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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-02-24 compared with 2021-02-25 · 743 added, 719 removed, 1528 unchanged (49% of the section changed)

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

To the Stockholders and the Board of Directors

Lumen Technologies, Inc.:

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We have audited the accompanying consolidated balance sheets of Lumen Technologies, Inc.

and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, cash flows, and stockholders’ equity for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements).

and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 24, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Changes in Accounting Principle

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

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Testing of revenue

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We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed, including the relevance and reliability of evidence obtained.

Assessment of the Company’s impairment testing related to the carrying value of goodwill

As discussed in Note 2 to the consolidated financial statements, the goodwill balance at December 31, 2020 was $18.9 billion.

The Company assesses goodwill for impairment annually and when events or circumstances indicate the fair value of a reporting unit may be below its carrying value.

On the annual goodwill impairment assessment date, the Company estimated the fair value of its reporting units by considering both a discounted cash flow method and a market approach.

The impairment test determined the carrying values of the consumer, wholesale, small and medium business, and EMEA reporting units exceeded their estimated fair values.

As a result, the Company recorded a non-cash impairment charge of $2.6 billion to reduce the carrying value of goodwill for the consumer, wholesale, small and medium business, and EMEA reporting units.

We identified the assessment of the Company’s impairment testing related to the carrying value of goodwill as a critical audit matter.

Subjective auditor judgment was required in evaluating certain assumptions used to estimate the fair value of the reporting units.

Those assumptions included:

projected cash flows, terminal growth rates, discount rates, and market multiples for revenue and EBITDA.

The evaluation of these assumptions was challenging due to the subjective nature of the assumptions.

Additionally, differences in judgment used to determine these assumptions could have a significant effect on each reporting unit’s estimated fair value.

Specialized skills and knowledge were required in the assessment of the terminal growth rates, discount rates, and market multiples for revenue and EBITDA.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the impairment testing of goodwill.

This included controls related to the Company’s development of projected cash flows, and the determination of terminal growth rates, discount rates, and market multiples for revenue and EBITDA.

We performed sensitivity analyses over the projected cash flows assumptions to assess the impact on the Company’s estimate of the fair value of each reporting unit.

We assessed the Company’s ability to accurately project cash flows by comparing the Company’s historical cash flow projections to actual results.

We also evaluated the Company’s projected cash flows by comparing them to the Company’s underlying business strategies, historic trends, and publicly available industry and analyst reports.

We involved a valuation professional with specialized skills and knowledge, who assisted in:

• comparing the selected revenue and EBITDA market multiples to peer companies’ results

• comparing the selected terminal growth rate for each reporting unit to the Company’s historic trends and growth expectations developed using publicly available industry and analyst reports

• evaluating the discount rates by comparing them to discount rate ranges that were independently developed using publicly available market data for comparable entities.

Assessment of the estimate of the fair value of private fund interests valued using net asset value

As discussed in Note 10 to the consolidated financial statements, the fair value of pension plan assets at December 31, 2020 was $10.5 billion.

Of this amount, $3.4 billion represents the fair value of private fund interests estimated by the Company using net asset value (NAV).

Valuation inputs for these private fund interests are generally based on assumptions and other information not observable in the market.

We identified the assessment of the estimate of the fair value of private fund interests estimated using NAV as a critical audit matter.

Auditor judgment was required in the application and performance of procedures to assess the fair value because the determination of NAV of private fund interests involves the use of unobservable inputs.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the estimate of the fair value of private fund interests estimated using NAV.

This included controls related to the Company's process to monitor and record the estimated fair value of the pension plan assets.

For a sample of private fund interests, we compared:

• the Company’s previous estimates of fair value of NAV to the NAVs subsequently audited by third parties

• the rates of return of the private fund interests to relevant, publicly available market indices

• the estimated fair values of NAV to external confirmations received from the third-party investment managers.

We involved valuation professionals with specialized skills and knowledge, who assisted in our risk assessment and the design of procedures performed for private fund interests.

With respect to private fund interest selections tested, the valuation professionals assessed the sufficiency of audit evidence obtained by assessing the result of procedures performed.

We have served as the Company’s auditor since 1977.

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors Lumen Technologies, Inc.:

To the Stockholders and the Board of Directors Lumen Technologies, Inc.:

Opinion on Internal Control Over Financial Reporting

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, cash flows, and stockholders’ equity for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated February 25, 2021 expressed an unqualified opinion on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 24, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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OPERATING INCOME (LOSS) 4,285 962 ( 2,726 )

OTHER (EXPENSE) INCOME

OTHER EXPENSE

Interest expense ( 1,522 ) ( 1,668 ) ( 2,021 )

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

Other expense, net ( 62 ) ( 76 ) ( 19 )

Total other expense, net ( 1,584 ) ( 1,744 ) ( 2,040 )

LOSS BEFORE INCOME TAX EXPENSE ( 782 ) ( 4,766 ) ( 1,563 )

INCOME (LOSS) BEFORE INCOME TAXES 2,701 ( 782 ) ( 4,766 )

Income tax expense 668 450 503

NET LOSS $ ( 1,232 ) ( 5,269 ) ( 1,733 )

BASIC AND DILUTED LOSS PER COMMON SHARE

NET INCOME (LOSS) $ 2,033 ( 1,232 ) ( 5,269 )

BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE

BASIC $ 1.92 ( 1.14 ) ( 4.92 )

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LUMEN TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Years Ended December 31,

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(Dollars in millions)

NET LOSS $ ( 1,232 ) ( 5,269 ) ( 1,733 )

OTHER COMPREHENSIVE LOSS:

NET INCOME (LOSS) $ 2,033 ( 1,232 ) ( 5,269 )

OTHER COMPREHENSIVE INCOME (LOSS):

Items related to employee benefit plans:

Change in net actuarial (loss) gain, net of, $ 26 , $ 60 , and $( 45 ) tax

Change in net actuarial loss, net of $( 134 ), $ 26 , and $ 60 tax

424 ( 92 ) ( 195 )

Settlement charges recognized in net income (loss), net of $( 93 ), $ — and $ — tax

Change in net prior service cost, net of $( 5 ), $( 12 ), and $( 4 ) tax

Curtailment loss, net of $ — , $( 1 ), and $ — tax

Reclassification of realized loss on interest rate swaps to net income, net of $( 16 ), $ — , and $ — tax

Reclassification of realized loss on interest rate swaps to net income (loss), net of $( 20 ), $( 16 ), and $ — tax

Unrealized holding loss on interest rate swaps, net of $ — , $ 29 , and $ 12 tax

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( 135 ) ( 37 ) 2

Other comprehensive loss ( 133 ) ( 219 ) ( 59 )

COMPREHENSIVE LOSS $ ( 1,365 ) ( 5,488 ) ( 1,792 )

Other comprehensive income (loss) 655 ( 133 ) ( 219 )

COMPREHENSIVE INCOME (LOSS) $ 2,688 ( 1,365 ) ( 5,488 )

See accompanying notes to consolidated financial statements.

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Accounts receivable, less allowance of $ 114 and $ 191

Assets held for sale 8,809 —

Other 829 808

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Other 232 328

Liabilities held for sale 2,257 —

Current portion of deferred revenue 617 753

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OPERATING ACTIVITIES

Net loss $ ( 1,232 ) ( 5,269 ) ( 1,733 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Net income (loss) $ 2,033 ( 1,232 ) ( 5,269 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 4,019 4,710 4,829

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Provision for uncollectible accounts 105 189 145

Net loss (gain) on early retirement and modification of debt 105 ( 72 ) 7

Share-based compensation 175 162 186

Net (gain) loss on early retirement and modification of debt ( 8 ) 105 ( 72 )

Stock-based compensation 120 175 162

Changes in current assets and liabilities:

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INVESTING ACTIVITIES

Capitalized expenditures ( 3,729 ) ( 3,628 ) ( 3,175 )

Capital expenditures ( 2,900 ) ( 3,729 ) ( 3,628 )

Proceeds from sale of property, plant and equipment and other assets 135 153 93

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Payments of long-term debt ( 3,598 ) ( 7,315 ) ( 4,157 )

Net (payments) proceeds on credit facility and revolving line of credit ( 100 ) ( 300 ) 145

Net proceeds from (payments on) revolving line of credit 50 ( 100 ) ( 300 )

Dividends paid ( 1,087 ) ( 1,109 ) ( 1,100 )

Repurchases of common stock ( 1,000 ) — —

Other, net ( 53 ) ( 87 ) ( 61 )

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Supplemental cash flow information:

Income taxes received, net $ 28 34 674

Income taxes (paid) refunded, net $ ( 112 ) 28 34

Interest paid (net of capitalized interest of $ 53 , $ 75 and $ 72 )

$ ( 1,487 ) ( 1,627 ) ( 2,028 )

Supplemental non-cash information regarding investing activities:

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

Supplemental non-cash information regarding financing activities:

Purchase of software subscription in exchange for installment debt 77 — —

Cash, cash equivalents and restricted cash:

Cash and cash equivalents $ 354 406 1,690

Restricted cash - current 3 3 4

Restricted cash - noncurrent 18 24 26

Cash and cash equivalents included in Assets held for sale 40 — —

Restricted cash included in Other current assets 2 3 3

Restricted cash included in Other, net noncurrent assets 13 18 24

Total $ 409 427 1,717

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Issuance of common stock through dividend reinvestment, incentive and benefit plans 8 7 10

Repurchases of common stock ( 81 ) — —

Balance at end of period 1,024 1,097 1,090

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Balance at beginning of period 20,909 21,874 22,852

Issuance of common stock to acquire Level 3, including replacement of Level 3's share-based compensation awards — — ( 2 )

Repurchases of common stock ( 919 ) — —

Shares withheld to satisfy tax withholdings ( 45 ) ( 40 ) ( 37 )

Share-based compensation and other, net 187 163 187

Stock-based compensation and other, net 122 187 163

Dividends declared ( 1,095 ) ( 1,112 ) ( 1,104 )

Acquisition of additional minority interest in a subsidiary — — ( 5 )

Balance at end of period 18,972 20,909 21,874

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Balance at beginning of period ( 2,813 ) ( 2,680 ) ( 2,461 )

Cumulative effect of adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

Other comprehensive loss ( 133 ) ( 219 ) ( 59 )

Other comprehensive income (loss) 655 ( 133 ) ( 219 )

Balance at end of period ( 2,158 ) ( 2,813 ) ( 2,680 )

RETAINED EARNINGS (ACCUMULATED DEFICIT)

ACCUMULATED DEFICIT

Balance at beginning of period ( 8,031 ) ( 6,814 ) ( 1,643 )

Net income (loss) 2,033 ( 1,232 ) ( 5,269 )

Cumulative effect of adoption of ASU 2016-13 , Measurement of Credit Losses, net of $( 2 ) tax

Cumulative effect of adoption of ASU 2016-02 , Leases, net of $( 37 ) tax

Cumulative net effect of adoption of ASU 2014-09, Revenue from Contracts with Customers, net of $( 119 ) tax

Cumulative effect of adoption of ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

Net loss ( 1,232 ) ( 5,269 ) ( 1,733 )

Dividends declared and other 6 2 ( 1,758 )

Balance at end of period ( 5,998 ) ( 8,031 ) ( 6,814 )

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

References in the Notes to "Lumen Technologies, Inc.", "Lumen Technologies" or "Lumen," "we," "us", the "Company", and "our" refer to Lumen Technologies and its consolidated subsidiaries, unless the content otherwise requires.

References in the Notes to "Lumen Technologies" or "Lumen," "we," "us," the "Company," and "our" refer to Lumen Technologies, Inc.

and its consolidated subsidiaries, unless the context otherwise requires.

References in the Notes to "Level 3" refer to Level 3 Parent, LLC and its predecessor, Level 3 Communications, Inc., which we acquired on November 1, 2017.

(1) Background and Summary of Significant Accounting Policies

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

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

Our specific products and services are detailed in Note 4—Revenue Recognition.

Basis of Presentation

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To simplify the overall presentation of our consolidated financial statements, we report immaterial amounts attributable to noncontrolling interests in certain of our subsidiaries as follows:

(i) income attributable to noncontrolling interests in other income, net, (ii) equity attributable to noncontrolling interests in additional paid-in capital and (iii) cash flows attributable to noncontrolling interests in other, net financing activities.

We reclassified certain prior period amounts to conform to the current period presentation, including the categorization of our revenue and our segment reporting for 2020, 2019 and 2018.

(i) income attributable to noncontrolling interests in other expense, net, (ii) equity attributable to noncontrolling interests in additional paid-in capital and (iii) cash flows attributable to noncontrolling interests in other, net financing activities.

We reclassified certain prior period amounts to conform to the current period presentation, including the categorization of our revenue and expenses in our segment reporting for 2021, 2020 and 2019.

See Note 17—Segment Information for additional information.

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

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

Operating Expenses

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See Note 16—Income Taxes and Note 18—Commitments, Contingencies and Other Items for additional information.

For matters not related to income taxes, if a loss is considered probable and the amount can be reasonably estimated, we recognize an expense for the estimated loss.

For matters not related to income taxes, if a loss contingency is considered probable and the amount can be reasonably estimated, we recognize an expense for the estimated loss.

If we have the potential to recover a portion of the estimated loss from a third party, we make a separate assessment of recoverability and reduce the estimated loss if recovery is also deemed probable.

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For all of these and other matters, actual results could differ materially from our estimates.

Assets Held for Sale

We classify assets and related liabilities as held for sale when:

(i) management has committed to a plan to sell the assets, (ii) the net assets are available for immediate sale, (iii) there is an active program to locate a buyer and (iv) the sale and transfer of the net assets is probable within one year.

Assets and liabilities held for sale are presented separately on our consolidated balance sheets with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of cost or fair value, less costs to sell.

Depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use assets are not recorded while these assets are classified as held for sale.

For each period that assets are classified as being held for sale, they are tested for recoverability.

Unless otherwise specified, the amounts and information presented in the notes do not include assets and liabilities that have been reclassified as held for sale as of December 31, 2021.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for additional information.

Revenue Recognition

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Revenue from contracts with customers is accounted for under Accounting Standards Codification ("ASC") 606.

We also earn revenue from leasing arrangements (primarily fiber capacity agreements) and governmental subsidy payments, neither of which are accounted for under ASC 606.

We also earn revenue from leasing arrangements (primarily fiber capacity and colocation agreements) and governmental subsidy payments, which are not accounted for under ASC 606.

Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services.

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We provide an array of communications services to business and residential customers, including local voice, VPN, Ethernet, data, broadband, private line (including special access), network access, transport, voice, information technology, video and other ancillary services.

We provide these services to a wide range of businesses, including global, enterprise, wholesale, government, small and medium business customers.

We provide these services to a wide range of businesses, including global, enterprise, wholesale, government, and small and medium business customers.

Certain contracts also include the sale of equipment, which is not significant to our business.

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Recognition of certain payments received in advance of services being provided is deferred.

These advance payments include certain activation and certain installation charges.

If the activation and installation charges are not separate performance obligations, we recognize them as revenue over the actual or expected contract term using historical experience, which ranges from one year to five years depending on the service.

These advance payments may include certain activation and certain installation charges.

In most cases, termination fees or other fees on existing contracts that are negotiated in conjunction with new contracts are deferred and recognized over the new contract term.

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We periodically sell optical capacity on our network.

These transactions are structured as indefeasible rights of use, commonly referred to as IRUs, which are the exclusive right to use a specified amount of capacity or fiber for a specified term, typically 10 to 20 years.

These transactions are generally structured as indefeasible rights of use, commonly referred to as IRUs, which are the exclusive right to use a specified amount of capacity or fiber for a specified term, typically 10 to 20 years.

In most cases, we account for the cash consideration received on transfers of optical capacity as ASC 606 revenue which is adjusted for the time value of money and is recognized ratably over the term of the agreement.

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We have service level commitments pursuant to contracts with certain of our customers.

To the extent that such service levels are not achieved or are otherwise disputed due to performance or service issues or other service interruptions or conditions, we will estimate the amount of credits to be issued and record a corresponding reduction to revenue in the period that the service level commitment was not met.

To the extent that we determine that such service levels were not achieved or may not have been achieved, we estimate the amount of credits to be issued and record a corresponding reduction to revenue in the period that the service level commitment was not met.

Customer payments are made based on billing schedules included in our customer contracts, which is typically on a monthly basis.

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

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

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

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

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

See Note 4—Revenue Recognition for additional information.

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In the normal course of our business, we incur costs to hire and retain external legal counsel to advise us on regulatory, litigation and other matters.

We expense these costs as the related services are received.

Subject to certain exceptions, we expense these costs as the related services are received.

We file a consolidated federal income tax return with our eligible subsidiaries.

The provision for income taxes consists of an amount for taxes currently payable, an amount for tax consequences deferred to future periods and adjustments to our liabilities for uncertain tax positions.

The provision for income taxes reflects taxes currently payable, tax consequences deferred to future periods and adjustments to our liabilities for uncertain tax positions.

We record deferred income tax assets and liabilities reflecting future tax consequences attributable to tax net operating loss carryforwards ("NOLs"), tax credit carryforwards and differences between the financial statement carrying value of assets and liabilities and the tax basis of those assets and liabilities.

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We establish valuation allowances when necessary to reduce deferred income tax assets to the amounts that we believe are more likely than not to be recovered.

Each quarter we evaluate the need to retain all or a portion of the valuation allowance on our deferred tax assets.

Each quarter we evaluate the need to retain or adjust each valuation allowance on our deferred tax assets.

See Note 16—Income Taxes for additional information.

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Disbursement bank accounts allow us to delay funding of issued checks until the checks are presented for payment.

Until the issued checks are presented for payment, the book overdrafts are included in accounts payable on our consolidated balance sheet.

Until the issued checks are presented for payment, the book overdrafts are included in accounts payable on our consolidated balance sheets.

This activity is included in the operating activities section in our consolidated statements of cash flows.

There were no book overdrafts included in accounts payable at December 31, 2020.

Included in accounts payable at December 31, 2019 was $ 106 million representing book overdrafts.

There were no book overdrafts included in accounts payable at December 31, 2021 or 2020.

Restricted Cash

Restricted cash consists primarily of cash and investments that serve to collateralize our outstanding letters of credit and certain performance and operating obligations.

Restricted cash consists primarily of cash and investments that collateralize our outstanding letters of credit and certain performance and operating obligations.

Restricted cash and securities are recorded as current or non-current assets in the consolidated balance sheets depending on the duration of the restriction and the purpose for which the restriction exists.

Restricted securities are stated at cost which approximates fair value as of December 31, 2020 and 2019.

Restricted securities are stated at cost which approximated their fair value as of December 31, 2021 and 2020.

Accounts Receivable and Allowance for Credit Losses

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

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

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

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

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

For more information on our methodology for estimating our allowance for credit losses, see Note 6—Credit Losses on Financial Instruments.

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

Our past due accounts are written off against our allowance for credit losses when collection is considered to be not probable.

Any recoveries of accounts previously written off are generally recognized as a reduction in bad debt expense in the period received.

The carrying value of accounts receivable net of the allowance for credit losses approximates fair value.

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We record purchased and constructed property, plant and equipment at cost, plus the estimated value of any associated legally or contractually required retirement obligations.

We depreciate the majority of our property, plant and equipment using the straight-line group method, but depreciate certain of our assets using the straight-line method over their estimated useful lives of the specific asset.

We depreciate the majority of our property, plant and equipment using the straight-line group method over the estimated useful lives of groups of assets, but depreciate certain of our assets using the straight-line method over the estimated useful lives of the specific asset.

Under the straight-line group method, assets dedicated to providing telecommunications services (which comprise the majority of our property, plant and equipment) that have similar physical characteristics, use and expected useful lives are pooled for purposes of depreciation and tracking.

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We review long-lived tangible assets for impairment whenever facts and circumstances indicate that the carrying amounts of the assets may not be recoverable.

For assessment purposes, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, absent a material change in operations.

For assessment purposes, long-lived assets are grouped with other assets and liabilities at the lowest identifiable level for which we generate cash flows independently of other groups of assets and liabilities, absent a material change in operations.

An impairment loss is recognized only if the carrying amount of the asset group is not recoverable and exceeds its estimated fair value.

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Intangible assets arising from business combinations, such as goodwill, customer relationships, capitalized software, trademarks and trade names, 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 type of customer.

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

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

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

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

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

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

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

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

We are required to write-down the value of goodwill in periods in which the recorded carrying value of equity exceeds the fair value of equity.

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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.

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 more information, see Note 3—Goodwill, Customer Relationships and Other Intangible Assets.

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When we become a party to a derivative instrument and intend to apply hedge accounting, we formally document the hedge relationship and the risk management objective for undertaking the hedge which includes designating the instrument for financial reporting purposes as a fair value hedge, a cash flow hedge, or a net investment hedge.

We entered into eleven variable-to-fixed interest rate swap agreements during 2019, which we designated as cash-flow hedges.

We evaluate the effectiveness of these hedges qualitatively on a quarterly basis.

We evaluate the effectiveness of our variable-to-fixed interest rate swap agreements described in Note 15—Derivative Financial Instruments (designated as cash-flow hedges) qualitatively on a quarterly basis.

The change in the fair value of the interest rate swaps is reflected in Accumulated Other Comprehensive Loss (“AOCI”) and is subsequently reclassified into earnings in the period the hedged transaction affects earnings, by virtue of qualifying as effective cash flow hedges.

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Pension and Post-Retirement Benefits

We recognize the funded status of our defined benefit and post-retirement plans as an asset or a liability on our consolidated balance sheet.

We recognize the funded status of our defined benefit and post-retirement plans as an asset or a liability on our consolidated balance sheets.

Each year's actuarial gains or losses are a component of our other comprehensive loss, which is then included in our accumulated other comprehensive loss.

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Foreign Currency

Local currencies of foreign subsidiaries are the functional currencies for financial reporting purposes except for certain foreign subsidiaries, primarily in Latin America.

Local currencies of our foreign subsidiaries are the functional currencies for financial reporting purposes except for certain foreign subsidiaries, primarily in Latin America.

For operations outside the United States that have functional currencies other than the U.S.

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dollar during the years ended December 31, 2021, 2020 and 2019.

We recognize foreign currency translation gains and losses as a component of accumulated other comprehensive loss in stockholders' equity and in our consolidated statements of comprehensive loss in accordance with accounting guidance for foreign currency translation.

We consider the majority of our investments in our foreign subsidiaries to be long-term in nature.

Our foreign currency transaction gains (losses), including where transactions with our non-United States subsidiaries are not considered to be long-term in nature, are included within other income, net on our consolidated statements of operations.

At December 31, 2020, we had 49 million shares authorized for future issuance under our equity incentive plans.

We recognize foreign currency translation gains and losses as a component of accumulated other comprehensive loss in stockholders' equity and in our consolidated statements of comprehensive income (loss) in accordance with accounting guidance for foreign currency translation.

Prior to the announcement of our divestitures as discussed in Note 2—Planned Divestiture of the Latin American and ILEC Businesses, we considered the majority of our investments in our foreign subsidiaries to be long-term in nature.

Our foreign currency transaction gains (losses), including where transactions with our non-United States subsidiaries are not considered to be long-term in nature, are included within other expense, net on our consolidated statements of operations.

See the description of our Assets Held for Sale policy above for more information on assets in foreign subsidiaries to be divested.

As of December 31, 2021, we had 36 million shares authorized for future issuance under our equity incentive plans.

Preferred Stock

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The declaration and payment of dividends is at the discretion of our Board of Directors.

Change in Accounting Policy

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

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

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

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

As a result, we have decreased both operating revenue and cost of services and products by $ 911 million, $ 943 million and $ 863 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The change has no impact on operating income (loss), net loss, or loss per share in our consolidated statements of operations.

Refer to our Form 8-K filing dated April 30, 2020 for further information.

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

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

Recently Adopted Accounting Pronouncements

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

During 2018, we adopted ASU 2018-14, " Compensation-Retirement Benefits-Defined Benefit Plans-General:

Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans ", ASU 2014-09, “ Revenue from Contracts with Customers ” and ASU 2018-02, “ Income Statement-Reporting Comprehensive Income:

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ”.

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

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

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

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

Each of these is described further below.

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

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

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

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

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

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

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

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

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

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

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

Measurement of Credit Losses on Financial Instruments

We adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13") on January 1, 2020, and recognized a cumulative adjustment to our accumulated deficit as of the date of adoption of $ 9 million, net of tax effect of $ 2 million.

We adopted ASU 2016-13 on January 1, 2020, and recognized a cumulative adjustment to our accumulated deficit as of the date of adoption of $ 9 million, net of tax effect of $ 2 million.

Please refer to Note 6—Credit Losses on Financial Instruments for more information.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Adoption of the new standards resulted in the recording of operating lease assets and operating lease liabilities of approximately $ 2.1 billion and $ 2.2 billion, respectively, as of January 1, 2019.

The difference is driven principally by the netting of our existing real estate restructure reserve against the corresponding operating lease right of use asset.

In addition, we recorded a $ 96 million cumulative adjustment (net of tax of $ 37 million) to accumulated deficit as of January 1, 2019, for the impact of the new accounting standards.

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

Retirement Benefits

In August 2018, the FASB issued ASU 2018-14, " Compensation-Retirement Benefits-Defined Benefit Plans-General:

Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans " (“ASU 2018-14“).

ASU 2018-14 eliminates requirements for certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and adds additional disclosures under defined benefit pension plans and other postretirement plans.

We adopted this guidance during the fourth quarter 2018.

The adoption of ASU 2018-14 did not have a material impact to our consolidated financial statements.

Revenue Recognition

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

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

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

We adopted the new revenue recognition standard under the modified retrospective transition method.

During the year ended December 31, 2018, we recorded a cumulative catch-up adjustment that increased our retained earnings by $ 338 million, net of $ 119 million of income taxes.

See Note 3—Revenue Recognition for additional information.

Comprehensive Loss

In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income:

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02") which provides an option to reclassify stranded tax effects within accumulated other comprehensive loss to retained earnings in each period in which the effect of the change in the U.S.

federal corporate income tax rate in the Tax Cuts and Jobs Act (the "Act") (or portion thereof) is recorded.

If an entity elects to reclassify the income tax effects of the Act, the amount of that reclassification shall include the effect of the change in the U.S.

federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of enactment of the Act related to items remaining in accumulated other comprehensive loss.

The effect of the change in the U.S.

federal corporate income tax rate on gross valuation allowances that were originally charged to income from continuing operations shall not be included.

ASU 2018-02 is effective January 1, 2019, but early adoption is permitted and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S.

federal corporate income tax rate in the Act is recognized.

We early adopted and applied ASU 2018-02 in the first quarter of 2018.

The adoption of ASU 2018-02 resulted in a $ 407

million increase to retained earnings and in accumulated other comprehensive loss.

See Note 20—Accumulated Other Comprehensive Loss for additional information.

We recorded a $ 96 million cumulative adjustment (net of tax of $ 37 million) to accumulated deficit as of January 1, 2019, for the impact of the new accounting standards.

Recently Issued Accounting Pronouncements

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

33-10762 ” (“ASU 2020-09”).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Under this ASU, lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if certain criteria are met;

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

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

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

In January 2021, the FASB issued ASU 2021-01, " Reference Rate Reform (Topic 848):

Scope ” (“ASU 2021-01”).

This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivative that are affected by the discounting transition.

The ASU also amends the expedients and expectations in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivatives instruments affected by the discounting transition.

As of December 31, 2020, we are evaluating the impact on our consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, " Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815) " (“ASU 2020-01”).

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

As of December 31, 2020, we determined there was no application or discontinuation of the equity method during the reporting periods.

The cumulative effect of initially applying ASU 2020-01 on January 1, 2021 will not have a material impact to our consolidated financial statements.

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

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

Scope " ("ASU 2021-01"), which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

ASU 2021-01 also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

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

ASU 2021-01 provides option guidance for a limited time to ease the potential burden in accounting for reference rate reform.

Based on our review of our key material contracts through December 31, 2021, we do not expect ASU 2021-01 will have a material impact to our consolidated financial statements.

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

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

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

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

The cumulative effect of initially applying ASU 2019-12 on January 1, 2021 will not have a material impact to our consolidated financial statements.

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

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

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

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

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

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

(2) 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 Technologies, Inc., entered into a definitive agreement to divest Lumen’s Latin American business to an affiliate of a fund advised by Stonepeak Partners LP 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).

Level 3 Parent, LLC anticipates closing the transaction mid-year 2022, upon receipt of all requisite regulatory approvals in the U.S.

and certain countries where the Latin American business operates, as well as the satisfaction of other customary conditions.

On August 3, 2021, we and certain of our affiliates entered into a definitive agreement to divest our incumbent local exchange ("ILEC") business conducted within 20 Midwestern and Southern states to an affiliate of funds advised by Apollo Global Management, Inc.

In exchange, we would receive $ 7.5 billion, subject to offsets for (i) assumed indebtedness (expected to be approximately $ 1.4 billion) and (ii) certain purchaser’s transaction expenses along with working capital, tax, other customary purchase price adjustments and related transaction expenses (estimated to be approximately $ 1.7 billion).

We anticipate closing the transaction mid-year 2022 upon receipt of all regulatory approvals and the satisfaction of other customary closing conditions.

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 if any of our other assumptions prove to be incorrect.

We do not believe these divestiture transactions represent a strategic shift for Lumen.

Therefore, neither divested business meets the criteria to be classified as a discontinued operation.

As a result, we will continue to report our operating results for the Latin American and ILEC businesses (the "disposal groups") in our consolidated operating results until the transactions are closed.

The pre-tax net income of the disposal groups is estimated to be and reported as follows in the tables below:

Years Ended December 31,

2021 2020 2019

(Dollars in millions)

Latin American business pre-tax net income $ 214 160 30

ILEC business pre-tax net income 851 649 655

Total disposal groups pre-tax net income $ 1,065 809 685

As of December 31, 2021 in the accompanying consolidated balance sheet, the assets and liabilities of our Latin American and ILEC businesses are classified as held for sale and are measured at the lower of (i) the carrying value when we classified the disposal groups as held for sale and (ii) the fair value of the disposal groups, less costs to sell.

Effective with the designation of both disposal groups as held for sale on July 25, 2021 and August 3, 2021, respectively, we suspended recording depreciation of property, plant and equipment and amortization of finite-lived intangible assets and right-of-use assets while these assets are classified as held for sale.

We estimate that we would have recorded an additional $ 272 million of depreciation, intangible amortization, and amortization of right-of-use assets for the year ended December 31, 2021 if the Latin American and ILEC businesses did not meet the held for sale criteria.

As a result of our evaluation of the recoverability of the carrying value of the assets and liabilities held for sale relative to the agreed upon sales price, adjusted for costs to sell, we did not record any estimated loss on disposal during the year ended December 31, 2021.

The recoverability of each disposal group will be re-evaluated each reporting period until the closing of each transaction.

The principal components of the held for sale assets and liabilities are as follows:

December 31, 2021

Latin American Business ILEC Business Total

(Dollars in millions)

Assets held for sale

Cash and cash equivalents $ 39 1 40

Accounts receivable, less allowance of $ 3 , $ 21 and $ 24

Other current assets 81 45 126

Property, plant and equipment, net accumulated depreciation of $ 434 , $ 8,303 and $ 8,737

1,591 3,491 5,082

239 2,615 2,854

Other intangible assets, net 126 158 284

Other non-current assets 75 38 113

Total assets held for sale $ 2,234 6,575 8,809

Liabilities held for sale

Accounts payable $ 101 64 165

Salaries and benefits 23 25 48

Income and other taxes 27 24 51

Interest — 10 10

Current portion of deferred revenue 26 90 116

Other current liabilities 7 35 42

Long-term debt, net of discounts (2)

— 1,377 1,377

Deferred income taxes, net 129 — 129

Pension and other post-retirement benefits (3)

Other non-current liabilities 120 141 261

Total liabilities held for sale $ 435 1,822 2,257

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(1) The assignment of goodwill was based on the relative fair values of the applicable reporting units prior to being reclassified as held for sale.

(2) Long-term debt, net of discounts, includes $ 1.4 billion of Embarq Senior notes, $ 117 million of related unamortized discounts and $ 57 million of long-term finance lease obligations.

(3) Excludes pension obligation of approximately $ 2.5 billion for the ILEC business as of December 31, 2021, which will be transferred to the purchaser of the ILEC business upon closing.

As of December 31, 2021, approximately $ 2.2 billion, or 88 %, of this pension obligation is expected to be funded through the transfer of Lumen pension plan assets to the purchaser.

The remaining portion of the obligation is expected to be separately funded with cash paid by Lumen at the time of closing.

See Note 11—Employee Benefits for additional information.

(3) Goodwill, Customer Relationships and Other Intangible Assets

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Goodwill $ 15,986 18,870

Indefinite-life intangible assets $ 278 269

Indefinite-lived intangible assets $ 9 278

Other intangible assets subject to amortization:

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Capitalized software, less accumulated amortization of $ 3,624 and $ 3,279

Trade names, less accumulated amortization of $ 120 and $ 91

Trade names, patents and other, less accumulated amortization of $ 160 and $ 120

Total other intangible assets, net $ 6,970 8,219

As of December 31, 2021, the gross carrying amount of goodwill, customer relationships, indefinite-lived and other intangible assets was $ 38.5 billion.

When we acquired Embarq Corporation ("Embarq") in 2009, we acquired certain right-of-way assets and, because there were no legal, regulatory, contractual or other factors that would reasonably limit the useful life of these assets, we classified them as indefinite-lived and, as such, initially did not amortize these assets.

Our recent digital transformation efforts and continued focus on our fiber-based infrastructure assets have prompted management to reassess and ultimately change the accounting treatment of these indefinite-lived assets to align with our focus on growth products versus our declining copper-based products.

As a result, during the first quarter of 2021, we reclassified an indefinite-lived intangible asset to finite-lived intangible asset.

As of January 1, 2021 we began amortizing the $ 268 million asset over its estimated nine-year remaining life.

On August 3, 2021, upon entering into a definitive agreement to divest our ILEC business, we reclassified $ 169 million of the $ 268 million asset as held for sale.

At this time, we discontinued recording amortization on the portion of the finite-lived intangible assets that had been reclassified as held for sale (see Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information).

The above-described change in the estimated remaining economic life of these assets, as modified by the subsequent reclassification of a portion thereof, resulted in an increase in amortization expense of approximately $ 22 million for the year ending December 31, 2021.

The increase in amortization expense, net of tax, reduced consolidated net income (loss) by approximately $ 17 million, or $ 0.02 per basic and diluted common share, for the year ended December 31, 2021.

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

We assess our goodwill and other indefinite-lived intangible assets for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment.

Our annual impairment assessment date for indefinite-lived intangible assets other than goodwill is December 31.

We completed our qualitative assessment of our indefinite-lived intangible assets other than goodwill as of December 31, 2021 and 2020 and concluded it is more likely than not that our indefinite-lived intangible assets are not impaired;

thus, no impairment charge for these assets was recorded in 2021 or 2020.

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

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

At October 31, 2020 and 2019, our international and global accounts segment was comprised of our North America global accounts ("NA GAM"), Europe, Middle East and Africa region ("EMEA"), Latin America region ("LATAM") and Asia Pacific region ("APAC") reporting units.

At October 31, 2020 and 2019 our reporting units were consumer, small and medium business, enterprise, wholesale, NA GAM, EMEA, LATAM and APAC.

Our annual impairment assessment date for indefinite-lived intangible assets other than goodwill is December 31.

Since our internal reorganization described in Note 17—Segment Information 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").

At October 31, 2020 and 2019, we used eight reporting units for goodwill impairment testing, which were consumer, small and medium business, enterprise, wholesale, North American 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 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 excess amount.

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 value of expected normalized cash flows of the reporting units following the discrete projection period, and (ii) a market approach, which includes the use of market multiples of publicly-traded companies whose services are comparable to ours.

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

We discounted the projected cash flows for our consumer, enterprise, wholesale, small and medium business and NA GAM segments using a rate that represents our weighted average cost of capital, which we determined to be approximately 7.6 % as of the assessment date (which comprised an after-tax cost of debt of 2.5 % and a cost of equity of 10.7 %).

If the estimated fair value of the reporting unit is less than the carrying value, we record a non-cash impairment equal to the excess amount.

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 market multiples of publicly-traded companies whose services are comparable to ours.

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.

As of October 31, 2021, we determined that the estimated fair value of 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, 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 to determine whether there was an impairment prior to the reclassification of these assets 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 those 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 evaluate whether the fair value of our reporting units that will remain following the divestitures exceeds 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 five above-mentioned reporting units by considering both a market approach and a discounted cash flow method.

As of July 31, 2021, we determined that the estimated fair value of 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.

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 our reporting units at July 31, 2021.

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

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 is 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 January 31, 2021.

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 discounted the projected cash flows for our consumer, enterprise, wholesale, small and medium business and NA GAM reporting units using a rate that represented their weighted average cost of capital, which we determined to be approximately 7.6 % as of the assessment date (which comprised an after-tax cost of debt of 2.5 % and a cost of equity of 10.7 %).

We discounted the projected cash flows of our EMEA, LATAM and APAC reporting units using a rate that represents their estimated weighted average cost of capital, which we determined to be approximately 8.0 %, 14.3 % and 10.1 %, respectively, as of the measurement date (which was comprised of an after-tax cost of debt of 2.9 %, 6.9 % and 3.9 % and a cost of equity of 11.2 %, 18.8 % and 14.0 %, respectively).

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We selected a revenue and EBITDA multiple for each of our reporting units, resulting in an overall company revenue and EBITDA multiple of 2.3 x and 5.7 x, respectively.

We also reconciled the estimated fair values of the reporting units to our market capitalization as of October 31, 2020 and concluded that the indicated implied control premium of approximately 33.0 % 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 the estimated fair value of certain of our reporting units was less than our carrying value of equity for our consumer, wholesale, small and medium business and EMEA reporting units.

We also 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 the estimated fair value of our consumer, wholesale, small and medium business and EMEA reporting units was less than our carrying value of equity for those reporting units.

As a result, these reporting units were impaired, resulting in a non-cash, non-tax-deductible goodwill impairment charge of $ 2.6 billion.

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

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

We discounted the projected cash flows for our consumer, enterprise, wholesale, small and medium business and NA GAM reporting units using a rate that represents our weighted average cost of capital, which we determined to be approximately 6.3 % as of the assessment date (which was comprised of an after-tax cost of debt of 4.4 % and a cost of equity of 7.6 %).

We discounted the projected cash flows of our EMEA, LATAM and APAC reporting units using a rate that represents their estimated weighted average cost of capital, which we determined to be approximately 6.8 %, 10.0 % and 9.0 %, respectively, as of the measurement date (which was comprised of an after-tax cost of debt of 4.8 %, 6.1 % and 7.1 % and a cost of equity of 8.1 %, 12.5 % and 10.2 %, respectively).

We utilized company comparisons within the telecommunications industry and analyst reports which have historically supported a range of fair values derived from annualized revenue and EBITDA multiples between 2.3 x and 5.4 x and 5.6 x and 12.2 x, respectively.

We selected a revenue and EBITDA multiple for each of our reporting units resulting in an overall company revenue and EBITDA multiple of 2.3 x and 5.7 x, respectively.

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

At October 31, 2019, 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.

As of October 31, 2019, based on our assessment performed with respect to our eight reporting units, the estimated fair value of 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.

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See the table below for the impairment charges by segment.

At October 31, 2018, we estimated the fair value of our then five reporting units which were 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 market transactions.

As of October 31, 2018, based on our assessment performed with respect to these reporting units as described above, we concluded that the estimated fair value of our consumer reporting unit was less than our carrying value of equity 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 reporting unit during the fourth quarter of 2018.

In addition, based on our assessments performed, we concluded that the goodwill for our four remaining reporting units was not impaired as of October 31, 2018.

We completed our qualitative assessment of our indefinite-lived intangible assets other than goodwill as of December 31, 2020 and 2019 and concluded it is more likely than not that our indefinite-lived intangible assets are not impaired;

thus, no impairment charge for these assets was recorded in 2020 or 2019.

The following tables show the rollforward of goodwill assigned to our reportable segments from December 31, 2018 through December 31, 2020.

Business Consumer Total

The following table shows the rollforward of goodwill assigned to our reportable segments (including the January 2021 reorganization discussed above) from December 31, 2019 through December 31, 2021.

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

(Dollars in millions)

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$ 2,670 4,738 3,259 3,813 7,054 — — 21,534

______________________________________________________________________

(1) Goodwill is net of accumulated impairment losses of $ 3.8 billion.

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

(Dollars in millions)

As of January 1, 2019 $ 3,595 5,222 5,193 6,437 7,584 28,031

January 2019 reorganization — 987 ( 1,038 ) 395 ( 344 ) —

Effect of foreign currency exchange rate change and other ( 15 ) — ( 7 ) — — — — ( 22 )

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

January 2021 reorganization ( 2,555 ) ( 4,738 ) ( 2,808 ) ( 3,114 ) ( 5,655 ) 12,173 6,697 —

Reclassified as held for sale (2)

— — — — — ( 913 ) ( 1,946 ) ( 2,859 )

Effect of foreign currency exchange rate change and other — — — — — ( 25 ) — ( 25 )

Impairment ( 100 ) — ( 444 ) ( 699 ) ( 1,399 ) ( 2,642 )

As of December 31, 2021 (1)

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______________________________________________________________________

(1) Goodwill at December 31, 2020 and December 31, 2019 is net of accumulated impairment losses of $ 12.9 billion and $ 10.3 billion, respectively.

(1) Goodwill at December 31, 2021, December 31, 2020 and December 31, 2019 is net of accumulated impairment losses of $ 7.7 billion, $ 12.9 billion and $ 10.3 billion, respectively.

The change in accumulated impairment losses at December 31, 2021 is a result of amounts reclassified as held for sale related to our planned divestitures.

(2) Includes $ 2.9 billion of goodwill, net of accumulated impairment loss reclassified as held for sale related to our pending divestitures.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses.

For additional information on our segments, see Note 17—Segment Information.

As of December 31, 2020, the weighted average remaining useful lives of our intangible assets were approximately 8 years in total, approximately 9 years for customer relationships, 3 years for capitalized software and 2 years for trade names.

Total amortization expense for intangible assets for the years ended December 31, 2020, 2019 and 2018 was $ 1.7 billion, $ 1.7 billion and $ 1.8 billion, respectively.

As of December 31, 2020, the gross carrying amount of goodwill, customer relationships, indefinite-life and other intangible assets was $ 41.5 billion.

We estimate that total amortization expense for intangible assets for the years ending December 31, 2021 through 2025 will be as follows:

As of December 31, 2021, the weighted average remaining useful lives of our finite-lived intangible assets were approximately 7 years in total, approximately 8 years for customer relationships, 4 years for capitalized software and 1 year for trade names.

Total amortization expense for finite-lived intangible assets for the years ended December 31, 2021, 2020 and 2019 was $ 1.3 billion, $ 1.7 billion and $ 1.7 billion, respectively.

We estimate that total amortization expense for finite-lived intangible assets for the years ending December 31, 2022 through 2026 will be as provided in the table below.

As a result of reclassifying our Latin American and ILEC businesses as being held for sale on our December 31, 2021 consolidated balance sheet, the amounts presented below do not include future amortization expense for intangible assets of the businesses to be divested.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.

(Dollars in millions)

(4) Revenue Recognition

Product and Service Categories

Since the first quarter of 2021, we have categorized our products and services revenue among the following categories for the Business segment:

• 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.

Since the first quarter of 2021, we have categorized our products and services revenue among the following categories for the Mass Markets segment:

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

• Small Business Group ("SBG") Broadband , which includes high speed fiber-based and lower speed DSL-based broadband services to small businesses;

• Voice and Other, which include primarily local and long-distance services, professional services and other ancillary services;

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

Reconciliation of Total Revenue to Revenue from Contracts with Customers

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

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

The following tables provide total revenue by segment, sales channel and product category.

They also provide the amount of revenue that is not subject to ASC 606, " Revenue from Contracts with Customers " ("ASC 606"), but is instead governed by other accounting standards:

Year Ended December 31, 2021

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(Dollars in millions)

International and Global Accounts

Business Segment by Sales Channel and Product Category

International and Global Accounts ("IGAM")

Compute and Application Services $ 715 ( 280 ) 435

IP and Data Services 1,708 — 1,708

$ 1,556 — 1,556

Transport and Infrastructure (2)

1,265 ( 373 ) 892

Voice and Collaboration (3)

IT and Managed Services (4)

Total International and Global Accounts Segment Revenue 3,405 ( 373 ) 3,032

Fiber Infrastructure 886 ( 129 ) 757

Voice and Other 744 — 744

Total IGAM Revenue 4,053 ( 409 ) 3,644

Large Enterprise

Compute and Application Services 698 ( 63 ) 635

IP and Data Services 1,554 — 1,554

2,474 ( 2 ) 2,472

Transport and Infrastructure (2)

1,608 ( 135 ) 1,473

Voice and Collaboration (3)

1,424 ( 1 ) 1,423

IT and Managed Services (4)

Total Enterprise Segment Revenue 5,722 ( 138 ) 5,584

Small and Medium Business

Fiber Infrastructure 521 ( 50 ) 471

Voice and Other 949 — 949

Total Large Enterprise Revenue 3,722 ( 113 ) 3,609

Mid-Market Enterprise

Compute and Application Services 139 ( 31 ) 108

IP and Data Services 1,754 ( 5 ) 1,749

1,062 ( 3 ) 1,059

Transport and Infrastructure (2)

352 ( 34 ) 318

Voice and Collaboration (3)

1,098 ( 3 ) 1,095

IT and Managed Services (4)

Total Small and Medium Business Segment Revenue 2,557 ( 40 ) 2,517

Fiber Infrastructure 218 ( 8 ) 210

Voice and Other 618 — 618

Total Mid-Market Enterprise Revenue 2,729 ( 44 ) 2,685

Compute and Application Services 189 ( 159 ) 30

IP and Data Services 1,196 — 1,196

1,280 — 1,280

Transport and Infrastructure (2)

1,764 ( 517 ) 1,247

Voice and Collaboration (3)

IT and Managed Services (4)

Total Wholesale Business Segment Revenue 3,777 ( 517 ) 3,260

Broadband (5)

2,909 ( 217 ) 2,692

1,622 — 1,622

Regulatory (7)

615 ( 615 ) —

105 ( 15 ) 90

Total Consumer Segment Revenue 5,251 ( 847 ) 4,404

Fiber Infrastructure 623 ( 118 ) 505

Voice and Other 1,607 ( 252 ) 1,355

Total Wholesale Revenue 3,615 ( 529 ) 3,086

Business Segment by Product Category

Compute and Application Services 1,741 ( 533 ) 1,208

IP and Data Services 6,212 ( 5 ) 6,207

Fiber Infrastructure 2,248 ( 305 ) 1,943

Voice and Other 3,918 ( 252 ) 3,666

Total Business Segment Revenue 14,119 ( 1,095 ) 13,024

Mass Markets Segment by Product Category

Consumer Broadband 2,875 ( 211 ) 2,664

SBG Broadband 156 ( 16 ) 140

Voice and Other 2,047 ( 80 ) 1,967

CAF II 490 ( 490 ) —

Total Mass Markets Revenue 5,568 ( 797 ) 4,771

Total Revenue $ 19,687 ( 1,892 ) 17,795

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(Dollars in millions)

International and Global Accounts

Business Segment by Sales Channel and Product Category

International and Global Accounts ("IGAM")

Compute and Application Services $ 772 ( 265 ) 507

IP and Data Services 1,731 — 1,731

$ 1,627 — 1,627

Transport and Infrastructure (2)

1,268 ( 365 ) 903

Voice and Collaboration (3)

IT and Managed Services (4)

Total International and Global Accounts Segment Revenue 3,476 ( 365 ) 3,111

Fiber Infrastructure 822 ( 110 ) 712

Voice and Other 793 — 793

Total IGAM Revenue 4,118 ( 375 ) 3,743

Large Enterprise

Compute and Application Services 663 ( 82 ) 581

IP and Data Services 1,588 ( 2 ) 1,586

2,538 — 2,538

Transport and Infrastructure (2)

1,479 ( 134 ) 1,345

Voice and Collaboration (3)

1,423 — 1,423

IT and Managed Services (4)

Total Enterprise Segment Revenue 5,696 ( 134 ) 5,562

Small and Medium Business

Fiber Infrastructure 590 ( 46 ) 544

Voice and Other 1,074 ( 2 ) 1,072

Total Large Enterprise Revenue 3,915 ( 132 ) 3,783

Mid-Market Enterprise

Compute and Application Services 137 ( 16 ) 121

IP and Data Services 1,845 ( 6 ) 1,839

1,091 — 1,091

Transport and Infrastructure (2)

365 ( 36 ) 329

Voice and Collaboration (3)

1,226 — 1,226

IT and Managed Services (4)

Total Small and Medium Business Segment Revenue 2,727 ( 36 ) 2,691

Fiber Infrastructure 218 ( 9 ) 209

Voice and Other 769 — 769

Total Mid-Market Enterprise Revenue 2,969 ( 31 ) 2,938

Compute and Application Services 183 ( 161 ) 22

IP and Data Services 1,249 — 1,249

1,365 — 1,365

Transport and Infrastructure (2)

1,907 ( 545 ) 1,362

Voice and Collaboration (3)

IT and Managed Services (4)

Total Wholesale Business Segment Revenue 4,042 ( 545 ) 3,497

Broadband (5)

2,876 ( 215 ) 2,661

1,837 — 1,837

Regulatory (7)

632 ( 632 ) —

172 ( 26 ) 146

Total Consumer Segment Revenue 5,517 ( 873 ) 4,644

Fiber Infrastructure 618 ( 121 ) 497

Voice and Other 1,765 ( 258 ) 1,507

Total Wholesale Revenue 3,815 ( 540 ) 3,275

Business Segment by Product Category

Compute and Application Services 1,755 ( 524 ) 1,231

IP and Data Services 6,413 ( 8 ) 6,405

Fiber Infrastructure 2,248 ( 286 ) 1,962

Voice and Other 4,401 ( 260 ) 4,141

Total Business Segment Revenue 14,817 ( 1,078 ) 13,739

Mass Markets Segment by Product Category

Consumer Broadband 2,909 ( 221 ) 2,688

SBG Broadband 153 ( 15 ) 138

Voice and Other 2,341 ( 109 ) 2,232

CAF II 492 ( 492 ) —

Total Mass Markets Revenue 5,895 ( 837 ) 5,058

Total Revenue $ 20,712 ( 1,915 ) 18,797

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(Dollars in millions)

International and Global Accounts

Business Segment by Sales Channel and Product Category

International and Global Accounts ("IGAM")

Compute and Application Services $ 790 ( 265 ) 525

IP and Data Services 1,764 — 1,764

$ 1,682 — 1,682

Transport and Infrastructure (2)

1,230 ( 83 ) 1,147

Voice and Collaboration (3)

IT and Managed Services (4)

Total International and Global Accounts Segment Revenue 3,543 ( 83 ) 3,460

Fiber Infrastructure 785 ( 99 ) 686

Voice and Other 833 — 833

Total IGAM Revenue 4,172 ( 364 ) 3,808

Large Enterprise

Compute and Application Services 610 ( 89 ) 521

IP and Data Services 1,589 — 1,589

2,485 — 2,485

Transport and Infrastructure (2)

1,484 ( 43 ) 1,441

Voice and Collaboration (3)

1,495 — 1,495

IT and Managed Services (4)

Total Enterprise Segment Revenue 5,765 ( 43 ) 5,722

Small and Medium Business

Fiber Infrastructure 524 ( 44 ) 480

Voice and Other 1,113 ( 1 ) 1,112

Total Large Enterprise Revenue 3,836 ( 134 ) 3,702

Mid-Market Enterprise

Compute and Application Services 147 ( 11 ) 136

IP and Data Services 1,894 — 1,894

1,078 — 1,078

Transport and Infrastructure (2)

424 ( 40 ) 384

Voice and Collaboration (3)

1,366 — 1,366

IT and Managed Services (4)

Total Small and Medium Business Segment Revenue 2,918 ( 40 ) 2,878

Fiber Infrastructure 219 ( 20 ) 199

Voice and Other 892 ( 1 ) 891

Total Mid-Market Enterprise Revenue 3,152 ( 32 ) 3,120

Compute and Application Services 188 ( 168 ) 20

IP and Data Services 1,319 — 1,319

1,369 — 1,369

Transport and Infrastructure (2)

2,118 ( 397 ) 1,721

Voice and Collaboration (3)

IT and Managed Services (4)

Total Wholesale Business Segment Revenue 4,360 ( 397 ) 3,963

Broadband (5)

2,824 ( 213 ) 2,611

2,127 — 2,127

Regulatory (7)

727 ( 727 ) —

316 ( 35 ) 281

Total Consumer Segment Revenue 5,994 ( 975 ) 5,019

Fiber Infrastructure 629 ( 122 ) 507

Voice and Other 1,943 ( 279 ) 1,664

Total Wholesale Revenue 4,079 ( 569 ) 3,510

Business Segment by Product Category

Compute and Application Services 1,735 ( 533 ) 1,202

IP and Data Services 6,566 — 6,566

Fiber Infrastructure 2,157 ( 285 ) 1,872

Voice and Other 4,781 ( 281 ) 4,500

Total Business Segment Revenue 15,239 ( 1,099 ) 14,140

Mass Markets Segment by Product Category

Consumer Broadband 2,876 ( 215 ) 2,661

SBG Broadband 163 ( 4 ) 159

Voice and Other 2,688 ( 143 ) 2,545

CAF II 492 ( 492 ) —

Total Mass Markets Revenue 6,219 ( 854 ) 5,365

Total Revenue $ 21,458 ( 1,953 ) 19,505

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______________________________________________________________________

(1) Includes primarily VPN data network, Ethernet, IP, content delivery and other ancillary services.

(2) Includes wavelengths, private line, dark fiber services, colocation and data center services, including cloud, hosting and application management solutions, professional services and other ancillary services.

(3) Includes local, long-distance voice, including wholesale voice, and other ancillary services, as well as VoIP services.

(4) Includes information technology services and managed services, which may be purchased in conjunction with our other network services.

(5) Includes high speed, fiber-based and lower speed DSL broadband services.

(6) Includes local and long-distance services.

(7) Includes (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.

(8) Includes retail video services (including our linear TV services), professional services and other ancillary services.

(9) Includes regulatory revenue, revenue from leasing arrangements and failed-sale-leaseback income in 2018, which are not within the scope of ASC 606.

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

Customer Receivables and Contract Balances

The following table provides balances of customer receivables, contract assets and contract liabilities as of December 31, 2020 and December 31, 2019:

The following table provides balances of customer receivables, contract assets and contract liabilities, net of amounts reclassified as held for sale, as of December 31, 2021 and December 31, 2020:

December 31, 2021 December 31, 2020

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(1) Reflects gross customer receivables of $ 1.6 billion and $ 2.1 billion, net of allowance for credit losses of $ 102 million and $ 174 million, at December 31, 2021 and December 31, 2020, respectively.

(2) As of December 31, 2021, amount excludes customer receivables, net reclassified as held for sale of $ 288 million.

(3) As of December 31, 2021, amount excludes contract assets reclassified as held for sale of $ 9 million.

(4) As of December 31, 2021, amount excludes contract liabilities reclassified as held for sale of $ 161 million.

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

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

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

During the years ended December 31, 2020 and December 31, 2019, we recognized $ 672 million and $ 630 million, respectively, of revenue that was included in contract liabilities as of January 1, 2020 and January 1, 2019, respectively.

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

During the years ended December 31, 2021 and December 31, 2020, we recognized $ 605 million and $ 672 million, respectively, of revenue that was included in contract liabilities of $ 950 million and $ 1.0 billion as of January 1, 2021 and 2020, respectively.

Performance Obligations

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We expect to recognize approximately 77 % of this revenue through 2024, with the balance recognized thereafter.

These amounts exclude (i) the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), and (ii) contracts that are classified as leasing arrangements that are not subject to ASC 606.

These amounts exclude (i) the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed (for example, uncommitted usage or non-recurring charges associated with professional or technical services to be completed), (ii) contracts that are classified as leasing arrangements that are not subject to ASC 606 and (iii) the value of unsatisfied performance obligations for contracts which relate to our planned divestiture.

Contract Costs

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

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

December 31, 2021

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Amortization ( 209 ) ( 149 )

Reclassified as held for sale (1)

( 34 ) ( 32 )

End of period balance $ 222 186

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End of period balance $ 289 216

______________________________________________________________________

(1) Represents the amounts reclassified as held for sale as of December 31, 2021 related to our planned divestitures.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses.

Acquisition costs include commission fees paid to employees as a result of obtaining contracts.

Fulfillment costs include third party and internal costs associated with the provision, installation and activation of telecommunications services to customers, including labor and materials consumed for these activities.

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

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

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

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

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

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

Leases with an initial term of 12 months or less are not recorded on the balance sheet;

Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheets;

we recognize lease expense for these leases on a straight-line basis over the lease term.

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The incremental borrowing rates used for lease accounting are based on our unsecured rates, adjusted to approximate the rates at which we could borrow on a collateralized basis over a term similar to the recognized lease term.

We apply the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term and the reporting entity in which the

lease resides.

We apply the incremental borrowing rates to lease components using a portfolio approach based upon the length of the lease term and the reporting entity in which the lease resides.

Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.

Operating lease assets are included in other, net under goodwill and other assets on our consolidated balance sheets.

Noncurrent operating lease liabilities are included in other under deferred credits and other liabilities on our consolidated balance sheets.

Some of our lease arrangements contain lease components, non-lease components (including common-area maintenance costs) and executory costs (including real estate taxes and insurance costs).

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Many of our lease agreements contain renewal options;

however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless it is determined that we are reasonably certain of renewing the lease at inception or when a triggering event occurs.

however, we do not recognize right-of-use assets or lease liabilities for renewal periods unless we determine that we are reasonably certain of renewing the lease.

Certain leases also include options to purchase the leased property.

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Total lease cost $ 588 777

Lumen Technologies leases various equipment, office facilities, retail outlets and other network sites.

We primarily lease various equipment, office facilities, retail outlets, switching facilities and other network sites.

These leases, with few exceptions, provide for renewal options and escalations that are either fixed or based on the consumer price index.

Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line basis over the lease term.

The lease term for most leases includes the initial non-cancelable term plus any term under renewal options that are reasonably assured.

For the years ended December 31, 2020, 2019 and 2018, our gross rental expense was $ 777 million, $ 733 million and $ 875 million, respectively.

The lease term for most leases includes the initial non-cancelable term plus any term under renewal options that we believe are reasonably assured.

During the years ended December 31, 2021 and 2020, we rationalized our lease footprint and ceased using 23 and 16 underutilized leased property locations, respectively.

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

For the years ended December 31, 2021 and 2020, we incurred accelerated lease costs of approximately $ 35 million and $ 41 million, respectively.

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

For the years ended December 31, 2021, 2020 and 2019, our gross rental expense, including the accelerated lease costs discussed above, was $ 588 million, $ 777 million and $ 733 million, respectively.

We also received sublease rental income for the years ended December 31, 2021, 2020 and 2019 of $ 25 million, $ 25 million and $ 24 million, respectively.

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

Supplemental consolidated balance sheet information and other information related to leases is included below:

As of December 31,

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Finance leases 4.89 % 4.94 %

Supplemental consolidated cash flow statement information related to leases:

At December 31, 2021, we classified certain operating and finance lease assets and liabilities as held for sale and discontinued recording amortization on the related right-of-use assets on the Latin American and ILEC businesses.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.

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

Years Ended December 31,

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Long-term portion $ 1,171 251

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

As of December 31, 2021, we had entered into a $ 15 million finance lease with a deferred commencement date.

Operating Lease Income

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Lease and sublease income are included in operating revenue in the consolidated statements of operations.

For the years ended December 31, 2020, 2019 and 2018, our gross rental income was $ 1.3 billion, $ 1.4 billion and $ 882 million, respectively, which represents 6 %, 7 % and 4 % respectively, of our operating revenue for the years ended December 31, 2020, 2019 and 2018.

For the years ended December 31, 2021, 2020 and 2019, our gross rental income was $ 1.2 billion, $ 1.3 billion and $ 1.4 billion, respectively, which represents 6 %, 6 % and 7 % respectively, of our operating revenue for the years ended December 31, 2021, 2020 and 2019.

(6) Credit Losses on Financial Instruments

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

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

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

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

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

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

We grouped assets from our International and Global Accounts, Enterprise, Small and Medium Business and Wholesale segments into the Business portfolio in the below table.

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

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

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

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

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

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

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

We measure our forecast period based on the average days

to collect payment on billed accounts receivable.

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

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

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

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

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

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

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

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

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

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

In conjunction with our January 2021 internal reorganization, as referenced in Note 17—Segment Information, we pooled certain assets with similar credit risk characteristics based on the nature of our customers, their industry, policies used to grant credit terms and their historical and expected credit loss patterns.

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

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

Business Mass Markets Total

(Dollars in millions)

Beginning balance at January 1, 2021 (1)

Provision for expected losses 50 55 105

Write-offs charged against the allowance ( 76 ) ( 101 ) ( 177 )

Recoveries collected 13 6 19

Reclassified as held for sale (2)

( 8 ) ( 16 ) ( 24 )

Ending balance at December 31, 2021

Business Consumer Total

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Foreign currency exchange rate changes adjustment ( 2 ) — ( 2 )

Ending balance at December 31, 2020

Balance at December 31, 2020 $ 121 70 191

______________________________________________________________________

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

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

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

(1) As described in Note 17—Segment Information, we completed an internal reorganization in January 2021.

As a result of this change, allowance for credit losses previously included in the Consumer and Business portfolio of $ 70 million related to consumer and $ 12 million related to our small business group, respectively, were reclassified to the Mass Markets allowance for credit losses on January 1, 2021.

(2) Represents the amounts reclassified as held for sale related to our pending divestitures.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses.

(3) The beginning balance for the year ended December 31, 2020 includes the cumulative effect of $ 11 million for the adoption of the new credit loss standard.

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

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

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

(7) Long-Term Debt and Credit Facilities

The following chart reflects the consolidated long-term debt of Lumen Technologies and its subsidiaries as of the dates indicated below, including unamortized discounts and premiums and unamortized debt issuance costs, but excluding intercompany debt:

The following chart reflects the consolidated long-term debt of Lumen Technologies, Inc.

and its subsidiaries as of the dates indicated below, including unamortized discounts and premiums and unamortized debt issuance costs, but excluding intercompany debt:

As of December 31,

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Senior Secured Debt:

Lumen Technologies

Revolving Credit Facility (3)

LIBOR + 2.00 %

Lumen Technologies, Inc.

Revolving Credit Facility LIBOR + 2.00 %

2025 $ 200 150

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Senior notes 4.000 %

2027 1,250 1,250

Subsidiaries:

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Senior notes 3.400 % - 3.875 %

2027 - 2029 1,500 1,500

Embarq Corporation subsidiaries

First mortgage bonds 7.125 % - 8.375 %

2023 - 2025 138 138

Senior Notes and Other Debt:

Lumen Technologies

Lumen Technologies, Inc.

Senior notes 4.500 % - 7.650 %

2021 - 2042 8,645 8,696

Subsidiaries:

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Senior notes 3.625 % - 5.375 %

2024 - 2029 5,515 5,515

Qwest Corporation

Senior notes 6.500 % - 7.750 %

2021 - 2057 3,170 5,956

Term loan (6)

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Senior notes 6.875 % - 7.750 %

2021 - 2031 352 352

Embarq Corporation and subsidiary

Senior note 7.995 % 2036 1,437 1,450

Senior notes (7)

7.995 % 2036 — 1,437

Finance lease and other obligations Various Various 347 295

Unamortized discounts, net ( 78 ) ( 52 )

Unamortized premiums (discounts), net 21 ( 78 )

Unamortized debt issuance costs ( 220 ) ( 237 )

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(2) See the remainder of this Note for a description of certain parent or subsidiary guarantees and liens securing this debt.

(3) Lumen's credit agreement was amended as noted below, extending the maturity date of its (a) Term Loan A, Term Loan A-1 and Revolving Credit Facilities from 2022 to 2025 and (b) Term Loan B from 2025 to 2027.

(3) Term Loans A and A-1 had interest rates of 2.104 % and 2.147 % as of December 31, 2021 and December 31, 2020, respectively.

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(5) The Level 3 Tranche B 2027 Term Loan had interest rates of 1.854 % and 1.897 % as of December 31, 2021 and December 31, 2020, respectively.

(7) Qwest Corporation's Term Loan had interest rates of 2.150 % and 3.800 % as of December 31, 2020 and December 31, 2019, respectively.

(6) The Qwest Corporation Term Loan had interest rates of 2.110 % and 2.150 % as of December 31, 2021 and December 31, 2020, respectively.

(7) As of December 31, 2021, the Embarq Senior notes have been reclassified as held for sale.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.

Long-Term Debt Maturities

Set forth below is the aggregate principal amount of our long-term debt as of December 31, 2020 (excluding unamortized discounts, net and unamortized debt issuance costs) maturing during the following years:

Set forth below is the aggregate principal amount of our long-term debt as of December 31, 2021 (excluding unamortized premiums (discounts), net, unamortized debt issuance costs and intercompany debt) maturing during the following years.

As a result of reclassifying our Latin American and ILEC businesses as being held for sale on our December 31, 2021 consolidated balance sheet, the amounts presented below do not include maturities of the debt obligations of those businesses.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.

(Dollars in millions) (1)

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Total long-term debt $ 29,181

Debt of Lumen Technologies and its Subsidiaries

At December 31, 2020, most of our outstanding consolidated debt had been incurred by Lumen Technologies or one of the following four other primary borrowers or “borrowing groups,” each of which has borrowed funds either on a standalone basis or as part of a separate restricted group with certain of its subsidiaries:

______________________________________________________________________

(1) As of December 31, 2021, these amounts exclude $ 1.5 billion of debt and finance lease obligations that have been reclassified as held for sale.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.

Debt of Lumen Technologies, Inc.

and its Subsidiaries

At December 31, 2021, most of our outstanding consolidated debt had been incurred by Lumen Technologies, Inc.

or one of the following four other primary borrowers or “borrowing groups,” each of which has borrowed funds either on a standalone basis or as part of a separate restricted group with certain of its subsidiaries:

• Level 3 Financing, Inc., including its parent guarantor Level 3 Parent, LLC, and one or more subsidiary guarantors;

• Qwest Corporation;

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• Embarq Corporation.

• Level 3 Financing, Inc., including its parent guarantor Level 3 Parent, LLC, and one or more subsidiary guarantors.

Each of these borrowers or borrowing groups has entered into one or more credit agreements with certain financial institutions or other institutional lenders, or issued senior notes.

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Any incremental borrowings would be subject to the same terms and conditions under the Amended Credit Agreement.

The above described January 2020 amendments and related refinancing transactions resulted in an aggregate net loss of $ 67 million from modification and extinguishment of the debt.

The above described January 2020 amendments and related refinancing transactions discussed under "—Repayments" below resulted in an aggregate net loss of $ 67 million from modification and extinguishment of the debt.

Term Loans and Certain Other Debt of Subsidiaries

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

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

Level 3 Financing, Inc .

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under the Tranche B 2027 Term Loan.

The net proceeds from the Tranche B 2027 Term Loan, together with the net proceeds from a concurrent offering of senior secured notes of Level 3 Financing, Inc., were used to pre-pay in full Level 3 Financing's predecessor Tranche B 2024 Term Loan.

Embarq Subsidiaries

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These instruments include letters of credit, which are conditional commitments issued on our behalf in accordance with specified terms and conditions.

Lumen Technologies maintains an uncommitted $ 225 million revolving letter of credit facility separate from the letter of credit facility included in the Amended Credit Facility noted above.

Letters of credit issued under this facility are backed by credit enhancements in the form of secured guarantees issued by certain of our subsidiaries.

As of December 31, 2020 and 2019, our outstanding letters of credit under this credit facility totaled $ 97 million and $ 82 million, respectively.

As of December 31, 2020, Level 3 Parent, LLC had outstanding letters of credit or other similar obligations of approximately $ 18 million, of which $ 11 million was collateralized by cash that is reflected on the consolidated balance sheets as restricted cash.

As of December 31, 2019, Level 3 Parent, LLC had outstanding letters of credit or other similar obligations of approximately $ 23 million of which $ 18 million was collateralized by cash that is reflected on the consolidated balance sheets as restricted cash.

Lumen's consolidated indebtedness at December 31, 2020 included (i) senior secured notes issued by Lumen Technologies and Level 3 Financing, Inc.

and (ii) senior unsecured notes issued by Lumen Technologies, Level 3 Financing, Inc., Qwest Corporation, Qwest Capital Funding, Inc.

Lumen Technologies maintains an uncommitted $ 225 million revolving letter of credit facility separate from the letter of credit facility included in the Revolving Credit Facility noted above.

Letters of credit issued under this uncommitted facility are backed by credit enhancements in the form of secured guarantees issued by certain of our subsidiaries.

As of December 31, 2021 and 2020, our outstanding letters of credit totaled $ 88 million and $ 97 million, respectively, and we had no letters of credit outstanding under our Revolving Credit Facility.

As of December 31, 2021, Level 3 Parent, LLC had outstanding letters of credit or other similar obligations of approximately $ 9 million, of which $ 5 million was collateralized by cash that is reflected on the consolidated balance sheet as restricted cash.

As of December 31, 2020, Level 3 Parent, LLC had outstanding letters of credit or other similar obligations of approximately $ 18 million of which $ 11 million was collateralized by cash that is reflected on the consolidated balance sheet as restricted cash.

None of our conditional commitments under our outstanding letters of credit are reflected as debt on our balance sheets.

Lumen's consolidated indebtedness at December 31, 2021 included (i) senior secured notes issued by Lumen Technologies, Inc.

and Level 3 Financing, Inc.

and (ii) senior unsecured notes issued by Lumen Technologies, Inc., Level 3 Financing, Inc., Qwest Corporation, Qwest Capital Funding, Inc.

and Embarq Corporation.

All of these notes carry fixed interest rates and all principal is due on the notes’ respective maturity dates, which rates and maturity dates are summarized in the table above.

The Lumen Technologies secured senior notes are guaranteed by the same domestic subsidiaries that guarantee the Amended Credit Agreement.

The Lumen Technologies, Inc.

secured senior notes are guaranteed by the same domestic subsidiaries that guarantee the Amended Credit Agreement.

The senior notes issued by Level 3 Financing, Inc.

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Also, under certain circumstances in connection with a "change of control" of Level 3 Parent, LLC or Level 3 Financing, Inc., Level 3 Financing will be required to make an offer to repurchase each series of its outstanding senior notes at a price of 101 % of the principal amount redeemed, plus accrued and unpaid interest.

During 2021, Lumen Technologies and its affiliates redeemed approximately $ 1.1 billion of their respective debt obligations, which primarily included a $ 900 million redemption of Level 3 Financing, Inc.

senior notes and a $ 235 million redemption of Qwest Corporation senior notes.

These transactions resulted in a net gain of $ 8 million.

Additionally, during 2021, Lumen Technologies (i) repaid at maturity approximately $ 2.8 billion of its consolidated debt obligations, which primarily included a $ 1.2 billion repayment at maturity of Lumen senior unsecured notes, a $ 97 million repayment at maturity of Qwest Capital Funding, Inc.

senior notes and a $ 950 million repayment at maturity of Qwest Corporation senior notes, (ii) made $ 125 million of scheduled amortization payments under our term loans and (iii) made payments on its Revolving Credit Facility.

During 2020, Lumen Technologies and its affiliates redeemed approximately $ 6.2 billion of their respective debt obligations, which primarily included $ 1.3 billion of Lumen Technologies credit agreement debt, $ 2.8 billion of Qwest Corporation senior notes, $ 78 million of Lumen Technologies senior notes and $ 2.0 billion of Level 3 Financing, Inc.

senior notes.

These transactions resulted in a net loss of $ 109 million, including the $ 67 million loss resulting from the modification of the Amended Credit Agreement discussed above.

Additionally, during 2020, Lumen Technologies (i) repaid at maturity $ 973 million aggregate principal amount of its outstanding senior notes and (ii) made $ 125 million of scheduled amortization payments under our term loans.

New Issuances

On November 27, 2020, Lumen Technologies issued $ 1.0 billion of 4.500 % Senior Notes due 2029.

On June 15, 2021, Lumen Technologies, Inc.

issued $ 1.0 billion aggregate principal amount of 5.375 % Senior Notes due 2029 (the "2029 Notes").

The net proceeds were used, together with cash on hand, to repay at maturity our outstanding $ 1.2 billion 6.450 % Senior Notes, Series S, due 2021.

On January 13, 2021, Level 3 Financing, Inc.

issued $ 900 million aggregate principal amount of 3.750 % Sustainability-Linked Senior Notes due 2029 (the "Sustainability-Linked Notes").

The net proceeds were used, together with cash on hand, to redeem $ 900 million of our outstanding senior note indebtedness.

The Sustainability-Linked Notes are guaranteed by Level 3 Parent, LLC and Level 3 Communications, LLC.

On November 27, 2020, Lumen Technologies, Inc.

issued $ 1.0 billion of 4.500 % Senior Notes due 2029.

The proceeds from this offering were used to redeem outstanding senior notes of Qwest Corporation and reduce borrowings under the Revolving Credit Facility.

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The 2028 Notes are guaranteed by Level 3 Parent, LLC and Level 3 Communications, LLC.

On January 24, 2020, Lumen Technologies issued $ 1.25 billion aggregate principal amount of its 4.000 % Senior Secured Notes due 2027 (the “2027 Notes”).

Lumen Technologies used the net proceeds from this offering to repay a portion of the outstanding indebtedness under its Term Loan B facility.

On January 24, 2020, Lumen Technologies, Inc.

issued $ 1.25 billion aggregate principal amount of its 4.000 % Senior Secured Notes due 2027 (the “2027 Notes”).

Lumen Technologies, Inc.

used the net proceeds from this offering to repay a portion of the outstanding indebtedness under its Term Loan B facility.

The 2027 Notes are guaranteed by each of Lumen’s domestic subsidiaries that guarantees Lumen's Amended Credit Agreement, subject to various exceptions and limitations.

While the 2027 Notes are not secured by any of the assets of Lumen Technologies, certain of the note guarantees are secured by a first priority security interest in substantially all of the assets of such guarantors (including the stock of certain of their respective subsidiaries), which assets also secure obligations under the Amended Credit Agreement on a pari passu basis.

On December 16, 2019, Lumen Technologies issued $ 1.25 billion of 5.125 % Senior Notes due 2026.

The proceeds from the offering were primarily used to fully redeem on January 15, 2020 the $ 1.1 billion of senior notes of Qwest Corporation.

On November 29, 2019, Level 3 Financing, Inc.

issued $ 750 million of 3.400 % Senior Secured Notes due 2027 and $ 750 million of 3.875 % Senior Secured Notes due 2029.

The proceeds from the offering together with cash on hand were primarily used to redeem a portion of the $ 4.611 billion Tranche B 2024 Term Loan that was repaid on November 29, 2019.

On November 29, 2019, Level 3 Financing, Inc.

entered into an amendment to its credit agreement to incur $ 3.111 billion in aggregate borrowings under the agreement through the Tranche B 2027 Term Loan discussed above.

On September 25, 2019, Level 3 Financing, Inc.

issued $ 1.0 billion of 4.625 % Senior Notes due 2027.

The proceeds from the offering together with cash on hand were used to redeem $ 600 million outstanding principal amount of Level 3 Parent, LLC's senior notes and $ 400 million Level 3 Financing, Inc.'s senior notes.

During 2020, Lumen Technologies and its affiliates repurchased approximately $ 6.2 billion of their respective debt securities, which primarily included $ 1.3 billion of Lumen Technologies credit agreement debt, $ 2.8 billion of Qwest Corporation senior notes, $ 78 million of Lumen Technologies senior notes and $ 2.0 billion of Level 3 Financing, Inc.

senior notes, which resulted in a loss of $ 109 million, including the $ 67 million loss resulting from the modification of the Amended Credit Agreement discussed above.

Additionally, during 2020, Lumen Technologies (i) paid at maturity $ 973 million aggregate principal amount of its outstanding senior notes and (ii) made $ 125 million of scheduled amortization payments under its term loans.

During 2019, Lumen Technologies and its affiliates repurchased approximately $ 3.6 billion of their respective debt securities, which primarily included approximately $ 2.3 billion of Level 3 Financing, Inc.

senior notes and term loan, $ 600 million of Level 3 Parent, LLC senior notes, $ 345 million of Qwest Capital Funding senior notes and $ 340 million of Lumen Technologies senior notes, which resulted in an aggregate net gain of $ 72 million.

Additionally during 2019, Lumen paid $ 398 million of its maturing senior notes and $ 164 million of amortization payments under its term loans.

While the 2027 Notes are not secured by any of the assets of Lumen Technologies, Inc., certain of the note guarantees are secured by a first priority security interest in substantially all of the assets of such guarantors (including the stock of certain of their respective subsidiaries), which assets also secure obligations under the Amended Credit Agreement on a pari passu basis.

Interest Expense

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Total interest expense $ 1,522 1,668 2,021

Lumen Technologies

Lumen Technologies, Inc.

With respect to the Term Loan A and A-1 facilities and the Revolving Credit Facility, the Amended Credit Agreement requires us to maintain (i) a maximum total leverage ratio of not more than 4.75 to 1.00 and (ii) a minimum consolidated interest coverage ratio of at least 2.00 to 1.00, with such ratios being determined and calculated in the manner described in the Amended Credit Agreement.

The Amended Secured Credit Facilities contain various representations and warranties and extensive affirmative and negative covenants.

Such covenants include, among other things and subject to certain significant exceptions, restrictions on our ability to declare or pay dividends, repurchase stock, repay certain other indebtedness, create liens, incur additional indebtedness, make investments, engage in transactions with its affiliates, dispose of assets and merge or consolidate with any other person.

The senior notes of Lumen Technologies were issued under four separate indentures.

These indentures restrict our ability to (i) incur, issue or create liens upon the property of Lumen Technologies and (ii) consolidate with or merge into, or transfer or lease all or substantially all of our assets to any other party.

The indentures do not contain any provisions that restrict the issuance of new securities in the event of a material adverse change to us.

However, as indicated above under "Senior Notes", Lumen Technologies will be required to offer to purchase certain of its long-term debt securities issued under its indentures under certain circumstances in connection with a "change of control" of Lumen Technologies.

Such covenants include, among other things and subject to certain significant exceptions, restrictions on our ability to declare or pay dividends, repurchase stock, repay certain other indebtedness, create liens, incur additional indebtedness, make investments, engage in transactions with our affiliates, dispose of assets and merge or consolidate with any other person.

The senior unsecured notes of Lumen Technologies, Inc.

were issued under four separate indentures.

These indentures restrict our ability to (i) incur, issue or create liens upon the property of Lumen Technologies, Inc.

and (ii) consolidate with or merge into, or transfer or lease all or substantially all of our assets to any other party.

These indentures do not contain any provisions that restrict the issuance of new securities in the event of a material adverse change to us.

The senior secured notes of Lumen Technologies, Inc.

were issued under a separate indenture that contains a more restrictive set of covenants.

As indicated above under "Senior Notes", Lumen Technologies, Inc.

will be required to offer to purchase certain of its long-term debt securities issued under its indentures under certain circumstances in connection with a "change of control" of Lumen Technologies, Inc.

Level 3 Companies

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Under its term loan, Qwest Corporation must maintain a debt to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio of not more than 2.85 to 1.00, as determined and calculated in the manner described in the applicable term loan documentation.

The term loan also contains a negative pledge covenant, which generally requires Qwest Corporation to secure equally and ratably any advances under the term loan if it pledges assets or permit liens on its property for the benefit of other debtholders.

The term loan also contains a negative pledge covenant, which generally requires Qwest Corporation to secure equally and ratably any advances under the term loan if it pledges assets or permits liens on its property for the benefit of other debtholders.

The senior notes of Qwest Corporation were issued under indentures dated April 15, 1990 and October 15, 1999.

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were issued under an indenture dated June 29, 1998 containing terms substantially similar to those set forth in Qwest Corporation's indentures.

Embarq's senior note was issued pursuant to an indenture dated as of May 17, 2006.

Embarq's senior notes (which, as indicated above, were classified as held for sale at December 31, 2021) were issued pursuant to an indenture dated as of May 17, 2006.

While Embarq is generally prohibited from creating liens on its property unless its senior notes are secured equally and ratably, Embarq can create liens on its property without equally and ratably securing its senior notes so long as the sum of all indebtedness so secured does not exceed 15 % of Embarq's consolidated net tangible assets.

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Impact of Covenants

The debt covenants applicable to Lumen Technologies and its subsidiaries could materially adversely affect their ability to operate or expand their respective businesses, to pursue strategic transactions, or to otherwise pursue their plans and strategies.

The covenants of the Level 3 companies may significantly restrict the ability of Lumen Technologies to receive cash from the Level 3 companies, to distribute cash from the Level 3 companies to other of Lumen’s affiliated entities, or to enter into other transactions among Lumen’s wholly-owned entities.

Certain of the debt instruments of Lumen Technologies and its subsidiaries contain cross payment default or cross acceleration provisions.

The debt covenants applicable to Lumen Technologies, Inc.

and its subsidiaries could have a material adverse impact on their ability to operate or expand their respective businesses, to pursue strategic transactions, or to otherwise pursue their plans and strategies.

The covenants of the Level 3 companies may significantly restrict the ability of Lumen Technologies, Inc.

to receive cash from the Level 3 companies, to distribute cash from the Level 3 companies to other of Lumen’s affiliated entities, or to enter into other transactions among Lumen’s wholly-owned entities.

Certain of the debt instruments of Lumen Technologies, Inc.

and its subsidiaries contain cross payment default or cross acceleration provisions.

When present, these provisions could have a wider impact on liquidity than might otherwise arise from a default or acceleration of a single debt instrument.

The ability of Lumen Technologies and its subsidiaries to comply with the financial covenants in their respective debt instruments could be adversely impacted by a wide variety of events, including unforeseen contingencies, many of which are beyond their control.

At December 31, 2020, Lumen Technologies believes it and its subsidiaries were in compliance with the provisions and financial covenants contained in their respective material debt agreements in all material respects.

Lumen Technologies does not guarantee the debt of any unaffiliated parties, but, as noted above, as of December 31, 2020 certain of its largest subsidiaries guaranteed (i) its debt and letters of credit outstanding under its Amended Credit Agreement, its senior secured notes and its $ 225 million letter of credit facility and (ii) the outstanding term loans or senior notes issued by certain other subsidiaries.

The ability of Lumen Technologies, Inc.

and its subsidiaries to comply with the financial covenants in their respective debt instruments could be adversely impacted by a wide variety of events, including unforeseen contingencies, many of which are beyond their control.

As of December 31, 2021, Lumen Technologies, Inc.

believes it and its subsidiaries were in compliance with the provisions and financial covenants in their respective material debt agreements in all material respects.

Lumen Technologies does not guarantee the debt of any unaffiliated parties, but, as noted above, as of December 31, 2021 certain of its largest subsidiaries guaranteed (i) its debt outstanding under its Amended Secured Credit Facilities, its senior secured notes and its $ 225 million letter of credit facility and (ii) the outstanding term loans or senior notes issued by certain other subsidiaries.

As further noted above, several of the subsidiaries guaranteeing these obligations have pledged substantially all of their assets to secure their respective guarantees.

Subsequent Events

On January 13, 2021, Level 3 Financing, Inc.

issued $ 900 million aggregate principal amount of 3.750 % Sustainability-Linked Senior Notes due 2029 (the "Sustainability-Linked Notes").

The net proceeds were used, together with cash on hand, to redeem all $ 900 million aggregate principal amount of Level 3 Financing, Inc.'s outstanding 5.375 % Senior Notes due 2024 (the "5.375% Notes") on February 12, 2021.

Following this redemption there were no bonds outstanding for the 5.375 % Notes.

The Sustainability-Linked Notes are (i) guaranteed by Level 3 Parent, LLC and (ii) expected to be guaranteed by Level 3 Communications, LLC, upon the receipt of all requisite material governmental authorizations.

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

(8) Accounts Receivable

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(1) On January 1, 2020, we adopted ASU 2016-13 "Measurement of Credit Losses on Financial Instruments" and recognized a cumulative adjustment to our accumulated deficit as of the date of adoption of $ 9 million, net of $ 2 million tax effect.

This adjustment is included within "Deductions".

Please refer to Note 5 - Credit Losses on Financial instruments for more information.

This adjustment is included within "Deductions." See Note 6—Credit Losses on Financial Instruments for more information.

(9) Property, Plant and Equipment

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

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

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

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(4) Construction in progress includes inventory held for construction and property of the aforementioned categories that has not been placed in service as it is still under construction.

At December 31, 2021, we classified $ 5.1 billion of certain property, plant and equipment, net as held for sale and discontinued recording depreciation on these disposal groups.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.

We recorded depreciation expense of $ 2.7 billion, $ 3.0 billion and $ 3.1 billion for the years ended December 31, 2021, 2020 and 2019, respectively.

Asset Retirement Obligations

At December 31, 2020, our asset retirement obligations balance was primarily related to estimated future costs of removing equipment from leased properties and estimated future costs of properly disposing of asbestos and other hazardous materials upon remodeling or demolishing buildings.

As of December 31, 2021 and 2020, our asset retirement obligations balance was primarily related to estimated future costs of removing equipment from leased properties and estimated future costs of properly disposing of asbestos and other hazardous materials upon remodeling or demolishing buildings.

Asset retirement obligations are included in other long-term liabilities on our consolidated balance sheets.

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Accretion expense 10 10 11

Liabilities assumed in acquisition of Level 3 (1)

Liabilities settled ( 13 ) ( 8 ) ( 14 )

Change in estimate ( 2 ) — 10

Reclassified as held for sale (1)

Balance at end of year $ 182 199 197

_______________________________________________________________________________

(1) The liabilities assumed during 2018 relate to purchase price adjustments during the year.

The 2019 and 2018 change in estimates are offset against gross property, plant and equipment.

(1) Represents the amounts reclassified as held for sale related to our planned divestitures.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses.

The 2019 and 2021 changes in estimates referred to in the table above were offset against gross property, plant and equipment.

(10) Severance

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As described in Note 17—Segment Information, we do not allocate these severance expenses to our segments.

Under prior GAAP, we had previously recognized liabilities to reflect our estimates of the fair values of the existing lease obligations for real estate which we have ceased using, net of estimated sublease rentals.

In accordance with transitional guidance under the new lease standard (ASC 842), the existing lease obligation of $ 110 million as of January 1, 2019 was netted against the operating lease right of use assets at adoption.

For additional information, see Note 4—Leases to our consolidated financial statements in Item 8 of Part II of this report.

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

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Our funding policy for our Combined Pension Plan is to make contributions with the objective of accumulating ample assets to pay all qualified pension benefits when due under the terms of the plan.

The accounting unfunded status of the Combined Pension Plan was $ 1.7 billion as of December 31, 2020 and 2019.

We made no voluntary cash contributions to the Combined Pension Plan in 2020 and 2019 and paid $ 5 million of benefits directly to participants of our non-qualified pension plans in both 2020 and 2019.

Based on current laws and circumstances, we do not believe we are required to make any contributions to the Combined Pension Plan in 2021, but the Company could make voluntary contributions to the trust for the Combined Pension Plan in 2021.

The accounting unfunded status of the Combined Pension Plan was $ 1.1 billion and $ 1.7 billion as of December 31, 2021 and 2020, respectively.

We made no voluntary cash contributions to the Combined Pension Plan in 2021 and 2020, respectively, and paid $ 5 million of benefits directly to participants of our non-qualified pension plans in 2021 and 2020, respectively.

Benefits paid by the Combined Pension Plan are paid through a trust that holds all of the Plan's assets.

The amount of required contributions to the Combined Pension Plan in 2022 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.

Based on current laws and circumstances, we do not believe we are required to make any contributions to the Combined Pension Plan in 2022.

We do not expect to make voluntary contributions to the trust for the Combined Pension Plan in 2022.

We estimate that in 2022 we will pay $ 4 million of benefits directly to participants of our non-qualified pension plans.

We recognize in our balance sheet the funded status of the legacy Level 3 defined benefit post-retirement plans.

We recognize in our consolidated balance sheets the funded status of the legacy Level 3 defined benefit post-retirement plans.

The net unfunded status of these plans was $ 17 million and $ 33 million, as of December 31, 2021 and 2020, respectively.

Additionally, as previously mentioned, we sponsor unfunded non-qualified pension plans for certain current and former highly-compensated employees.

The net unfunded status of our non-qualified pension plans was $ 51 million for both the years ended December 31, 2020 and 2019.

The net unfunded status of our non-qualified pension plans was $ 46 million and $ 51 million for the years ended December 31, 2021 and 2020, respectively.

Due to the insignificant impact of these pension plans on our consolidated financial statements, we have predominantly excluded them from the remaining employee benefit disclosures in this Note, unless specifically stated.

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The post-retirement benefits not paid by the trusts are funded by us and we expect to continue funding these post-retirement obligations as benefits are paid.

The accounting unfunded status of our qualified post-retirement benefit plan was $ 3.0 billion as of December 31, 2020 and 2019.

The accounting unfunded status of our qualified post-retirement benefit plan was $ 2.8 billion and $ 3.0 billion as of December 31, 2021 and 2020, respectively.

Assets in the post-retirement trusts were substantially depleted as of December 31, 2016;

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2027 - 2031 2,978 899 ( 10 )

Net Periodic Benefit Expense

Net Periodic Benefit Expense (Income)

We utilize a full yield curve approach in connection with estimating the service and interest components of net periodic benefit expense by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flow.

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1.69 % - 3.35 %

3.84 % - 4.38 %

Rate of compensation increase 3.25 % 3.25 % 3.25 % N/A N/A N/A

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(1) Rates are presented net of projected fees and administrative costs.

Net periodic benefit (income) expense for our Combined Pension Plan includes the following components:

Net periodic benefit expense (income) for our Combined Pension Plan includes the following components:

Combined Pension Plan

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Expected return on plan assets ( 535 ) ( 593 ) ( 618 )

Settlement charges 383 — —

Special termination benefits charge 6 13 6

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Recognition of actuarial loss 184 202 223

Net periodic pension benefit (income) expense $ ( 4 ) 95 ( 42 )

Net periodic pension expense (income) $ 286 ( 4 ) 95

Net periodic benefit expense for our post-retirement benefit plans includes the following components:

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Recognition of prior service cost 15 16 16

Recognition of actuarial loss 4 — —

Curtailment loss — 8 —

Net periodic post-retirement benefit expense $ 80 106 140

We report service costs for our Combined Pension Plan and post-retirement benefit plans in cost of services and products and selling, general and administrative expenses in our consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018.

Service costs for our Combined Pension Plan and post-retirement benefit plans are included in the cost of services and products and selling, general and administrative line items on our consolidated statements of operations and all other costs listed above are included in other expense, net on our consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019.

Additionally, a portion of the service cost is also allocated to certain assets under construction, which are capitalized and reflected as part of property, plant and equipment in our consolidated balance sheets.

The remaining components of net periodic benefit expense are reported in other income, net in our consolidated statements of operations.

As a result of ongoing efforts to reduce our workforce, we recognized a one-time charge in 2020 of $ 21 million, in 2019 of $ 6 million and in 2018 of $ 15 million for special termination benefit enhancements paid to certain eligible employees upon voluntary retirement.

As a result of ongoing efforts to reduce our workforce, we recognized one-time charges in 2021 of $ 6 million, in 2020 of $ 21 million and in 2019 of $ 6 million for curtailment and special termination benefit enhancements paid to certain eligible employees upon voluntary retirement.

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

We record an accounting settlement charge, consisting of the recognition of certain deferred costs of the pension plan associated with these lump sum payments only if, in the aggregate, they exceed or are probable to 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.

The lump sum pension settlement payments for 2021 exceeded the settlement threshold.

In addition, during the fourth quarter of 2021, we executed an annuity purchase contract with a third party insurer that triggered additional settlement activity (see “Pension Annuitization” section below for further information).

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

This non-cash charge reduced our recorded net income and increased our recorded accumulated deficit, with an offset to accumulated other comprehensive loss in shareholders' equity 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.

Benefit Obligations

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N/A - Not applicable

In 2020, 2019 and 2018, we adopted the revised mortality tables and projection scales released by the Society of Actuaries, which decreased the projected benefit obligation of our benefit plans by $ 3 million, $ 4 million and $ 38 million, respectively.

In 2021, 2020 and 2019, we adopted the revised mortality tables and projection scales released by the Society of Actuaries, which increased the projected benefit obligation of our benefit plans by $ 37 million for 2021 and decreased the projected benefit obligation of our benefit plans by $ 3 million and $ 4 million for 2020 and 2019, respectively.

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 8 years as of December 31, 2021.

The short-term and long-term interest crediting rates during 2021 for cash balance components of the Combined Pension Plan were 1.5 % and 3.5 %, respectively.

The following tables summarize the change in the benefit obligations for the Combined Pension Plan and post-retirement benefit plans:

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Special termination benefits charge 6 13 6

Actuarial loss (gain) 749 1,249 ( 765 )

Actuarial (gain) loss ( 337 ) 749 1,249

Benefits paid from plan assets ( 766 ) ( 1,157 ) ( 1,115 )

Settlement payments and annuity purchase ( 1,671 ) — —

Benefit obligation at end of year $ 9,678 12,202 12,217

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Direct subsidy receipts 3 6 7

Plan Amendment — — ( 36 )

Actuarial loss (gain) 134 180 ( 224 )

Actuarial (gain) loss ( 125 ) 134 180

Curtailment loss — 4 —

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Benefit obligation at end of year $ 2,781 3,048 3,037

Pension Annuitization

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 approximately $ 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.

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

Transferred Participants’ benefits were not reduced as a result of this transaction.

We maintain plan assets for our Combined Pension Plan and certain post-retirement benefit plans.

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Due to the insignificance of these assets on our consolidated financial statements, we have predominantly excluded them from the disclosures of plan assets in this Note, unless otherwise indicated.

The following tables summarize the change in the fair value of plan assets for the Combined Pension Plan:

The following table summarizes the change in the fair value of plan assets for the Combined Pension Plan:

Combined Pension Plan

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Return on plan assets 422 1,210 1,575

Employer contributions — — 500

Benefits paid from plan assets ( 766 ) ( 1,157 ) ( 1,115 )

Settlement payments and annuity purchase ( 1,671 ) — —

Fair value of plan assets at end of year $ 8,531 10,546 10,493

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Administrative expenses, including projected PBGC (Pension Benefit Guaranty Corporation) premiums reduce the annual long-term expected return net of administrative expenses to 5.5 %.

The short-term and long-term interest crediting rates during 2020 for cash balance components of the Combined Pension Plan were 2.25 % and 4.0 %, respectively.

Permitted investments:

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• Level 1—Assets were valued using the closing price reported in the active market in which the individual security was traded.

Treasury securities are valued at the bid price reported in an active market in which the security is traded.

Variation margin due from/(to) brokers is valued at the expected next day cash settlement amount.

• Level 2—Assets were valued using quoted prices in markets that are not active, broker dealer quotations, and other methods by which all significant inputs were observable at the measurement date.

Fixed income securities primarily utilize observable market information and are based on a spread to U.S.

Treasury securities and consider yields available on comparable securities of issuers with similar credit ratings, the new issue market for similar securities, secondary trading markets and dealer quotes.

Option adjusted spread models are utilized to evaluate fixed income securities that have early redemption features.

Derivative securities traded over the counter are valued based on gains or losses due to fluctuations in indices, interest rates, foreign currency exchange rates, security prices or other underlying factors.

Repurchase agreements are valued based on expected settlement per the contract terms.

• Level 3—Assets were valued using unobservable inputs in which little or no market data exists as reported by the respective institutions at the measurement date.

Valuation methods may consider a range of factors, including estimates based on the assumptions of the investment entity or actuarial assumptions of insurers for valuing Group Annuity Contracts.

The plan's assets are invested in various asset categories utilizing multiple strategies and investment managers.

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stocks (e) 256 — — 256

Private debt (h) — — — —

Multi-asset strategies (l) 41 — — 41

Repurchase agreements (n) — — — —

Derivatives (m) — 1 — 1

Cash equivalents and short-term investments (o) 2 379 — 381

Total investments, excluding investments valued at NAV $ 1,555 4,468 11 6,034

Derivatives (m) $ — ( 1 ) — ( 1 )

Repurchase agreements (n) $ — ( 193 ) — ( 193 )

Investments valued at NAV 2,690

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stocks (e) 593 1 — 594

Private debt (h) — — 16 16

Multi-asset strategies (l) 199 — — 199

Repurchase agreements (n) — 39 — 39

Cash equivalents and short-term investments (o) — 281 — 281

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Total investments valued at NAV $ 2,690 3,368

Below is an overview of the asset categories, the underlying strategies and valuation inputs used to value the assets in the preceding tables:

Below is an overview of the asset categories and the underlying strategies used in the preceding tables:

(a) Investment grade bonds represent investments in fixed income securities as well as commingled bond funds comprised of U.S.

Treasury securities, agencies, corporate bonds, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities.

Treasury securities are valued at the bid price reported in the active market in which the security is traded and are classified as Level 1.

The valuation inputs of other investment grade bonds primarily utilize observable market information and are based on a spread to U.S.

Treasury securities and consider yields available on comparable securities of issuers with similar credit ratings.

The primary observable inputs include references to the new issue market for similar securities, the secondary trading markets and dealer quotes.

Option adjusted spread models are utilized to evaluate securities such as asset backed securities that have early redemption features.

These securities are classified as Level 2.

NAV funds' underlying investments in this category are valued using the same inputs.

(b) High yield bonds represent investments in below investment grade fixed income securities as well as commingled high yield bond funds.

The valuation inputs for the securities primarily utilize observable market information and are based on a spread to U.S.

Treasury securities and consider yields available on comparable securities of issuers with similar credit ratings.

These securities are primarily classified as Level 2.

Securities whose valuation inputs are not based on observable market information are classified as Level 3.

NAV funds' underlying investments in this category are valued using the same inputs.

(c) Emerging market bonds represent investments in securities issued by governments and other entities located in emerging countries as well as registered mutual funds and commingled emerging market bond funds.

The valuation inputs for the securities utilize observable market information and are primarily based on dealer quotes or a spread relative to the local government bonds.

The registered mutual fund is classified as Level 1 while individual securities are primarily classified as Level 2.

stocks represent investments in stocks of U.S.

based companies as well as commingled U.S.

The valuation inputs for U.S.

stocks are based on the last published price reported on the major stock market on which the securities are traded and are primarily classified as Level 1.

Securities that are not actively traded but can be directly or indirectly observable are classified as Level 2.

Securities whose valuation inputs are not based on observable market information are classified as Level 3.

NAV funds' underlying investments in this category are valued using the same inputs.

stocks represent investments in stocks of companies based in developed countries outside the U.S.

as well as commingled funds.

The valuation inputs for these non-U.S.

stocks are based on the last published price reported on the major stock market on which the securities are traded and are primarily classified as Level 1.

NAV funds' underlying investments in this category are valued using the same inputs.

(f) Emerging market stocks represent investments in commingled funds comprised of stocks of companies located in emerging markets.

NAV funds' underlying investments in this category are valued using the same inputs.

(g) Private equity represents non-public investments in domestic and foreign buy out and venture capital funds.

Private equity funds are primarily structured as limited partnerships and are valued according to the valuation policy of each partnership, subject to prevailing accounting and other regulatory guidelines.

The partnerships are valued at NAV using valuation methodologies that consider a range of factors, including but not limited to the price at which investments were acquired, the nature of the investments, market conditions, trading values on comparable public securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investments.

These valuation methodologies involve a significant degree of judgment.

(h) Private debt represents non-public investments in distressed or mezzanine debt funds and pension group insurance contracts.

Pension group insurance contracts are valued based on actuarial assumptions and are classified as Level 3.

Mezzanine debt instruments are debt instruments that are subordinated to other debt issues and may include embedded equity instruments such as warrants.

Private debt funds are primarily structured as limited partnerships and are valued at NAV according to the valuation policy of each partnership, subject to prevailing accounting and other regulatory guidelines.

The valuation of underlying fund investments is based on factors including the issuer's current and projected credit worthiness, the securities' terms, reference to the securities of comparable companies, and other market factors.

These valuation methodologies involve a significant degree of judgment.

(i) Market neutral hedge funds hold investments in a diversified mix of instruments that are intended in combination to exhibit low correlations to market fluctuations.

These investments are typically combined with futures to achieve uncorrelated excess returns over various markets.

Hedge funds are valued at NAV based on the market value of the underlying investments which include publicly traded equity and fixed income securities and privately negotiated debt securities.

(j) Directional hedge funds —This asset category represents investments that may exhibit somewhat higher correlations to market fluctuations than the market neutral hedge funds.

Investments in hedge funds include both direct investments and investments in diversified funds of funds.

Hedge funds are valued at NAV based on the market value of the underlying investments which include publicly traded equity and fixed income securities and privately negotiated debt securities.

(k) Real estate represents investments in commingled funds and limited partnerships that invest in a diversified portfolio of real estate properties.

These investments are valued at NAV according to the valuation policy of each fund or partnership, subject to prevailing accounting and other regulatory guidelines.

The valuation inputs of the underlying properties are generally based on third-party appraisals that use comparable sales or a projection of future cash flows to determine fair value.

These valuation methodologies involve a significant degree of judgment.

(l) Multi-asset strategies represent broadly diversified strategies that have the flexibility to tactically adjust exposures to different asset classes through time.

This asset category includes investments in registered mutual funds which are classified as Level 1 and may include commingled funds which are valued at NAV based on the market value of the underlying investments.

(m) Derivatives include exchange traded futures contracts which are classified as Level 1, as well as privately negotiated over the counter contracts that are classified as Level 2.

(m) Derivatives include exchange traded futures contracts as well as privately negotiated over the counter contracts.

The market values represent gains or losses that occur due to differences between stated contract terms and fluctuations in underlying market instruments.

(n) Repurchase Agreements includes contracts where the security owner sells a security with the agreement to buy it back at a future date and price.

Agreements are valued based on expected settlement terms and are classified as Level 2.

(o) Cash equivalents and short-term investments represent investments that are used in conjunction with derivatives positions or are used to provide liquidity for the payment of benefits or other purposes.

The valuation inputs of securities are based on a spread to U.S.

Treasury Bills, the Federal Funds Rate, or London Interbank Offered Rate and consider yields available on comparable securities of issuers with similar credit ratings and are primarily classified as Level 2.

The commingled funds are valued at NAV based on the market value of the underlying investments using the same valuation inputs described above.

Derivative instruments:

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The notional amount of the derivatives corresponds to market exposure but does not represent an actual cash investment.

Our post-retirement plans were not invested in derivative instruments for the years ended December 31, 2020 or 2019.

Gross Notional Exposure

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Balance at December 31, 2020 6 2 — 8

Acquisitions (dispositions) 1 — ( 17 ) ( 16 )

Actual return on plan assets — 3 — 3

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These allocations also impact our calculation of net acquisitions and dispositions.

For the year ended December 31, 2020, the investment program produced actual gains on Combined Pension Plan assets of $ 1.2 billion as compared to expected returns of $ 593 million for a difference of $ 618 million.

For the year ended December 31, 2019, the investment program produced actual gains on Combined Pension Plan assets of $ 1.6 billion as compared to the expected returns of $ 618 million for a difference of $ 1.0 billion.

For the year ended December 31, 2021, the investment program produced actual gains on Combined Pension Plan assets of $ 422 million as compared to expected returns of $ 535 million, for a difference of $ 113 million.

For the year ended December 31, 2020, the investment program produced actual gains on Combined Pension Plan assets of $ 1.2 billion as compared to the expected returns of $ 593 million, for a difference of $ 618 million.

The short-term annual returns on plan assets will almost always be different from the expected long-term returns and the plans could experience net gains or losses, due primarily to the volatility occurring in the financial markets during any given year.

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(Dollars in millions)

Accumulated other comprehensive loss:

Accumulated other comprehensive (loss) income

Pension plans:

Net actuarial (loss) gain $ ( 2,993 ) 186 243 429 ( 2,564 )

Settlement charge — 383 — 383 383

Prior service benefit (cost) 41 ( 9 ) 13 4 45

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Total post-retirement benefit plans ( 272 ) 14 94 108 ( 164 )

Total accumulated other comprehensive loss $ ( 2,413 ) 162 ( 218 ) ( 56 ) ( 2,469 )

Total accumulated other comprehensive (loss) income $ ( 2,469 ) 437 291 728 ( 1,741 )

The following table presents cumulative items not recognized as a component of net periodic benefits expense as of December 31, 2019, items recognized as a component of net periodic benefits expense in 2020, additional items deferred during 2020 and cumulative items not recognized as a component of net periodic benefits expense as of December 31, 2019.

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(Dollars in millions)

Accumulated other comprehensive loss:

Accumulated other comprehensive (loss) income

Pension plans:

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Post-retirement benefit plans:

Net actuarial gain (loss) 7 — ( 182 ) ( 182 ) ( 175 )

Net actuarial (loss) gain ( 175 ) — ( 171 ) ( 171 ) ( 346 )

Prior service (cost) benefit ( 71 ) 16 35 51 ( 20 )

Curtailment loss — 4 — 4 4

Deferred income tax benefit (expense) 62 ( 5 ) 33 28 90

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We sponsor a qualified defined contribution plan covering substantially all of our U.S.

Under this plan, employees may contribute a percentage of their annual compensation up to certain maximums, as defined by the plan and by the Internal Revenue Service ("IRS").

Under this plan, employees may contribute a percentage of their annual compensation up to certain maximums, as defined by the plan and by the Internal Revenue Service.

Currently, we match a percentage of employee contributions in cash.

At December 31, 2020 and 2019, the assets of the plan included approximately 11 million shares of our common stock all of which were the result of the combination of previous employer match and participant directed contributions.

At December 31, 2021 and 2020, the assets of the plan included approximately 10 million and 11 million shares of our common stock, respectively, all of which were the result of the combination of previous employer match and participant directed contributions.

We recognized expenses related to this plan of $ 96 million, $ 101 million and $ 113 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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The value of liabilities related to these plans was not significant.

(11) Share-based Compensation

Subsequent Event

As of January 1, 2022, a new pension plan (the "Lumen Pension Plan") was spun off from the Lumen Combined Pension Plan in anticipation of the sale of the ILEC business, as described further in Note 2—Planned Divestiture of the Latin American and ILEC Businesses.

The Lumen Pension Plan covers approximately 2,500 active plan participants along with 19,000 other participants, resulting in a pension benefit obligation of $ 2.5 billion and assets of $ 2.2 billion allocated to the Lumen Pension Plan.

In addition, the December 31, 2021 actuarial (loss) gain and prior service cost included in accumulated other comprehensive loss was allocated to the Lumen Pension Plan or the Lumen Combined Pension Plan.

The amounts allocated to the Lumen Pension Plan are subject to adjustment up to the closing of the sale of the ILEC business.

We will recognize pension costs related to both plans during 2022 until the sale of the ILEC business, at which time balances related to the Lumen Pension Plan will be included in the calculation of our gain on the sale of the business.

(12) Stock-based Compensation

We maintain an equity incentive program that allows our Board of Directors (through its Compensation Committee or a senior officer acting under delegated authority) to grant incentives to certain employees and outside directors in one or more forms, including:

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Stock options generally expire ten years from the date of grant.

Stock Options

We had 469,000 options outstanding as of December 31, 2019.

The total intrinsic value of options exercised for the years ended December 31, 2019 and 2018, was less than $ 1 million each year.

During 2020, virtually all remaining stock options expired or were forfeited.

There was an insignificant amount of outstanding stock options as of December 31, 2020 and none as of December 31, 2021.

Restricted Stock Awards and Restricted Stock Unit Awards

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Compensation Expense and Tax Benefit

We recognize compensation expense related to our market and performance share-based awards with graded vesting that only have a service condition on a straight-line basis over the requisite service period for the entire award.

Total compensation expense for all share-based payment arrangements for the years ended December 31, 2020, 2019 and 2018, was $ 175 million, $ 162 million and $ 186 million, respectively.

Our tax benefit recognized in the consolidated statements of operations for our share-based payment arrangements for the years ended December 31, 2020, 2019 and 2018, was $ 43 million, $ 39 million and $ 46 million, respectively.

At December 31, 2020, there was $ 117 million of total unrecognized compensation expense related to our share-based payment arrangements, which we expect to recognize over a weighted-average period of 1.5 years.

(12) Loss Per Common Share

Basic and diluted loss per common share for the years ended December 31, 2020, 2019 and 2018 were calculated as follows:

We recognize compensation expense related to our market and performance stock-based awards with graded vesting that only have a service condition on a straight-line basis over the requisite service period for the entire award.

Total compensation expense for all stock-based payment arrangements for the years ended December 31, 2021, 2020 and 2019, was $ 120 million, $ 175 million and $ 162 million, respectively.

Our tax benefit recognized in the consolidated statements of operations for our stock-based payment arrangements for the years ended December 31, 2021, 2020 and 2019, was $ 29 million, $ 43 million and $ 39 million, respectively.

At December 31, 2021, there was $ 147 million of total unrecognized compensation expense related to our stock-based payment arrangements, which we expect to recognize over a weighted-average period of 1.5 years.

(13) Earnings (Loss) Per Common Share

Basic and diluted earnings (loss) per common share for the years ended December 31, 2021, 2020 and 2019 were calculated as follows:

Years Ended December 31,

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(Dollars in millions, except per share amounts, shares in thousands)

Loss (Numerator):

Net loss $ ( 1,232 ) ( 5,269 ) ( 1,733 )

Net loss applicable to common stock for computing basic earnings per common share ( 1,232 ) ( 5,269 ) ( 1,733 )

Net loss as adjusted for purposes of computing diluted earnings per common share $ ( 1,232 ) ( 5,269 ) ( 1,733 )

Income (Loss) (Numerator)

Net Income (Loss) $ 2,033 ( 1,232 ) ( 5,269 )

Net income (loss) applicable to common stock for computing basic earnings (loss) per common share 2,033 ( 1,232 ) ( 5,269 )

Net income (loss) as adjusted for purposes of computing diluted earnings (loss) per common share $ 2,033 ( 1,232 ) ( 5,269 )

Shares (Denominator):

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Non-vested restricted stock ( 17,852 ) ( 17,154 ) ( 17,289 )

Weighted average shares outstanding for computing basic earnings per common share 1,079,130 1,071,441 1,065,866

Weighted average shares outstanding for computing basic earnings (loss) per common share 1,059,541 1,079,130 1,071,441

Incremental common shares attributable to dilutive securities:

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Shares issuable under incentive compensation plans 7,227 — —

Number of shares as adjusted for purposes of computing diluted loss per common share 1,079,130 1,071,441 1,065,866

Basic loss per common share $ ( 1.14 ) ( 4.92 ) ( 1.63 )

Diluted loss per common share (1)

Number of shares as adjusted for purposes of computing diluted earnings (loss) per common share 1,066,778 1,079,130 1,071,441

Basic earnings (loss) per common share $ 1.92 ( 1.14 ) ( 4.92 )

Diluted earnings (loss) per common share (1)

$ 1.91 ( 1.14 ) ( 4.92 )

______________________________________________________________________________

(1) For the years ended December 31, 2020, December 31, 2019 and December 31, 2018, we excluded from the calculation of diluted loss per share 5.3 million shares, 3.0 million shares and 4.6 million shares, respectively, potentially issuable under incentive compensation plans or convertible securities, as their effect, if included, would have been anti-dilutive.

Our calculation of diluted loss per common share excludes shares of common stock that are issuable upon exercise of stock options when the exercise price is greater than the average market price of our common stock.

(1) For the years ended December 31, 2020 and December 31, 2019, we excluded from the calculation of diluted loss per share 5.3 million shares and 3.0 million shares, respectively, potentially issuable under incentive compensation plans or convertible securities, as their effect, if included, would have been anti-dilutive.

Our calculation of diluted earnings (loss) per common share excludes shares of common stock that are issuable upon exercise of stock options when the exercise price is greater than the average market price of our common stock.

We also exclude unvested restricted stock awards that are antidilutive as a result of unrecognized compensation cost.

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(14) Fair Value of Financial Instruments

Our financial instruments consist of cash, cash equivalents and restricted cash, accounts receivable, accounts payable and long-term debt, excluding finance lease and other obligations, and interest rate swap contracts.

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

Our financial instruments consist of cash, cash equivalents, restricted cash, accounts receivable, accounts payable, long-term debt, excluding finance lease and other obligations, interest rate swap contracts and certain investments.

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

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

We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the inputs used following the fair value hierarchy set forth by the FASB.

We determined the fair values of our long-term debt, including the current portion, based on quoted market prices where available or, if not available, based on discounted future cash flows using current market interest rates.

We determined the fair values of our long-term debt, including the current portion, based on quoted market prices where available or, if not available, based on inputs other than quoted market prices in active markets that are either directly or indirectly observable such as discounted future cash flows using current market interest rates.

The three input levels in the hierarchy of fair value measurements are defined by the FASB generally as follows:

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

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

The following table presents the carrying amounts and estimated fair values of our financial liabilities as of December 31, 2021:

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

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(Dollars in millions)

Liabilities-Long-term debt, excluding finance lease and other obligations 2 $ 31,542 33,217 34,472 35,737

Long-term debt, excluding finance lease and other obligations (1)

2 $ 28,635 29,221 31,542 33,217

Interest rate swap contracts (see Note 15)

2 25 25 107 107

______________________________________________________________________

(1) As of December 31, 2021, these amounts exclude $ 1.4 billion of carrying amount and $ 1.6 billion of fair value of debt that has been reclassified as held for sale.

See Note 2—Planned Divestiture of the Latin American and ILEC Businesses for more information.

Investment Held at Net Asset Value

We hold an investment in a limited partnership that functions as holding company for a portion of the colocation and data center business that we divested in 2017.

The limited partnership solely holds investments in those entities and has sole discretion as to the amount and timing of distributions of the underlying assets.

Our investment did no t have a readily determinable fair value as of December 31, 2020.

As such, our investment in the limited partnership was previously accounted for under the cost method of accounting.

As of December 31, 2021, the underlying investments held by the limited partnership began trading in active markets and as such, we elected to account for our investment in the limited partnership using net asset value ("NAV") as a practical expedient.

As of December 31, 2021 the limited partnership is subject to a lock-up agreement that restricts the sale of certain underlying assets.

The restriction is set to terminate in 2022.

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

(Dollars in millions)

Investment in limited partnership (1)

______________________________________________________________________

(1) For the year ended December 31, 2021, we recognized $ 138 million of gain on investment, reflected in other expense, net in our consolidated statement of operations for the year ended December 31, 2021.

(15) Derivative Financial Instruments

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Our primary objective in managing interest rate risk is to decrease the volatility of our earnings and cash flows affected by changes in the underlying rates.

We have floating rate long-term debt (see Note 6—Long-Term Debt and Credit Facilities of this report).

We have floating rate long-term debt (see Note 7—Long-Term Debt and Credit Facilities).

These obligations expose us to variability in interest payments due to changes in interest rates.

If interest rates increase, interest expense increases.

Conversely, if interest rates decrease, interest expense also decreases.

If interest rates increase, our interest expense increases.

Conversely, if interest rates decrease, our interest expense also decreases.

We have designated our currently outstanding interest rate swap agreements as cash flow hedges.

As described further below, under these hedges, we receive variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the lives of the agreements without exchange of the underlying notional amount.

The change in the fair value of the interest rate swap agreements is reflected in AOCI and, as described below, is subsequently reclassified into earnings in the period that the hedged transaction affects earnings by virtue of qualifying as effective cash flow hedges.

The change in the fair value of the interest rate swap agreements is reflected in accumulated other comprehensive income ("AOCI") and, as described below, is subsequently reclassified into earnings in the period that the hedged transaction affects earnings by virtue of qualifying as effective cash flow hedges.

We do not use derivative financial instruments for speculative purposes.

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Under the terms of these interest rate swap transactions, we receive interest payments based on one month floating LIBOR terms and pay interest at the fixed rate of 1.58 %.

As of December 31, 2020 and 2019, we evaluated the effectiveness of our hedges quantitatively and any hedges we had entered into at the time qualified as effective hedge relationships.

As of December 31, 2021, 2020 and 2019, we evaluated the effectiveness of our hedges quantitatively and determined that hedges in effect on such dates qualified as effective hedge relationships.

We may be exposed to credit-related losses in the event of non-performance by counterparties.

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Amounts accumulated in AOCI related to derivatives are indirectly recognized in earnings as periodic settlement payments are made throughout the term of the swaps.

The table below presents the fair value of our derivative financial instruments as well as their classification on the consolidated balance sheet at December 31, 2020 as follows (in millions):

The table below presents the fair value of our derivative financial instruments as well as their classification on the consolidated balance sheets at December 31, 2021 and December 31, 2020 as follows (in millions):

December 31, 2021 December 31, 2020

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Cash flow hedging contracts Other current and noncurrent liabilities $ 25 107

The amount of unrealized (gains) losses recognized in AOCI consists of the following (in millions):

The amount of unrealized losses recognized in AOCI consists of the following (in millions):

Derivatives designated as hedging instruments 2021 2020 2019

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Years Ended December 31, $ 1 115 53

The amount of realized losses reclassified in AOCI to the statement of operations consists of the following (in millions):

The amount of realized losses reclassified from AOCI to the statement of operations consists of the following (in millions):

Derivatives designated as hedging instruments 2021 2020 2019

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Years Ended December 31, $ 83 62 2

Amounts currently included in AOCI will be reclassified into earnings prior to the ongoing settlements of these cash flow hedging contracts until 2022.

We estimate that $ 82 million of net losses on the interest rate swaps (based on the estimated LIBOR curve as of December 31, 2020) will be reflected in our statements of operations within the next 12 months.

Amounts currently included in AOCI will be reclassified into earnings prior to the ongoing settlements of these cash flow hedging contracts on March 31, 2022 or June 30, 2022.

We estimate that $ 25 million of net losses on the interest rate swaps (based on the estimated LIBOR curve as of December 31, 2021) will be reflected in our consolidated statements of operations within the next 12 months.

(16) Income Taxes

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2021 2020 2019

(Percentage of pre-tax income)

(Percentage of pre-tax income (loss))

Statutory federal income tax rate 21.0 % 21.0 % 21.0 %

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Change in valuation allowance — % 2.6 % — %

Tax reform — % — % ( 5.9 ) %

Net foreign income taxes 0.6 % ( 0.6 ) % ( 0.5 ) %

Research and development credits ( 0.5 ) % 1.6 % 0.1 %

Tax benefit of net operating loss carryback — % — % 9.1 %

Other, net — % 0.1 % ( 0.7 ) %

Effective income tax rate 24.7 % ( 57.5 ) % ( 10.6 ) %

The effective tax rate for the year ended December 31, 2020 reflects a $ 555 million unfavorable impact of non-deductible goodwill impairment, a $ 14 million favorable impact in tax regulations passed in 2020 allowing a high tax exception related to our tax exposure of Global Intangible Low-Taxed Income ("GILTI"), as well as a $ 20 million benefit related to the release of previously established valuation allowances against capital losses.

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

Additionally, the effective tax rate for the year ended December 31, 2018 reflects a $ 92 million unfavorable impact due to finalizing the impacts of tax reform.

Partially offsetting these amounts is a $ 142 million benefit generated by a loss carryback to 2016.

The effective tax rate for the year ended December 31, 2020 includes a $ 555 million unfavorable impact of non-deductible goodwill impairments, a $ 14 million favorable impact in tax regulations passed in 2020 allowing a high tax exception related to our tax exposure of Global Intangible Low-Taxed Income ("GILTI"), as well as a $ 20 million benefit related to the release of previously established valuation allowances against capital losses.

The effective tax rate for the year ended December 31, 2019 reflects a $ 1.4 billion unfavorable impact of non-deductible goodwill impairments.

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

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Our valuation allowance at December 31, 2021 and 2020 is primarily related to foreign and state NOL carryforwards.

This valuation allowance increased by $ 219 million during 2020, primarily due to the impact of foreign exchange rate adjustments and state law changes.

This valuation allowance increased by $ 28 million during 2021, primarily due to the impact of adjustments related to the planned divestiture of our Latin American business.

A reconciliation of the change in our gross unrecognized tax benefits (excluding both interest and any related federal benefit) from January 1 to December 31 for 2021 and 2020 is as follows:

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Decrease due to payments/settlements ( 3 ) ( 1 )

Decrease due to the reversal of tax positions taken in a prior year — ( 5 )

Decrease from the lapse of statute of limitations ( 1 ) —

Unrecognized tax benefits at end of year $ 1,375 1,474

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(17) Segment Information

As described in more detail below, our segments are managed based on the direct costs of providing services to their customers and the associated selling, general and administrative costs (primarily salaries and commissions).

In early 2021, Jeff Storey, our chief executive officer, who serves as chief operating decision maker ("CODM"), made changes to our segment and customer-facing sales channel reporting categories to align with operational changes designed to better support our customers.

Since these changes, we have reported two segments:

Business and Mass Markets.

The Business segment includes four sales channels:

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

These changes also include both the creation of new product categories and the realignment of products and services within previously reported product categories to better reflect product life cycles and our go-to-market approach.

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

Compute and Application Services, IP and Data Services, Fiber Infrastructure Services and Voice and Other, in each case through the sales channels outlined above.

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

Consumer Broadband, SBG Broadband, Voice and Other and CAF II.

See detailed descriptions of these product and service categories in Note 4—Revenue Recognition.

As described in more detail below, our segments are managed based on the direct costs of providing services to their customers and directly associated selling, general and administrative costs (primarily salaries and commissions).

Shared costs are managed separately and included in "Operations and Other" in the tables below.

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

See Note 1— Background and Summary of Significant Accounting Policies for further detail on these changes.

At December 31, 2020, we had the following five reportable segments:

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

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

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

• Enterprise Segment.

Under our enterprise segment, we provide our products and services to large and regional domestic and global enterprises, as well as public sector, which includes 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 provide our products and services to small and medium businesses directly and indirectly through our channel partners;

• Wholesale Segment.

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

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

• Consumer Segment.

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

Additionally, Connect America Fund ("CAF") federal support revenue, and other revenue from leasing and subleasing are reported in our consumer segment as regulatory revenue.

Product and Service Categories

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 includes 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 includes 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 includes local and long-distance services;

• Regulatory Revenue, which consists 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 includes retail video services (including our linear and TV services), professional services and other ancillary services.

As referenced above, we reclassified certain prior period amounts to conform to the current period presentation.

See Note 1—Background and Summary of Significant Accounting Policies for additional detail on these changes.

At December 31, 2021, we had the following two reportable segments:

• Business Segment:

Under our Business segment, we provide our products and services under four distinct sales channels to meet the needs of our enterprise and commercial customers;

• Mass Markets Segment:

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

The following tables summarize our segment results for 2021, 2020 and 2019 based on the segment categorization we were operating under at December 31, 2021.

Year Ended December 31, 2021

International and Global Accounts Enterprise Small and Medium Business Wholesale Consumer Total Segments Operations and Other Total

Business Mass Markets Total Segments Operations and Other Total

(Dollars in millions)

IP and Data Services $ 1,556 2,474 1,062 1,280 — 6,372 — 6,372

Transport and Infrastructure 1,265 1,608 352 1,764 — 4,989 — 4,989

Voice and Collaboration 368 1,424 1,098 731 — 3,621 — 3,621

IT and Managed Services 216 216 45 2 — 479 — 479

Broadband — — — — 2,909 2,909 — 2,909

Voice — — — — 1,622 1,622 — 1,622

Regulatory — — — — 615 615 — 615

Other — — — — 105 105 — 105

Total revenue 3,405 5,722 2,557 3,777 5,251 20,712 — 20,712

$ 14,119 5,568 19,687 — 19,687

Cost of services and products 3,484 152 3,636 4,852 8,488

Selling, general and administrative 1,189 530 1,719 1,176 2,895

share-based compensation — — — — — — ( 175 ) ( 175 )

stock-based compensation — — — ( 120 ) ( 120 )

Total expense 4,673 682 5,355 5,908 11,263

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Year Ended December 31, 2020

International and Global Accounts Enterprise Small and Medium Business Wholesale Consumer Total Segments Operations and Other Total

Business Mass Markets Total Segments Operations and Other Total

(Dollars in millions)

IP and Data Services $ 1,627 2,538 1,091 1,365 — 6,621 — 6,621

Transport and Infrastructure 1,268 1,479 365 1,907 — 5,019 — 5,019

Voice and Collaboration 354 1,423 1,226 763 — 3,766 — 3,766

IT and Managed Services 227 256 45 7 — 535 — 535

Broadband — — — — 2,876 2,876 — 2,876

Voice — — — — 1,837 1,837 — 1,837

Regulatory — — — — 632 632 — 632

Other — — — — 172 172 — 172

Total revenue 3,476 5,696 2,727 4,042 5,517 21,458 — 21,458

$ 14,817 5,895 20,712 — 20,712

Cost of services and products 3,649 203 3,852 5,082 8,934

Selling, general and administrative 1,269 574 1,843 1,621 3,464

share-based compensation — — — — — — ( 162 ) ( 162 )

stock-based compensation — — — ( 175 ) ( 175 )

Total expense 4,918 777 5,695 6,528 12,223

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Year Ended December 31, 2019

International and Global Accounts Enterprise Small and Medium Business Wholesale Consumer Total Segments Operations and Other Total

Business Mass Markets Total Segments Operations and Other Total

(Dollars in millions)

IP and Data Services $ 1,682 2,485 1,078 1,369 — 6,614 — 6,614

Transport and Infrastructure 1,230 1,484 424 2,118 — 5,256 — 5,256

Voice and Collaboration 365 1,495 1,366 865 — 4,091 — 4,091

IT and Managed Services 266 301 50 8 — 625 — 625

Broadband — — — — 2,824 2,824 — 2,824

Voice — — — — 2,127 2,127 — 2,127

Regulatory — — — — 727 727 — 727

Other — — — — 316 316 — 316

Total revenue 3,543 5,765 2,918 4,360 5,994 22,580 — 22,580

$ 15,239 6,219 21,458 — 21,458

Cost of services and products 3,598 214 3,812 5,322 9,134

Selling, general and administrative 1,364 630 1,994 1,721 3,715

share-based compensation — — — — — — ( 186 ) ( 186 )

stock-based compensation — — — ( 162 ) ( 162 )

Total expense 4,962 844 5,806 6,881 12,687

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Revenue and Expenses

Our segment revenue includes all revenue from our five segments as described in more detail above.

Our segment revenue includes all revenue from our two segments as described in more detail above.

Our segment revenue is based upon each customer's classification.

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Our segment expenses include specific cost of service expenses incurred as a direct result of providing services and products to segment customers, along with selling, general and administrative expenses that are directly associated with specific segment customers or activities.

The following items are excluded from our segment results, because they are centrally managed and not monitored by or reported to our chief operating decision maker by segment:

We have not allocated assets or debt to specific segments.

The following items are excluded from our segment results, because they are centrally managed and not monitored by or reported to our CODM by segment:

• network expenses not incurred as a direct result of providing services and products to segment customers;

• centrally managed expenses such as Operations, Finance, Human Resources, Legal, Marketing, Product Management and IT, which are reported as "Other operating expenses" in the table below;

• depreciation and amortization expense or impairments;

• interest expense, because we manage our financing on a consolidated basis and have not allocated assets or debt to specific segments;

• centrally managed expenses such as Finance, Human Resources, Legal, Marketing, Product Management and IT, which are reported as "Other operating expenses" in the table below;

• depreciation and amortization expense;

• goodwill or other impairments;

• interest expense;

• stock-based compensation;

• other income and expense items are not monitored as a part of our segment operations.

The following table reconciles total segment adjusted EBITDA to net loss for the years ended December 31, 2020, 2019 and 2018:

The following table reconciles total segment adjusted EBITDA to net income (loss) for the years ended December 31, 2021, 2020 and 2019:

Years Ended December 31,

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Goodwill impairment — ( 2,642 ) ( 6,506 )

Other operating expenses ( 6,675 ) ( 7,024 ) ( 7,870 )

Share-based compensation ( 175 ) ( 162 ) ( 186 )

Operations and other expenses ( 5,908 ) ( 6,528 ) ( 6,881 )

Stock-based compensation ( 120 ) ( 175 ) ( 162 )

Operating income (loss) 4,285 962 ( 2,726 )

Total other expense, net ( 1,584 ) ( 1,744 ) ( 2,040 )

Loss before income taxes ( 782 ) ( 4,766 ) ( 1,563 )

Income (loss) before income taxes 2,701 ( 782 ) ( 4,766 )

Income tax expense 668 450 503

Net loss $ ( 1,232 ) ( 5,269 ) ( 1,733 )

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

Net income (loss) $ 2,033 ( 1,232 ) ( 5,269 )

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

The assets we hold outside of the U.S.

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Revenue from sources outside of the U.S.

is responsible for less than 10% of our total operating revenue.

comprises less than 10% of our total operating revenue.

(18) Commitments, Contingencies and Other Items

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As such, as of any given date we could have exposure to losses under proceedings as to which no liability has been accrued or as to which the accrued liability is inadequate.

Amounts accrued for our litigation and non-income tax contingencies at December 31, 2020 and December 31, 2019 aggregated to approximately $ 141 million and $ 180 million, respectively, and are included in other current liabilities and other liabilities in our consolidated balance sheet as of such date.

Amounts accrued for our litigation and non-income tax contingencies at December 31, 2021 and December 31, 2020 aggregated to approximately $ 103 million and $ 141 million, respectively, and are included in other current liabilities, other liabilities, or liabilities held for sale in our consolidated balance sheets as of such dates.

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

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The Missouri Supreme Court's decision reduced our exposure in the case.

In a June 2017 ruling in connection with another one of these pending cases, the circuit court made findings in a non-final ruling which, if not overturned or modified in light of the Missouri Supreme Court's decision, will result in a tax liability to us well in excess of the contingent liability we have established.

The circuit court has indicated it does not intend to alter its 2017 ruling when it issues its final decision.

Once a final decision is issued, we will have the right to pursue an appeal.

In a June 2021 ruling in one of the pending cases, another trial court awarded the cities of Columbia and Joplin approximately $ 55 million, plus statutory interest.

We have appealed that decision to the Missouri Court of Appeals.

That appeal is pending.

If the trial court's decision is not overturned or modified in light of the Missouri Supreme Court's decision, it will result in a tax liability to us in excess of our reserved accruals established for these matters.

We continue to vigorously defend against these claims.

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In June 2017, a former employee filed an employment lawsuit against us claiming that she was wrongfully terminated for alleging that we charged some of our retail customers for products and services they did not authorize.

Thereafter, based in part on the allegations made by the former employee, several legal proceedings were filed.

In June 2017, McLeod v.

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

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

Other complaints asserting similar claims were filed in other federal and state courts.

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

Also in June 2017, Craig.

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

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

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

Beginning June 2017, we also received several shareholder derivative demands addressing related topics.

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

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

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

These cases were brought on behalf of CenturyLink, Inc.

Thereafter, based in part on the allegations made by the former employee, several legal proceedings were filed, including consumer class actions in federal and state courts, a series of securities investor class actions in federal courts and several shareholder derivative actions in federal and Louisiana state courts.

The derivative cases were brought on behalf of CenturyLink, Inc.

against certain current and former officers and directors of the Company and seek damages for alleged breaches of fiduciary duties.

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CenturyLink Sales Practices and Securities Litigation.

We received final court approval of our settlement of the consumer class actions for payments totaling $ 15.5 million, plus certain notice and administration costs.

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

Subject to certain conditions, we have agreed to settle claims of approximately 11,000 such class members asserted by one law firm.

Additionally, we have reached an agreement settling the securities investor class actions for payment of $ 55 million, which we expect to be paid by our insurers.

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

We have settled the consumer and securities investor class actions.

Those settlements are final.

The derivative actions remain pending.

We have engaged in discussions regarding related claims with a number of state attorneys general, and have entered into agreements settling certain of the consumer practices claims asserted by state attorneys general.

While we do not agree with allegations raised in these matters, we have been willing to consider reasonable settlements where appropriate.

December 2018 Outage Proceedings

We experienced an outage on one of our transport networks that impacted voice, IP, 911, and transport services for some of our customers between the 27th and 29th of December 2018.

We believe that the outage was caused by a faulty network management card from a third-party equipment vendor.

The FCC and four states (both Washington Utilities and Transportation Commission ("WUTC") and the Washington Attorney General;

the Montana Public Service Commission;

the Nebraska Public Service Commission;

and the Wyoming Public Service Commission) initiated formal investigations.

In November 2020, following the FCC's release of a public report on the outage, we negotiated a settlement which was released by the FCC in December 2020.

The amount of the settlement was not material to our financial statements.

In December 2020, the Staff of the WUTC filed a complaint against us based on the December 2018 outage, seeking penalties owed for alleged violations of Washington regulations and laws.

We have denied the allegations and will defend the claims asserted.

Peruvian Tax Litigation

In 2005, the Peruvian tax authorities ("SUNAT") issued tax assessments against one of our Peruvian subsidiaries asserting $ 26 million, of additional income tax withholding and value-added taxes ("VAT"), penalties and interest for calendar years 2001 and 2002 on the basis that the Peruvian subsidiary incorrectly documented its importations.

After taking into account the developments described below, as well as the accrued interest and foreign exchange effects, we believe the total amount of our exposure is $ 2 million at December 31, 2020.

In May 2021, the Company paid the remaining amount on the fractioning regimes entered into by the Company to pay the amount assessed while it was appealed.

We challenged the assessments via administrative and then judicial review processes.

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Oral argument was held before the Supreme Court of Justice in June 2019.

A decision on this case is pending.

In May 2021, the Company was served with a favorable and final decision from the Supreme Court of Justice.

The Company is working with SUNAT to provide additional information before SUNAT submits its plan for complying with the Supreme Court of Justice's decision.

Brazilian Tax Claims

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We have appealed to the respective state judicial courts the decisions by the respective state administrative courts that rejected our objections to these assessments.

In cases in which state lower courts ruled partially in our favor finding that the lease assets are not subject to ICMS, the State appealed those rulings.

In other cases, the assessment was affirmed at the first administrative level and we have appealed to the second administrative level.

In cases in which state lower courts ruled partially in our favor finding that the lease assets are not subject to ICMS, and in connection, the State appealed those rulings.

In other cases, the assessment was affirmed at the first administrative level and our appeal to the second administrative level is pending.

Other assessments are still pending state judicial decisions.

We are vigorously contesting all such assessments in both states and view the assessment of ICMS on revenue from equipment leasing and Internet access to be without merit.

We estimate that these assessments, if upheld, could result in a loss of $ 17 million to as high as $ 49 million as of December 31, 2020, in excess of the reserved accruals established for these matters.

These assessments, if upheld, could result in a loss of up to $ 46 million as of December 31, 2021, in excess of the reserved accruals established for these matters.

Qui Tam Action

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Level 3 Communications, Inc.

The original qui tam complaint and an amended complaint were filed under seal on November 26, 2013 and June 16, 2014, respectively.

The court unsealed the complaints on October 26, 2017.

The amended complaint alleges that Level 3, principally through two former employees, submitted false claims and made false statements to the government in connection with two government contracts.

The relator seeks damages in this lawsuit of approximately $ 50 million, subject to trebling, plus statutory penalties, pre-and-post judgment interest, and attorney’s fees.

The case is currently stayed.

Level 3 is evaluating its defenses to the claims.

At this time, Level 3 does not believe it is probable Level 3 will incur a material loss.

If, contrary to its expectations, the plaintiff prevails in this matter and proves damages at or near $ 50 million, and is successful in having those damages trebled, the outcome could have a material adverse effect on our results of operations in the period in which a liability is recognized and on our cash flows for the period in which any damages are paid.

Several people, including two former Level 3 employees were indicted in the U.S.

District Court for the Eastern District of Virginia on October 3, 2017, and charged with, among other things, accepting kickbacks from a subcontractor, who was also indicted, for work to be performed under a prime government contract.

Of the two former employees, one entered into a plea agreement, and the other is deceased.

Level 3 is fully cooperating in the government’s investigations in this matter.

The amended complaint alleged that Level 3, principally through two former employees, submitted false claims and made false statements to the government in connection with two government contracts.

The relator sought damages in this lawsuit of approximately $ 50 million.

The case was settled in the second quarter of 2021 for an immaterial amount.

This matter is now fully resolved.

Other Proceedings, Disputes and Contingencies

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

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

These cases have progressed to various stages and one or more may go to trial during 2021 if they are not otherwise resolved.

These cases have progressed to various stages and one or more may go to trial within the next 12 months if they are not otherwise resolved.

Where applicable, we are seeking full or partial indemnification from our vendors and suppliers.

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

The matters listed above in this Note do not reflect all of our contingencies.

The matters listed in this Note do not reflect all of our contingencies.

The ultimate outcome of the above-described matters may differ materially from the outcomes anticipated, estimated, projected or implied by us in certain of our statements appearing above in this Note, and proceedings currently viewed as immaterial by us may ultimately materially impact us.

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

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

Right-of-Way Agreements

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We have several commitments primarily for marketing activities and support services from a variety of vendors to be used in the ordinary course of business totaling $ 1.1 billion at December 31, 2021.

Of this amount, we expect to purchase $ 403 million in 2021, $ 328 million in 2022 through 2023, and $ 98 million in 2024 and 2025 and $ 171 million in 2026 and thereafter.

Of this amount, we expect to purchase $ 414 million in 2022, $ 386 million in 2023 through 2024, $ 91 million in 2025 through 2026 and $ 188 million in 2027 and thereafter.

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

Amounts included in the Right-of-Way table and in the purchase commitments disclosed above are inclusive of contractual obligations related to our Latin American and ILEC businesses to be divested.

(19) Other Financial Information

9 unchanged sentences

Contract fulfillment costs 106 114

Note receivable 56 —

Receivable for sale of land 56 —

Total other current assets (1)

______________________________________________________________________

(1) As of December 31, 2021, other current assets exclude $ 126 million that have been reclassified as held for sale.

Included in accounts payable at December 31, 2021 and 2020 were $ 248 million and $ 329 million, respectively, associated with capital expenditures.

Also included in accounts payable at December 31, 2019 was $ 106 million representing book overdrafts.

There were no book overdrafts at December 31, 2020.

(19) Labor Union Contracts

As of December 31, 2020, approximately 23 % of our employees were represented by the Communication Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW").

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

Approximately 1 % of our union-represented employees were subject to collective bargaining agreements that expired as of December 31, 2020 and are currently being renegotiated.

Approximately 14 % of our represented employees are subject to collective bargaining agreements that are scheduled to expire over the 12 month period ending December 31, 2021.

(20) Repurchases of Lumen Common Stock

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.

During the year ended December 31, 2021, we repurchased under this program 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.

All repurchased common stock has been retired.

As a result, common stock and additional paid-in capital were reduced as of December 31, 2021 by $ 81 million and $ 919 million, respectively.

(21) Accumulated Other Comprehensive Loss

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Balance at December 31, 2020 $ ( 2,197 ) ( 272 ) ( 265 ) ( 79 ) ( 2,813 )

Other comprehensive loss before reclassifications ( 115 ) ( 103 ) ( 37 ) ( 86 ) ( 341 )

Other comprehensive income (loss) before reclassifications 197 94 ( 135 ) ( 1 ) 155

Amounts reclassified from accumulated other comprehensive loss 423 14 — 63 500

3 unchanged sentences

Year Ended December 31, 2021 Decrease (Increase)

in Net Loss Affected Line Item in Consolidated Statement of

in Net Income Affected Line Item in Consolidated Statement of

(Dollars in millions)

Interest rate swaps $ 83 Interest expense

Income tax expense ( 16 ) Income tax expense

Income tax benefit ( 20 ) Income tax expense

Net of tax $ 63

Amortization of pension & post-retirement plans (1)

Net actuarial loss $ 203 Other (expense) income, net

Prior service cost 7 Other (expense) income, net

Curtailment loss 4 Other (expense) income, net

Net actuarial loss $ 190 Other expense, net

Settlement charge 383 Other expense, net

Prior service cost 6 Other expense, net

Total before tax 579

10 unchanged sentences

Balance at December 31, 2019 $ ( 2,229 ) ( 184 ) ( 228 ) ( 39 ) ( 2,680 )

Other comprehensive (loss) income before reclassifications ( 219 ) ( 138 ) 2 ( 41 ) ( 396 )

Other comprehensive loss before reclassifications ( 115 ) ( 103 ) ( 37 ) ( 86 ) ( 341 )

Amounts reclassified from accumulated other comprehensive loss 147 15 — 46 208

Net current-period other comprehensive (loss) income ( 56 ) ( 126 ) 2 ( 39 ) ( 219 )

Net current-period other comprehensive income (loss) 32 ( 88 ) ( 37 ) ( 40 ) ( 133 )

Balance at December 31, 2020 $ ( 2,197 ) ( 272 ) ( 265 ) ( 79 ) ( 2,813 )

3 unchanged sentences

(Dollars in millions)

Amortization of pension & post-retirement plans (1)

Interest rate swap $ 62 Interest expense

Net actuarial loss 224 Other (expense) income, net

Prior service cost 8 Other (expense) income, net

Income tax benefit ( 16 ) Income tax expense

Net of tax $ 46

Amortization of pension & post-retirement plans (1)

Net actuarial loss $ 203 Other expense, net

Prior service cost 7 Other expense, net

Curtailment loss 4 Other expense, net

Total before tax 214

3 unchanged sentences

(1) See Note 11—Employee Benefits for additional information on our net periodic benefit (expense) income related to our pension and post-retirement plans.

(22) Labor Union Contracts

As of December 31, 2021, approximately 21 % of our employees were represented by the Communication Workers of America ("CWA") or the International Brotherhood of Electrical Workers ("IBEW").

Approximately 9 % of our represented employees are subject to collective bargaining agreements that are scheduled to expire over the 12 month period ending December 31, 2022.

(23) Dividends

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May 20, 2020 6/1/2020 0.25 274 6/12/2020

March 1, 2019 3/12/2019 0.250 273 3/22/2019

February 27, 2020 3/9/2020 0.25 274 3/20/2020

The declaration of dividends is solely at the discretion of our Board of Directors, which may change or terminate our dividend practice at any time for any reason without prior notice.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk