciation and Amortization

The following tables provide detail of our depreciation and amortization expense:

Years Ended December 31,

(Dollars in millions)

Years Ended December 31, % Change Years Ended December 31, % Change

2020 2019 2019 2018

(Dollars in millions) (Dollars in millions)

Depreciation 2,963 3,089 (4) % 3,089 3,339 (7) %

Amortization 1,747 1,740 — % 1,740 1,781 (2) %

Total depreciation and amortization $ 4,710 4,829 (2) % 4,829 5,120 (6) %

Depreciation expense decreased by $250 million , or 7% , for the year ended December 31, 2019 as compared to the year ended December 31, 2018 primarily due to the impact of the full depreciation of plant, property, and equipment assigned a one year life at the time we acquired Level 3 of $200 million that were fully depreciated in 2018, the impact of annual rate depreciable life changes of $108 million, and the discontinuation of depreciation on failed sale leaseback assets on $69 million.

These decreases were partially offset by net growth in depreciable assets of $93 million and increases associated with changes in our estimates of the remaining economic life of certain network assets of $34 million.

Depreciation expense increased by $629 million , or 23% , for the year ended December 31, 2018 as compared to the year ended December 31, 2017 , primarily due to the inclusion of $763 million Legacy Level 3 post-acquisition depreciation expense in our consolidated depreciation expense, which was partially offset by lower Legacy CenturyLink depreciation expense.

Amortization expense decreased by $41 million , or 2% , for the year ended December 31, 2019 as compared to the year ended December 31, 2018 primarily due to a $71 million decrease associated with the use of accelerated amortization methods for a portion of the customer intangibles and a $25 million decrease associated with annual rate amortizable life changes of software for the period.

These decreases were partially offset by net growth in amortizable assets of $55 million for the period.

Amortization expense increased by $555 million , or 45% , for the year ended December 31, 2018 as compared to the year ended December 31, 2017 .

The increase in amortization expense was primarily attributable to the inclusion of $659 million , of post-acquisition Legacy Level 3 amortization expense in our consolidated amortization expense.

Legacy CenturyLink's amortization expense was lower primarily due to the use of accelerated amortization for a portion of our customer relationship assets and our entry into an agreement to sell a portion of our data centers and colocation business.

The effect of using an accelerated amortization method resulted in an incremental decline in expense as the intangible assets amortize.

In 2017, we ceased amortizing the intangible assets of our colocation business when we entered into the agreement to sell that business.

Absent the sale, we estimate that we would have recorded additional amortization expense of $13 million from January 1, 2017 through May 1, 2017, related to the conveyed intangible assets.

In addition, amortization of capitalized software was lower due to software becoming fully amortized faster than new software was acquired or developed.

Depreciation expense decreased by $126 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 primarily due to a $239 million reduction attributable to the impact of annual rate depreciable life changes, partially offset by $156 million of higher depreciation expense associated with net growth in depreciable assets.

Depreciation expense decreased by $250 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018, primarily due to the impact of the full depreciation in 2018 of plant, property, and equipment assigned a one year life at the time we acquired Level 3 of $200 million, the impact of annual rate depreciable life changes of $108 million, and the discontinuation of depreciation on failed-sale-leaseback assets on $69 million.

These decreases were partially offset by higher depreciation expense of $93 million associated with net growth in depreciable assets and increases associated with changes in our estimates of the remaining economic life of certain network assets of $34 million.

Amortization expense increased by $7 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 primarily due to increases associated with the net growth in amortizable assets of $54 million and the accelerated amortization for a decommissioned applications of $31 million.

These increases were partially offset by a decrease of $70 million from the use of accelerated amortization methods for a portion of the customer intangibles.

Amortization expense decreased by $41 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018.

The decrease in amortization expense was primarily due to a $71 million decrease associated with the use of accelerated amortization methods for a portion of the customer intangibles and a $25 million decrease associated with annual rate amortizable life changes of software for the period.

These decreases were partially offset by an increase in amortization of $55 million associated with net growth in amortizable assets for the period.

Goodwill Impairments

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

Both our January 2019 internal reorganization and the decline in our stock price triggered impairment testing in the first quarter of 2019.

Consequently, we evaluated our goodwill in January 2019 and again as of March 31, 2019.

When we performed our annual impairment test in the fourth quarter of 2019 the results indicated we did not have any impairment charges.

When we performed our impairment tests during the first quarter of 2019, we concluded that the estimated fair value of certain of our reporting units was less than our carrying value of equity as of the date of each of our triggering events during the first quarter of 2019.

When we performed our annual impairment test in the fourth quarter of 2020 we concluded that the estimated fair value of our consumer, wholesale, small and medium business and EMEA reporting units were less than our carrying value of equity for such reporting units and we recorded a non-cash non-tax-deductible goodwill impairment charge of approximately $2.6 billion in the fourth quarter of 2020.

As a result, we recorded non-cash, non-tax-deductible goodwill impairment charges aggregating to $6.5 billion in the quarter ended March 31, 2019.

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Other Consolidated Results

The following tables summarize our total other expense, net and income tax expense (benefit):

Years Ended December 31,

(Dollars in millions)

The following tables summarize our total other expense, net and income tax expense:

Years Ended December 31, % Change Years Ended December 31, % Change

2020 2019 2019 2018

(Dollars in millions) (Dollars in millions)

Interest expense $ (1,668) (2,021) (17) % (2,021) (2,177) (7) %

Other (loss) income, net

Other (expense) income, net (76) (19) nm (19) 44 nm

Total other expense, net $ (1,744) (2,040) (15) % (2,040) (2,133) (4) %

Income tax expense (benefit)

Income tax expense $ 450 503 (11) % 503 170 196 %

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Percentages greater than 200% and comparison between positive and negatives values or to/from zero values are considered not meaningful.

nm Percentages greater than 200% and comparison between positive and negatives values or to/from zero values are considered not meaningful.

Interest Expense

Interest expense decreased by $156 million , or 7% , for the year ended December 31, 2019 as compared to the year ended December 31, 2018 .

The decrease in interest expense was primarily due to the decrease in long-term debt from an average of $36.9 billion in 2018 to $35.4 billion in 2019 .

Interest expense increased by $696 million , or 47% , for the year ended December 31, 2018 as compared to the year ended December 31, 2017 .

The increase in interest expense was primarily due to our assumption of debt in conjunction with the acquisition of Level 3.

Other Income, Net

Other income, net reflects certain items not directly related to our core operations, including our share of income from partnerships we do not control, interest income, gains and losses from non-operating asset dispositions, foreign currency gains and losses and components of net periodic pension and postretirement benefit costs.

Other (loss) income, net decreased by $63 million , for the year ended December 31, 2019 as compared to the year ended December 31, 2018 .

This decrease in other (loss) income, net was primarily due to an increase in components of net periodic pension and postretirement benefit costs in 2019, partially offset by a gain on extinguishment of debt in 2019 compared to a loss on extinguishment of debt in 2018.

Other income, net increased by $32 million , for the year ended December 31, 2018 as compared to the year ended December 31, 2017 .

This increase in other income, net was primarily due to a decrease in components of net periodic pension and postretirement benefit costs in 2018.

Income Tax Expense (Benefit)

Interest expense decreased by $353 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019.

The decrease in interest expense was primarily due to a decrease in average long-term debt from $35.4 billion to $33.3 billion and a decrease in the average interest rate of 5.75% to 5.23%.

Interest expense decreased by $156 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018.

The decrease in interest expense was primarily due to a decrease in long-term debt from an average of $36.9 billion in 2018 to $35.4 billion in 2019.

Other (Expense) Income, Net

Other (expense) income, net reflects certain items not directly related to our core operations, including losses and gains on extinguishments of debt, our share of income from partnerships we do not control, interest income, gains and losses from non-operating asset dispositions, foreign currency gains and losses and components of net periodic pension and postretirement benefit costs.

Years Ended December 31, % Change Years Ended December 31, % Change

2020 2019 2019 2018

(Dollars in millions) (Dollars in millions)

(Loss) gain on extinguishment of debt $ (105) 72 nm 72 (7) nm

Pension and postretirement net periodic expense (31) (165) (81) % (165) (15) nm

Foreign currency gain 30 8 nm 8 10 (20) %

Other 30 66 (55) % 66 56 18 %

Total other (expense) income, net $ (76) (19) nm (19) 44 nm

_______________________________________________________________________________

nm Percentages greater than 200% and comparison between positive and negatives values or to/from zero values are considered not meaningful.

The significant decline in pension and post retirement net periodic expense for the year ended December 31, 2020 as compared to the year ended December 31, 2019 is driven by a decline in interest cost due to lower discount rates.

The increase of $150 million in this expense for the year ended December 31, 2019 as compared to the year ended December 31, 2018 reflects a corresponding increase in interest costs due to higher discount rates in that period, as discussed further in Note 10—Employee Benefits.

Income Tax Expense

For the years ended December 31, 2020, 2019 and 2018, our effective income tax rate was (57.5)%, (10.6)%, and (10.9)%, respectively.

The effective tax rates for the year ended December 31, 2019 and December 31, 2018 include a $1.4 billion and a $572 million unfavorable impact of non-deductible goodwill impairments, respectively.

The effective tax rate for the years ended December 31, 2020, December 31, 2019 and December 31, 2018 include a $555 million, $1.4 billion and a $572 million unfavorable impact of non-deductible goodwill impairments, respectively.

Additionally, the effective tax rate for the year ended December 31, 2018 reflects the impact of purchase price accounting adjustments resulting from the Level 3 acquisition and from the tax reform impact of those adjustments of $92 million.

The 2018 unfavorable impacts were partially offset by the tax benefit of a 2017 tax loss carryback to 2016 of $142 million.

The effective tax rate for the year ended December 31, 2017 reflects the tax benefit of approximately $1.1 billion from re-measurement of deferred taxes to the new federal corporate tax rate of 21% as a result of the enactment of the Tax Cuts and Jobs Act in December 2017.

The re-measurement resulted in a tax benefit recorded in the fourth quarter of 2017, which was the predominant factor contributing to our recognition of an $849 million income tax benefit for 2017.

The 2017 effective tax rate also includes a $27 million tax expense related to the sale of a portion of our data centers and colocation business and a $32 million tax impact of non-deductible transaction costs related to the Level 3 acquisition.

See Note 16—Income Taxes to our consolidated financial statements in Item 8 of Part II of this report and "Critical Accounting Policies and Estimates — Income Taxes" below for additional information.

See Note 15—Income Taxes and "Critical Accounting Policies and Estimates — Income Taxes" below for additional information.

Segment Results

Reconciliation of segment revenue to total operating revenue is below:

Year Ended December 31,

Years Ended December 31,

2020 2019 2018

(Dollars in millions)

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International and Global Accounts $ 3,405 3,476 3,543

Enterprise 5,722 5,696 5,765

Small and Medium Business 2,557 2,727 2,918

Total segment revenue

Operations and Other (1)

Wholesale 3,777 4,042 4,360

Consumer 5,251 5,517 5,994

Total operating revenue $ 20,712 21,458 22,580

_______________________________________________________________________________

(1) On May 1, 2017 we sold a portion of our data centers and colocation business.

See Note 3—Sale of Data Centers and Colocation Business to our consolidated financial statements in Item 8 of Part II of this report, for additional information.

Reconciliation of segment EBITDA to total adjusted EBITDA is below:

Year Ended December 31,

Years Ended December 31,

2020 2019 2018

(Dollars in millions)

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International and Global Accounts $ 2,228 2,295 2,354

Enterprise 3,334 3,383 3,354

Small and Medium Business 1,769 1,869 2,012

Wholesale 3,221 3,449 3,731

Consumer 4,612 4,799 5,021

Total segment EBITDA 15,164 15,795 16,472

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Total adjusted EBITDA $ 8,489 8,771 8,602

For additional information on our reportable segments and product and services categories, see Note 17—Segment Information to our consolidated financial statements in Item 8 of Part II of this report.

For additional information on our reportable segments and product and services categories, see Note 16—Segment Information.

International and Global Accounts Management Segment

Year Ended December 31,

(Dollars in millions)

Years Ended December 31, % Change Years Ended December 31, % Change

2020 2019 2019 2018

(Dollars in millions) (Dollars in millions)

IP and Data Services $ 1,556 1,627 (4) % 1,627 1,682 (3) %

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Year Ended December 31, 2020 compared to the same periods ended December 31, 2019 and December 31, 2018

Segment revenue decreased $57 million , or 2% for the year ended December 31, 2019 compared to December 31, 2018 and increased $2.3 billion or 164% , for the year ended December 31, 2018 compared to December 31, 2017 .

Excluding the impact of foreign currency fluctuations, segment revenue decreased $5 million, or less than 1% for the year ended December 31, 2019 compared to December 31, 2018 , primarily due to the following factors:

IT and managed services revenue declined due to a large unprofitable contract with a European customer that renegotiated in the second quarter of 2018 and higher overall churn;

Segment revenue decreased $71 million for the year ended December 31, 2020 compared to December 31, 2019 and decreased $67 million for the year ended December 31, 2019 compared to December 31, 2018.

Excluding the impact of foreign currency fluctuations, segment revenue decreased $23 million, or 1%, for the year ended December 31, 2020 compared to December 31, 2019.

These changes are primarily due to the following factors:

• IT and managed services revenue declined due to lower volumes of legacy managed hosting services;

• IP and data services revenue declined mostly due to reduced rates and lower traffic;

voice and collaboration revenue decreased due to higher churn and benefited from certain non-recurring revenue items in 2018;

transport and infrastructure revenue increased due to expanded services for large customers and higher rates.

Segment revenue increased $2.3 billion, or 164%, for the year ended December 31, 2018 compared to December 31, 2017 , primarily due to the Level 3 acquisition on November 1, 2017.

Segment expenses decreased by $2 million , or less than 1%, for the year ended December 31, 2019 compared to December 31, 2018 primarily due to lower cost of services in line with lower revenue.

Segment expenses increased by $751 million , or 134% , for the year ended December 31, 2018 compared to December 31, 2017 , primarily due to the Level 3 acquisition as noted above.

Segment adjusted EBITDA as a percentage of revenue was 64% , 64% and 59% for the year ended December 31, 2019 , 2018 and 2017 , respectively.

• Voice and collaboration revenue increased due to higher usage and call volumes;

and, for the period ended 2019 compared to 2018, the decrease was driven by stronger non-recurring revenue in 2018 that did not reoccur in 2019;

• Transport and infrastructure revenue increased for the period ended 2019 compared to 2018 due to expanded services for large customers and higher rates.

Segment expenses decreased by $4 million for the year ended December 31, 2020 compared to December 31, 2019 primarily due to lower headcount related costs, partially offset by higher cost of sales.

Segment expenses decreased by $8 million for the year ended December 31, 2019 compared to December 31, 2018, primarily due to lower cost of sales in line with lower revenue.

Segment adjusted EBITDA as a percentage of revenue was 65% for the year ended December 31, 2020 and 66% for both the years ended December 31, 2019 and 2018, respectively.

Enterprise Segment

Year Ended December 31,

(Dollars in millions)

Years Ended December 31, % Change Years Ended December 31, % Change

2020 2019 2019 2018

(Dollars in millions) (Dollars in millions)

IP and Data Services $ 2,474 2,538 (3) % 2,538 2,485 2 %

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Year Ended December 31, 2020 Compared to the same periods Ended December 31, 2019 and December 31, 2018

Segment revenue remained unchanged for the year ended December 31, 2019 compared to December 31, 2018 and increased $1.9 billion or 47% for the year ended December 31, 2018 compared to December 31, 2017 , due to the following factors:

For the year ended 2019 compared to 2018, IP and data services revenue increased, primarily driven by an increase in rates, and for the period ended 2018 compared to 2017, the increase was driven mainly by the acquisition of Level 3;

for both periods, IT and managed services revenue declined mainly due to churn in legacy managed services contracts;

for the year ended 2019 compared to 2018, voice and collaboration revenue decreased as customers continue to disconnect traditional voice TDM service and transition to newer (low cost) products such as VoIP, and for the year ended 2018 compared to 2017, voice and collaboration revenue increased due to the Level 3 acquisition partially offset by migration from traditional TDM services to VoIP;

for the year ended 2019 compared to 2018, transport and infrastructure revenue decreased due to our deemphasis of low-margin equipment and lower professional services, and for the year ended 2018 compared to 2017, transport and infrastructure increased due to the Level 3 acquisition partially offset by lower equipment sales.

Segment expenses increased by $32 million or 1% for the year ended December 31, 2019 compared to December 31, 2018 and $881 million or 51% for the year ended December 31, 2018 compared to December 31, 2017 , primarily due to:

For the year ended 2019 compared to 2018, selling, general and administrative costs decreased due to lower headcount related costs and external commissions, and for the year ended 2018 compared to 2017, selling, general and administrative costs increased due to the Level 3 acquisition;

for the year ended 2018 compared to 2017, cost of services and products increased primarily driven by the higher revenues from the Level 3 acquisition, increased rates and higher offnet costs.

Segment revenue increased by $26 million for the year ended December 31, 2020 compared to December 31, 2019 and decreased $69 million for the year ended December 31, 2019 compared to December 31, 2018, due to the following factors:

• For the year ended 2020 compared to 2019, IP and data services revenue decreased, primarily driven by customers migrating from traditional wireline services to more technologically advanced lower rate services, and, for the period ended 2019 compared to 2018, revenue increased due to rate increases.

• for both periods, IT and managed services revenue declined mainly due to churn in legacy managed services;

• for the year ended 2019 compared to 2018, the decline in voice and collaboration revenue was due to a combination of customers discontinuing traditional voice TDM products and lower rates on customers transitioning to VoIP;

• for the year ended 2020 compared to 2019, transport and infrastructure revenue increased due to strength in our Federal business, mainly in professional services, equipment and managed security services, and for the year ended 2019 compared to 2018, the decline was due to lower professional services and data center and colocation services, partially offset by increased managed security revenue.

Segment expenses increased by $75 million for the year ended December 31, 2020 compared to December 31, 2019 and decreased $98 million for the year ended December 31, 2019 compared to December 31, 2018, primarily due to:

• For the year ended 2020 compared to 2019, segment expenses increased due to higher cost of sales in line with revenue increases, partially offset by lower headcount related costs;

• for the year ended 2019 compared to 2018, segment expenses decreased due to lower headcount related costs and external commissions.

Segment adjusted EBITDA as a percentage of revenue was 58%, 59% and 58% for the year ended December 31, 2020, 2019 and 2018, respectively.

Small and Medium Business Segment

Year Ended December 31,

(Dollars in millions)

Years Ended December 31, % Change Years Ended December 31, % Change

2020 2019 2019 2018

(Dollars in millions) (Dollars in millions)

IP and Data Services $ 1,062 1,091 (3) % 1,091 1,078 1 %

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Year Ended December 31, 2020 Compared to the same periods Ended December 31, 2019 and December 31, 2018

Segment revenue decreased $188 million or 6% for the year ended December 31, 2019 compared to December 31, 2018 and increased $726 million , or 30% for the year ended December 31, 2018 compared to December 31, 2017 , primarily due to the following factors:

For the year ended 2019 compared to 2018, voice and collaboration revenue decreased due to continued decline in demand for legacy voice services, and for the year ended 2018 compared to 2017, voice and collaboration increased due to the Level 3 acquisition, partially offset by continued legacy voice declines;

for the year ended 2019 compared to 2018, transport and infrastructure revenue decreased primarily due to lower equipment sales as we continue to focus on driving profitable growth, and for the year ended 2018 compared to 2017, transport and infrastructure increased due to the Level 3 acquisition, partially offset by de-emphasis of Customer Premises Equipment ("CPE") sales;

for the year ended 2018 compared to 2017, IP and data services increased due to the Level 3 acquisition and VPN revenue growth as we continue to experience good momentum in this product within our small and medium business segment.

Segment expenses decreased by $45 million or 4% for the year ended December 31, 2019 compared to December 31, 2018 and increased $294 million or 35% for the year ended December 31, 2018 compared to December 31, 2017 , primarily due to:

For the year ended 2019 compared to 2018, expenses decreased due to lower network cost driven by declines in customer demand, and network expense synergies;

for the year ended 2018 compared to 2017, expenses increased due to the Level 3 acquisition.

Segment adjusted EBITDA as a percentage of revenue was 63% , 64% and 65% for the year ended December 31, 2019 , 2018 and 2017 , respectively.

Segment revenue decreased $170 million for the year ended December 31, 2020 compared to December 31, 2019 and decreased $191 million for the year ended December 31, 2019 compared to December 31, 2018, primarily due to the following factors:

• For both periods, voice and collaboration revenue decreased due to continued declines in demand for traditional voice TDM services;

• for the year ended 2020 compared to 2019, transport and infrastructure revenue decreased primarily due to continued reductions in demand for our low-speed broadband, and for the year ended 2019 compared to 2018, transport and infrastructure declined primarily due to lower equipment sales and lower demand for broadband services;

• for the year ended 2020 compared to 2019, IP and data services decreased due to lower VPN revenue and customers transitioning from Ethernet solutions to lower-rate IP services, and for the year ended 2019 compared to 2018, IP and data services increased due to strength in VPN revenue.

Segment expenses decreased by $70 million for the year ended December 31, 2020 compared to December 31, 2019 and decreased $48 million for the year ended December 31, 2019 compared to December 31, 2018, primarily due to:

• For the year ended 2020 compared to 2019 due to lower cost of sales in line with lower revenue and lower headcount related costs;

• for the year ended 2019 compared to 2018 due to lower network costs driven by declines in customer demand, and network expense synergies.

Segment adjusted EBITDA as a percentage of revenue was 69% for the years ended December 31, 2020, 2019 and 2018.

Wholesale Segment

Year Ended December 31,

(Dollars in millions)

Years Ended December 31, % Change Years Ended December 31, % Change

2020 2019 2019 2018

(Dollars in millions) (Dollars in millions)

IP and Data Services $ 1,280 1,365 (6) % 1,365 1,369 — %

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Year Ended December 31, 2020 Compared to the same periods Ended December 31, 2019 and December 31, 2018

Segment revenue decreased $323 million or 7% for the year ended December 31, 2019 compared to December 31, 2018 and increased $1.4 billion or 45% for the year ended December 31, 2018 compared to December 31, 2017 , primarily due to the following factors:

For the year ended 2019 compared to 2018, transport and infrastructure revenue decreased due to continued declines in legacy private line and customer network consolidation and grooming efforts, and for the year ended 2018 compared to 2017 transport and infrastructure increased due to the Level 3 acquisition;

for the year ended 2019 compared to 2018, voice and collaboration revenue decreased due to a combination of market rate compression, customer volume losses resulting from insourcing and industry consolidation, and for the year ended 2018 compared to 2017 voice and collaboration increased due to the Level 3 acquisition;

for the year ended 2018 compared to 2017 IP and data services revenue increased due to the Level 3 acquisition.

Segment expenses decreased by $84 million , or 11% , for the year ended December 31, 2019 compared to December 31, 2018 , primarily due to lower cost of services and products in line with the reduced customer demand, network grooming and operating synergies, and increased $271 million , or 59% , for the year ended December 31, 2018 compared to December 31, 2017 , due to the Level 3 acquisition.

Segment revenue decreased $265 million for the year ended December 31, 2020 compared to December 31, 2019 and decreased $318 million for the year ended December 31, 2019 compared to December 31, 2018, primarily due to the following factors:

• For both periods, transport and infrastructure revenue decreased due to continued declines in traditional private line services and customer network consolidation and grooming efforts;

• for both periods, voice and collaboration revenue decreased due to market rate compression and lower customer volumes;

• for the year ended 2020 compared to 2019, IP and data services decreased due to customer churn.

Segment expenses decreased by $37 million for the year ended December 31, 2020 compared to December 31, 2019, primarily due to lower cost of sales and continued network grooming efforts, partially offset by higher employee related costs, and decreased by $36 million for the year ended December 31, 2019 compared to December 31, 2018, due to lower cost of sales and network grooming and operating synergies.

Segment adjusted EBITDA as a percentage of revenue was 85%, 85% and 86% for the year ended December 31, 2020, 2019 and 2018, respectively.

Consumer Segment

Year Ended December 31,

(Dollars in millions)

Years Ended December 31, % Change Years Ended December 31, % Change

2020 2019 2019 2018

(Dollars in millions) (Dollars in millions)

Broadband $ 2,909 2,876 1 % 2,876 2,824 2 %

Voice 1,622 1,837 (12) % 1,837 2,127 (14) %

Regulatory 615 632 (3) % 632 727 (13) %

Other 105 172 (39) % 172 316 (46) %

Total revenue 5,251 5,517 (5) % 5,517 5,994 (8) %

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Year Ended December 31, 2020 Compared to the same periods Ended December 31, 2019 and December 31, 2018

Segment revenue decreased $474 million or 8% for the year ended December 31, 2019 compared to December 31, 2018 and $335 million or 5% for the year ended December 31, 2018 compared to December 31, 2017 , primarily due to the following factors:

For both periods, decreases in our voice, other and regulatory revenue was driven by continued decline in our legacy voice customers, our deemphasis of our Prism video product and the derecognition of our prior failed-sale leaseback;

partially offset by

for both periods, an increase in Broadband revenue.

Segment expenses decreased by $283 million or 28% for the year ended December 31, 2019 compared to December 31, 2018 and $304 million or 23% for the year ended December 31, 2018 compared to December 31, 2017 , primarily due to the following factors:

For both periods, reduction in personnel;

for both periods, decreased marketing expenses;

lower TV content costs for both periods.

Segment revenue decreased by $266 million for the year ended December 31, 2020 compared to December 31, 2019 and decreased by $477 million for the year ended December 31, 2019 compared to December 31, 2018, primarily due to the following factors:

• For both periods, decreases in our voice and other revenue were driven by continued legacy voice customer losses and our de-emphasis of Prism video product;

• for the year ended December 31, 2019, regulatory revenue declined due to the derecognition of the failed-sales-leaseback described in our prior reports.

For the year ended December 31, 2020, regulatory revenue declined due to lower state support revenue;

• for both periods, an increase in Broadband revenue driven by increased demand for higher-speed services and higher rates;

Segment expenses decreased by $79 million for the year ended December 31, 2020 compared to December 31, 2019 and decreased by $255 million for the year ended December 31, 2019 compared to December 31, 2018.

Expenses decreased for both periods due to lower Prism content costs, headcount related costs and marketing expenses.

Segment adjusted EBITDA as a percentage of revenue was 88%, 87% and 84% for the year ended December 31, 2020, 2019 and 2018, respectively.

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The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of our assets, liabilities, revenue and expenses.

We have identified certain policies and estimates as critical to our business operations and the understanding of our past or present results of operations related to (i) business combinations, (ii) goodwill, customer relationships and other intangible assets;

(iii) property, plant and equipment;

(iv) pension and post-retirement benefits;

(v) loss contingencies and litigation reserves and (vi) income taxes.

We have identified certain policies and estimates as critical to our business operations and the understanding of our past or present results of operations related to (i) goodwill, customer relationships and other intangible assets;

(ii) pension and post-retirement benefits;

(iii) loss contingencies and litigation reserves and (iv) income taxes.

These policies and estimates are considered critical because they had a material impact, or they have the potential to have a material impact, on our consolidated financial statements and because they require us to make significant judgments, assumptions or estimates.

1 unchanged sentence

However, actual results may differ from those estimates, and these differences may be material.

Business Combination

We have accounted for our acquisition of Level 3 on November 1, 2017, under the acquisition method of accounting, whereby the tangible and separately identifiable intangible assets acquired and liabilities assumed are recognized at their fair values at the acquisition date.

The portion of the purchase price in excess of the fair value of the net tangible and separately identifiable intangible assets acquired represents goodwill.

The fair value and resulting assignment of the purchase price related to our acquisition of Level 3 involved significant estimates and judgments by our management.

In arriving at the fair values of assets acquired and liabilities assumed, we considered the following generally accepted valuation approaches:

the cost approach, income approach and market approach.

Our estimates also included assumptions about projected growth rates, cost of capital, effective tax rates, tax amortization periods, technology life cycles, customer attrition rates, the regulatory and legal environment and industry and economic trends.

For additional information about our acquisition of Level 3, see Note 2—Acquisition of Level 3 to our consolidated financial statements in Item 8 of Part II of this report.

Goodwill, Customer Relationships and Other Intangible Assets

We have a significant amount of goodwill and indefinite-lived intangible assets that are assessed at least annually for impairment.

At December 31, 2020, goodwill and intangible assets totaled $27.1 billion, or 46%, of our total assets.

The impairment analyses of these assets are considered critical because of their significance to us and our segments.

We have assigned our goodwill balance to our segments at December 31, 2020 as follows:

International and Global Accounts Enterprise Small and Medium Business Wholesale Consumer Total

(Dollars in millions)

As of December 31, 2020

$ 2,555 4,738 2,808 3,114 5,655 18,870

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

We amortize customer relationships primarily over an estimated life of 7 to 15 years, using either the sum-of-years-digits or the straight-line methods, depending on the customer retention patterns for the type of customer at the companies we acquire.

We amortize customer relationships primarily over an estimated life of 7 to 15 years, using either the sum-of-years-digits or the straight-line methods, depending on the customer.

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

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

The amount of future amortization expense may differ materially from current amounts, depending on the results of our annual reviews.

We amortize our other intangible assets using the sum-of-years-digits or straight-line method over an estimated life of 4 to 20 years.

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

Where there are no legal, regulatory, contractual or other factors that would reasonably limit the useful life of an intangible asset, we classify the intangible asset as indefinite-lived and such intangible assets are not amortized.

Our long-lived intangible assets, other than goodwill, with indefinite lives are assessed for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be an impairment.

These assets are carried at the estimated fair value at the time of acquisition and assets not acquired in acquisitions are recorded at historical cost.

However, if their estimated fair value is less than the carrying amount, we recognize an impairment charge for the amount by which the carrying amount of these assets exceeds their estimated fair value.

Our goodwill was derived from numerous acquisitions where the purchase price exceeded the fair value of the net assets acquired.

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When fair value is not available, we utilize an alternative allocation methodology that represents a reasonable proxy for the fair value of the operations being reorganized.

For additional information on our segments, see Note 17—Segment Information to our consolidated financial statements in Item 8 of Part II of this report.

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

At October 31, 2019, our international and global accounts segment was comprised of our North America global accounts ("NA GAM"), Europe, Middle East and Africa region ("EMEA"), Latin America region ("LATAM") and Asia Pacific region ("APAC") reporting units.

For additional information on our segments, see Note 16—Segment Information.

We are required to assess goodwill at least annually, or more frequently, if an event occurs or circumstances change that indicates it is more likely than not the fair values of our reporting units were less than their carrying values.

In assessing goodwill for impairment, we may first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carry value.

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

At October 31, 2020, our international and global accounts segment was comprised of our North America global accounts ("NA GAM"), Europe, Middle East and Africa region ("EMEA"), Latin America region ("LATAM") and Asia Pacific region ("APAC") reporting units.

At October 31, 2020, our reporting units were consumer, small and medium business, enterprise, wholesale, NA GAM, EMEA, LATAM, and APAC.

Our reporting units are not discrete legal entities with discrete full financial statements.

Our assets and liabilities are employed in and relate to the operations of multiple reporting units.

Our assets and liabilities are employed in and relate to the operations of multiple reporting units and are allocated to individual reporting units based on their relative revenue or earnings before interest, taxes depreciation and amortization ("EBITDA").

For each reporting unit, we compare its estimated fair value of equity to its carrying value of equity that we assign to the reporting unit.

1 unchanged sentence

If the estimated fair value of the reporting unit is less than the carrying value, we record an impairment equal to the difference.

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

Depending on the facts and circumstances, we typically estimate the fair value of our reporting units 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 represents the expected normalized cash flows of the reporting units beyond the cash flows from 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.

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

These 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 cash flows, and the discount rate applied to the cash flows, is subject to inherent uncertainties, and actual results could vary significantly from such estimates.

Our determination of the discount rate is 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 future cash flows.

With respect to a market approach, the fair value of a reporting unit is estimated based upon a market multiple applied to the reporting unit’s revenue and EBITDA, adjusted for an appropriate control premium based on recent market transactions.

The fair value of reporting units estimated using revenue and EBITDA market multiples are equally weighted to determine the estimated fair value under the market approach.

We also reconcile the estimated fair values of the reporting units to our market capitalization to conclude whether the indicated implied control premium is reasonable in comparison to recent transactions in the marketplace.

A decline in our stock price could potentially cause an impairment of goodwill.

Changes in the underlying assumptions that we use in allocating the assets and liabilities to reporting units under either the discounted cash flow or market approach method can result in materially different determinations of fair value.

We believe the estimates, judgments, assumptions and allocation methods used by us are reasonable, but changes in any of them can significantly affect whether we must incur impairment charges, as well as the size of such charges.

At October 31, 2020, we estimated the fair value of our eight above-mentioned reporting units by considering both a market approach and a discounted cash flow method.

We reconciled the estimated fair values of the reporting units to our market capitalization as of October 31, 2020 and concluded that the indicated control premium of approximately 33.0% was reasonable based on recent market transactions.

As of October 31, 2019, based on our assessment performed with respect to our eight reporting units, the estimated fair value of our equity exceeded our carrying value of equity for our consumer, small and medium business, enterprise, wholesale, NA GAM, EMEA, LATAM, and APAC by 44%, 41%, 53%, 46%, 55%, 5%, 63% and 38%, respectively.

Due to the decline in our stock price at October 31, 2020 and our assessment performed with respect to the reporting units described above, we concluded that our consumer, wholesale, small and medium business and EMEA reporting units were impaired resulting in a non-cash, non-tax-deductible goodwill impairment charge of $2.6 billion.

As of October 31, 2020, the estimated fair value of equity exceeded the carrying value of equity for our enterprise, NA GAM, LATAM, and APAC reporting units by 2%, 46%, 74% and 23%, respectively.

Based on our assessments performed, we concluded that the goodwill for our enterprise, NA GAM, LATAM, and APAC reporting units was not impaired as of October 31, 2020.

At October 31, 2019, we estimated the fair value of our eight above-mentioned reporting units by considering both a market approach and a discounted cash flow method.

We reconciled the estimated fair values of the reporting units to our market capitalization as of October 31, 2019 and concluded that the indicated control premium of approximately 44.7% was reasonable based on recent market transactions.

As of October 31, 2019, based on our assessment performed with respect to our eight reporting units, the estimated fair value of our equity exceeded the carrying value of equity for our consumer, small and medium business, enterprise, wholesale, NA GAM, EMEA, LATAM, and APAC reporting units by 44%, 41%, 53%, 46%, 55%, 5%, 63% and 38%, respectively.

Based on our assessments performed, we concluded that the goodwill for our eight reporting units was not impaired as of October 31, 2019.

Both our January 2019 internal reorganization and the decline in our stock price triggered impairment testing in the first quarter of 2019.

Both our January 2019 internal reorganization and the decline in our stock price indicated the carrying values of our reporting units were more likely than not in excess of their fair values, requiring an impairment test in the first quarter of 2019.

Consequently, we evaluated our goodwill in January 2019 and again as of March 31, 2019.

Because our low stock price was a key trigger for impairment testing in early 2019, we estimated the fair value of our operations using only the market approach.

Applying this approach, we utilized company comparisons and analyst reports within the telecommunications industry which have historically supported a range of fair values derived from annualized revenue and EBITDA multiples between 2.1x and 4.9x and 4.9x and 9.8x, respectively.

Applying this approach, we utilized company comparisons and

analyst reports within the telecommunications industry which have historically supported a range of fair values derived from annualized revenue and EBITDA multiples between 2.1x and 4.9x and 4.9x and 9.8x, respectively.

We selected a revenue and EBITDA multiple for each of our reporting units within this range.

We reconciled the estimated fair values of the reporting units to our market capitalization as of the date of each of our triggering events during the first quarter and concluded that the indicated control premiums of approximately 4.5% and 4.1% were reasonable based on recent market transactions.

In the quarter ended March 31, 2019, based on our assessments performed with respect to the reporting units as described above, we concluded that the estimated fair value of certain of our reporting units was less than our carrying value of equity as of the date of each of our triggering events during the first quarter.

We reconciled the estimated fair values of the reporting units to our market capitalization as of the date of each of our impairment tests during the first quarter and concluded that the indicated control premiums of approximately 4.5% and 4.1% were reasonable based on recent market transactions.

As a result, we recorded non-cash, non-tax-deductible goodwill impairment charges aggregating to $6.5 billion in the quarter ended March 31, 2019.

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As a result, we recorded a non-cash, non-tax deductible goodwill impairment charge of $2.7 billion for goodwill assigned to our consumer segment during the fourth quarter of 2018.

For additional information on our goodwill balances by segment, see Note 4—Goodwill, Customer Relationships and Other Intangible Assets to our consolidated financial statements in Item 8 of Part II of this report.

Property, Plant and Equipment

Property, plant and equipment acquired in connection with our acquisitions was recorded based on its estimated fair value as of its acquisition date, plus the estimated value of any associated legally or contractually required asset retirement obligation.

Purchased and constructed property, plant and equipment is recorded at cost, plus the estimated value of any associated legally or contractually required asset retirement obligation.

Renewals and betterments of plant and equipment are capitalized while repairs, as well as renewals of minor items, are charged to operating expense.

Depreciation of property, plant and equipment is provided on the straight-line method specific unit or group method using class or overall group rates and specific asset life.

The group method provides for the recognition of the remaining net investment, less anticipated net salvage value, over the remaining useful life of the assets.

This method requires the periodic revision of depreciation rates.

Normal retirements of property, plant and equipment are charged against accumulated depreciation under the group method, with no gain or loss recognized.

We depreciate such property on the straight-line method over estimated service lives ranging from 3 to 45 years .

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

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

Due to rapid changes in technology and the competitive environment, determining the estimated economic life of telecommunications plant and equipment requires a significant amount of judgment.

We regularly review data on utilization of equipment, asset retirements and salvage values to determine adjustments to our depreciation rates.

The effect of a hypothetical one year increase or decrease in the estimated remaining useful lives of our property, plant and equipment would have decreased depreciation expense by approximately $360 million annually or increased depreciation expense by approximately $470 million annually, respectively.

We plan to make changes to our segment and customer-facing sales channel reporting categories in 2021 to align with operational changes designed to better support our customers.

Beginning in the first quarter of 2021, the company plans to report two segments:

Business and Mass Markets.

The Business segment will include four sales channels:

International & Global Accounts, Large Enterprise, Mid-Market Enterprise and Wholesale.

The Mass Markets segment will include both our Consumer and Small Business Group sales channels.

As a result of the organization changes noted above, we will perform a goodwill impairment analysis during the first quarter of 2021.

For additional information on our goodwill balances by segment, see Note 2—Goodwill, Customer Relationships and Other Intangible Assets.

Pension and Post-retirement Benefits

We sponsor a noncontributory qualified defined benefit pension plan (referred to as our qualified pension plan) for a substantial portion of our employees in the United States.

We sponsor a noncontributory qualified defined benefit pension plan (referred to as our qualified pension plan) for a substantial portion of our current and former employees in the United States.

In addition to this tax-qualified pension plan, we also maintain several non-qualified pension plans for certain eligible highly compensated employees.

We also maintain post-retirement benefit plans that provide health care and life insurance benefits for certain eligible retirees.

On November 1, 2017, we assumed Level 3's pension and post-retirement plans, and certain obligations associated with these plans.

Due to the insignificant impact of these plans on our consolidated financial statements, we have excluded them from the following pension and post-retirement benefits disclosures for 2019 , 2018 and 2017 .

Due to the insignificant impact of these non-qualified plans on our consolidated financial statements, we have excluded them from the following pension and post-retirement benefits disclosures for 2020, 2019 and 2018.

In 2020, approximately 59% of the qualified pension plan's January 1, 2020 net actuarial loss balance of $3.0 billion was subject to amortization as a component of net periodic expense over the average remaining service period of 9 years for participating employees expected to receive benefits for the plan.

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The entire beginning net actuarial loss of $175 million for the post-retirement benefit plans was treated as indefinitely deferred during 2020.

In 2018, approximately 55% of the qualified pension plan's January 1, 2018 net actuarial loss balance of $2.9 billion was subject to amortization as a component of net periodic expense over the average remaining service period of participating employees expected to receive benefits, which ranges from 8 to 9 years for the plan.

In 2019, approximately 60% of the qualified pension plan's January 1, 2019 net actuarial loss balance of $3.0 billion was subject to amortization as a component of net periodic expense over the average remaining service period of 9 years for participating employees expected to receive benefits for the plan.

The other 40% of the qualified pension plan's beginning net actuarial loss balance was treated as indefinitely deferred during 2020.

The entire beginning net actuarial loss of $248 million for the post-retirement benefit plans was treated as indefinitely deferred during 2018.

The entire beginning net actuarial gain of $7 million for the post-retirement benefit plans was treated as indefinitely deferred during 2019.

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The expected rate of return on plan assets is reviewed annually and revised, as necessary, to reflect changes in the financial markets and our investment strategy.

To compute the expected return on pension and post-retirement benefit plan assets, we apply an expected rate of return to the fair value of the pension plan assets and to the fair value of the post-retirement benefit plan assets adjusted for contribution timing and for projected benefit payments to be made from the plan assets.

To compute the expected return on pension and post-retirement benefit plan assets, we apply an expected rate of return to the fair value of the applicable plan assets adjusted for contribution timing and for projected benefit payments to be made from the plan assets.

Annual market volatility for these assets (higher or lower than expected return) is reflected in the net actuarial losses.

Changes in any of the above factors could significantly impact operating expenses in the consolidated statements of operations and other comprehensive income (loss) in the consolidated statements of comprehensive income as well as the value of the liability and accumulated other comprehensive loss of stockholders' equity on our consolidated balance sheets.

Changes in any of the above factors could significantly impact operating expenses in the consolidated statements of operations and other comprehensive loss in the consolidated statements of comprehensive income as well as the value of the liability and accumulated other comprehensive loss of stockholders' equity on our consolidated balance sheets.

Loss Contingencies and Litigation Reserves

We are involved in several material legal proceedings, as described in more detail in Note 19—Commitments, Contingencies and Other Items to our consolidated financial statements in Item 8 of Part II of this report.

We are involved in several potentially material legal proceedings, as described in more detail in Note 17—Commitments, Contingencies and Other Items.

On a quarterly basis, we assess potential losses in relation to these and other pending or threatened tax and legal matters.

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In making this evaluation, we rely on our recent history of pre-tax earnings.

We also rely on our forecasts of future earnings and the nature and timing of future deductions and benefits represented by the deferred tax assets, all which involve the exercise of significant judgment.

At December 31, 2019 , we established a valuation allowance of $1.3 billion primarily related to foreign and state NOLs, based on our determination that it was more likely than not that these NOLs would expire unused.

If forecasts of future earnings and the nature and estimated timing of future deductions and benefits change in the future, we may determine that existing valuation allowances must be updated or new valuation allowances created, any of which could materially impact our financial condition or results of operations.

See Note 16—Income Taxes to our consolidated financial statements in Item 8 of Part II of this report for additional information.

We also rely on our forecasts of future earnings and the nature and timing of future deductions and benefits represented by the deferred tax assets, all of which involve the exercise of significant judgment.

At December 31, 2020, we established a valuation allowance of $1.5 billion primarily related to foreign and state NOLs, based on our determination that it was more likely than not that this amount of these NOLs would expire unused.

If forecasts of future earnings and the nature and estimated timing of future deductions and benefits change in the future, we may determine that existing valuation allowances must be revised or eliminated or new valuation allowances created, any of which could materially impact our financial condition or results of operations.

See Note 15—Income Taxes.

Liquidity and Capital Resources

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The terms of the instruments governing the indebtedness of these borrowers or borrowing groups may restrict our ability to access their accumulated cash.

In addition, our ability to access the liquidity of these and other subsidiaries may be limited by tax and legal considerations and other factors.

At December 31, 2019 , we held cash and cash equivalents of $1.7 billion , a significant portion of which was held to redeem debt securities in mid-January 2020.

At December 31, 2019, we also had approximately $1.9 billion of borrowing capacity available under our revolving credit facility.

In addition, our ability to access the liquidity of these and other subsidiaries may be limited by tax, legal and other considerations.

At December 31, 2020, we held cash and cash equivalents of $406 million, and we also had approximately $2.0 billion of borrowing capacity available under our revolving credit facility.

We typically use our revolving credit facility as a source of liquidity for operating activities and our other cash requirements.

We had approximately $98 million of cash and cash equivalents outside the United States at December 31, 2020.

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We do not currently intend to repatriate to the United States any of our foreign cash and cash equivalents from operating entities outside of Latin America.

In response to COVID-19, the U.S.

Congress passed the CARES Act on March 27, 2020.

The CARES Act favorably increased our liquidity in 2020 by $41 million as a result of allowing us to receive a full refund of the alternative minimum tax credit carryforward in 2020, as compared to receiving the refund in phases over the next few years in accordance with the Tax Cuts and Jobs Act.

Under the CARES Act, we also deferred $134 million of our 2020 payroll taxes, which under current law will be required to be repaid in installments over 2021 and 2022.

Our executive officers and our Board of Directors periodically review our sources and potential uses of cash in connection with our annual budgeting process.

Generally speaking, our principal funding source is cash from operating activities, and our principal cash requirements include operating expenses, capital expenditures, income taxes, debt repayments, dividends, periodic stock repurchases, periodic pension contributions and other benefits payments.

Based on our current capital allocation objectives, during 2020 we project expending approximately $3.6 billion to $3.9 billion (excluding integration and transformation capital) of cash for capital investment in property, plant and equipment and approximately $1.1 billion of cash for dividends on our common stock (based on the assumptions described below under "Dividends").

At December 31, 2019 , we had debt maturities of $1.0 billion , scheduled debt principal payments of $1.3 billion and finance lease and other fixed payments of $36 million , each due during 2020.

Each of the expenditures is described further below.

We will continue to monitor our future sources and uses of cash and anticipate that we will make adjustments to our capital allocation strategies when, as and if determined by our Board of Directors.

We typically use our revolving credit facility as a source of liquidity for operating activities and our other cash requirements.

For additional information, see "Risk Factors—Risks Affecting Our Liquidity and Capital Resources".

Generally speaking, our principal funding source is cash from operating activities, and our principal cash requirements include operating expenses, capital expenditures, income taxes, debt repayments, dividends, periodic securities repurchases, periodic pension contributions and other benefits payments.

Based on our current capital allocation objectives, during 2021 we project expending approximately $3.5 billion to $3.8 billion of cash for capital investment in property, plant and equipment and approximately $1.1 billion of cash for dividends on our common stock (based on the assumptions described below under "Dividends").

For the 12 month period ending December 31, 2021, we project that our fixed commitments will include (i) $125 million of scheduled term loan amortization payments, (ii) $24 million of finance lease and other fixed payments and (iii) $2.3 billion of debt maturities (excluding issuances made after December 31, 2020).

We do not anticipate that the COVID-19 pandemic will interfere with our ability to discharge these obligations over the next year.

For additional information, see "Risk Factors—Financial Risks" in Item 1A of Part I of this report.

Capital Expenditures

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We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment.

The amount of capital investment is influenced by, among other things, demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations (such as our CAF Phase II infrastructure buildout requirements).

The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory considerations (such as our CAF Phase II or RDOF infrastructure buildout requirements).

Our capital expenditures continue to be focused on enhancing network operating efficiencies and supporting new service developments.

For more information on our capital spending, see "Historical Information—Investing Activities" below and Item 1 of Part 1 of this report.

For more information on our capital spending, see (i) "—Overview of Sources and uses of Cash" above, (ii) "Historical Information—Investing Activities" below and (iii) Item 1 of Part 1 of this report.

Debt and Other Financing Arrangements

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

As of the date of this report, the credit ratings for the senior secured and unsecured debt of CenturyLink, Inc., Qwest Corporation and Level 3 Financing, Inc.

were as follows:

Moody's Investors Service, Inc.

Standard & Poor's

Fitch Ratings

CenturyLink, Inc.:

Qwest Corporation:

As of the date of this report, the credit ratings for the senior secured and unsecured debt of Lumen Technologies, Level 3 Financing, Inc.

and Qwest Corporation were as follows:

Borrower Moody's Investors Service, Inc.

Standard & Poor's Fitch Ratings

Lumen Technologies:

Unsecured B2 BB- BB

Secured Ba3 BBB- BB+

Level 3 Financing, Inc.:

Unsecured Ba3 BB BB

Secured Ba1 BBB- BBB-

Qwest Corporation:

Unsecured Ba2 BBB- BB+

Our credit ratings are reviewed and adjusted from time to time by the rating agencies.

Any future downgrades of the senior unsecured or secured debt ratings of us or our subsidiaries could impact our access to debt capital or further raise our borrowing costs.

See "Risk Factors—Risks Affecting our Liquidity and Capital Resources" in Item 1A of Part I of this report.

Any future downgrades of the senior unsecured or secured debt ratings of us or our subsidiaries could impact our access to capital or further raise our borrowing costs.

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

Net Operating Loss Carryforwards

As of December 31, 2019 , CenturyLink had approximately $6.2 billion of net operating loss carryforwards.

As of December 31, 2020, Lumen Technologies had approximately $5.1 billion of federal net operating loss carryforwards.

("NOLs"), which for U.S.

federal income tax purposes can be used to offset future taxable income.

These NOLs are primarily related to federal NOLs we acquired through the Level 3 acquisition on November 1, 2017 and are subject to limitations under Section 382 of the Internal Revenue Code ("Code") and related U.S.

Treasury Department regulations.

In the first half of 2019, we entered into and subsequently restated a Section 382 rights agreement designed to safeguard our ability to use those NOLs.

Assuming that we can continue using these NOLs in the amounts projected, we expect to significantly reduce our federal cash taxes for the next several years.

We maintain a Section 382 rights agreement designed to safeguard through late 2023 our ability to use those NOLs.

Assuming we can continue using these NOLs in the amounts projected, we expect to reduce our federal cash taxes for the next several years.

The amounts of our near-term future tax payments will depend upon many factors, including our future earnings and tax circumstances and results of any corporate tax reform.

Based on current laws and our current estimates of 2020 earnings, we estimate our cash income tax liability related to 2020 will be approximately $100 million .

We cannot assure you that we will be able to use these NOL carryforwards fully.

See "Risk Factors—Risks Affecting Our Liquidity and Capital Resources—We cannot assure you, whether, when or in what amounts we will be able to use our net operating loss carryforwards, or when they will be depleted" in Item 1A of Part I of this report.

Based on current laws and our current assumptions and projections, we estimate our cash income tax liability related to 2021 will be approximately $100 million.

We cannot assure you we will be able to use our NOL carryforwards fully.

See "Risk Factors—Financial Risks—We may not be able to fully utilize our NOLs" in Item 1A of Part I of this report.

We currently expect to continue our current practice of paying quarterly cash dividends in respect of our common stock subject to our Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice.

Following a reduction announced on February 13, 2019, our current quarterly common stock dividend rate is $0.25 per share, as approved by our Board of Directors, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing our business, investing in the business, de-leveraging our balance sheet and returning a substantial portion of our cash to our shareholders.

Assuming continued payment during 2020 at this rate of $0.25 per share, our average total dividend paid each quarter would be approximately $275 million based on our current number of outstanding shares (assuming no increases or decreases in the number of shares, except in connection with the vesting of currently outstanding equity awards).

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

Our current quarterly common stock dividend rate is $0.25 per share, as approved by our Board of Directors, which we believe is a dividend rate per share which enables us to balance our multiple objectives of managing our business, investing in the business, de-leveraging our balance sheet and returning a substantial portion of our cash to our shareholders.

Assuming continued payment during 2021 at this rate of $0.25 per share, our average total dividend paid each quarter would be approximately $277 million based on the number of our current outstanding shares (which figure (i) assumes no increases or decreases in the number of shares, except in connection with the anticipated vesting of currently outstanding equity awards, and (ii) excludes dividend costs we periodically incur in connection with releasing dividend payments upon the vesting of equity incentive awards, which was $31 million during the year ended December 31, 2020).

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

Revolving Facilities and Other Debt Instruments

To substantially fund our acquisition of Level 3, on June 19, 2017, one of our affiliates entered into a credit agreement (the "2017 CenturyLink Credit Agreement") providing initially for $10.2 billion in senior secured credit facilities, consisting initially of a $2.0 billion revolving credit facility (which replaced our 2012 credit facility upon consummation of the Level 3 acquisition) and approximately $7.9 billion of term loan facilities.

On November 1, 2017, CenturyLink, Inc., among other things, assumed all rights and obligations under the 2017 CenturyLink Credit Agreement.

On January 29, 2018, the 2017 CenturyLink Credit Agreement was amended to increase the borrowing capacity of the new revolving credit facility from $2.0 billion to $2.2 billion, and to increase the borrowing capacity under one of the term loan tranches by $132 million.

On January 31, 2020, the 2017 CenturyLink Credit Agreement was amended and restated to, among other things, extend the debt maturities of the facilities, to lower interest rates payable thereunder, and to amend the amounts owed under each of the facilities.

For additional information, see (i) Note 7—Long-Term Debt and Credit Facilities to our consolidated financial statements in Item 8 of Part II of this report and (ii) our current reports on Form 8-K filed with the SEC on June 20, 2017, November 1, 2017 and January 31, 2020.

In addition to its indebtedness under the 2017 CenturyLink Credit Agreement, CenturyLink is indebted under its outstanding senior notes, and several of its subsidiaries are indebted under separate credit facilities or senior notes.

For information on the terms and conditions of these other debt instruments of ours and our subsidiaries, including financial and operating covenants, see Note 7—Long-Term Debt and Credit Facilities to our consolidated financial statements in Item 8 of Part II of this report.

At December 31, 2020, we had $12.5 billion of outstanding consolidated secured indebtedness, $19.3 billion of outstanding consolidated unsecured indebtedness and $2.0 billion of unused borrowing capacity under our revolving credit facility, as discussed further below.

On January 31, 2020, we amended and restated our credit agreement dated June 19, 2017 (as so amended and restated, the “Amended Credit Agreement”).

At December 31, 2020, we maintained senior secured credit facilities under the Amended Credit Agreement consisting of (i) a $2.2 billion revolving credit facility, under which we owed $150 million as of December 31, 2020, and (ii) $6.4 billion of term loan facilities.

At December 31, 2020, we had $97 million of letters of credit outstanding under our $225 million uncommitted letter of credit facility.

Additionally, as of December 31, 2020, we had outstanding letters of credit, or other similar obligations, of approximately $18 million of which $11 million is collateralized by cash that is reflected on our consolidated balance sheets as restricted cash.

In addition to its indebtedness under the Amended Credit Agreement, Lumen Technologies is indebted under its outstanding senior notes, and several of its subsidiaries are indebted under separate credit facilities or senior notes.

For additional information on the terms and conditions of our consolidated debt instruments, including financial and operating covenants, see Note 6—Long-Term Debt and Credit Facilities.

For a discussion of certain intercompany obligations, see "—Other Matters."

Future Contractual Obligations

The following table summarizes our estimated future contractual obligations as of December 31, 2019 :

2025 and thereafter

(Dollars in millions)

Long-term debt (1)(2)

Interest on long-term debt and finance leases (2)

Operating leases

Right-of-way agreements

Purchase commitments (3)

Post-retirement benefit obligation (4)

Non-qualified pension obligations (4)

Asset retirement obligations

Total future contractual obligations (5)

_______________________________________________________________________________

Includes current maturities and finance lease obligations, but excludes unamortized discounts and premiums, net, and unamortized debt issuance costs.

Actual principal and interest paid in all years may differ due to future refinancing of outstanding debt or issuance of new debt.

Interest on our floating rate debt was calculated for all years using the rates effective at December 31, 2019 .

See Note 19—Commitments, Contingencies and Other Items to our consolidated financial statements in Item 8 of Part II of this report for additional information regarding the future commitments for finance leases related to our dark fiber operations.

We have various long-term, non-cancelable purchase commitments for advertising and promotion services, including advertising and marketing at sports arenas and other venues and events.

We also have purchase commitments with third-party vendors for operating, installation and maintenance services for facilities.

In addition, we have service-related commitments with various vendors for data processing, technical and software support services.

Future payments under certain service contracts will vary depending on our actual usage.

In the table above, we estimated payments for these service contracts based on estimates of the level of services we expect to receive.

Reflects only the portion of total obligation that is contractual in nature.

See Note 5 below.

The table is limited solely to contractual payment obligations and does not include:

contingent liabilities;

our open purchase orders as of December 31, 2019 .

These purchase orders are generally issued at fair value, and are generally cancelable without penalty;

other long-term liabilities, such as accruals for legal matters and other taxes that are not contractual obligations by nature.

We cannot determine with any degree of reliability the years in which these liabilities might ultimately settle;

cash funding requirements for qualified pension benefits payable to certain eligible current and future retirees.

Benefits paid by our qualified pension plan are paid through a trust.

Cash funding requirements for this trust are not included in this table as we are not able to reliably estimate required contributions to this trust.

Our funding projections are discussed further below;

certain post-retirement benefits payable to certain eligible current and future retirees.

Not all of our post-retirement benefit obligation amount is a contractual obligation and only the portion that we believe is a contractual obligation is reported in the table.

See additional information on our benefits plans in Note 11—Employee Benefits to our consolidated financial statements in Item 8 of Part II of this report;

contract termination fees.

These fees are non-recurring payments, the timing and payment of which, if any, is uncertain.

In the ordinary course of business and to optimize our cost structure, we enter into contracts with terms greater than one year to use the network facilities of other carriers and to purchase other goods and services.

Our contracts to use other carriers' network facilities generally have no minimum volume requirements and pricing is based upon volumes and usage.

In the normal course of business, we do not believe payment of these fees is likely;

service level commitments to our customers, the violation of which typically results in service credits rather than cash payments;

potential indemnification obligations to counterparties in certain agreements entered into in the normal course of business.

The nature and terms of these arrangements vary.

For additional information on our obligations, see the notes to our consolidated financial statements in Item 8 of Part II of this report.

Our estimated future obligations as of December 31, 2020 include both current and long term obligations.

For our long-term debt as noted in Note 6—Long-Term Debt and Credit Facilities, we have a current obligation of $2.4 billion and a long-term obligation of $29.7 billion.

Under our operating leases as noted in Note 4—Leases, we have a current obligation of $469 million and a long-term obligation of $1.7 billion.

As noted in Note 17—Commitments, Contingencies and Other Items, we have a current obligations related to right-of-way agreements and purchase commitments of $624 million and a long-term obligation of $1.6 billion.

Additionally, we have a current obligation for asset retirement obligation of $28 million and a long-term obligation of $171 million.

Finally, our pension and post-retirement benefit plans have a current obligation of $232 million and a long-term obligation of $4.5 billion.

Pension and Post-retirement Benefit Obligations

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At December 31, 2020, the accounting unfunded status of our qualified and non-qualified defined benefit pension plans and our qualified post-retirement benefit plans was $1.7 billion and $3.0 billion, respectively.

See Note 11—Employee Benefits to our consolidated financial statements in Item 8 of Part II of this report for additional information about our pension and post-retirement benefit arrangements.

For additional information about our pension and post-retirement benefit arrangements, see "Critical Accounting Policies and Estimates - Pensions and Post-Retirements Benefits" in Item 7 of Part II of this report and see Note 10—Employee Benefits.

Benefits paid by our qualified pension plan are paid through a trust that holds all of the plan's assets.

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We last made a voluntary contribution to the trust for our qualified pension plan during 2018.

Based on current circumstances, we do not anticipate making a voluntary contribution to the trust for our qualified pension plan in 2020.

Substantially all of our post-retirement health care and life insurance benefits plans are unfunded.

Several trusts hold assets that have been used to help cover the health care costs of certain retirees.

As of December 31, 2019 , assets in the post-retirement trusts had been substantially depleted and had a fair value of only $13 million (a portion of which was comprised of investments with restricted liquidity), which has significantly limited our ability to continue paying benefits from the trusts.

Benefits not paid from the trusts are expected to be paid directly by us with available cash.

As described further in Note 11—Employee Benefits to our consolidated financial statements in Item 8 of Part II of this report, aggregate benefits paid by us under these plans (net of participant contributions and direct subsidy receipts) were $241 million , $249 million and $237 million for the years ended December 31, 2019 , 2018 and 2017 , respectively, while the amounts paid from the trust were $4 million , $4 million and $31 million , respectively.

For additional information on our expected future benefits payments for our post-retirement benefit plans, please see Note 11—Employee Benefits to our consolidated financial statements in Item 8 of Part II in this report.

For 2019 , our expected annual long-term rates of return were 6.5% and 4% for the pension plan trust assets and post-retirement plans' trust assets based on the assets held and net of expected fees and administrative costs.

Based on current laws and circumstances, we do not anticipate making a voluntary contribution to the trust for our qualified pension plan in 2021.

Substantially all of our post-retirement health care and life insurance benefits plans are unfunded and are paid by us with available cash.

In the past, we maintained several trusts that helped cover some of those costs, but the trust funds are almost completely depleted and currently cover an immaterial amount of our annual plan costs.

As described further in Note 10—Employee Benefits, aggregate benefits paid by us under these plans (net of participant contributions and direct subsidy receipts) were $211 million, $241 million and $249 million for the years ended December 31, 2020, 2019 and 2018, respectively.

For additional information on our expected future benefits payments for our post-retirement benefit plans, please see Note 10—Employee Benefits.

The capital markets have been volatile during 2020, primarily as a result of uncertainties related to the COVID-19 outbreak.

federal governmental actions to stimulate the economy have significantly impacted interest rates.

These events could ultimately affect the funding levels of our pension plans and calculations of our liabilities under our pension and other post-employment benefit plans.

For 2020, our expected annual long-term rates of return on the pension plan and post-retirements health care and life insurance benefit plan assets, net of administrative expenses, were 6.0% and 4.0%, respectively.

For 2021, our expected annual long-term rates of return on these assets are 5.5% and 4.0%, respectively.

However, actual returns could be substantially different.

Connect America Fund

As a result of accepting CAF Phase II support payments, we are receiving substantial support payments under a program that will soon lapse.

Moreover, we must meet certain specified infrastructure buildout requirements in 33 states.

In order to meet these specified infrastructure buildout requirements, we may be obligated to make substantial capital expenditures.

See "Capital Expenditures" above.

For additional information on the FCC's CAF program and a proposed replacement program, see "Business—Regulation" in Item 1 of Part I of this report and see "Risk Factors—Risks Affecting Our Liquidity and Capital Resources" in Item 1A of Part I of this report.

Our pension plan contains provisions that allow us, from time to time, to offer lump sum payment options to certain former employees in settlement of their future retirement benefits.

We record an accounting settlement charge, consisting of the recognition of certain deferred costs of the pension plan, associated with these lump sum payments only if, in the aggregate, they exceed the sum of the annual service and interest costs for the plan’s net periodic pension benefit cost, which represents the settlement accounting threshold.

As of December 31, 2020, the settlement threshold was not reached.

In the event of workforce reductions in the future, the annual lump sum payments may trigger settlement accounting.

Connect America Fund & Rural Digital Opportunity Fund

Since 2015, we have been receiving over $500 million annually through Phase II of the CAF, a program that will end this year.

In connection with the CAF funding, we must meet certain specified infrastructure buildout requirements in 33 states which requires substantial capital expenditures.

While we are on track to meet the requirements this year, we cannot provide any assurances that we will be able to timely meet our mandated buildout requirements.

In accordance with the FCC’s January 2020 order, we elected to receive an additional year of CAF Phase II funding in 2021.

In early 2020, the FCC created the RDOF, which is a new federal support program designed to replace the CAF Phase II program.

On December 7, 2020, the FCC allocated in its RDOF Phase I auction $9.2 billion in support payments over 10 years to deploy high speed broadband to over 5.2 million unserved locations.

We won bids for RDOF Phase I support payments of $26 million, annually.

These RDOF Phase I support payments are expected to begin January 1, 2022.

For additional information on these programs, see "Business—Regulation" in Item 1 of Part I of this report and see "Risk Factors—Financial Risks" in Item 1A of Part I of this report.

Historical Information

The following tables summarize our consolidated cash flow activities:

Years Ended December 31,

Years Ended December 31, Increase /

(Dollars in millions)

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Net cash used in financing activities (4,250) (1,911) 2,339

Years Ended December 31,

Years Ended December 31, Increase /

(Dollars in millions)

1 unchanged sentence

Net cash used in investing activities (3,570) (3,078) 492

Net cash (used in) provided by financing activities

Net cash used in financing activities (1,911) (4,023) (2,112)

Operating Activities

Net cash provided by operating activities decreased by $352 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018 primarily due to an increase in net loss after adjusting for non-cash items, a decrease in accounts payable and other noncurrent liabilities and an increase to prepaid assets partially offset by a decrease in retirement benefit contributions.

Net cash provided by operating activities increased by $3.2 billion for the year ended December 31, 2018 as compared to the year ended December 31, 2017 primarily due to $2.4 billion in cash generated by Level 3 in addition to a positive variance in net (loss) income after adjusting for non-cash items for impairment of goodwill and other assets and depreciation, deferred income taxes and tax refunds of $674 million received in 2018, partially offset with a pension funding contribution of $500 million.

Cash provided by operating activities is subject to variability period over period as a result of the timing of the collection of receivables and payments related to interest expense, accounts payable, payroll and bonuses.

Net cash provided by operating activities decreased by $156 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 primarily due to increased payments on accounts payable and other current liabilities, increases in cash payments for retirement benefits and increases in payments for prepaid assets, partially offset by increased collections on accounts receivable.

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

Net cash provided by operating activities decreased by $352 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018 primarily due to an increase in net loss after adjusting for non-cash items, increases in payments on accounts payable and other noncurrent liabilities and increases in payments for prepaid assets, primarily offset by a decrease in retirement benefit contributions.

For additional information about our operating results, see "Results of Operations" above.

Investing Activities

Net cash used in investing activities increased by $492 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018 primarily due to increased capital expenditures on property, plant and equipment partially offset by decreased proceeds from the sale of property, plant and equipment and other assets.

Net cash used in investing activities decreased by $5.8 billion for the year ended December 31, 2018 as compared to the year ended December 31, 2017 .

The change in investing activities is primarily due to cash paid for the acquisition of Level 3 on November 1, 2017, which was partially offset with the cash proceeds from the May 2017 sale of a portion of our data centers and colocation business.

Net cash used in investing activities decreased by $6 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 primarily due to an increase in proceeds from the sale of property, plant and equipment and other assets, partially offset by an increase in capital expenditures.

Net cash used in investing activities increased by $492 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018.

The change in investing activities is primarily due to increased capital expenditures on property, plant and equipment and decreased proceeds from the sale of property, plant and equipment and other assets.

Financing Activities

Net cash used in financing activities increased by $2.3 billion for the year ended December 31, 2020 as compared to the year ended December 31, 2019 primarily due to an increase in payments of long-term debt, partially offset by increases in net proceeds from issuance of long-term debt and net proceeds from our revolving line of credit.

Net cash used in financing activities decreased by $2.1 billion for the year ended December 31, 2019 as compared to the year ended December 31, 2018 primarily due to net proceeds from the issuance of long-term debt and the decrease in dividends paid, partially offset by higher levels of payments on our long-term debt and revolving line of credit.

Net cash used in financing activities increased by $9.4 billion for the year ended December 31, 2018 as compared to the year ended December 31, 2017 primarily due cash received from net proceeds from issuance of new debt in 2017 relating to the acquisition of Level 3.

See Note 7—Long-Term Debt and Credit Facilities to our consolidated financial statements in Item 8 of Part II of this report, for information regarding indebtedness incurred or repaid by CenturyLink or its affiliates on our outstanding debt securities.

See Note 6—Long-Term Debt and Credit Facilities for additional information on our outstanding debt securities.

Other Matters

We have cash management arrangements with certain of our principal subsidiaries, in which substantial portions of the subsidiaries' cash is regularly advanced to us.

Although we periodically repay these advances to fund the subsidiaries' cash requirements throughout the year, at any given point in time we may owe a substantial sum to our subsidiaries under these advances, which, in accordance with generally accepted accounting principles, are eliminated in consolidation and therefore not recognized on our consolidated balance sheets.

We have cash management and loan arrangements with a majority of our income-generating subsidiaries, in which a substantial portion of the aggregate cash of those subsidiaries' is periodically advanced or loaned to us or our service company affiliate.

In accordance with generally accepted accounting principles, these arrangements are reflected in the balance sheets of our subsidiaries, but are eliminated in consolidation and therefore not recognized on our consolidated balance sheets.

We also are involved in various legal proceedings that could substantially impact our financial position.

See Note 19—Commitments, Contingencies and Other Items to our consolidated financial statements in Item 8 of Part II of this report for the current status of such legal proceedings.

See Note 17—Commitments, Contingencies and Other Items for additional information.

As of December 31, 2020, we are exposed to market risk from changes in interest rates on our variable rate long-term debt obligations and fluctuations in certain foreign currencies.

1 unchanged sentence

Management periodically reviews our exposure to interest rate fluctuations and periodically implements strategies to manage the exposure.

From time to time, we have used derivative instruments to (i) lock-in or swap our exposure to changing variable interest rates for fixed interest rates or (ii) to swap obligations to pay fixed interest rates for variable interest rates.

From time to time, we have used derivative instruments to (i) swap our exposure to changing variable interest rates for fixed interest rates or (ii) to swap obligations to pay fixed interest rates for variable interest rates.

We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative instrument activities.

As of December 31, 2020, we did not hold or issue derivative financial instruments for trading or speculative purposes.

In February 2019, we executed swap transactions that reduced our exposure to floating rates with respect to $2.5 billion principal amount of floating rate debt.

In June 2019, we executed swap transactions that reduced our exposure to floating rates with respect to $1.5 billion principal amount of floating rate debt.

See Note 15—Derivative Financial Instruments to our consolidated financial statements in Item 1 of Part I of this report for additional disclosure regarding our hedging arrangements.

As of December 31, 2019 , we had approximately $11.2 billion floating rate debt potentially subject to the London Inter-Bank Offered Rate (LIBOR), $4.0 billion of which was subject to the above-described hedging arrangements.

In 2019, we executed swap transactions that reduced our exposure to floating rates with respect to $4.0 billion principal amount of floating rate debt.

See Note 14—Derivative Financial Instruments for additional disclosure regarding our hedging arrangements.

As of December 31, 2020, we had approximately $9.9 billion floating rate debt potentially subject to LIBOR, $4.0 billion of which was subject to the above-described hedging arrangements.

A hypothetical increase of 100 basis points in LIBOR relating to our $5.9 billion of unhedged floating rate debt would, among other things, decrease our annual pre-tax earnings by approximately $59 million.

1 unchanged sentence

dollar, the currency in which our consolidated financial statements are reported.

Accordingly, our operating results could be adversely affected by foreign currency exchange rate volatility relative to the U.S.

Our European subsidiaries and certain Latin American subsidiaries use the local currency as their functional currency, as the majority of their revenue and purchases are transacted in their local currencies.

2 unchanged sentences

Although we continue to evaluate strategies to mitigate risks related to the effect of fluctuations in currency exchange rates, we will likely recognize gains or losses from international transactions.

Changes in foreign currency rates could adversely affect our operating results.

Accordingly, changes in foreign currency rates relative to the U.S.

dollar could adversely impact our operating results.

Certain shortcomings are inherent in the method of analysis presented in the computation of exposures to market risks.

1 unchanged sentence

These analyses only incorporate the risk exposures that existed at December 31, 2020.

Off-Balance Sheet Arrangements

As of the date of this report, we have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support and we do not engage in leasing, hedging or other similar activities that expose us to any significant liabilities that are not (i) reflected on the face of the consolidated financial statements, (ii) disclosed in Note 19—Commitments, Contingencies and Other Items to our consolidated financial statements in Item 8 of Part II of this report, or in the Future Contractual Obligations table included in this Item 7 of Part II above, or (iii) discussed under the heading "Market Risk" above.

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