What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-25 · 297 added, 338 removed, 278 unchanged (70% of the section changed)

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

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

We operate one of the world's most interconnected networks.

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.

With approximately 190,000 on-net buildings and 500,000 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.

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

Planned Divestiture of the Latin American and ILEC Businesses

On July 25, 2021, affiliates of Level 3 Parent, LLC, an indirect wholly-owned subsidiary of Lumen, agreed to divest their Latin American business in exchange for $2.7 billion cash, subject to certain working capital, other purchase price adjustments and related transaction expenses (estimated to be approximately $50 million).

On August 3, 2021, Lumen and certain of its subsidiaries agreed to divest a substantial portion of their incumbent local exchange business in exchange for $7.5 billion, subject to offsets for (i) assumed indebtedness (expected to be approximately $1.4 billion) and (ii) our transaction expenses, certain of purchaser’s transaction expenses, income taxes and certain working capital and other customary purchase price adjustments (currently estimated to aggregate to approximately $1.7 billion).

The actual amount of our net after-tax proceeds from these divestitures could vary substantially from the amounts we currently estimate, particularly if we experience delays in completing the transactions or any of our other assumptions prove to be incorrect.

For more information, see (i) Note 2—Planned Divestiture of the Latin American and ILEC Businesses to our consolidated financial statements in Item 8 of Part II of this report and (ii) the risk factors included in Item 1A of Part I of this report.

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;

In response to the safety and economic challenges arising out of the COVID-19 pandemic and in a continued 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.

As vaccination rates increase, we expect to continue revising our responses to the pandemic or take additional steps necessary to adjust to changed circumstances.

To date, these steps have included:

• taking the Federal Communications Commission's ("FCC") "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 mass markets 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;

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• 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.

In particular, beginning in the second half of 2020 and continuing into early 2022, we have rationalized our leased footprint and ceased using 39 leased property locations that were underutilized due to the COVID-19 pandemic.

The Company determined that we 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 $35 million and $41 million for the years ended December 31, 2021 and 2020, respectively.

In conjunction with our plans to continue to reduce costs, we expect to continue our real estate rationalization efforts and incur additional costs during 2022.

Additionally, as discussed further elsewhere herein, the pandemic resulted in (i) increases in certain revenue streams and decreases in others, (ii) increases in allowances for credit losses through the end of 2020, (iii) increases in overtime expenses, (iv) operational challenges resulting from shortages of semiconductors and certain other supplies that we use in our business, and (v) delays in our cost transformation initiatives.

We have also experienced delayed decision-making by certain of our customers.

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."

However, we continue to monitor global disruptions and work with our vendors to mitigate supply chain risks.

We intend to reopen our offices in 2022 under a "hybrid" working environment, which will permit some of our employees the flexibility to work remotely at least some of the time for the foreseeable future.

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

Reporting Segments

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 provided our products and services to approximately 200 global enterprise customers and three operating regions:

As previously announced, we completed an internal reorganization of our reporting segments in January 2021.

Our reporting segments are currently organized as follows, by customer focus:

• Business Segment:

Under our Business segment, we provide our products and services under four sales channels:

◦ International and Global Accounts ( "IGAM" ):

Our IGAM sales channel includes multinational and enterprise customers.

We provide our products and services to approximately 350 of our highest potential enterprise customers and to enterprise customers and carriers in three operating regions:

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

• Enterprise Segment.

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.

◦ Large Enterprise:

Under our large enterprise sales channel, we provide our products and services to large enterprises and the public sector, including the U.S.

Federal government, state and local governments and research and education institutions.

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

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 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 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.

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;

• Transport and Infrastructure , which includes wavelengths, dark fiber, private line, colocation and data center services, including cloud, hosting and application management solutions, professional services and other ancillary services;

• Voice and Collaboration , which includes primarily local and long-distance voice, including wholesale voice, and other ancillary services, as well as VoIP services;

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

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 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.

◦ Mid-Market Enterprise:

Under our mid-market enterprise sales channel, we provide our products and services to medium-sized enterprises directly and through our indirect channel partners.

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

• Mass Markets Segment.

Under our Mass Markets segment, we provide products and services to consumer and small business customers.

At December 31, 2021, we served 4.5 million broadband subscribers under our Mass Markets segment.

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 Business segment revenue among the following products and services categories:

• Compute and Application Services , which include our Edge Cloud services, IT solutions, Unified Communications and Collaboration ("UC&C"), data center, content delivery network ("CDN") and Managed Security services;

• IP and Data Services , which include Ethernet, IP, and VPN data networks, including software-defined wide area networks ("SD WAN") based services, Dynamic Connections and Hyper WAN;

• Fiber Infrastructure Services , which include dark fiber, optical services and equipment;

• Voice and Other , which include Time Division Multiplexing ("TDM") voice, private line, and other legacy services.

Under our Mass Markets segment, we provide the following products and services:

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

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

• Voice and Other , which includes local and long-distance services, state support and other ancillary services;

• CAF II , which consists of Connect America Fund Phase II payments through the end of 2021 to support voice and broadband in FCC-designated high-cost areas.

Trends Impacting Our Operations

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

• The increasingly digital environment and the growth in online video require robust, scalable network services.

• The increasingly digital environment and the growth in online video and gaming require robust, scalable network services.

We are continuing to enhance our product capabilities and simplify our product portfolio based on demand and profitability to enable customers to have access to greater bandwidth.

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• 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.

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

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

The amount of support payments we receive from governmental agencies will decrease substantially after December 31, 2021.

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

Results of Operations

In this section, we discuss our overall results of operations and highlight special items that are not included in our segment results.

In "Segment Results of Operations" we review the performance of our five reporting segments in more detail.

Consolidated Revenue

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

In "Segment Results" we review the performance of our two reporting segments in more detail.

The following table summarizes our consolidated operating revenue recorded under each of our two segments and in our four above-described revenue sales channels within the Business segment:

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

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(Dollars in millions) (Dollars in millions)

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

Transport and Infrastructure 4,989 5,019 (1) % 5,019 5,256 (5) %

Voice and Collaboration 3,621 3,766 (4) % 3,766 4,091 (8) %

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) %

Business Segment:

International & Global Accounts $ 4,053 4,118 (2) % 4,118 4,172 (1) %

Large Enterprise 3,722 3,915 (5) % 3,915 3,836 2 %

Mid-Market Enterprise 2,729 2,969 (8) % 2,969 3,152 (6) %

Wholesale 3,615 3,815 (5) % 3,815 4,079 (6) %

Business Segment Revenue 14,119 14,817 (5) % 14,817 15,239 (3) %

Mass Markets Segment Revenue 5,568 5,895 (6) % 5,895 6,219 (5) %

Total operating revenue $ 19,687 20,712 (5) % 20,712 21,458 (3) %

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.

Our consolidated revenue decreased by $1.025 billion for the year ended December 31, 2021 as compared to the year ended December 31, 2020 due to revenue declines in all of our above-listed revenue categories.

See our segment results below for additional information.

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.

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

See our segment results below for additional information.

Operating Expenses

The following tables summarize our operating expenses:

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

2020 2019 2019 2018

(Dollars in millions) (Dollars in millions)

The following table summarizes our operating expenses for the year ended December 31, 2021 and 2020.

For information regarding expenses for the year ended December 31, 2019, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of our Annual Report Form 10-K for the year ended December 31, 2020:

Years Ended December 31, % Change

(Dollars in millions)

Cost of services and products (exclusive of depreciation and amortization) $ 8,488 8,934 (5) %

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Depreciation and amortization 4,019 4,710 (15) %

Goodwill impairment 2,642 6,506 (59) % 6,506 2,726 139 %

Goodwill impairment — 2,642 nm

Total operating expenses $ 15,402 19,750 (22) %

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

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

Cost of services and products (exclusive of depreciation and amortization) decreased by $446 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020.

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.

This decrease was primarily due to reductions in salaries and wages and other employee-related expense from lower headcount and lower facility and real estate costs.

Selling, General and Administrative

Selling, general and administrative expenses decreased by $569 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020.

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.

The decrease in selling, general and administrative expenses was primarily due to reductions in salaries and wages and other employee-related expense from lower headcount, lower bad debt expense, gain on sale of land and lower marketing and advertising costs.

Depreciation and Amortization

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

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

2020 2019 2019 2018

(Dollars in millions) (Dollars in millions)

The following table provides detail of our depreciation and amortization expense:

Years Ended December 31, % Change

(Dollars in millions)

Depreciation $ 2,671 2,963 (10) %

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Total depreciation and amortization $ 4,019 4,710 (15) %

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.

Depreciation expense decreased by $292 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020 primarily due to discontinuing the depreciation of the tangible assets reclassified as held for sale of our Latin American and ILEC businesses upon entering into our divestiture agreements.

We estimate we would have recorded an additional $247 million of depreciation expense during the year ended December 31, 2021 if we had not agreed to sell these businesses.

In addition, depreciation expense decreased due to the impact of annual rate depreciable life changes of $151 million, which was partially offset by higher depreciation expense of $93 million associated with net growth in depreciable assets.

Amortization expense decreased by $399 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020.

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.

The decrease was primarily due to a decrease of $394 million as a result of certain customer relationship intangible assets becoming fully amortized at the end of the first quarter 2021, decreases of $29 million associated with net reductions in amortizable assets and a decrease of $13 million due to discontinuing the amortization of the intangible assets reclassified as held for sale of our Latin American and ILEC businesses upon entering into our divestiture agreements.

These decreases were partially offset by $21 million of accelerated amortization for decommissioned applications and $22 million of additional amortization expense recognized as a result of reclassification of certain right-of-way assets, as discussed in Note 3—Goodwill, Customer Relationships and Other Intangible Assets to our consolidated financial statements in Item 8 of Part II of this report.

Further analysis of our segment operating expenses by segment is provided below in "Segment Results."

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.

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.

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 impairment tests during the first quarter of 2019.

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.

Additionally, when we performed our annual impairment test in the fourth quarter of 2018 we concluded that the estimated fair value of our consumer reporting unit was less than our carrying value of equity for such reporting unit and we recorded a non-cash non-tax-deductible goodwill impairment charge of approximately $2.7 billion in the fourth quarter of 2018.

See Note 2—Goodwill, Customer Relationships and Other Intangible Assets for further details on these tests and impairment charges.

In January 2021, we began reporting under two segments:

Business and Mass Markets.

See Note 17—Segment Information to our consolidated financial statements in Item 8 of Part II of this report for more information on these segments and the underlying sales channels.

Since effecting this reorganization, we have used five reporting units for goodwill impairment testing, which are (i) Mass Markets, (ii) North America ("NA") Business (iii) Europe, Middle East and Africa region ("EMEA"), (iv) Asia Pacific region ("APAC") and (v) Latin America region ("LATAM").

Our January 2021 reorganization was considered an event or change in circumstance which required an assessment of our goodwill for impairment.

We performed a qualitative impairment assessment in the first quarter of 2021 and concluded it was more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of our reporting units at January 31, 2021.

Therefore, we did not have any impairment as of our assessment date.

The reclassification of held for sale assets, as described in Note 2—Planned Divestiture of the Latin American and ILEC Businesses, was considered an event or change in circumstance which required an assessment of our goodwill for impairment as of July 31, 2021.

We performed a pre-reclassification goodwill impairment test using our estimated post-divestiture cash flows and carrying value of equity to determine whether there was an impairment prior to the reclassification of these assets to held for sale and to determine the July 31, 2021 fair values to be utilized for goodwill allocation regarding the Latin American and ILEC businesses to be reclassified as assets held for sale.

We concluded it was more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of our reporting units at July 31, 2021.

We also performed a post-reclassification goodwill impairment test using our estimated post-divestiture cash flows and carrying value of equity to determine whether the fair value of our reporting units that will remain following the divestitures exceeded the carrying value of the equity of such reporting units after reclassification of assets held for sale.

At July 31, 2021, we estimated the fair value of our remaining reporting units by considering both a market approach and a discounted cash flow method.

Based on our assessments performed, we concluded it was more likely than not that the fair value of each of our remaining reporting units exceeded the carrying value of equity of our remaining reporting units at July 31, 2021.

Therefore, we concluded we did not have any impairment as of our assessment date.

When we performed our annual impairment test in the fourth quarter of 2021, we concluded it was more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of our reporting units.

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

When we performed our impairment tests during the fourth quarter of 2020, 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 our impairment test during the fourth quarter of 2020.

As a result, we recorded non-cash, non-tax-deductible goodwill impairment charges aggregating to $2.6 billion in the fourth quarter of 2020.

Additionally, when we performed impairment tests in January 2019 and March 31, 2019 due to our January 2019 internal reorganization and the decline in our stock price, we concluded that the estimated fair value of our reporting units was less than our carrying value of equity as of the date of each of our impairment tests during the first quarter of 2019.

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

See Note 3—Goodwill, Customer Relationships and Other Intangible Assets to our consolidated financial statements in Item 8 of Part II of this report for further details on these tests and impairment charges.

Other Consolidated Results

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)

Years Ended December 31, % Change

(Dollars in millions)

Interest expense $ (1,522) (1,668) (9) %

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

Other expense, net (62) (76) (18) %

Total other expense, net $ (1,584) (1,744) (9) %

Income tax expense $ 668 450 48 %

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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 $146 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020.

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

The decrease was primarily due to the decrease in average long-term debt from $33.3 billion to $30.4 billion and the decrease in the average interest rate of 5.23% to 4.82%.

Other Expense, Net

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

Years Ended December 31, % Change

(Dollars in millions)

Gain (loss) on extinguishment of debt $ 8 (105) nm

Pension and post-retirement net periodic expense (295) (31) nm

Foreign currency (loss) gain (28) 30 nm

Gain on investment in limited partnership 138 — nm

Other 115 30 nm

Total other expense, net $ (62) (76) (18) %

_______________________________________________________________________________

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.

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

The increase of $264 million in pension and post-retirement net periodic expense for the year ended December 31, 2021 as compared to the year ended December 31, 2020 is primarily driven by settlement charges associated with the acceleration of the recognition of a portion of previously unrecognized actuarial losses in the qualified pension plan.

Other expense, net for the year ended December 31, 2021 also included a gain on investment in a limited partnership as a result of the underlying investments held by the limited partnership which began trading in active markets, resulting in an increase to our net asset value of our investment.

Other expense, net for the year ended December 31, 2021 also included a distribution from a previously dissolved captive insurance company and other non-core items.

See Note 14—Fair Value of Financial Instruments for more information regarding the gain recognized on the investment in a limited partnership.

Income Tax Expense

For the years ended December 31, 2021 and 2020, our effective income tax rate was 24.7% and (57.5)%, 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.

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

The effective tax rate for the year ended December 31, 2020 includes the $555 million unfavorable impact of a non-deductible goodwill impairment.

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.

Segment Results

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Operating revenue

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

Wholesale 3,777 4,042 4,360

Consumer 5,251 5,517 5,994

Business $ 14,119 14,817 15,239

Mass Markets 5,568 5,895 6,219

Total operating revenue $ 19,687 20,712 21,458

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Adjusted EBITDA

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

Business $ 9,446 9,899 10,277

Mass Markets 4,886 5,118 5,375

Total segment EBITDA 14,332 15,017 15,652

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Total adjusted EBITDA $ 8,424 8,489 8,771

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

International and Global Accounts Management Segment

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.

Business Segment

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

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(Dollars in millions) (Dollars in millions)

Business Segment Product Categories:

Compute and Application Services $ 1,741 1,755 (1) % 1,755 1,735 1 %

IP and Data Services 6,212 6,413 (3) % 6,413 6,566 (2) %

Transport and Infrastructure 1,265 1,268 — % 1,268 1,230 3 %

Voice and Collaboration 368 354 4 % 354 365 (3) %

IT and Managed Services 216 227 (5) % 227 266 (15) %

Total revenue 3,405 3,476 (2) % 3,476 3,543 (2) %

Fiber Infrastructure Services 2,248 2,248 — % 2,248 2,157 4 %

Voice and Other 3,918 4,401 (11) % 4,401 4,781 (8) %

Total Business Segment Revenue 14,119 14,817 (5) % 14,817 15,239 (3) %

Total expense 4,673 4,918 (5) % 4,918 4,962 (1) %

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Year ended December 31, 2021 compared to the same periods ended December 31, 2020 and December 31, 2019

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.

Business segment revenue decreased $698 million for the year ended December 31, 2021 compared to December 31, 2020 and decreased $422 million 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 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

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 %

Transport and Infrastructure 1,608 1,479 9 % 1,479 1,484 — %

Voice and Collaboration 1,424 1,423 — % 1,423 1,495 (5) %

IT and Managed Services 216 256 (16) % 256 301 (15) %

Total revenue 5,722 5,696 — % 5,696 5,765 (1) %

Total expense 2,388 2,313 3 % 2,313 2,411 (4) %

Total adjusted EBITDA $ 3,334 3,383 (1) % 3,383 3,354 1 %

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

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

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 %

Transport and Infrastructure 352 365 (4) % 365 424 (14) %

Voice and Collaboration 1,098 1,226 (10) % 1,226 1,366 (10) %

IT and Managed Services 45 45 — % 45 50 (10) %

Total revenue 2,557 2,727 (6) % 2,727 2,918 (7) %

Total expense 788 858 (8) % 858 906 (5) %

Total adjusted EBITDA $ 1,769 1,869 (5) % 1,869 2,012 (7) %

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

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

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 — %

Transport and Infrastructure 1,764 1,907 (7) % 1,907 2,118 (10) %

Voice and Collaboration 731 763 (4) % 763 865 (12) %

IT and Managed Services 2 7 (71) % 7 8 (13) %

Total revenue 3,777 4,042 (7) % 4,042 4,360 (7) %

Total expense 556 593 (6) % 593 629 (6) %

Total adjusted EBITDA $ 3,221 3,449 (7) % 3,449 3,731 (8) %

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

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

• Compute and Application Services decreased for the year ended December 31, 2021 compared to December 31, 2020 due to a large customer disconnect for IT Solutions and lower rates for content delivery network services within our IGAM sales channel.

Additionally, for the year ended December 31, 2021 compared to December 31, 2020, decreases were driven by declines in Cloud Services within our Large Enterprise and IGAM sales channels.

These decreases were partially offset by growth in Managed Security and IT Solutions services to Federal Public Sector customers and an increase in colocation and data center services in our IGAM sales channel.

• Compute and Application Services increased for the year ended December 31, 2020 compared to December 31, 2019 due to growth in Managed Security and IT Solutions services within our Large Enterprise sales channel and growth in UC&C in our IGAM sales channel.

These increases were partially offset by declines in IT Solutions services within our IGAM sales channel and declines in Cloud Services within our Large Enterprise sales channel.

• IP and Data Services decreased during both periods due to declines in traditional VPN networks and continued declines in Ethernet sales across all our sales channels, partially offset by an increase in IP services across all our sales channels.

• Fiber Infrastructure Services remained flat for the year ended December 31, 2021 compared to December 31, 2020 and increased for the year ended December 31, 2020 compared to December 31, 2019.

Both periods experienced growth in dark fiber and wavelengths sales driven by demand primarily from our IGAM sales channel, which was offset by lower equipment sales in our Large Enterprise sales channel.

• Voice and Other decreased during both periods due to continued decline of legacy voice, private line and other services to customers across all of our sales channels.

Additionally, voice services revenue decreased for the year ended December 31, 2021 compared to December 31, 2020, which had benefited from higher COVID-related demand.

The decrease in Business segment revenue for the year ended December 31, 2021 was slightly offset by $16 million of favorable foreign currency as compared to December 31, 2020.

The decrease in Business segment revenue for the year ended December 31, 2020 was also driven by $42 million of unfavorable foreign currency for the year ended December 31, 2020 as compared to December 31, 2019.

Business segment expense decreased by $245 million for the year ended December 31, 2021 compared to December 31, 2020 primarily due to lower cost of sales and lower employee-related costs from lower headcount.

Business segment expenses decreased by $44 million for the year ended December 31, 2020 compared to December 31, 2019, primarily due to lower employee-related costs from lower headcount.

Business segment adjusted EBITDA as a percentage of revenue was 67% for the years ended December 31, 2021, 2020 and 2019.

Mass Markets Segment

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

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(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) %

Mass Markets Product Categories:

Consumer Broadband $ 2,875 2,909 (1) % 2,909 2,876 1 %

SBG Broadband 156 153 2 % 153 163 (6) %

Voice and Other 2,047 2,341 (13) % 2,341 2,688 (13) %

CAF II 490 492 — % 492 492 — %

Total Mass Markets Segment Revenue 5,568 5,895 (6) % 5,895 6,219 (5) %

Total expense 682 777 (12) % 777 844 (8) %

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Year ended December 31, 2021 compared to the same periods ended December 31, 2020 and December 31, 2019

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.

Mass Markets segment revenue decreased by $327 million for the year ended December 31, 2021 compared to December 31, 2020 and decreased $324 million for the year ended December 31, 2020 compared to December 31, 2019, due to the following factors:

• Consumer Broadband revenue decreased for the year ended December 31, 2021 compared to December 31, 2020 and increased for the year ended December 31, 2020 compared to year ended December 31, 2019 driven by continued pressure on legacy products, which was partially or wholly offset by gains in our fiber-based broadband business.

• Voice and Other declined during both periods primarily due to continued legacy voice customer losses and our exit of the Prism video product.

Mass Markets segment expenses decreased by $95 million for the year ended December 31, 2021 compared to December 31, 2020 and decreased $67 million for the year ended December 31, 2020 compared to December 31, 2019, primarily due to lower employee-related costs from lower headcount, lower costs of sales driven by the decrease in Prism content costs and higher bad debt expense for the year ended December 31, 2020 due to the COVID-19 induced economic slowdown.

These decreases were partially offset by higher network expenses for the year ended December 31, 2021.

Mass Markets segment adjusted EBITDA as a percentage of revenue was 88%, 87% and 86% for the year ended December 31, 2021, 2020 and 2019, respectively.

Critical Accounting Policies and Estimates

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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.

At December 31, 2021, goodwill and intangible assets totaled $23.0 billion (excluding goodwill and other intangible assets reclassified as assets held for sale), or 40%, 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, 2021 as follows:

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

Business Mass Markets Total

(Dollars in millions)

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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.

We amortize customer relationships primarily over an estimated life of 7 to 14 years, using the straight-line method, depending on the customer.

Certain customer relationship intangible assets became fully amortized at the end of the first quarter 2021 using the sum-of-years-digits method, which is no longer used for any of our remaining intangible assets.

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

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When the fair value of a reporting unit is available, we allocate goodwill based on the relative fair value of the reporting units.

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 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.

When fair value is not available, we utilize an alternative allocation methodology that represents a reasonable approximation of 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 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 any 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.

In January 2021, we began reporting under two segments:

Business and Mass Markets.

See Note 17—Segment Information to our consolidated financial statements in Item 8 of Part II of this report for more information on these segments and the underlying sales channels.

Since effecting this reorganization, we have used five reporting units for goodwill impairment testing, which are (i) Mass Markets (ii) North America ("NA") Business, (iii) Europe, Middle East and Africa region ("EMEA"), (iv) Asia Pacific region ("APAC") and (v) Latin America region ("LATAM").

Prior to this reorganization, we used the following eight reporting units for goodwill impairment testing:

consumer, small and medium business, enterprise, wholesale, North America global accounts ("NA GAM"), EMEA, LATAM and APAC.

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

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If the estimated fair value of the reporting unit is equal or greater than the carrying value, we conclude that no impairment exists.

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 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.

If the estimated fair value of the reporting unit is less than the carrying value, we record a non-cash 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 discounted cash flow method, which is based on the present value of projected cash flows over a discrete projection period and a terminal value, which is based on the expected normalized cash flows of the reporting units following the discrete projection period, and (ii) a market approach, which includes the use of multiples of publicly-traded companies whose services are comparable to ours.

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 plans 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.

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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.

We also reconcile the estimated fair values of the reporting units to our market capitalization to conclude whether the indicated 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.

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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.

At October 31, 2021, we estimated the fair value of our five 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, 2021 and concluded that the indicated control premium of approximately 42% was reasonable based on recent market transactions.

As of October 31, 2021, based on our assessment performed with respect to our five reporting units, the estimated fair value of our equity exceeded the carrying value of equity for our Mass Markets, NA Business, EMEA, LATAM and APAC reporting units by 277%, 8%, 57%, 100% and 125%, respectively.

Based on our assessments performed, we concluded it was more likely than not that the fair value of each of our reporting units exceeded the carrying value of equity of those reporting units at October 31, 2021.

Therefore, we concluded no impairment existed as of our assessment date.

Our reclassification of held for sale assets, as described in Note 2—Planned Divestiture of the Latin American and ILEC Businesses to our consolidated financial statements in Item 8 of Part II of this report, was considered an event or change in circumstance which required an assessment of our goodwill for impairment as of July 31, 2021.

At July 31, 2021, we estimated the fair value of our five 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 July 31, 2021 and concluded that the indicated control premium of approximately 32% was reasonable based on recent market transactions.

As of July 31, 2021, based on our assessment performed with respect to our five reporting units, the estimated fair value of our equity exceeded the carrying value of equity for our Mass Markets, NA Business, EMEA, LATAM and APAC reporting units by 150%, 24%, 58%, 100% and 134%, respectively.

Therefore, we concluded no impairment existed as of our assessment date.

At October 31, 2020, we estimated the fair value of our eight above-mentioned reporting units (prior to the January 2021 reorganization) 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% was reasonable based on recent market transactions.

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.

Based on our assessments performed, we concluded it was more likely than not that the fair value of our enterprise, NA GAM, LATAM, and APAC reporting units exceeded the carrying value of equity of those reporting units at October 31, 2020.

Therefore, we concluded no impairment existed with respect to those four reporting units as of our assessment date.

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 45% 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.

As of October 31, 2019, 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.

Therefore, we concluded no impairment existed as of our assessment date.

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.

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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 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.

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 impairment tests during the first quarter.

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 both of our impairment tests during the first quarter.

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.

At October 31, 2018, we estimated the fair value of our then five reporting units, which we determined to be consumer, medium and small business, enterprise, international and global accounts and wholesale and indirect, 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, 2018 and concluded that the indicated control premium of approximately 0.1% was reasonable based on recent transactions in the marketplace.

As of October 31, 2018, based on our assessment we concluded that the estimated fair value of our consumer reporting unit was less than our carrying value of equity for such unit by approximately $2.7 billion.

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.

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.

For additional information on our goodwill balances by segment, see Note 3—Goodwill, Customer Relationships and Other Intangible Assets to our consolidated financial statements in Item 8 of Part II of this report.

Pension and Post-retirement Benefits

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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 2021, 2020 and 2019.

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.

As of January 1, 2021, our qualified pension plan had a net actuarial loss balance of approximately $3.0 billion.

A portion of this balance was subject to amortization as a component of net periodic expense over the average remaining service period for participating employees expected to receive benefits under the plan.

During 2021, our lump sum pension settlement payments exceeded the settlement threshold and as a result we recognized a non-cash settlement charge of $383 million, accelerating previously unrecognized actuarial losses from our net actuarial loss balance.

For our post-retirement benefit plans, the majority of the beginning net actuarial loss balance of $346 million continued to be deferred during 2021.

The other 41% 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 $175 million for the post-retirement benefit plans was treated as indefinitely deferred during 2020.

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 2019.

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

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.

The other 45% of the qualified pension plan's beginning net actuarial loss balance was treated as indefinitely deferred during 2018.

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

In computing our pension and post-retirement health care and life insurance benefit obligations, our most significant assumptions are the discount rate and mortality rates.

In computing our periodic pension and post-retirement benefit expense, our most significant assumptions are the discount rate and the expected rate of return on plan assets.

In computing our periodic pension expense, our most significant assumptions are the discount rate and the expected rate of return on plan assets.

In computing our post-retirement benefit expense, our most significant assumption is the discount rate.

Plan assets, and thus the expected rate of return on plan assets, for our post-retirement benefit plans are not significant.

The discount rate for each plan is the rate at which we believe we could effectively settle the plan's benefit obligations as of the end of the year.

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high quality bonds.

Mortality rates help predict the expected life of plan participants and are based on historical demographic studies by the Society of Actuaries ("SOA").

Published mortality rates help predict the expected life of plan participants and are based on historical demographic studies by the Society of Actuaries ("SOA").

The SOA publishes new mortality rates (mortality tables and projection scales) on a regular basis which reflect updates to projected life expectancies in North America.

Historically, we have adopted the new projection tables immediately after publication.

In 2020, we adopted the revised mortality tables and projection scale released by the SOA, which decreased the projected benefit obligation of our benefit plans by approximately $3 million.

The change in the projected benefit obligation of our benefit plans was recognized as part of the net actuarial loss and is included in accumulated other comprehensive loss, a portion of which is subject to amortization over the remaining estimated life of plan participants, which was approximately 9 years as of December 31, 2020 .

In 2021, we adopted the revised mortality tables and projection scale released by the SOA, which increased the projected benefit obligation of our benefit plans by approximately $37 million for the year ended December 31, 2021.

The change in the projected benefit obligation of our benefit plans was recognized as part of the net actuarial loss and is included in accumulated other comprehensive loss, a portion of which is subject to amortization over the remaining average estimated life of plan participants, which was approximately 8 years as of December 31, 2021 .

The expected rate of return on plan assets is the long-term rate of return we expect to earn on the plans' assets in the future, net of administrative expenses paid from plan assets.

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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 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 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 our consolidated statements of operations and other comprehensive loss in our consolidated statements of comprehensive income (loss) 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

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Deferred taxes are computed using enacted tax rates expected to apply in the year in which the differences are expected to affect taxable income.

The effect on deferred income tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date.

The effect of a change in tax rate on deferred income tax assets and liabilities is recognized in earnings in the period that includes the enactment date.

The measurement of deferred taxes often involves the exercise of considerable judgment related to the realization of tax basis.

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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.

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

Liquidity and Capital Resources

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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.

At December 31, 2021, we held cash and cash equivalents of $394 million, which includes cash and cash equivalents classified as held for sale, and we also had $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.

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We currently believe that there are no material restrictions on our ability to repatriate cash and cash equivalents into the United States, and that we may do so without paying or accruing U.S.

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.

Other than transactions related to our Latin American divestiture, we do not currently intend to repatriate to the United States any of our foreign cash and cash equivalents from operating entities.

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.

Under the CARES Act, we deferred $134 million of our 2020 payroll taxes, $67 million of which were repaid in 2021, with the remainder to be repaid in installments over 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 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.

The impact of the pending sale of our Latin American and ILEC businesses is further described below.

Based on our current capital allocation objectives, during 2022 we project expending approximately $3.2 billion to $3.4 billion of capital expenditures and approximately $1.00 per share for cash dividends on our common stock (based on the assumptions described below under "Dividends").

For the 12 month period ending December 31, 2022, we project that our fixed commitments will include (i) $125 million of scheduled term loan amortization payments, (ii) $31 million of finance lease and other fixed payments (which includes $2 million of finance lease obligations that have been reclassified as held for sale) and (iii) $1.4 billion of debt maturities.

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 may also draw on our revolving credit facility as a source of liquidity for operating activities and to give us additional flexibility to finance our capital investments, repayments of debt, pension contributions and other cash requirements.

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

Impact of the Planned Divestiture of the Latin American and ILEC Businesses

As discussed in Note 2—Planned Divestiture of the Latin American and ILEC Businesses to our consolidated financial statements in Item 8 of Part II of this report, we entered into definitive agreements to divest our Latin American and ILEC businesses on July 25, 2021 and August 3, 2021, respectively.

As further described elsewhere herein, these transactions are expected to provide us with a substantial amount of cash proceeds upon closing, but ultimately will reduce our base of income-generating assets that generate our recurring cash from operating activities that we use to fund our cash requirements.

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, 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).

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 governmentally-mandated 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 (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.

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

Debt and Other Financing Arrangements

Subject to market conditions, we expect to continue to issue debt securities from time to time in the future to refinance a substantial portion of our maturing debt, including issuing debt securities of certain of our subsidiaries to refinance their maturing debt to the extent feasible.

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 Lumen Technologies, Level 3 Financing, Inc.

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

and Qwest Corporation were as follows:

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Standard & Poor's Fitch Ratings

Lumen Technologies:

Lumen Technologies, Inc.:

Unsecured B2 BB- BB

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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 capital or further raise our borrowing costs.

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

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

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.

As of December 31, 2021, Lumen Technologies had approximately $2.9 billion of federal net operating loss carryforwards ("NOLs"), which for U.S.

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

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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.

Assuming we can continue using these NOLs in the amounts projected, we expect to utilize a substantial portion of our NOLs to offset taxable gains generated by the completion of our pending divestitures.

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

Based on current laws and our current assumptions and projections, we estimate our cash income tax liability related to 2022 will be approximately $100 million.

If, as expected, we use a substantial portion of our NOLs in 2022 to offset divestiture-related gains, we anticipate that our cash income tax liabilities will increase substantially in future periods.

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

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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.

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).

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

Assuming continued authorization by our Board during 2022 at this rate of $0.25 per share, our average total dividend paid each quarter would be approximately $257 million based on the number of our currently outstanding shares (which figure (i) assumes no increases or decreases in the number of shares and (ii) includes dividend payments in connection with the anticipated vesting of currently outstanding equity awards).

Dividend payments upon the vesting of equity incentive awards was $29 million during the year ended December 31, 2021.

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

Stock Repurchases

Effective August 3, 2021, our Board of Directors authorized a 24-month program to repurchase up to an aggregate of $1.0 billion of our outstanding common stock (the "August 2021 stock repurchase program").

During the year ended December 31, 2021, we repurchased 80.9 million shares of our outstanding common stock in the open market for an aggregate market price of $1.0 billion, or an average purchase price of $12.36 per share, thereby fully exhausting the program authorized on August 3, 2021.

All repurchased common stock has been retired.

Revolving Facilities and Other Debt Instruments

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, 2021, we had $12.4 billion of outstanding consolidated secured indebtedness, $17.8 billion of outstanding consolidated unsecured indebtedness (including long-term debt reclassified as liabilities held for sale, but excluding finance lease obligations, unamortized premiums, net and unamortized debt issuance costs) and $2.0 billion of unused borrowing capacity under our revolving credit facility, as discussed further below.

Under our amended and restated credit agreement dated as of January 31, 2020 (the “Amended Credit Agreement”), we maintained at December 31, 2021 (i) a $2.2 billion senior secured revolving credit facility, under which we owed $200 million as of such date, and (ii) $6.3 billion of senior secured term loan facilities.

For additional information, see (i) "—Overview of Sources and Uses of Cash," and (ii) 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, 2021, we had $21 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

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.

Additionally, under separate facilities maintained by one of our affiliates, we had outstanding letters of credit, or other similar obligations, of approximately $67 million as of December 31, 2021, of which $5 million was collateralized by cash that is reflected on our consolidated balance sheets as restricted cash.

In addition to its indebtedness under our 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 information on the terms and conditions of other debt instruments of ours and our subsidiaries, including financial and operating covenants, 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) "—Other Matters" below.

Pension and Post-retirement Benefit Obligations

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At December 31, 2021, the accounting unfunded status of our qualified and non-qualified defined benefit pension plans and our qualified post-retirement benefit plans was $1.2 billion and $2.8 billion, respectively.

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.

For additional information about our pension and post-retirement benefit arrangements, see "Critical Accounting Policies and Estimates—Pension and Post-retirement Benefits" in Item 7 of Part II of this report and Note 11—Employee Benefits to our consolidated financial statements in Item 8 of Part II of this report.

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

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The amount of required contributions to our qualified pension plan in 2023 and beyond will depend on a variety of factors, most of which are beyond our control, including earnings on plan investments, prevailing interest rates, demographic experience, changes in plan benefits and changes in funding laws and regulations.

We occasionally make voluntary contributions in addition to required contributions.

We occasionally make voluntary contributions to our plans in addition to required contributions and reserve the right to do so in the future.

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

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

We currently do not expect to make a voluntary contribution to the trust for our qualified pension plan in 2022.

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 11—Employee Benefits, aggregate benefits paid by us under these plans (net of participant contributions and direct subsidy receipts) were $203 million, $211 million and $241 million for the years ended December 31, 2021, 2020 and 2019, 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 additional information on our expected future benefits payments for our post-retirement benefit plans, see Note 11—Employee Benefits to our consolidated financial statements in Item 8 of Part II of this report.

For 2021, our expected annual long-term rates of return on the pension plan assets and post-retirement health care and life insurance benefit plan assets, net of administrative expenses, were 5.5% and 4.0%, respectively.

For 2022, our expected annual long-term rates of return on these assets are 5.5% and 4.0%, respectively.

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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.

As of December 31, 2021, lump sum pension settlement payments exceeded the settlement threshold.

As a result, for the year ended December 31, 2021 we recognized a non-cash settlement charge of $383 million to accelerate the recognition of a portion of the previously unrecognized actuarial losses in the qualified pension plan, which has been allocated and reflected in other expense, net in our consolidated statement of operations for the year ended December 31, 2021.

The amount of any future non-cash settlement charges after 2021 will be dependent on several factors, including the total amount of our future lump sum benefit payments.

On October 19, 2021, we, as sponsor of the Combined Pension Plan, along with the Plan’s independent fiduciary, entered into an agreement committing the Plan to use a portion of its plan assets to purchase an annuity from an insurance company (the "Insurer") to transfer $1.4 billion of the Plan’s pension liabilities.

This agreement irrevocably transferred to the Insurer future Plan benefit obligations for approximately 22,600 U.S.

Lumen participants ("Transferred Participants") effective on December 31, 2021.

This annuity transaction was funded entirely by existing Plan assets and is intended to provide equivalent benefits to the Transferred Participants.

The Insurer is committed to assume responsibility for administrative and customer service support, including distribution of payments to the Transferred Participants.

As of January 1, 2022, a new pension plan (the "Lumen Pension Plan") was spun off from the Combined Pension Plan in anticipation of the pending sale of the ILEC business, as described further in Note 2—Planned Divestiture of the Latin American and ILEC Businesses to our consolidated financial statements in Item 8 of Part II of this report.

See additional information on this subsequent event in Note 11—Employee Benefits to our consolidated financial statements in Item 8 of Part II of this report for more information.

Future Contractual Obligations

Our estimated future obligations as of December 31, 2021 include both current and long term obligations.

These amounts include liabilities that have been reclassified as liabilities held for sale on our consolidated balance sheet.

We have a current obligation of $1.6 billion and a long-term obligation of $29.0 billion of long-term debt (excluding unamortized premiums, net and unamortized debt issuance costs).

Under our operating leases, we have a current obligation of $464 million and a long-term obligation of $1.5 billion.

We have current obligations related to right-of-way agreements and purchase commitments of $660 million and a long-term obligation of $2.0 billion.

Additionally, we have a current obligation for asset retirement obligation of $22 million and a long-term obligation of $172 million.

Finally, our pension and post-retirement benefit plans have an unfunded benefit obligation, of which $216 million is classified as current and $3.8 billion is classified as long-term.

Federal Broadband Support Programs

Since 2015, we have been receiving approximately $500 million annually through Phase II of the CAF, a program that ended on December 31, 2021.

In connection with the CAF funding, we were required to meet certain specified infrastructure buildout requirements in 33 states by the end of 2021, which required substantial capital expenditures.

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

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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, Increase /

(Dollars in millions)

Net cash provided by operating activities $ 6,524 6,680 (156)

Net cash used in investing activities (3,564) (3,570) (6)

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

We expect our support payments under the RDOF Phase I program will begin soon after our anticipated receipt of the FCC's approval of our pending application.

Assuming we timely complete our pending divestiture of the ILEC business assets on the terms described herein, we expect a portion of these payments will accrue to the purchaser of that business.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses to our consolidated financial statements in Item 8 of Part II of this report.

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

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

In November 2021, the U.S.

Congress enacted legislation that appropriated $65 billion to improve broadband affordability and access, primarily through federally funded state grants.

As of the date of this report, the U.S.

Department of Commerce is still developing guidance regarding these grants, so it is premature to speculate on the potential impact of this legislation on us.

Cash Flow Activities

The following tables summarize our consolidated cash flow activities for the year ended December 31, 2021 and 2020.

For information regarding cash flow activities for the year ended December 31, 2019, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of our Annual Report Form 10-K for the year ended December 31, 2020.

Years Ended December 31, Increase /

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Operating Activities

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.

Net cash provided by operating activities decreased by $23 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020 primarily due to decreased collections on accounts receivable, partially offset by decreased payments on accounts payable.

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 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.

Net cash used in investing activities decreased by $852 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020 primarily due to a decrease in capital expenditures.

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.

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

Net cash used in financing activities decreased by $443 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020 primarily due to lower payments of long-term debt and proceeds from our revolving line of credit, partially offset by lower net proceeds from issuance of long-term debt and repurchases of common stock.

See Note 7—Long-Term Debt and Credit Facilities to our consolidated financial statements in Item 8 of Part II of this report for additional information on our outstanding debt securities.

Other Matters

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

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

See Note 18—Commitments, Contingencies and Other Items to our consolidated financial statements in Item 8 of Part II of this report for additional information.

As of December 31, 2021, 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.

We seek to maintain a favorable mix of fixed and variable rate debt in an effort to limit interest costs and cash flow volatility resulting from changes in rates.

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

From time to time, we have used derivative instruments to (i) swap our exposure to changing 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 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, 2021, we did not hold or issue derivative financial instruments for trading or speculative purposes.

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.

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, maturing on March 31, 2022 and June 30, 2022.

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, 2021, we had approximately $9.8 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 $5.8 billion of unhedged floating rate debt would, among other things, decrease our annual pre-tax earnings by approximately $58 million.

Additionally, our credit agreements contain language about a possible change from LIBOR to an alternative index.

We conduct a portion of our business in currencies other than the U.S.

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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